Well, that didn't take long, now did it?
Through a quirk in the company's auditing and reporting cycle, we last looked at supplement king NBTY's (NYSE:NTY) earnings only about a month and a half ago. Back then, the stock was getting punished for weak results in the face of a cyclical slowdown in the nutritional supplements business.
Oh, what a difference a quarter makes . at least in people's perceptions.
While the stock is up about 17% as of this moment, let's not kid ourselves into thinking that this was a great quarter. Sales increased 8% as reported, but they were all but flat on an organic (excluding acquisitions, that is) basis. Margins slipped and operating income fell 22%, while net income fell about 23% as reported.
The clincher here, though, is that NBTY's level of performance was still considerably better than what analysts had forecast. Strip out two cents from an asset writedown, and you have $0.35 per share in earnings -- nicely ahead of the $0.30 analyst consensaguess.
If it weren't for that big spike in the stock price, I'd like what I'm seeing here. Growth in the wholesale business surpassed 9% (excluding acquisitions), and the gross margin fell two points to 32%. In the North American retail business, same-store sales were up 3%, and the company plans to spend 2006 whittling away underperforming Vitamin World stores. Across the pond, European same-store sales were up 6% in local currencies. While the direct sales business saw a sharp sales drop of 27%, the gross margin held up, and at least part of that drop can fairly be blamed on the timing of catalogs.
I'm not thrilled that gross margin fell about 360 basis points, but I am impressed that the operating margin fell only about 320 points. That suggests good discipline. What's more, cash flow took a big jump this quarter as the company apparently worked down inventories.
Like I said, I just wish the price hadn't spiked so much today. There's a fair chance that the prior quarter marked the bottom, but I'm not willing to make too many aggressive growth/recovery assumptions just yet -- nor am I willing to say that NBTY is out of the woods.
With that in mind, today's move recognized a lot of the value I saw in these shares. For those who bought in the last month or two, congratulations. For those (like me) who were sitting on their hands, maybe we should brush up on our Virgil -- specifically that whole "fortune favors the brave" bit.
For more nutritious Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
