Medifast Inc. Earnings Cheat Sheet: Increased Costs Strains Margins as Profit Drops

Rising costs hurt Medifast Inc. (NYSE:MED) in the third 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.

Investing Insights: Here’s Why Chipotle’s Stock Keeps Winning.

Medifast Earnings Cheat Sheet for the Third Quarter

Results: Net income for Medifast Inc. fell to $5.1 million (36 cents per share) vs. $5.8 million (39 cents per share) a year earlier. This is a decline of 11.9% from the year earlier quarter.

Revenue: Rose 13.1% to $76.1 million from the year earlier quarter.

Actual vs. Wall St. Expectations: MED fell short of the mean analyst estimate of 37 cents per share. It fell short of the average revenue estimate of $78.9 million.

Quoting Management: “In the third quarter of 2011, we continued to make the necessary infrastructure investments to have the right team, systems, tools and training in place to improve our ability to attract new clients, help ensure their program success and in turn, further accelerate Medifast’s long-term expansion, as was most evident in the continued expansion of our Medifast Weight Control Center footprint,” stated Michael S. McDevitt, Medifast’s Chief Executive Officer.

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 27.8%, with the biggest boost coming in the third quarter of the last fiscal year when revenue rose 49.5% from the year earlier quarter.

Last quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. In the second quarter, net income rose 7.3% from the year earlier, while the figure increased 29.7% in the first quarter, 12.4% in the fourth quarter of the last fiscal year and 67.5% in the third quarter of the last fiscal year.

Gross margin shrank 0.8 percentage point to 74.2%. The contraction appeared to be driven by increased costs, which rose 16.7% from the year earlier quarter while revenue rose 13.1%.

The company has now fallen short of estimates in the last two quarters. In the second quarter, it missed expectations by 6 cents with net income of 41 cents versus a mean estimate of net income of 47 cents per share.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the fourth quarter has moved down from 32 cents a share to 27 cents over the last ninety days. At $1.50 per share, the average estimate for the fiscal year has fallen from $1.66 ninety days ago.

Competitors to Watch: Inc. (NASDAQ:DIET), Weight Watchers Intl., Inc. (NYSE:WTW), NutriSystem Inc. (NASDAQ:NTRI), Herbalife Ltd. (NYSE:HLF), Schiff Nutrition Intl. Inc. (NYSE:WNI), Reliv International, Inc (NASDAQ:RELV), Hi-Tech Pharmacal Co. (NASDAQ:HITK), Cardium Therapeutics Inc. (AMEX:CXM), Nutraceutical Int’l Corp. (NASDAQ:NUTR), and Hospira, Inc. (NYSE:HSP).

Investing Insights: Here’s Why Chipotle’s Stock Keeps Winning.

(Source: Xignite Financials)