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Why Is Medifast (MED) Down 10.8% Since Last Earnings Report?
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It has been about a month since the last earnings report for Medifast (MED - Free Report) . Shares have lost about 10.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Medifast due for a breakout? 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 catalysts.
Medifast delivered robust second-quarter 2021 results. The company posted earnings of $3.96 per share, which crushed the Zacks Consensus Estimate of $3.30 and surged a whopping 112.9% on a year-over-year basis.
Net revenues of $394.2 million soared 79.2% year over year and beat the Zacks Consensus Estimate of $366 million. OPTAVIA-branded products contributed 94.1% of consumable units sold in the second quarter, up from 88.9% in the preceding quarter and 83% in the year-ago quarter. Total active earning OPTAVIA Coaches jumped 62.2% to 59,200.The average revenue per active earning OPTAVIA coach increased 13.9% to $6,662, up from $5,851 in the year-ago quarter. The relevance of the company’s offerings amid an environment, where consumers are choosing health and wellness options, has been an upside. As part of its brand and business strategy, it concluded the sunset of the Medifast-branded product line in the second quarter.
Gross profit rose 84.4% to $293.7 million, while the gross margin expanded 210 basis points (bps) year over year to 74.5%. Gross margin growth was mainly driven by the absence of the promotional activities that were adopted in the second quarter of 2020. SG&A expenses escalated 77% year over year to $232.3 million in the quarter, mainly accountable to elevated OPTAVIA commission costs, credit card fees from increased sales, labor costs, and consulting costs for information technology projects.
As a percentage of revenues, SG&A expenses declined 70 basis points (bps) to 58.9%. Income from operations rose 118.5% to $61.4 million from $28.1 million in the year-ago quarter, thanks to higher gross profit and sales, along with a decline in SG&A expenses (as a percentage of sales). As a percentage of sales, income from operations expanded 280 bps to 15.6%.
Other Financial Updates
Medifast concluded the quarter with cash, cash equivalents and investment securities of $197.4 million, and total shareholders’ equity of $194.7 million. Management did not have any interest-bearing debt on its balance sheet as of Jun 30, 2021.
The company, on Apr 13, 2021, entered a credit agreement that provides a senior secured revolving credit facility worth $125 million. The credit agreement also provides an option for an additional facility, which allows the company to escalate its senior secured revolving credit facility by up to $100 million. No amounts were drawn under the credit facility as of Aug 4, 2021. Management declared a quarterly cash dividend of $1.42 per share, which is payable Aug 6, 2021. The company also used $12.2 million for share buybacks in the second quarter. It has 2.2 million shares remaining under its buyback plan.
Outlook
Management anticipates revenues of $1.425-$1.525 billion for 2021. Full-year earnings per share are envisioned to be $12.70-$14.17. Effective tax rate for 2021 is estimated at 23.25-24.25%.The company expects the demand for OPTAVIA-branded products to accelerate in the quarters ahead. This might exert some pressure on the gross margin through the rest of 2021, given the planned higher-level use of co-manufacturers. The company also anticipates elevated levels of inflation in raw ingredients, freight and labor costs, which might add to the pressures on the gross margin in the second half of 2021.
In a bid to protect profit margins, the company expects to effectively manage costs, while continuing to invest in supply chain and technology to reach its long-term growth goals. It anticipates improving gross margin over the long term through its pricing strategies, enhancing distribution network, lowering freight costs by reducing shipping lanes and attaining productivity improvements in its supply-chain processes through scaled businesses.
The company expects SG&A expenses to increase in third-quarter 2021 as it returns to an in-person convention in the said quarter. It will repeat its business-builder program in the third quarter, which will be recorded in SG&A expenses. The business builder program is likely to boost the number of independent OPTAVIA Coaches and position it for growth in 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -14.87% due to these changes.
VGM Scores
Currently, Medifast has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. Notably, Medifast has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Medifast (MED) Down 10.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Medifast (MED - Free Report) . Shares have lost about 10.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Medifast due for a breakout? 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 catalysts.
Medifast Surpasses Q2 Earnings & Revenue Estimates
Medifast delivered robust second-quarter 2021 results. The company posted earnings of $3.96 per share, which crushed the Zacks Consensus Estimate of $3.30 and surged a whopping 112.9% on a year-over-year basis.
Net revenues of $394.2 million soared 79.2% year over year and beat the Zacks Consensus Estimate of $366 million. OPTAVIA-branded products contributed 94.1% of consumable units sold in the second quarter, up from 88.9% in the preceding quarter and 83% in the year-ago quarter. Total active earning OPTAVIA Coaches jumped 62.2% to 59,200.The average revenue per active earning OPTAVIA coach increased 13.9% to $6,662, up from $5,851 in the year-ago quarter. The relevance of the company’s offerings amid an environment, where consumers are choosing health and wellness options, has been an upside. As part of its brand and business strategy, it concluded the sunset of the Medifast-branded product line in the second quarter.
Gross profit rose 84.4% to $293.7 million, while the gross margin expanded 210 basis points (bps) year over year to 74.5%. Gross margin growth was mainly driven by the absence of the promotional activities that were adopted in the second quarter of 2020. SG&A expenses escalated 77% year over year to $232.3 million in the quarter, mainly accountable to elevated OPTAVIA commission costs, credit card fees from increased sales, labor costs, and consulting costs for information technology projects.
As a percentage of revenues, SG&A expenses declined 70 basis points (bps) to 58.9%. Income from operations rose 118.5% to $61.4 million from $28.1 million in the year-ago quarter, thanks to higher gross profit and sales, along with a decline in SG&A expenses (as a percentage of sales). As a percentage of sales, income from operations expanded 280 bps to 15.6%.
Other Financial Updates
Medifast concluded the quarter with cash, cash equivalents and investment securities of $197.4 million, and total shareholders’ equity of $194.7 million. Management did not have any interest-bearing debt on its balance sheet as of Jun 30, 2021.
The company, on Apr 13, 2021, entered a credit agreement that provides a senior secured revolving credit facility worth $125 million. The credit agreement also provides an option for an additional facility, which allows the company to escalate its senior secured revolving credit facility by up to $100 million. No amounts were drawn under the credit facility as of Aug 4, 2021. Management declared a quarterly cash dividend of $1.42 per share, which is payable Aug 6, 2021. The company also used $12.2 million for share buybacks in the second quarter. It has 2.2 million shares remaining under its buyback plan.
Outlook
Management anticipates revenues of $1.425-$1.525 billion for 2021. Full-year earnings per share are envisioned to be $12.70-$14.17. Effective tax rate for 2021 is estimated at 23.25-24.25%.The company expects the demand for OPTAVIA-branded products to accelerate in the quarters ahead. This might exert some pressure on the gross margin through the rest of 2021, given the planned higher-level use of co-manufacturers. The company also anticipates elevated levels of inflation in raw ingredients, freight and labor costs, which might add to the pressures on the gross margin in the second half of 2021.
In a bid to protect profit margins, the company expects to effectively manage costs, while continuing to invest in supply chain and technology to reach its long-term growth goals. It anticipates improving gross margin over the long term through its pricing strategies, enhancing distribution network, lowering freight costs by reducing shipping lanes and attaining productivity improvements in its supply-chain processes through scaled businesses.
The company expects SG&A expenses to increase in third-quarter 2021 as it returns to an in-person convention in the said quarter. It will repeat its business-builder program in the third quarter, which will be recorded in SG&A expenses. The business builder program is likely to boost the number of independent OPTAVIA Coaches and position it for growth in 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -14.87% due to these changes.
VGM Scores
Currently, Medifast has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. Notably, Medifast has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.