Why Is Medifast (MED) Down 19.8% Since Last Earnings Report?

A month has gone by since the last earnings report for Medifast (MED). Shares have lost about 19.8% 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 drivers.

Medifast Q2 Earnings Top Estimates, Guidance Lowered

Medifast, delivered second-quarter 2022 results. The company posted earnings of $3.87 per share, which surpassed the Zacks Consensus Estimate of $3.28 but declined 2.5% on a year-over-year basis. Net revenues of $453.3 million advanced 15% year over year, mainly reflecting an increased number of active earning OPTAVIA Coaches and greater productivity per active earning OPTAVIA Coach. The metric missed the Zacks Consensus Estimate of $463 million.

The total number of active earning OPTAVIA Coaches rose 14.9% year over year to 68,000. The average revenue per active earning OPTAVIA Coach was $6,667, a little more than the figure reported in the year-ago quarter.

The gross profit rose 9.5% to $321.7 million, mainly due to increased revenues, somewhat negated by the elevated cost of sales. The gross profit as a percentage of revenues came in at 71%, down from the 74.5% reported in the second quarter of 2021. The downside can be attributed to a customer acquisition program as well as increased product costs stemming from inflation in raw ingredient costs.

Adjusted SG&A expenses came in at $263.3 million, up $31 million year over year. The increase was mainly led by additional costs associated with continued investments in information technology and distribution infrastructure and a rise in credit card fees. As a percentage of revenues, adjusted SG&A expenses contracted 84 basis points (bps) to 58.1%. Adjusted income from operations declined $3 million to $58.4 million. As a percentage of revenues, the metric fell 270 bps to 12.9% year over year.

Other Financial Updates

The company concluded the quarter with cash, cash equivalents and investment securities of $61.1 million, debt of $27 million and total shareholders’ equity of $129.5 million.

The company declared a quarterly cash dividend of $1.64 per share, payable on Aug 8, 2022 to shareholders of record as of Jun 28.

On Jun 1, 2022, Medifast unveiled an accelerated share repurchase program to buy back outstanding shares worth $100 million, valid till October 2022.

Guidance

Management curtailed its 2022 guidance due to macroeconomic factors like inflation and consumer sentiment that have affected customer retention. This is likely to deliver slower-than-anticipated growth in the second half of 2022.

Management anticipates 2022 revenues in the range of $1.58-$1.66 billion. Earlier, MED expected revenues in the range of $1.78-$1.84 billion. Revenues came in at $1.5 billion in 2021.

The company expects 2022 adjusted EPS in the band of $12.7-$14.1, lower than the earlier guidance in the band of $14.60-$16.05. The company posted an EPS of $13.89 in 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -57.18% due to these changes.

VGM Scores

Currently, Medifast has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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 C. 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 Medifast has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Medifast belongs to the Zacks Food - Miscellaneous industry. Another stock from the same industry, Kraft Heinz (KHC), has gained 1.8% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

Kraft reported revenues of $6.55 billion in the last reported quarter, representing a year-over-year change of -0.9%. EPS of $0.70 for the same period compares with $0.78 a year ago.

For the current quarter, Kraft is expected to post earnings of $0.60 per share, indicating a change of -7.7% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Kraft. Also, the stock has a VGM Score of C.

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