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What You'll Want to Know About USANA Health Sciences' Q2 Earnings

Keith Speights, The Motley Fool

Global cellular nutrition company USANA Health Sciences (NYSE: USNA) didn't have the most exciting news last time the company reported its quarterly results in April. Revenue and earnings were both down year over year. 

But another quarter has come and gone since then. Did USANA take a turn for the better? That question was answered when the company released its Q2 update after the market closed on Tuesday. Here are the highlights from USANA's results. 

Woman sitting on the ground putting on tennis shoes

Image source: Getty Images.

By the numbers

USANA's top-line performance again went in the wrong direction in the second quarter. Revenue fell 15% year over year to $256 million. However, the company narrowly topped analysts' expectations of  Q2 revenue of $254.6 million.

On a generally accepted accounting principles (GAAP) basis, USANA's net income in the second quarter was $21.4 million, or $0.91 per share. The company's bottom line reflected a decrease from the prior-year period GAAP net income of $33.9 million, or $1.36 per share. Analysts were expecting Q2 earnings of $0.93 per share.

USANA ended the second quarter with cash, cash equivalents, and short-term investments of $234.4 million, down from the $277.9 million on hand as of Dec. 29, 2018.

Behind the numbers

The major factor behind the second quarter's revenue results was the challenging market environment in China. Net sales decreased by 23.2% in Greater China. Active customers decreased by 12.3%.

USANA CEO Kevin Guest stated that the company offered promotions and incentives in China that have "historically generated meaningful sales and customer growth." But that didn't happen in Q2. Even with the promotions, contributions were much lower than the company anticipated. Guest believes that this drop was due to low consumer sentiment toward health products in China. He thinks it could take several months for the situation to improve. 

Greater China wasn't USANA's only problem area, though. The company also reported that net sales in the Americas and Europe region fell by 15.6% year over year to $50.5 million. The main culprit behind this decline was an 11.6% drop in active customers.

Looking ahead

USANA expects that revenue for full-year 2019 will be between $1.02 billion and $1.06 billion. The company anticipates GAAP earnings per share (EPS) to be between $3.70 and $4.10.

CFO Doug Hekking said the company expects its operating margin for fiscal 2019 to be lower than the usual rate because of the lower-than-expected results from the first part of the year. Hekking also said USANA plans to "continue making the necessary investments to execute our long-term growth strategies."

Another thing to watch with USANA is investigations into its BabyCare Ltd. operations in China. The company hired outside counsel to conduct an internal investigation, which USANA says is now "substantially complete."

However, other investigations by the Securities and Exchange Commission and U.S. Department of Justice are still in progress. USANA said it continues to cooperate with these investigations. The company doesn't expect that the ultimate outcome of these investigations will materially affect its financial statements.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.