Let us see how things are shaping up for this announcement.
Factors to Consider
Unfavorable currency has been a concern for Nu Skin's revenues since quite some time. Last quarter, currency fluctuations negatively impacted sales by 5%. For the second quarter, revenues are expected in a range of $560 million to $580 million, assuming a negative foreign currency impact of approximately 4%.
On a constant currency basis, revenues are expected to increase in a range of 6% to 8% in the second quarter, with earnings in the band of 75-79 cents per share. The Zacks Consensus Estimate of 79 cents per share is at the higher end of the guided range.
In addition, multi-level marketer Nu Skin has been witnessing a decline in Greater China since the past few quarters. This is a concern as the company generates more than a third of its total revenue from the region, which includes Taiwan and Hong Kong. Last quarter, the company witnessed a sales decline in all the geographic regions (except EMEA) on a constant currency basis, owing to lower-than-expected sales of cosmetic oils as well as difficult economic conditions.
Another concern is the regulatory steps undertaken by the company in mainland China to review a legal issue. This is also negatively impacting sales in the region.
Moreover, we note that China has always been suspicious about direct selling companies like Nu Skin and Herbalife Ltd. HLF . Both these companies employ sales representatives to sell products and are always closely watched by rivals and regulators. They face accusations like focusing more on recruiting instead of selling products and running a pyramid business model i.e. employing deceptive marketing practices for improving business.
Nevertheless, Nu Skin plans to continue to roll out ageLOC Me and ageLOC Youth in the second quarter, with more products in the second half of the year.
In the second quarter, the company will offer limited-time deals of ageLOC Me in Greater China and ageLOC Youth in South Asia, and launch ageLOC Me on a full-time basis in Japan.
NU SKIN ENTERP Price and EPS Surprise
Our proven model does not conclusively show that Nu Skin is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Earnings ESP for Nu Skin is 0.00% as both the Most Accurate Estimate and Zacks Consensus Estimate stand at 79 cents.
Zacks Rank: Nu Skin holds a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, the company's 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies in the consumer staples sector, which are worth considering, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
The J.M. Smucker Co. SJM , with an Earnings ESP of +4.07% and a Zacks Rank #1 (Strong Buy).
Dean Foods Company DF , with an Earnings ESP of +2.63% and a Zacks Rank #3 (Hold).
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