A month has gone by since the last earnings report for Medifast (MED Quick QuoteMED - Free Report) . Shares have lost about 1.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Medifast due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Medifast Q3 Earnings Top Estimates, Revenues Decline Y/Y

Medifast delivered third-quarter 2023 results, with the top and bottom lines declining year over year. However, earnings and net revenues beat the Zacks Consensus Estimate.

Medifast is encountering difficulties in attracting customers, primarily because of a range of macroeconomic elements, such as a rapidly changing economy, inflation, shifts in social media algorithms and fierce competition. Nonetheless, the company's leadership is actively implementing the "Fuel for the Future" strategy, which comprises essential efforts designed to improve efficiency and reduce costs.

Medifast’s adjusted earnings were $2.12 per share in the third quarter of 2023, down from the $3.27 reported in the year-ago quarter. The metric surpassed the Zacks Consensus Estimate of $1.02 per share.

Net revenues of $235.9 million declined 39.6% year over year mainly due to lesser active earning OPTAVIA Coaches and lesser productivity per active earning OPTAVIA Coach. The average revenue per active earning OPTAVIA Coach stood at $5,008, down 15.1% from $5,897 million, thanks to persistent pressure on customer acquisition. This was somewhat offset by the price increase undertaken in November 2022. The total number of active earning OPTAVIA Coaches fell 28.9% to 47,100 compared with the 66,200 reported in the year-ago quarter. The top line surpassed the Zacks Consensus estimate of $225 million.

The gross profit came in at $177.4 million, down 37.3% year over year on reduced revenues. The gross profit margin was 75.2%, up from the 72.5% reported in the prior-year quarter. Efficiencies in inventory management and reduced supply-chain costs, along with the optimization of the company's distribution center footprint, had a positive effect on the rise in gross margin. We had expected the gross profit margin to come in at 68.3% in the third quarter of 2023.

Selling, general and administrative expenses (SG&A) fell 35.3% year over year to $151.9 million. The decrease in SG&A expenses was primarily attributed to several factors, including reduced Coach compensation due to lower sales volumes and fewer active earning Coaches, as well as the progress made in various cost reduction and optimization initiatives. Additionally, charitable donations made in 2022 contributed to the decrease.

As a percentage of revenues, SG&A expenses increased 430 basis points (bps) to 64.4% primarily due to the lack of leverage on fixed costs resulting from lower sales volumes in comparison to 2022. It also included expenses related to market research and investments in medically-supported weight loss activities in the third quarter of 2023. We had expected SG&A expenses, as a percentage of revenues, to be 60.4% in the third quarter.

The income from operations declined 47% to $25.5 million mainly due to a decrease in gross profit. However, this was partially mitigated by reduced SG&A expenses and supported by the cost reduction efforts associated with the "Fuel for the Future" program. The operating margin decreased to 10.8% from the 12.3% reported in the year-ago quarter. We had expected the metric to come in at 8% in the third quarter.

Medifast concluded the quarter with cash and cash equivalents of $112.8 million, no interest-bearing debt (as of Sep 30, 2023), and total shareholders’ equity of approximately $193 million.

The company declared a quarterly cash dividend of $1.65 per share, payable on Nov 7, 2023, to shareholders of record as of Sep 19.

Guidance

Management expects revenues of $1,050-$1,070 million for 2023. The company expects earnings per share (EPS) of $8.65-$9.55 for 2023. MED assumes the effective tax rate between 20.5% and 21.5% for 2023.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -45.83% due to these changes.

VGM Scores

Currently, Medifast has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Medifast has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Medifast is part of the Zacks Food - Miscellaneous industry. Over the past month, Mondelez (MDLZ Quick QuoteMDLZ - Free Report) , a stock from the same industry, has gained 3.2%. The company reported its results for the quarter ended September 2023 more than a month ago.

Mondelez reported revenues of $9.03 billion in the last reported quarter, representing a year-over-year change of +16.3%. EPS of $0.82 for the same period compares with $0.74 a year ago.

Mondelez is expected to post earnings of $0.76 per share for the current quarter, representing a year-over-year change of +4.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -1.2%.

Mondelez has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.