Medifast Earnings: Higher Expenses Shrinks Margins, Profit Declines

Rising costs hurt Medifast Inc. (NYSE:MED) in the first quarter as profit dropped from a year earlier. Medifast is engaged in the production, distribution, and sale of weight management and disease management products and other consumable health and diet products.

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Medifast Earnings Cheat Sheet for the First Quarter

Results: Net income for Medifast Inc. fell to $4 million (29 cents per share) vs. $6.4 million (44 cents per share) a year earlier. This is a decline of 37.2% from the year-earlier quarter.

Revenue: Rose 19.7% to $88.9 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: Medifast Inc. fell short of the mean analyst estimate of 37 cents per share. It beat the average revenue estimate of $86.8 million.

Quoting Management: “We are very pleased with strong sales momentum across each of our sales channels in the first quarter, however, we remain focused on increased improvement in profitability and believe we took a positive step forward by realigning our Medifast Weight Control Center personnel cost structure late in the quarter,” stated Michael C. MacDonald, Medifast’s Executive Chairman and Chief Executive Officer. “These efforts should result in annual cost savings of approximately $3.0 million as we continue to drive operational excellence throughout our Take Shape for Life, Medifast Direct, and Medifast Weight Control Center and Wholesale Physicians sales channels to maximum profitability long-term.”

Key Stats:

The company has enjoyed double-digit year-over-year percentage revenue growth for the past five quarters. Over that span, the company has averaged growth of 16.6%, with the biggest boost coming in the first quarter of the last fiscal year when revenue rose 22.6% from the year earlier quarter.

The company has now missed analyst estimates for the last four quarters. It fell short by 13 cents in the fourth quarter of the last fiscal year, by one cent in the third quarter of the last fiscal year, and by 6 cents in the second quarter of the last fiscal year.

Gross margin shrank 1.2 percentage points to 75.1%. The contraction appeared to be driven by increased costs, which rose 25.9% from the year earlier quarter while revenue rose 19.7%.

The company’s net income has now fallen for three straight quarters. In the fourth quarter of the last fiscal year, net income fell 65.8% from the year earlier, while the figure fell 11.9% in the third quarter of the last fiscal year.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the second quarter has moved down from 46 cents a share to 41 cents over the last sixty days. Over the past sixty days, the average estimate for the fiscal year has reached $1.39 abs per share, a decline from $1.60.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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