A month has gone by since the last earnings report for Medifast (MED Quick QuoteMED - Free Report) . Shares have lost about 11.5% 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 its most recent earnings report in order to get a better handle on the important drivers.

Medifast Q2 Earnings Beat Estimates, Revenues Dip Y/Y

Medifast delivered second-quarter 2024 results, with the bottom and top lines declining year over year. However, both earnings and net revenues beat the Zacks Consensus Estimate.

Medifast is strategically adjusting its operations to meet the changing demands of the weight loss industry. This involves expanding its customer outreach through enhanced marketing efforts and entering the medically supported weight loss domain in partnership with LifeMD. These steps are designed to increase its market presence and cater to a wider audience, highlighting a forward-looking approach aimed at driving growth and adapting to market dynamics despite the competitive landscape of the weight loss sector.

Medifast’s adjusted earnings were 92 cents per share in the second quarter, down from $2.77 in the year-ago quarter. The metric surpassed the Zacks Consensus Estimate of earnings of 36 cents per share.

Net revenues of $168.9 million declined 43.1% year over year mainly due to lesser active earning OPTAVIA Coaches and reduced productivity per Coach. The average revenue per active earning OPTAVIA Coach was $4,972, down 10.9% year over year from $5,578 million due to lower customer acquisition. The total number of active earning OPTAVIA Coaches fell 36.2% to 33,900 from 53,100 in the year-ago quarter. The top line surpassed the Zacks Consensus estimate of $160 million.

The adjusted gross profit was $126 million, down 40.2% year over year on reduced revenues. The adjusted gross profit margin was 74.8%, up 370 basis points year over year. This increase mainly resulted from the cost reductions achieved through the company's Fuel for the Future initiative, coupled with efficient inventory management.

Adjusted selling, general and administrative expenses (SG&A) fell 33.8% year over year to $113.8 million. The decrease was primarily attributed to several factors, including reduced Coach compensation due to lower sales volumes and fewer active earning Coaches. 

As a percentage of revenues, adjusted SG&A expenses increased 940 basis points (bps) to 67.5%, primarily attributed to the loss of leverage on fixed costs due to lower sales volumes and supply-chain optimization costs. Additionally, the company incurred expenses for market research and investments in medically supported weight loss, costs for exiting hotel commitments for future annual OPTAVIA conventions reflecting a strategic change and costs for company-led customer acquisition initiatives. We expected adjusted SG&A expenses, as a percentage of revenues, to increase 600 bps to 64.1% in the second quarter.

The adjusted income from operations declined 68.4% to $12.2 million. We note that the adjusted operating margin decreased 580 bps year over year to 7.3%.

Other Financial Updates & Guidance

Medifast concluded the quarter with cash, cash equivalents and investments of $165.3 million, no interest-bearing debt (as of Jun 30, 2024) and total shareholders’ equity of $205.3 million.

Management expects revenues to be in the range of $125-$145 million for the third quarter. The company projects loss per share to be in the band of 5-70 cents. The earnings per share guidance excludes costs associated with the initiation of the partnership with LifeMD, as well as any gains or losses related to changes in the market price of the company’s LifeMD investment.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -107.14% due to these changes.

VGM Scores

Currently, Medifast has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 belongs to the Zacks Food - Miscellaneous industry. Another stock from the same industry, Sysco (SYY Quick QuoteSYY - Free Report) , has gained 4.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.

Sysco reported revenues of $20.56 billion in the last reported quarter, representing a year-over-year change of +4.2%. EPS of $1.39 for the same period compares with $1.34 a year ago.

Sysco is expected to post earnings of $1.14 per share for the current quarter, representing a year-over-year change of +6.5%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

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