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Nu Skin (NUS) Up 1.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Nu Skin Enterprises (NUS). Shares have added about 1.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nu Skin due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Nu Skin’s Q2 Earnings In Line With Estimates, Sales Miss

Nu Skin released second-quarter 2019 results, wherein it delivered quarterly earnings of 83 cents a share, in line with the Zacks Consensus Estimate. However, the bottom line declined 7.7% from the year-ago quarter’s reported figure.

Revenues of $623.5 million missed the Zacks Consensus Estimate of $633.2 million and declined nearly 11.5% from the prior-year quarter’s level. The metric includes a negative impact of 4% (or approximately $31 million) from foreign currency fluctuations. On a constant-currency basis, the top line declined 7%.

Sales leaders fell 14% year over year to reach 61,563, with Mainland China accounting for the majority of the decline. In fact, sales leaders deteriorated in most regions except South Korea and Hong Kong/Taiwan regions.

Nevertheless, Nu Skin’s customer base inched up 1% to 1,160,420 on growth in Mainland China, Southeast Asia and EMEA regions.

Gross profit came in at $469.5 million, down about 12.3% from the year-ago quarter’s tally. Gross margin contracted 80 basis points (bps) to 75.3% thanks to foreign currency headwinds and higher percentage of manufacturing platform revenues. These were partially cushioned by cost savings. Core Nu Skin gross margin slipped 10 bps to 77.8%.

Selling expenses amounted to $245.8 million, which accounted 39.4% of revenues compared with 38.7% in the year-ago quarter. Meanwhile, general and administrative expenses of $149.4 million accounted for 24% of revenues, down from 25.6% in the year-ago quarter

Operating income declined 10.4% to $74.2 million, primarily due to lower revenues. Operating margin increased 10 bps to 11.9%.

Regional Results

Revenues declined across most regions, except Japan. Sales in the region improved 2% from the prior-year quarter’s level. The highest decline was witnessed in Mainland China, where the metric declined 24%. Further, revenues fell 11% in Americas/Pacific, 8% in South Korea, 5% in Southeast Asia, 16% in Hong Kong/Taiwan and 1% in EMEA.

Other Financial Details

Nu Skin ended the quarter with cash and cash equivalents of $360.6 million, long-term debt of $349 million and stockholders' equity of $835 million. During the quarter, the company paid out dividends of $20.6 million.

Guidance

Nu Skin is on track with initiatives to improve matters in Mainland China. In this context, the company plans to roll out products, sales strategies and manufacturing platforms.  Additionally, it is progressing well with efforts to augment customer base at other locations.

That said, management reiterated its guidance for 2019, which was provided on Jul 16. It expects revenues in the range of $2.48-$2.52 billion, including currency headwinds of nearly 3-4%. The top-line projection indicates a decline of 6-8% from the year-ago quarter’s tally. Further, earnings are projected in the range of $3.20-$3.35, indicating a decline from $3.52 delivered in the prior year. The Zacks Consensus Estimate for earnings in 2019 is currently pegged at $3.27.

For the third quarter, the company projects revenues in the band of $595-$615 million, including adverse currency impacts of nearly 2%. The projection suggests a decline of almost 9-12% from the year-ago quarter’s tally. Earnings are anticipated between 74 cents and 81 cents. The Zacks Consensus Estimate for third-quarter earnings is currently pegged at 79 cents.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Nu Skin has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Nu Skin has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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