Herbalife or Nu Skin: Which Direct Seller Had the Better First Quarter?

Herbalife and Nu Skin have recently reported earnings, so let's compare and find out which had the better quarter.

May 14, 2014 at 5:30PM


Both Herbalife (NYSE:HLF) and Nu Skin (NYSE:NUS) have direct-selling business models and have been accused of being pyramid schemes in the last few months. Both have also recently released their first-quarter earnings and the stocks have reacted by moving in different directions. Let's break down the reports and the companies' outlooks on the rest of the year to determine which had the better quarter and could provide the highest returns for investors going forward.

Breaking down the results

Screen Shot

Source: Herbalife

On April 28, Herbalife released its first-quarter report and the results exceeded analysts' expectations; here's a breakdown and year-over-year comparison:

MetricReportedExpected
Earnings Per Share $1.50 $1.29
Revenue $1.26 billion $1.23 billion

Source: Benzinga

  • Earnings per share increased 18.1%
  • Revenue increased 12.4%
  • Worldwide volume increased 9%
  • Gross profit increased 12.7% to $1.01 billion
  • Gross margin expanded 20 basis points to 80.1%
  • Repurchased 9.9 million shares for approximately $685.8 million
  • Paid $30.4 million in dividends
  • Other most notable update: Herbalife announced that it has terminated its dividend and will begin repurchasing shares at an accelerated rate in the second quarter; to get this process started, on May 7, the company entered into an agreement with Bank of America Merrill Lynch to repurchase $266 million of its common stock.

Images

Source: Nu Skin

Nu Skin released its first-quarter report on May 6 and it too exceeded analysts' expectations on both the top and bottom lines; here's a breakdown and year-over-year comparison:

MetricReportedExpected
Earnings Per Share $1.05 $0.94
Revenue $671.06 million $656.82 million

Source: Benzinga

  • Earnings per share increased 16.7%
  • Revenue increased 24%
  • Gross profit increased 25.1% to $564.42 million
  • Gross margin expanded 70 basis points to 84.1%
  • Repurchased $25 million of its common stock
  • Paid $20.1 million in dividends 
  • Other most notable update: On May 7, Nu Skin announced that it will be maintaining its quarterly dividend of $0.345 which it will pay out on June 11 to stockholders of record on May 23. Also, with the Chinese investigation behind it, the company has resumed key business operations in China.

What should we expect in the quarters ahead?

Herbalife

Source: Herbalife

In its report, Herbalife added to the positivity of exceeding expectations by then raising its outlook on the full year; here's what the company now expects to see versus its previous expectations:

MetricPrevious OutlookCurrent Outlook
Earnings Per Share $5.85-$6.05 $6.10-$6.30
Revenue Growth 7.5%-9.5% 10%-12%
Volume Growth 6.5%-8.5% 8%-10%

Source: Herbalife

The new expectations call for earnings per share to increase 13.6%-17.3% from fiscal 2013 and came in-line with analysts' expectations. Also, if these estimates are accurate, they would result in a record-setting yearly performance for Herbalife.

Screen Shot

Source: Nu Skin

Following its earnings beat, Nu Skin did not provide an outlook for the full year, but it did provide estimates for the second quarter; here's what it expects to see versus the actual results from the same period of the previous year:

Metric2Q 2013 Reported2Q 2014 ExpectedExpected Growth
Earnings Per Share $1.22 $1.25 2.4%
Revenue $682.93 million $700 million 2.5%

Source: Nu Skin

Nu Skin's estimates fell well short of analysts' expectations, as they had projected second-quarter earnings per share of $1.42 and revenue of $777.53 million; with this being said, the company's expectations would still equate to the best second quarter in the company's history. 

And the winner is...
After reviewing the quarterly results and the companies' outlooks on the rest of 2014, the winner of this match-up is Herbalife. Herbalife showed strong growth in earnings per share and revenue, but its outlook is what set it apart from Nu Skin.

Herbalife

Source: Herbalife

Herbalife's stock has rallied over 5% since the company released its earnings, but the stock still sits more than 25% below its 52-week high, which represents an enticing buying opportunity; however, with the ongoing investigations by the F.B.I. and attorney generals from New York and Illinois, I would avoid making an investment in it today. The three investigations could have too many possible outcomes, so investors should not be willing to take the risk.

Nu Skin, on the other hand, is in the clear following the completion of the investigation into its business model and it has paid the fines that regulators handed down; it can now go back to being 100% focused on growing its business and maximizing shareholder value.

Today, Nu Skin's stock sits more than 45% below its 52-week high, and with nothing more in its way, I believe it is a much better investment option than Herbalife; yes, Herbalife had the better quarter, but Nu Skin is the better investment option today.

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Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and has the following options: long January 2016 $57 calls on Herbalife. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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