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Nu Skin Trims View on Anticipated Declines in Mainland China

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Government initiative to review health products and direct selling industries in Mainland China spells trouble for Nu Skin Enterprises, Inc. (NUS - Free Report) , evident from the company’s latest move to curtail view. Well, the regulatory actions are expected to exert pressure on revenues in Mainland China, which is expected to hurt the company’s second-quarter and 2019 results.

The news bred concerns among investors, sending the stock down nearly 17% during the after-market trading hours on Aug 16. Markedly, shares of the company have declined 8.5% in the past three months against the industry’s growth of 8.6%.

Slashed Outlook for Q2 & 2019

When it comes to inspections for assessing quality and safety standards, most consumer staples companies walk a tight rope as it may lead to product recalls or hamper consumer sentiments. The 100-day government campaign in China to inspect offerings of direct selling industries as well as health products, is likely to adversely impact Nu Skin’s performance. Consistent media scrutiny is also denting consumers’ enthusiasm.

Such factors have led management to lower sales and earnings projections. For second-quarter 2019, the company expects revenues in the range of $622-$623 million, down from the previous projection of $660-$680 million. The revised top-line view indicates a considerable decline from $704.2 million in the prior-year quarter. Also, earnings are expected in the range of 82-84 cents per share compared with the previous prediction of 91-98 cents. The Zacks Consensus Estimate for second-quarter earnings is currently pegged at 93 cents, which is likely to witness downward revision in the upcoming days.

Moving on, the company updated view for 2019, after considering the aforementioned downturns and greater-than-anticipated adverse impacts from foreign currency translations. It expects revenues in the range of $2.48-$2.52 billion, including currency headwinds of nearly 4%. The revised top-line projection indicates a decline from the prior view of $2.76-$2.81 billion. Further, earnings are projected in the range of $3.20-$3.35, down from the previous view of $3.80-$4.05. The Zacks Consensus Estimate for earnings in 2019 is currently stable at $3.92. Management expects to throw more light on these projections, when it reports second-quarter results on Aug 6.

Wrapping Up

Despite the hurdles, we expect this Zacks Rank 2 (Buy) company’s strong brand portfolio, well-strategized product programs as well as strength in sales leaders to boost growth in EMEA, Americas/Pacific and Hong Kong/Taiwan. This is likely to provide cushion to the anticipated declines in Mainland China.

Looking For More Consumer Staples Picks? Check These

Avon Products, Inc. , with a Zacks Rank #2, has long-term earnings growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Mills, Inc (GIS - Free Report) , with an expected long-term earnings growth rate of 7%, also carries a Zacks Rank #2.

Kimberly-Clark Corporation (KMB - Free Report) , with long-term earnings growth rate of 5.2%, carries a Zacks Rank #2.

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