A month has gone by since the last earnings report for Medifast (MED). Shares have lost about 5.8% 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.
MED Q3 Earnings Beat, Revenues Fall on Customer Acquisition Challenges
Medifast reported third-quarter 2024 results, with the bottom and top lines surpassing the Zacks Consensus Estimate. However, both metrics declined year over year. Results were hurt by challenging customer acquisition, thanks to increased competition from GLP-1 medications and shifting consumer spending behaviors.
Medifast’s adjusted earnings were 35 cents per share in the third quarter, down from $2.12 in the year-ago quarter. Nevertheless, the metric surpassed the Zacks Consensus Estimate pegged at a loss of 15 cents per share.
Net revenues of $140.2 million declined 40.6% year over year due to fewer active-earning OPTAVIA Coaches and reduced coach productivity. The average revenue per active-earning OPTAVIA Coach was $4,672, down from $5,008 million due to softness in customer acquisition. The total number of active-earning OPTAVIA Coaches fell 36.3% to 30,000 from 47,100 in the year-ago quarter. Nevertheless, the top line surpassed the Zacks Consensus Estimate of $135.5 million.
Medifast’s gross profit was $105.7 million, down 40.4% year over year. The downside can be attributed to reduced revenues. The gross profit margin was 75.4%, an expansion from 75.2% reported in the year-ago quarter’s level.
Selling, general, and administrative (SG&A) expenses decreased by 31.8% to $103.6 million due to lower OPTAVIA coach compensation resulting from a reduction in active-earning coaches and decreased volumes. In addition, there was a decline in costs associated with coach-related events, including the annual convention. We expected the metric to decrease 38.2% to $93.8 million in the third quarter.
As a percentage of revenues, SG&A expenses increased 950 basis points (bps) to 73.9%, which was driven by around 590 bps related to company-led customer acquisition efforts and 340 bps linked to reduced leverage on fixed costs due to declining sales volumes. The adjusted income from operations declined 85.3% to $3.8 million, while the adjusted operating margin decreased 810 bps year over year to 2.7%.
MED’s Financial Health Snapshot
The company concluded the quarter with cash, cash equivalents and investments of $115.3 million, no debt (as of Sept. 30, 2024) and total shareholders’ equity of $207.3 million.
As of Sept. 30, 2024, the company held a $225 million credit facility. Due to its strong cash position, expected to remain stable through the credit facility's expiration, the company terminated the credit agreement, effective Oct. 30, 2024. This decision was part of the Fuel for the Future initiative.
What to Expect From Medifast in Q4?
Medifast expects fourth-quarter revenues to range between $100 million and $120 million. This reflects a continued decline in active-earning OPTAVIA Coaches, driven by near-term challenges in customer acquisition due to the growing adoption of GLP-1 medications in the market. Management forecasts a loss per share for the quarter in the range of 10 to 65 cents.
The company’s guidance includes an expected $7 million in spending for company-led marketing during the quarter. However, it does not account for any gains or losses resulting from fluctuations in the market price of MED’s LifeMD common stock holdings, as these are difficult to estimate.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -265.63% due to these changes.
VGM Scores
At this time, Medifast has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 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 #3 (Hold). We expect an in-line 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, Sysco (SYY), has gained 4.1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Sysco reported revenues of $20.48 billion in the last reported quarter, representing a year-over-year change of +4.4%. EPS of $1.09 for the same period compares with $1.07 a year ago.
Sysco is expected to post earnings of $0.93 per share for the current quarter, representing a year-over-year change of +4.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.3%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Sysco. Also, the stock has a VGM Score of B.
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