Herbalife or Nu Skin: Which Had the Better Fourth Quarter?

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Two of the most controversial stocks in the market today are Herbalife (NYSE: HLF  ) and Nu Skin (NYSE: NUS  ) . These two nutritional suppliers have faced more adversity in the last year than most companies do in a century; most recently, Chinese authorities began an investigation into Nu Skin for operating as an "illegal pyramid scheme" and days later, Herbalife was accused of the same thing by Massachusetts Senator Edward Markey, who then requested an investigation by the SEC. In the heat of all this, the companies have released their quarterly earnings. Let's find out which had the better quarter and which looks like the best investment opportunity today.

The quarterly results

Source: Herbalife

Herbalife released its fourth-quarter report on Feb. 18 and the reported statistics surpassed analysts' expectations. Here's a breakdown of the results and a year-over-year comparison:

Metric Reported Expected
Earnings Per Share $1.28 $1.25
Revenue $1.27 billion $1.25 billion

Source: Benzinga

  • Earnings per share increased 28%.
  • Revenue increased 18.9%.
  • Volume grew 13% globally.
  • Operating income rose 13.8% to $181.86 million.
  • Operating margin declined 76 basis points to 14.33%.
  • Maintained its quarterly dividend of $0.30.
  • Other most notable statistics: 
    • This was the 20th consecutive quarter in which Herbalife exceeded earnings expectations.
    • This was the best fourth quarter in the company's history.

Source: Nu Skin

Nu Skin's fourth-quarter report was released on March 3 and the results were mixed in comparison with analysts' expectations. Here's a breakdown of the report and a year-over-year comparison:

Metric Reported Expected
Earnings Per Share $2.02 $1.99
Revenue $1.06 billion $1.07 billion

Source: Benzinga

  • Earnings per share increased 108.3%.
  • Revenue increased 82.3%.
  • Operating income increased 112.1% to $188.6 million.
  • Operating margin expanded 251 basis points to 17.86%.
  • Raised its quarterly dividend by 15% to $0.345.
  • Other most notable statistics:
    • This was the best fourth quarter in the company's history. 
    • In response to the investigation by Chinese authorities, Nu Skin's audit committee is currently reviewing the company's Chinese operations and the company will have its annual report available by March 18.

Guidance for the year ahead

Source: Herbalife

In its report, Herbalife provided its outlook on fiscal 2014; here's what the company expects to see in comparison with the consensus analyst estimates:

Metric Outlook Expected
Earnings Per Share $5.85-$6.05 $5.87
Revenue $5.19 billion-$5.28 billion $5.31 billion

Sources: Herbalife and Associated Press

This outlook would result in earnings per share increasing 8.9%-12.7% and revenue increasing 7.5%-9.5% from fiscal 2013. As you can see, the median earnings per share outlook came in better-than-expected, but the revenue outlook came in a bit light. With this said, remember that in fiscal 2013 Herbalife exceeded earnings expectations and raised its outlook with every quarterly release; this leads investors to believe that the company practices the "under-promise and over-deliver" method of forecasting. Even if this outlook does become reality, it would result in yet another record-setting year for the company and it would support substantial price appreciation in Herbalife's stock.

Source: Nu Skin

Nu Skin's report noted that the company will not provide its full-year outlook until its internal audit is complete, but the company did provide its outlook for the first quarter. Here are Nu Skin's expectations and the consensus analyst estimates:

Metric Outlook Expected
Earnings Per Share $0.90-$0.94 $1.20
Revenue $650 million-$670 million $732.19 million

Source: Nu Skin and Fly On The Wall

Nu Skin's estimates call for earnings-per-share growth of 0%-4.4% and revenue growth of 20%-24% from the same period a year ago; these estimates missed analyst expectations by a mile which caused its shares to fall over 10.5% in the next trading session. In the release, Nu Skin stated: "We are early in the process of understanding the impact of recent events in China on our business, so it is difficult to project how reflective anticipated first quarter results will be of results for the remainder of the year." Basically, if the Chinese investigation shows no wrongdoing by Nu Skin the company will likely jump right back on the high-growth track, but this remains to be seen. Until a conclusion is reached, the stock will likely trade erratically.

And the winner is...
After reviewing the quarterly reports and outlooks on the quarters ahead, the winner of this match-up is Herbalife. Nu Skin had a very impressive fourth quarter, but its outlook and delayed annual report show that the Chinese investigation has affected its operations too much. Today, Herbalife's stock sits more than 20% below its 52-week high and the majority of this weakness simply comes from the crossfire related to Nu Skin's troubles; this represents a great buying opportunity.

Along with the potential price appreciation in its stock, Herbalife will return additional cash to shareholders via its healthy 1.9% dividend and share repurchases. Foolish investors should take full advantage of the inexpensive share price of Herbalife and consider initiating positions right now.

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  • Report this Comment On March 12, 2014, at 6:58 PM, PresidentGas1 wrote:

    Several years ago I went to Salt Lake and met with Truman Hunt and Joe Chang to discuss emerging markets in Asia. I left that meeting completely convinced this was a scam. Needless to say I ran for the hills. At the time their stock was $15 per share and I thought it was over-priced. 5 years later it sat at $135. So much for my stock picking. LOL

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Related Tickers

8/28/2015 4:01 PM
HLF $57.33 Down -0.30 -0.52%
Herbalife CAPS Rating: *
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Nu Skin Enterprise… CAPS Rating: **