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Medifast (MED) Q2 Earnings Top Estimates, Guidance Lowered

Medifast, Inc. MED delivered mixed results for the second quarter of 2022 as the bottom line beat the Zacks Consensus Estimate but declined year over year. The top line increased year over year but fell short of the consensus mark. Strength in OPTAVIA remained a key driver, with increased active earning OPTAVIA coaches and higher coach productivity. That said, elevated costs were a downside.

Management expects the impact of inflation on consumer sentiment to lead to slower growth in the second half of 2022, which led to the lowered sales and earnings per share (EPS) guidance. However, the company remains well-placed for solid future growth with its core strategy and expansion in the health and wellness space.

Quarterly Highlights

Medifast posted earnings of $3.87 per share, which surpassed the Zacks Consensus Estimate of $3.28 but declined 2.5% on a year-over-year basis.

MEDIFAST INC Price, Consensus and EPS Surprise

MEDIFAST INC Price, Consensus and EPS Surprise
MEDIFAST INC Price, Consensus and EPS Surprise

MEDIFAST INC price-consensus-eps-surprise-chart | MEDIFAST INC Quote

Net revenues of $453.3 million advanced 15% year over year, mainly reflecting an increased number of active earning OPTAVIA Coaches and greater productivity per active earning OPTAVIA Coach. The metric missed the Zacks Consensus Estimate of $463 million.

The total number of active earning OPTAVIA Coaches rose 14.9% year over year to 68,000. The average revenue per active earning OPTAVIA Coach was $6,667, a little more than the figure reported in the year-ago quarter.

The gross profit rose 9.5% to $321.7 million, mainly due to increased revenues, somewhat negated by the elevated cost of sales. The gross profit as a percentage of revenues came in at 71%, down from the 74.5% reported in the second quarter of 2021. The downside can be attributed to a customer acquisition program as well as increased product costs stemming from inflation in raw ingredient costs.

Adjusted SG&A expenses came in at $263.3 million, up $31 million year over year. The increase was mainly led by additional costs associated with continued investments in information technology and distribution infrastructure and a rise in credit card fees. As a percentage of revenues, adjusted SG&A expenses contracted 84 basis points (bps) to 58.1%.

Adjusted income from operations declined $3 million to $58.4 million. As a percentage of revenues, the metric fell 270 bps to 12.9% year over year.

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Other Financial Updates

This Zacks Rank #3 (Hold) company concluded the quarter with cash, cash equivalents and investment securities of $61.1 million, debt of $27 million and total shareholders’ equity of $129.5 million.

The company declared a quarterly cash dividend of $1.64 per share, payable on Aug 8, 2022 to shareholders of record as of Jun 28.

On Jun 1, 2022, Medifast unveiled an accelerated share repurchase program to buy back outstanding shares worth $100 million, valid till October 2022.

Guidance

Management curtailed its 2022 guidance due to macroeconomic factors like inflation and consumer sentiment that have affected customer retention. This is likely to deliver slower-than-anticipated growth in the second half of 2022.

Management anticipates 2022 revenues in the range of $1.58-$1.66 billion. Earlier, MED expected revenues in the range of $1.78-$1.84 billion. Revenues came in at $1.5 billion in 2021.

The company expects 2022 adjusted EPS in the band of $12.7-$14.1, lower than the earlier guidance in the band of $14.60-$16.05. The company posted an EPS of $13.89 in 2021.
 
Medifast’s shares have declined 6.2% in the past three months compared with the industry’s dip of 0.6%.

Solid Consumer Staple Stocks

Some better-ranked stocks are The Chef's Warehouse CHEF, Sysco Corporation SYY and General Mills GIS.

The Chef's Warehouse, which engages in the distribution of specialty food products, sports a Zacks Rank #1 (Strong Buy). The Chef's Warehouse has a trailing four-quarter earnings surprise of 372.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CHEF’s current financial-year EPS suggests significant growth from the year-ago reported number.

Sysco, which engages in the marketing and distribution of various food and related products, carries a Zacks Rank #2 (Buy). Sysco has a trailing four-quarter earnings surprise of 9.1%, on average.

The Zacks Consensus Estimate for SYY’s current financial-year sales suggests growth of 13.2% from the year-ago reported number.

General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. General Mills has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for GIS’ current financial-year sales and earnings suggests growth of about 2% and 1.5%, respectively from the year-ago reported figure.


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