Following its first quarter earnings release on September 18, shares of Schiff Nutrition International, Inc. (SHF) have surged about 16.6% to hit an all-time high of $24.57. This Zacks #2 Rank (Buy) nutritional supplements provider appears to be a solid momentum pick, given its average earnings surprise of about 16.8% over the last five quarters, one-year return of more than 140.0%, improving prospects and robust growth expectation for fiscal 2013.
Strong First Quarter
Schiff Nutrition began its fiscal 2013 on a strong note with both revenues and earnings surpassing Zacks Consensus Estimates. After taking into account transaction and other related costs, earnings for the fiscal first quarter came in at 23 cents per share, beating the Zacks Consensus Estimate by 27.8% and last year's earnings by 43.8%.
Net sales increased 46% year over year to $85.1 million, well above the Zacks Consensus Estimate of $77 million. The upside included contribution from the acquisition of Airborne Inc. in March 2012 for $150 million in cash. Branded sales jumped 49.3% to $74.8 million (representing 88% of total sales), while private label sales rose 27.2% to $10.3 million.
Gross profit increased 53.9% year over year to $40.1 million, which was accompanied by a 230 basis point (bps) expansion in gross margin to 47.1%. The improvement was primarily due to a higher mix of branded sales and strong operational execution, partially offset by a purchase accounting adjustment ($1.6 million) related to the acquired Airborne inventory. The company's lean manufacturing and sourcing initiatives drove operational efficiency in the quarter.
Despite a 51.6% increase in operating expenses, operating margin expanded 120 bps to 14.5%. Selling and marketing expense margin increased 230 bps to 22.4%.
Earnings Estimates Heading Higher
Based on a better-than-expected first quarter, Schiff Nutrition revised its outlook for fiscal 2013. The company now expects net sales growth of 43% to 46%, compared to the previous guidance of 40% to 43%.
This outlook, along with better operational efficiency, led the company to raise its gross margin guidance by 1 percentage point at both ends to between 49% and 51%. The operating margin outlook now stands at 14.5% to 16%, versus the previous 12.5% to 14%.
Earnings estimates have been on an increasing trend over the last 60 days. The Zacks Consensus Estimate for fiscal 2013 advanced almost 8.3% to 78 cents, representing year-over-year growth of about 30.8%. Meanwhile, the Zacks Consensus Estimate for fiscal 2014 is up 6.7% to 95 cents, representing year-over-year growth of approximately 21.3%.
The valuation of Schiff Nutrition looks stretched compared to its peers by most metrics. The company is trading at a price-to-book (P/B) of 6.30x, a considerable premium to the peer group average of 3.90x. Its EV/EBITDA ratios of 20.30 also represent a hefty premium to the peer group average of 8.84. The premium valuation seems warranted given the strong growth potential of the company.
However, valuation looks reasonable on the basis of the price-to-sales (P/S) ratio, which stands at 2.50, a 15.8% discount to the peer group average of 2.97.
Chart Reflects Strength
Schiff Nutrition's price performance has been reasonably strong recently. The stock has been consistently trading above its 200-day moving average since the end of March 2012. Barring occasional pullbacks, the stock has been above its 50-day moving average over the same period. Schiff Nutrition, with a market cap of $708.12 million, has also outperformed the S&P 500 Index over the past year by a substantial margin. The one-year return for the stock is roughly 140.6% compared to a 20.0% return from the S&P 500 index.
Incorporated in Delaware in 1996, Schiff Nutrition International, Inc. is a leading nutritional supplement company offering vitamins, nutrition supplements and nutrition bars in the US as well as in the international market. Its portfolio boasts several well-known brands including MegaRed, Move Free, Airborne, Tiger's Milk, Sustenex, Digestive Advantage and Schiff Vitamins. These are marketed primarily through the mass market (including club) and, to a lesser extent, health food store and distribution channels. The company also manufactures and distributes private label products primarily for certain retail customers where its branded products are sold. Schiff Nutrition's largest customers are Costco (COST) and Wal-Mart (WMT), including Sam's Club.
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