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business newsInvestors Hungry for Weight Watchers After Fourth Quarter Results
By
Justin Sharon
Feb 17, 2011 5:00 pm
Today's top NYSE stock ended up an astonishing 45%, and stands at a fresh 52-week peak.
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It made $48.9 million, $0.66 on an earnings per share basis, well above respective year-ago levels of $18.7 million and $0.24, which were weighed down by one-off charges. Revenue rose 15%, to $356.7 million, as adjusted EPS beat Street estimates by $0.08. CEO David Kirchoff said enrollment volumes were “terrific” in both the US and UK. Meeting fees rose 7% even as total attendance slipped 0.8% from 12 months earlier. International was especially strong in this segment, up some 16% for the final three months of the year.
This of course encompasses the start of the industry’s traditional sweet spot, when guilt over gluttony from Thanksgiving to the Super Bowl twins with New Year’s resolutions to drive sales. The National Institutes of Health claimed 11 years ago that such holiday pound-packing is mostly myth, but the subsequent march of obesity rates probably demands a recount.
Weight Watchers also saw a 31% annualized surge in its online business and is guiding full-year 2011 earnings sharply higher, now projecting a per share range of between $3.50 and $3.85, far ahead of the $2.80 that consensus had expected. Analyst Kurt Frederick with Wedbush Securities raised his price objective by $8 to $50 on February 14 -- another high-calorie day of course -- and this morning cited Weight Watchers’ PointsPlus system as being a key driver of outperformance. Going forward, the firm sees opportunities to reposition itself as a broader health and wellness company in a country looking to get off the couch.
Risks are of course abundant. Today’s volume is the heaviest in seven years, suggesting some serious short covering. Big Pharma is readying a roster of diet drugs. And weight-loss fads are essentially discretionary expenditures and can be enormously fickle; ask Atkins. As any dieter can tell you, gravity always wins out in the end, but shares, even after gaining 118.58% in a year, still aren’t especially expensive on most metrics.
Pleasingly plump or not, please see Weighing In, Where Are All the Obese CEOs?, and Year of the Diet Drug?
After Weight Watchers it can only be the world’s biggest food company. Ironic? Well, yes and no, for Swiss giant Nestlé SA (NSRGY) actually owns Lean Cuisine and Jenny Craig among otherwise fattening offerings that include Häagen-Dazs, Dreyer’s, Hot Pockets, and assorted to-die (and diet) for confectionery like KitKat. Shares in Europe’s third largest company by market cap are trading solidly higher after announcing better-than-expected top line results earlier today.
Full-year net profit of about $35.8 billion was admittedly boosted by its sale of a remaining stake in eye-care concern Alcon but organic growth of 6% was still relatively strong. Emerging markets, which showed 11.5% full-year sales gains, was a standout and is enabling Nestlé to propose a 15.6% per share hike to 1.85 Swiss francs in the dividend. (Preferably payable in chocolate.)
Although George Clooney now makes a much less persuasive pitch-person than Jennifer Hudson -- it’s hard to imagine even the ultimate Mr. Suave casually ordering up a Nespresso when he’s currently battling a second bout of malaria -- sales of the popular product are surging. The pricey coffee capsules pulled in more than 3 billion francs annually for the first time even as a floating supermarket targets a much less affluent clientele on the Amazon.
Red flags do of course include rising commodity costs, CFO Jim Singh saying, “We saw a significant uptick in raw material prices in the second half.” Poorly performing brands such as Stouffer’s also showed only anemic sales. Nestlé is targeting 5.6% organic growth for 2011, in line with consensus, and another stock buyback is soon set to begin. Valuation however, at about 15 times this year’s estimates, are almost as rich as the company’s candies.
Also check out The Bad Boys of Business: Nestle and Should Nestle Be Your Next Pharma Buy?
For our third stock we’ll combine both exercise and the Alps. Well, sort of, for athletic footwear and apparel outfit K-Swiss (KSWS) is actually a California company. Shares are certainly running downhill in a hurry, off about 10% following a substantial earnings miss. For the fourth quarter, it posted an operating EPS loss of $0.58, considerably below consensus of only minus $0.29. Revenues rose a scant 1.5% -- expectations were for 10% -- and gross margin of 32.4% also came in light at a firm that also sells clothing accessories.
K-Swiss products tend to have an understated and retro look, leaving flashier bells and whistles to others. It has traditionally been strong in tennis, where endorsers include Anna Kournikova. (Not to mention top-ranked identical twins the Bryan brothers, who unlike our Russian bombshell have actually won something.)
K-Swiss also initiated full-year guidance for 2011 and expects revenues to be between 25% and 35% above last year’s level. Chairman Steven Nichols admitted that “2010 was a year we committed to innovation and increased brand awareness -- at all costs.”
The company’s Classics business is still struggling and although its Running footware franchise shows signs of improving, shares appear to lack current catalysts.
For more, turn to Nike or Adidas: Who Owns Little Jordan? and Winners & Sinners: RadioShack, Kendle, Healthways, Tessera, K-Swiss.
DreamWorks Animation (DWA) has high hopes for its I Am Number Four, opening tomorrow. Four percent is alas about what its stock ended down today after the feature film maker had its rating reduced this morning.
The nightmare session followed Stifel Nicolaus uttering the four-letter word rarely heard on Wall Street research departments, taking it to a Sell from Hold. Stifel cited valuation issues, never good news for a stock that had already slid about 26% in a year prior to today’s tumble. The firm’s biggest box office cash cow, its $3 billion Shrek franchise, ended its run last year. (Not a minute too soon, to judge from some ill-advised advertising.) Meanwhile more recent offerings like How to Train Your Dragon haven’t been as successful.
Benjamin Mogil at Stifel also trimmed his 12-month price target by $3 to $25 and sees little incremental upside from upcoming DVD releases including Megamind, which comes out a day after DreamWorks’ February 24 earnings announcement. The company admittedly attracts creative talent unmatched in its industry, and boasts a large library of lucrative animated film assets. For now however, it’s hard to see a Hollywood ending on the horizon.
Hollywood CEOs: Steven Spielberg, DreamWorks’ “Megamind” Tops Charts Once Again, Dreamworks Gets Torched on “Dragon” Failure has additional analysis.
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No positions in stocks mentioned.
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Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
