Nu Skin is scheduled to release its third quarter earnings report after closing bell on Thursday. Consensus estimates suggest the multi-level marketing firm will post earnings of 84 cents per share on $571.43 million in revenue.
Nu Skin sales expected to be weak
Nu Skin management preannounced weak revenue earlier this month because of weak sales in Greater China and a drag from currencies during the second half of the year. They now expect revenue of $570 million to $573 million for the quarter. They didn’t update their guidance for earnings per share.
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Pivotal Research analyst Timothy Ramey is much below the consensus on earnings with an estimate of 76 cents per share. In last year’s third quarter, the company posted $1.12 per share, which means that a significant decline in earnings is expected for the quarter.
Nu Skin teeters in China
Nu Skin has quite a large exposure to Greater China as the region makes up 31.6% of its sales. China sales are expected to fall 24% this year following last year’s 30% decline. Ramey expects Wall Street to be hyper-focused on China on Thursday’s earnings call. Among the topics he expects to be discussed is whether Nu Skin is making progress on stabilizing its operations in China. He also thinks investors will wonder if the sales deceleration there has caused any write-offs in inventory.
Ramey believes China’s macroeconomic climate is weighing on Nu Skin’s sales there because its products are “high-ticket.” He’s quite bearish on the company’s future in China as he doesn’t expect a recovery soon, although he is projecting flat sales in the region for next year.
Other topics Ramey expects to hear more about on Nu Skin’s earnings call is whether it has started its share buyback program up again and whether it can provide any updates on the Security and Exchange Commission’s investigation.
Fixing problems at Nu Skin
The analyst believes Nu Skin has had “relatively good constant currency performance overall,” as management said that sales rose on a constant currency basis during the first half of the year and were flat in the third quarter. He also thinks “that there is not much wrong with the Nu Skin business that some new product activity won’t fix.
He believes upcoming products that will be launched in the second half of this year should help it return to growth,” at least on a constant currency basis.” He noted that currency headwinds are still a “wild-card” but added, “At some level, currency cross-rates will find a level.”
Ramey has a Buy rating and $50 per share price target on Nu Skin. He warns that the key risks are currency exchange and the SEC’s investigation into a charitable contribution that was made in 2013.
Competitor Herbalife’s shares also declined today, falling as much as 1.64% to $53.87 per share (per Google Finance as of precisely 2:21 p.m. Eastern). It’s pretty common for the two companies’ stock prices to be linked in trading, as if one reports bad news, often the other company’s stock price declines as well—whether or not the bad news could possibly have an impact on the other. Of course both companies have significant exposure to China, and both have been struggling there over the last year or two.
Herbalife’s next earnings report is scheduled for Nov. 3, and analysts are expecting earnings of $1.06 per share and $1.16 billion in revenue for the quarter. If the company is able to outperform Nu Skin in China, it will especially significant.