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Subject: USNA page 1 Date: 5/28/2011 3:07 PM
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Usna (USNA)
Price $29.40
S&P500 1331.10
Dow 12,441.58
Oil 100.75

It has been a long time since I reviewed watch list company USNA. The departure of the officers recently caused a large drop in the stock price which I feel is overdone. I have purchased additional shares of this company for another trade. This company may not have hit new highs on a regular basis, but it has traded in repeated trading range. The 10 PE today is its lowest since the Great recession. Earnings, sales and cash flow are at all time highs. Their Chinese strategy, explained in greater detail below should be a excellent driver of future growth.

February 7, 2006 to April 18, 2006 trading range was $38.31 to $43.42: PE ratio range was 19.34 to 21.93.

April 18, 2006 Fiscal 1Q:2006 Highlights:
** Revenues for 1Q:2006 increased 17.1% to $89.7 million compared to $76.6 million last year.
** The first quarter also saw a 14.3% increase in the number of active Associates. Usana is a multi-level marketing company so growth in active associates is very important. If this number begins to drop off, it is the first clue that they may be peaking.
** Option expense $947,000
** Net earnings $9.6 million or $0.50 per diluted share an increase of 7.1% from last year's $8.9 million or $0.45 per diluted share. Option expenses reduced earnings in 2006 by $0.03. This expense was not taken out of 1Q:2005.
** TTM earnings $2.03
** The 14.7% growth in associates in North America grew sales 22.1%. In the US, 20% associate growth translated to 25.2% sales increases.
** Successful launch of their RESET(TM) Weight Management Program
** Cash $25,505,000 and no debt.
** Basic share count 18,460,000
** Diluted share count 19,228,000 – This is down from the first time I wrote about Usana October 31, 2004 when they had 20,296,000 diluted shares.
Cash flow for the quarter $13,890,000 – run rate $55,560,000
** ** Trading range between April 18, 2006 and July 18, 2006 was $35.51 and $40.86. The PE range was 17.49 and 20.12.


July 18, 2006
Second quarter 2006 highlights:
** Revenues rose 15% to $93.9 million from $82 million last year
** Net income rose 8.4% from $9.5 million to $10.3 million including options expense
** Net income per share rose to $0.55 from $0.48 including option expenses of $0.03 per share.
** TTM earnings $2.10
** Active associates grew 13.6%
** The company bought back 800,000 shares at an average price of $37.63
** Diluted share count 18,884,000 compared to 19,821,000 last year
** Tax benefit - During the second quarter of 2006, the company's estimated tax rate was adjusted on a year-to-date basis to 34.8%, which is lower than the 35.5% tax rate that the company had previously forecasted for the full year. This lower tax rate increased earnings per share in the quarter by approximately $0.01.
** Sales in North America grew 19% - North America is considered a more mature market – but excluding the positive impact of currency fluctuations, this sales increase would have been 15.8%
** US sales grew 20% and active Associate grew to 90,000 from 77,000
** Cash $9,173,000 and no debt
** Trading range was July 18, 2006 and October 17, 2006 was $36.15 to $48.92: PE ratio was 17.21 to 23.30

October 17, 2006 3Q:2006
** Revenues were $95.2 million up from $82.2 million up 15.8%
** 17th straight quarter of record sales for the Company
** Active Associates numbers grew 14.2%
** Earnings were $10.2 million up from $10 million (this quarter included equity-based compensation
** TTM earnings $2.14
** Earnings per share increased 7.8% to $0.55 up from $0.51 per share (equity based compensation cost the company $0.05 in the 3Q:2006)
** Diluted shares outstanding 18,486,000
** Cash $20,977,000
** Trading range between October 17, 2006 and February 7, 2007 was $42.76 to $61.70: PE ratio range was 19.98 to 28.83

February 7, 2007 4Q:2006 highlights
** 4Q revenues increased 16.5% to $99.8 million up from $85.6 million
** 4Q increase in active Associates was 15%.
** 4Q net income per share was up 13% to $0.61(including $0.04 stock-based compensation) from $0.54 last year
** 18th straight quarter of record sales
** Fiscal 2006 sales increased 15.8% to $374.2 million from $323.1 million last year
** TTM revenues $374.2 million or $20.33 per share
** Fiscal 2006 earnings increased 6.8% to $62.3 million up from $58.4 million
** Fiscal 2006 earnings per share was $2.20 (including $0.17 of stock-based compensation) up from $1.98 last year
** Cash $27,029,000
** Diluted share count $18,405,000
** Cash flow for fiscal 2006 $49,482,000 or $2.68 per share
** Trading range between February 7, 2007 and April 17, 2007 was $40 to $61.80. PE ratio range was 18.18 to 28.09

April 17, 2007 1Q:2007 earnings’ highlights:
** Revenues were $102.568 million up from $88.229 million.
** TTM revenues $388.539 million or $21.04 per share
** Diluted share count 18.463 million
** Earnings were $0.63 up from $0.50
** TTM earnings $2.33
** Cash $32.496 million and no debt
** Associates in North America 97,000 up from 86,000 *60.6% of total sales*
** Associate in Asia Pacific 63,000 up from 50,000 *39.4% of total sales*
** Trading range between April 17, 2007 and July 17, 2007 was $36.75 to $51.50: PE Ratio range was 15.77 to 22.10: PS ratio range was 1.75 to 2.45


July 17, 2007 2Q:2007 earnings’ highlights:
** Revenues $109.407 million up from 92.482 million
** TTM revenues $405.464 million or $23.62
** Diluted share count 17.163 million
** Earnings per share was $0.66 up from $0.55
** TTM earnings were $2.44
** Cash $9.876 million
** Debt $34.515 million
** Sales from North America $68.156 million up 11.2% from $61.294 million
** Asia Pacific sales were $39.263 million up 38.5% from $28.354 million
** Active Associates 104,000 up from 90,000 North America *58.5% of sales*
** Active Associates Asia Pacific 178,000 up from 142,000 *41.5% of sales
** Active Preferred customers north America 71,000 up from 68,000
** Active Preferred customers Asia Pacific Total 8,000 up from 7,000
** Trading range between July 17, 2007 and October 16, 2007 was $28.51 to $48.50: PE ratio range was 11.68 to 19.88: PS Ratio range was 1.21 to 2.05.

October 16, 2007 3q:2007 earnings highlights:
** Revenues $106.181 million up 15.5% from $91.967 million
** TTM revenues were $419.678 million or $25.46 per share
** Diluted share count 16.613 million
** Cash
** Earnings per share $0.68 up from $0.55
** TTM earnings were $2.57
** Sales in North America $66.619 million (62.8% of sales) up from $60.502 million
** Sales in Asia Pacific $39.562 million (37.2% of sales)up from $31.465 million
** North America Active Associates 105,000 up from 90,000
** Asia Pacific Active Associates 75,000 up from 55,000
** Active Preferred customers North America 71,000 up from 69,000
** Active Preferred customers Asia 8,000 up from 7,000
** Cash $11.718 million
** Debt 34.625 million
** Trading range between October 16, 2007 and February 5, 2008 was $34.03 to $46.45: PE ratio range was 13.24 to 18.07: PS ratio range was 1.34 to 1.82


February 5, 2008 4Q:2007 earnings’ highlights:
** 4q Revenues $108.748 million up 10.8% from 98.121 million
** Fiscal 2007 sales were $423.1 million up 15.9% from $365.2 million
** TTM revenues were $423.1 million or $25.51 per share
** Earnings $0.67 up from $0.61
** Fiscal year earnings from continuing operations was $2.67 up from $2.25
** TTM earnings $2.63
** Diluted share count 16.586 million
** Cash $12.865 million
** Cash flow for the year $43.707 million or $2.66 per share
** Debt $28 million
** Sales in North America $67.907 million (62.4% of sales) up from $65.471 million
** Sales in Asia Pacific $40.841 million (37.6% of sales) up from $32.650
** Active associates in North America 100,000 up from 94,000
** Active associates in Asia 76,000 up from 59,000
** Active preferred North America customers 70,000
** Active preferred customers Asia 8,000
** Trading range between February 5, 2008 and April 21, 2008 was $18.83 to $40.00: PE Range was 7.16 to 15.21: PS ratio range was .74 to 1.57


April 21 2008 1Q:2008 earnings highlights:
** Revenues were $101.57 million up from $100.678
** TTM revenues were $423.992 million or $25.76
** Diluted share count 16.459
** Earnings were $0.47 down from $0.63
** TTM earnings $2.47
** Cash $17.566 million
** Cash flow for the quarter $3.1 million
** Debt $28 million
** North America sales 62.275 million down from 64.553 million
** Asia sales $39.295 million
** Active North America associates 95,000 down from 97,000
** Active Asia associates 69,000 up from 63,000
** Active preferred customers 69,000 down from 72,000 North America
** Active preferred customers in Asia 8,000 same as last year
** Trading range between April 21, 2008 and the present July 5, 2008 was $18.18 to $28.97: PE ratio range was 7.32 to 11.73: PS ratio range was .71 to 1.13

July 23, 2008 2Q:2008 earnings’ highlights:
** Revenues were $109.208 million up from $107.542 million
** TTM Revenues $425.658 million or $25.68
** Earnings were $0.62 up from $0.66
** TTM earnings were $2.43
** Diluted share count 16.46 million
** Cash flow for six months $13.613 million down from $18.3 million
** TTM cash flow was $39.02 or $2.37
** Trading range between July 23, 2008 and October 14, 2008 was $27.64 to $45.80: PE Ratio range was 11.38 to 18.85: PS ratio range was 1.08 to 1.78: Cash flow yield range was 5.2% to 8.6%

October 14, 2008 3Q:2008 earnings’ highlights:
** Revenues were $84.948 million up from $84.221 million
** TTM Revenues were $426.385 million or 26.43 per share
** Earnings were $0.50 down from $0.68
** TTM earnings were $2.25
** Diluted share count 16.133 million
** Cash flow for nine months was $23.04 million down from $25.134 million
** TTM cash flow was $41.6 million or $2.58
** Trading range between October 14, 2008 and February 23, 2009 was $20.07 to $36.55: PE ratio range was 8.92 to 16.24: PS ratio range was .76 to 1.38: Cash flow yield range was 7.1% to 12.86%

February 23, 2009 4Q:2008 earnings’ highlights:
** 4Q revenues were $111.058 million up from $108.748 million
** Fiscal 2008 revenues were $429.012 million up from $423.149 million
** TTM revenues were $429.012 million or $27.43
** 4Q earnings were $0.29* ($0.56 with adjustments) down from $0.66
** Fiscal 2008 $1.85 ($2.12 with adjustments) down from $2.65
** Diluted share count 15.642 million
** Cash flow for the year was $29.9 million or $1.91
** Trading range between February 23, 2009 and April 28, 2009 was $17.72 to $27.90: PE ratio range was 8.36 to 13.15: PS ratio range was .65 to 1.02: Cash flow yield range was 6.9% to 11.08%

April 28, 2009 1Q:2009 earnings’ highlights:
** Revenues were $97.299 million down from $101.57 million
** TTM revenues were $424.741 million or $27.61 per share
** Earnings were $0.43 down from $0.44
** TTM earnings were $2.11
** Diluted share count 15.382 million
** Cash flow negative ($2.227 million) down from $3 million
** TTM cash flow was $24.67 million or $1.61
** Trading range between April 28, 2009 and July 28, 2009 was $23.74 to $30.22: PE ratio range was 11.25 to 14.32: PS ratio range was .86 to 1.1: Cash flow yield range was 5.3% to 6.8%

July 28, 2009 2Q:2009 earnings’ highlights:
** Revenues were $112.093 million up from $109.208 million
** TTM revenues were $427.626 million or $27.79
** Earnings were $0.57 down from $0.61
** TTM earnings were $2.07
** Diluted share count 15.385 million
** Cash flow for six months $4.6 million down $13.6 million
** TTM cash flow was $20.9 million or $1.36
** Trading range between July 28, 2009 and October 27, 2009 was $30.02 to $37.19: PE ratio range was 14.5 to 17.97: PS ratio range was 1.08 to 1.34: Cash flow ratio range was 3.7% to 4.5%

October 27, 2009 3Q:2009 earnings’ highlights:
** Revenues were $110.764 million up from 107.176 million
** TTM Revenues were $431 million or $27.74
** Earnings were $0.51 up from $0.50
** TTM earnings were $2.08
** Diluted share count 15.547 million
** Cash $13.265 million: Debt 17 million
** Cash flow for nine months $18.5 million down from 23.2 million
** TTM cash flow was $25.2 million or $1.62
** Trading range between October 27, 2009 and February 9, 2010 was $25.25 to $35.79: PE ratio range was 12.14 to 17.1: PS ratio range was .91 to 1.29: Cash flow yield range was 4.5% to 6.4%
** Special note: The stock price fell over $6.00 to close at $30.24 a day after the report October 28, 2009

February 9, 2010 4Q: 2009 earnings highlights:
** 4Q revenues were $116.784 million up from $111.058 million
** Fiscal 2009 revenues were $436.94 million up from $429.012 million
** TTM revenues were $436.94 million or $28.31
** 4Q earnings were $0.66 up from $0.29
** Fiscal 2009 earnings were $2.17 up from $1.85
** Diluted share count 15.432 million
** Cash flow for the year was $29.2 million or $1.89 per share
** Trading range between February 9, 2010 and April 27, 2010 was $24.34 to $35.75: PE Ratio range was 11.22 to 16.48: PS ratio range was .86 to 1.26: Cash flow yield range was 5.3% to 7.8%

April 27, 2010 1Q:2010 earnings highlights:
** Revenues were $119.087 million up from $97.299 million
** TTM revenues were $458.728 or $29.57
** Earnings per share $0.62 up from $0.43
** TTM earnings were $2.36
** Diluted share count 15.513 million
** Cash flow for the quarter was $14.6 million up from negative ($2.16 million)
** TTM cash flow was $45.96 million or $2.96 per share
** Trading range between April 27, 2010 and July 27, 2010 was $33.60 to $40: PE ratio range was 14.24 to 16.95: PS ratio range was 1.14 to 1.35: Cash flow yield range was 7.4% to 8.8%

July 27, 2010 2Q:2010 earnings’ highlights:
** Revenues were $126.011 million up from $112.093 million
** TTM revenues were $472.7 million or $30.11
** Earnings per share $0.69 up from $0.57
** TTM earnings were $2.48 per share
** Diluted share count 15.697 million
** Cash flow for the six months was $21.7 million up from $4.57 million
** TTM cash flow was $46.33 million or $2.95
** Trading range between July 27, 2010 and October 26, 2011 was $38.65 to $45: PE ratio range was 15.59 to 18.15: PS Ratio range was 1.28 to 1.5: Cash flow yield range was 6.6% to 7.6%

October 26, 2010 3Q:2010 earnings’ highlights:
** Revenues were $135.006 million up from $110.764 million
** TTM revenues were $497 million or $30.59
** Earnings were $0.79 up from $0.51
** TTM earnings were $2.76
** Diluted share count 16.247 million
** Cash flow for the nine months was $42.6 million up from $18.5 million
** TTM cash flow was $53.3 million or $3.28
** Trading range between October 26, 2010 and February 8, 2011 was $37.82 to $45.50: PE ratio range was 13.7 to 16.49: PS ratio range was 1.24 to 1.49: Cash flow yield range was 7.2% to 8.7%

February 8, 2011 4Q:2010 earnings’ highlights:
** 4Q revenues were $137.54 million up from $116.784 million
** Fiscal 2010 revenues were $517.644 million up from $436.94 million
** TTM revenues were $517.644 million or $32.47
** 4Q earnings were $0.75 up from $0.66
** Fiscal 2010 earnings were $2.86 up from $2.17
** Diluted share count 15.942 million
** Cash $24.22 million: Debt 0
** Cash flow for the year was $62 million or $3.89 per share
** Trading range between February 8, 2011 and April 26, 2011 was $32 to $35.92: PE ratio range was 11.19 to 12.56: PS ratio range was .99 to 1.11: Cash flow yield range was 10.8% to 12.2%
** Special note: The stock price fell about $5.00 to close at $35.00 a day after the report on February 9, 2011.

April 26, 2011 1Q:2011 earnings’ highlights:
** Revenues were $143.566 million up 20.6% from $119.087 million
** TTM revenues were $542 million or $33.43
** Earnings $0.70 up from $0.62
** TTM earnings were $2.94
** Diluted share count 16.217 million
** Cash $32.718 million: Debt 0
** Cash flow for the quarter was $16.9 million up from $14.6 million
** TTM cash flow was $64.3 million or $3.97
** Gross margins were 82.7%: Operating margins were 12.2%
** Trading range between April 26, 2011 and the present was $27.87 to $38.50: PE ratio range was 9.48 to 13.09: PS ratio range was .83 to 1.15: Cash flow yield ratio range was 10.3% to 14.2%

Q1:2011 Notes:

Sales were $143.6 million up 20.6% from $119.1 million last year. TTM revenues were $542 million up 18.2% from $458.7 million.

Active associate count dropped 1%. They believe the lower associate count caused sales to be flat in North America. Sales came in at about $60 million for that region. In the Asian Pacific region sales grew 42.6% to $84 million which represents 58.2% of total sales. Active associates count grew 18.2% in the region. The majority of the growth came from Hong Kong where sales increased 82.7% while the number of active associates grew 35.6%. It is important to note that there are 82,000 active associates in Hong Kong and Taiwan and Greater China compared to just 49,000 in the United States. The vast majority of the associates are in Hong Kong and Taiwan. There are no USANA associates in China except for BabyCare associates which number around 7500.

USNA is trying to get more licenses for direct sales of their products in China. The BabyCare acquisition will get their foot in the door. If Taiwan and Hong Kong are any indication, the Chinese market will be very huge for them – it represents one more reason I feel the sell-off was overdone.

The Philippines and South Korea grew sales in the double digits. These are small but emerging markets.

Gross margins were 82.1% up from 80.7% in the first quarter. Currency exchange rates, reduced freight costs and lower overall costs of raw materials helped boost margins. Associate incentives expense improved 30 basis points to 45.1% of sales. They realigned compensation to reflect actual sales growth and the lower payout of BabyCare helped lower the expenses in this category.

Net income was $11.4 million up 18.8% from $9.6 million last year. Earnings per share were $0.70 up from $0.62 last year. The new BabyCare business caused a dilutive impact of $0.08 per share. About $0.03 was due to the increase in shares and $0.05 from operating expenses. TTM earnings were $2.94 up 24.6% from $2.36 last year.

Cash flow for the quarter was $16.9 million up from $14.6 million. TTM cash flow was $64.3 million up 39.9% from $45.96 million. They have $32.7 million in cash and zero debt. Diluted share count was 16.217 million up from 15.513 million. The BabyCare business accounted for the addition of 400,000 shares.

Guidance:

They estimate sales between $530 million and $550 million in 2011. They believe they will make between $2.85 and $2.95 in 2011.

ThompsonFn estimates: May 28, 2011
Q2:2011 $0.71
Q3:2011 $0.73
Fiscal 2011 $2.92
Fiscal 2012 $3.22

Events
August 16, 2010 – USNA acquired BabyCare LTD, a China-based manufacturing company that sells nutritional products to infants. It was an unprofitable company. But BabyCare operates in 21 cities including Beijing. They made the deal by buying Pet Lane which was a Delaware corporation that was the parent company of BabyCare in China. The purchase price was $45 million and 400,000 shares of USNA stock.

It is important to note this company wasn’t involved in the 300,000 children who were sickened when they drank Chinese infant formula tainted with the industrial chemical melamine.

The purchase of BabyCare will give USNA the license needed for direct sales in China. With the super growth of the Hong Kong market, this could be an excellent opportunity for them. The Company believes they will see meaningful growth in China by the end of 2011.

May 10, 2011 12:31 PM edt

Usana said its chief operating officer and president, Fred Cooper and its chief financial officer, Jeffrey Yates, are resigning to pursue other business endeavors. Mark Wilson, executive vice president of sales is also leaving. Usana’s stock dropped about $4.50 on the news to close at $33.01 that day. The stock price continued to drop to an intraday low of $27.87 on May 13, 2011. This represented a drop of 38.7% from its high of $45.50 set on October 27, 2010

ThompsonFn estimates: February 8, 2011
4Q:2010 $0.84
Fiscal 2010 $2.94
1Q:2011 $0.73
Fiscal 2011 $3.36

My caps pitch:
http://caps.fool.com/Pitch/USNA/5730917/i-added-usna-on-caps...

Conclusion:
Multi-level marketing turns off a lot of investors. It doesn’t bother me at all. In fact, I like some of the products that these companies produce. Minkow bashed the company as a pyramid scheme. He was subsequently sued by USNA. Nothing really changed. There have been very many successful multi-level marketing firms that flourished long after they matured. Shaklee continued to grow until it was purchased by a Japanese firm and is probably still growing. When associate numbers drop, it is a reason to be watchful perhaps concerned about long-term growth. But I don’t get overly concerned particularly if I can buy at a good value point.

I recently purchased this company. I believed the departing officers weren’t a reason to drop the company’s stock this much. I can’t believe people sold a company where sales are growing 18.2%, cash flow by 39.9% and earnings by 24.6%.

Having the president, Chief financial officer and vice president of sales leaving on the same day is a fair reason to be concerned. The company said they were leaving to pursue other business opportunities and I am satisfied with the answer. At $29.40, the PE ratio is 10 and the cash flow yield is 13.5%. I like those numbers. They have $32.7 million in cash and no debt. They have business growth opportunities in China with the acquisition of BabyCare. Everyone spouts about growth in China, but USNA has impressive numbers in Hong Kong now. Hong Kong is their fastest growing market and grew over 82% in this first quarter. They have more sales in the Asian Pacific region than in North America. I like the prospects here. They have more associates in Hong Kong and Taiwan than all of North America, even though, they have no associates on Mainland China other than associates acquired with BabyCare.

Over the years, USNA has backed under $30 only to rise right back up over $40. I like the established trading range for them and I took advantage of the low prices with an additional share purchase. The last time they traded at a PE Of 10, they were priced at $21.10 during the Great Recession. My goal with these new shares is to produce some trading cash flow. As always I will keep a long-term position in them forever.


tom e

thomas engle
TMF Coverage Fool
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