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Why Tivity Health Stock Tumbled Today

By Jeremy Bowman - Feb 20, 2020 at 7:39PM

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Shares of the Nutrisystem parent fell after it turned in an ugly earnings report.

What happened

Shares of Tivity Health (TVTY) were plunging after the Nutrisystem parent announced disappointing fourth-quarter earnings and said that its CEO would be stepping down.

As a result, the stock finished down 45.5% on Thursday.

A man and a woman going for a run.

Image source: Getty Images.

So what

Tivity said revenue jumped 78% to $272.8 million, which missed estimates at $275.2 million. The jump in sales was due to its acquisition of Nutrisystem, which closed in March 2019, so the fourth quarter will be the last to benefit from lapping a full quarter without Nutrisystem. 

The big issue in the quarter was a $377.1 million asset impairment charge relating to goodwill from the Nutrisystem acquisition and its brand name. Tivity had paid $1.3 billion for the weight-loss company. Due to challenges with Nutrisystem, adjusted earnings per share fell from $0.73 to $0.40, which was below the analyst consensus at $0.55.

The company also said that CEO Donato Tramuto was leaving, effective immediately, and would be replaced by interim CEO Robert Greczyn Jr., one of the company's directors, while the company conducts a search for a permanent CEO. Tramuto's ouster also appears to be a result of the struggles with the Nutrisystem acquisition. 

Greczyn acknowledged the challenges with Nutrisystem: "While the nutrition segment had a disappointing end to 2019, it remains profitable, and we believe it will continue to generate significant cash flow. Management and our Board of Directors are committed to making the right investments for this business with a focus on innovation, execution, and new advertising strategies to return the business to growth."

Now what

For the year ahead, management expects revenue of $1.243 billion to $1.285 billion, up 10% to 14% from 2019, which is worse than expectations at $1.34 billion. On the bottom line, the company continues to anticipate headwinds from Nutrisystem, since it forecast adjusted EBITDA of $190 million to $205 million for the year, down from $222 million in 2019. Given that guidance, as well as the asset impairment and the CEO firing, it's not surprising to see the weight-loss stock nearly slashed in half, since it will take some work to get Tivity back on the right track.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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