Nu Skin (NUS) Hurt by Cost Inflation, Adverse Currency Movements
Nu Skin Enterprises, Inc. NUS has been battling macroeconomic challenges like COVID-related disruptions, unfavorable currency movements and global inflation. These factors affected fourth-quarter 2022 results, wherein the top and bottom lines declined year over year and missed the Zacks Consensus Estimate.
Unfortunately, management expects its global macro environment to remain challenging in the near term, which is reflected in its 2023 guidance. That said, Nu Skin expects the gross margin to stabilize sequentially as the year progresses. The Zacks Consensus Estimate for 2023 earnings per share has declined from $2.93 to $2.57 over the past 30 days.
Shares of the Zacks Rank #4 (Sell) company have tumbled close to 17% in a year compared with the industry’s decline of 20.8%. Let’s take a closer look at the downsides.
Nu Skin Enterprises, Inc. Price, Consensus and EPS Surprise
Nu Skin Enterprises, Inc. price-consensus-eps-surprise-chart | Nu Skin Enterprises, Inc. Quote
Downsides in Detail
Nu Skin’s margins have been contracting year over year for the past few quarters. In fourth-quarter 2022, adjusted gross profit of $374.5 million declined from $506.3 million reported in the year-ago quarter. Gross margin, excluding restructuring impact, came in at 71.7%, down from 75.2% reported in the year-ago quarter. The downside was due to unfavorable currency rates, global inflationary pressures and geographic footprint.
Nu Skin’s gross margin came in at 74.9%, down from 77.9% reported in the year-ago quarter. Adjusted operating income of $45.8 million declined from $78.8 million in the year-ago quarter. The adjusted operating margin contracted to 8.8% from 11.7% reported in the year-ago quarter.
Nonetheless, management expects an adjusted operating margin of 8.7-9.3% and a gross margin of 73.5-74% in 2023 compared with 8.4% and 71.7%, respectively, delivered in 2022. It expects the gross margin to stabilize sequentially as the year progresses.
Nu Skin’s strong international presence exposes it to the risk of volatile currency movements. In fourth-quarter 2022, revenues included a negative impact of 7% from foreign currency fluctuations. For the first quarter and full-year 2023, Nu Skin expects unfavorable foreign currency impacts of 5-6% and 1-2%, respectively, on revenues.
A Look at Q4 & Ahead
Nu Skin’s fourth-quarter adjusted earnings of 89 cents per share declined from $1.11 reported in the year-ago quarter. Nevertheless, the metric surpassed the Zacks Consensus Estimate of 53 cents. Revenues of $522.3 million fell 22% year over year on a reported basis. The top line lagged the Zacks Consensus Estimate of $543.8 million. Sales leaders were down 21% year over year to 48,737. Nu Skin’s customer base dropped 16% to 1,147,124. The company’s paid affiliates were down 13% to 236,956.
Management expects its global macro environment to remain challenging in the near term. In China, though curbs are being relaxed and things are opening up, management expects the first half to remain tough.
Nu Skin anticipates overall revenues of $2.03-$2.18 billion for 2023, suggesting a 2-9% decline from the year-ago period’s reported figure. Management expects 2023 adjusted earnings of $2.35-$2.75 per share. The current projection suggests a decline from adjusted earnings of $2.90 reported last year.
For the first quarter of 2023, Nu Skin expects revenues between $450 million and $490 million. The current revenue projection suggests a 19-26% decline from the year-ago quarter’s reported level. The company expects adjusted earnings of 25-35 cents per share for the first quarter. Nu Skin posted earnings of 76 cents per share in first-quarter 2022.
While the focus on Nu Vision 2025 and product launches bodes well, the abovementioned obstacles cannot be ignored in the near term.
Solid Staple Stocks
Some better-ranked consumer staple stocks are Post Holdings POST, General Mills GIS and Lamb Weston LW.
Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 111.3% from the year-ago reported number.
General Mills, a branded consumer foods company, currently carries a Zacks Rank #2 (Buy). GIS has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for General Mills’ current fiscal-year sales and earnings suggests growth of 5% and 6.1%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, a frozen potato product company, currently carries a Zacks Rank #2. LW has a trailing four-quarter earnings surprise of 52.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and EPS suggests an increase of 19.3% and 89.9%, respectively, from the year-ago reported number.
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