Nu Skin Enterprises: New Year, Same Old Profit Almost Assured
Summary
- Income and revenues have sustained their rise throughout 2020, but costs weigh heavily on its potential upside.
- Leverage does not play as significant a role in the firm’s operations, with liabilities only at 54.31 percent of assets.
- Nu Skin has consistently given out dividends to its investors, while also increasing the amount in its latest pay-out in February.
- Pandemic boosted the numbers for the firm; the call is for reduction of costs and more exhibits of sustained profitability.
- Management movement (new CEO) for the company to be effective September 2021.
Nu Skin Enterprises (NYSE: NYSE:NUS) is a Utah, United States-based holdings company included in the consumer discretionary sector which is listed in the New York Stock Exchange. According to its website, it has component companies under the umbrella holdings company listed in the NYSE. One of these, Nu Skin, makes over two hundred supplements and other health-related products. It also sells its products via multilevel marketing to its global market. Its other company is called Rhyz, described on its website as a company it uses as an investment vehicle to acquire companies in the same industry that it deems as valuable in its business strategy and industry position. There are currently five companies under Rhyz. Among these companies, Wasatch Labs focuses on the personal-care market and produces hygiene-related products, Elevate Health Sciences is a company that creates capsules used in supplements and other related products in the health industry, while Grov Technologies specializes in agricultural solutions such as vertical farming. All in all, these groups of companies under Nu Skin Enterprises aim to create and market products under the personal care and science-technology areas.
For the latest six years, the performance of Nu Skin Enterprises had already been stable, with the main company Nu Skin starting operations in 1984. From 2016, the company’s net income has stayed above $120mn, including in 2020 where it even recorded an increase in annual net income from the previous year’s reported numbers. In 2016, annual net income was at $143.09mn, while at the end of 2020, it was at $191.36mn. Sales had also managed to maintain its growth trend over the same period, rising from $2.21bn in 2016 to $2.58bn in 2020. Cash levels also rose to $423.9mn in 2020, compared to its 2019 level at $344.04mn. Its costs, however, also tracked the upward trend in revenue as the cost of goods sold rose to $732.02mn in 2020 from the previous year’s annual reading at $581.42mn. Also, its selling, general, and administrative expenses remained at a high level at $1.59bn at 2020 year-end. Nonetheless, upon initial reading, the figures indicate that despite the struggles of companies in the consumer discretionary sector of the economy in 2020, the company has sustained its upward direction and could likely continue in 2021. Thus, details need to be examined in determining the whole picture of Nu Skin Enterprise’s performance in 2020 and what it may signify for 2021. The company will release its 2021 Q1 report on May 5, 2021.
The Financials of the Company
Income Statement
Nu Skin’s 2020 had been opposed to a lot of companies in 2020, with quarterly net income, sales, and EPS all ending up higher at the end of the year. Net income in 2020 Q4 climbed to $73.47mn, from a lowly $19.73mn in the first quarter of 2020. Revenue also recorded an upward movement as it closed up to $748.19mn, from 2020 Q1’s $518.03mn. EPS was at $3.66 in 2020 Q4, from 2020 Q1’s level of $3.13. These figures show that the company was able to sustain demand and create value even as the COVID-19 pandemic impacted the economy massively. As the general public took shelter and with quarantine measures enforced by governments around the globe, the marketing model of the company could have possibly mitigated the impact of the pandemic on its revenue. As it uses the multilevel marketing method of selling its products, it has been insulated from physical shops being closed down. In its 2020 Q4 report for its financial results, Nu Skin CEO Ritch Wood attributed the company’s ability to continue generating revenue to its use of “social commerce to share our products”. With the public being locked down indoors, companies and individuals involved in multilevel marketing businesses capitalized on the opportunity to reach people who were online more often and those who were out of work as a result of the pandemic’s economic impacts. Thus, it further increased its digital footprint as more of its sellers and products had higher visibility in social media and as more people joined the rank of sellers for the company as selling the products could be done from one’s own home via online platforms. Modern Retail magazine cited Nu Skin as one of these companies that generated higher revenue due to this dynamic.
An area of concern to watch out for 2021 Q1’s financial results is that, as briefly touched on, costs for the company are at significant levels. For 2020 Q4, the cost of goods sold rose above $200mn and was $213.46mn, the first time it breached that level in at least five quarters. It was also a 16.41 percent increase from the previous quarter. While selling, general, and administrative expenses were only higher by 0.06 percent at $446.03mn, this was also the highest level at least quarterly. With a net income of $73.47mn in the fourth quarter of 2020, managing to trim costs could have given the company more breathing space and a better picture of its overall performance. The level of these costs needs to be monitored by both the company and the investors for the 2021 Q1 reporting period. While it may report a net income, if high costs continue to drag down this figure, the appeal for investors to purchase stock will be adversely affected.
Source: MarketWatch
Balance Sheet
Looking at the balance sheet, the company’s total assets recorded a 7.73 percent gain in 2020 Q4 with $1.96bn, from the previous quarter’s $1.82bn. This increase is attributed to the increased levels of cash and inventory for the company. Nu Skin held $402.68mn worth of cash in 2020 Q4, a large gain from the $366.71mn it reported in Q3 of the same year. Its inventory, meanwhile, was boosted to $314.45mn in the same quarter, from 2020 Q3’s $270.35mn, with both finished goods and raw materials being added to the supplies of the company. Its accounts receivable has been stable and remained near $60mn for the last three quarters, with 2020 Q4 receivables at $63.37mn. Liabilities are also at significant levels for Nu Skin, as 2020 Q4 total liabilities are at $1.06bn, higher than its 2020 Q3 level at $989.24mn. The company added $44.98mn to its short-term debt in the last quarter of the year, while accounts payable increased to $66.17mn from $55.30mn, effectively canceling out the receivables on the assets side. A notable increase in the liabilities side is that the total current liabilities drove more of the higher total liabilities, with an increase from $466.35mn in 2020 Q3 to $542.86mn at the year-end of 2020. Also, Nu Skin Enterprises managed to extend a streak of straight quarters with a lower long-term debt in 2020 Q4, with the quarterly level at $305.39mn compared to $334.46mn at the end of 2019. This represents the fifth quarter of decreasing long-term debts.
On an annual basis, total assets have increased from 2019 Q4’s $1.77bn to 2020 Q4’s $1.96bn, with the last three quarters of 2020 seeing growth. This is in contrast with liabilities, which initially followed this trend, climbing to $1bn in 2020 Q2 from 2019 year-end’s $893.72mn. The next quarters saw total liabilities remain close to the $1bn level, with Q3 figures showing a slight decline at $982.24mn, before closing 2020 at $1.06bn. Total common equity increased to $894.27mn, up from $792.01mn in 2020 Q2, when the stock price for Nu Skin shares in the NYSE hit its current year-on-year lowest level, and in which it was still recovering from the initial market selloffs brought upon by the initial shock of the pandemic. The balance sheet also shows the relative parity between equity and liabilities vis-à-vis equities. Total liabilities formed 54.31 percent of the amount of total assets, while total equities composed 45.69 percent. This exhibits that Nu Skin may pay off all its debt if it needed to and still would have a fairly large amount left and that the company is less reliant on leverage.
Cash Flow
Annual net operating cash flow for 2020 was at $379.14mn, up by 113.08 percent from 2019’s annual level. This was driven by a massive swing in changes in working capital, which was in negative territory at -$132.44mn in 2019, but swung to $52.56mn in 2020. Annual net income also grew by around $18mn, supplementing the gains. Both investing cash and financing cash outflows increased in 2020, as the former remained steady at $79.43mn, and the latter at $245.17mn. This was a 58.38 percent increase from 2019’s financing cash outflow at $154.79mn, as Nu Skin spent $144.33mn to repurchase its stocks and reduced its long-term debt by $28.21mn. Its dividend payout for 2020 was at $78.39mn, which also pushed financing cash outflows higher. The total annual change in cash for the company was at $67.05mn, a figure boosted by favorable exchange rate conditions. $12.51mn was added to the cash of the company which was attributed to improved FX market conditions. Free cash flow was up to $315.32mn for 2020, from 2019’s $111.86mn.
2020 represented the first year since 2017 in which the company generated a positive change in annual cash. Looking forward to 2021’s first-quarter report, it is notable that the company generated a significant part of its cash in 2020 Q4, as $35.97mn was added to its cash in this period. This was primarily due to quarterly net income contributing around $18mn, and funds from operations adding a further $24mn. Again, net income has proven pivotal not just in the income statement, but also in its ability to translate paper profit into cash. Thus, this and related measures need to be watched by investors in the 2021 Q1 report.
What's in it for Most Investors?
Dividends
Investors looking for a company that pays out dividends consistently could find Nu Skin Enterprises an attractive prospect as it has continued to reward investors. Yahoo Finance reported that Nu Skin announced a dividend worth $0.38 per share for 2021 Q1 that was received last March 10, 2021. The amount represents an increase from 2020 Q4’s dividend of $0.375 per share and is the highest dividend the company has paid out since at least 2013. As the company has managed to issue dividends for twenty straight years, potential investors might see an opportunity to buy shares to also capitalize on its solid and implied ability to do so again in the next quarter. A positive development for investors is that even with massive costs in its year-end reporting, it was able to generate a net income and sustain its dividend payments in 2020. The only downside for these investors is that based on historical dividend periods, the next pay-out would not be until the end of May of 2021, which is still more than a month away as of the time of writing. Thus, a lot of factors still might affect the company’s health significantly enough to cause a decrease or stale growth in 2021 Q2 dividends. Nonetheless, consistency is an attribute that usually spells safety for investors and a high probability of dividend payouts is an opportunity present soon.
Stock Price
The NYSE-listed NUS shares have spent most of March and April in the range of $50-58, after reaching its year-on-year high on February 12 this year, before giving up many of its gains after the announcement of its 2020 annual financial reporting. The latest closing price on April 9 was $51.78. With an EPS for 2020 year-end at 3.66, a P/E ratio at 14.15, and a P/B ratio at 2.95 with a book value of 17.55, the signal is that the company is not undervalued. Neither is it too overvalued, but there is a potential for short-term upside as the P/E ratio at above 14 highlights the consistent performance of the company with regards to creating net income. Even with the book value at a significantly lower price compared to the latest closing price, the state of the company’s financial report gives confidence for further upside movement. The relatively low P/B ratio also indicates that the stock still has some opportunities to climb. Investors can interpret these as green light signals to enter and buy the stock. However, they need to be mindful that the stock price has been trading in a tight range for a month now.
Source: NYSE
Verdict
Nu Skin Enterprises has passed through a turbulent year in 2020 fairly well. The future bodes for more stability as well, with Bloomberg reporting a transition in management personnel as Ryan Napierski, currently, the president of the company will also be taking up the CEO post in September of this year. He is replacing the retiring Ritch Wood in the post. As both executives have been in the company for a long time, the message to the public and investors is that stability and continuity are assured. Although September may seem to be a long time away yet, any transition at the top level must be managed properly. For the long-term investor, keeping this in mind and being prepared for any related developments is important in discerning the direction the company will take in the current year. Another mechanism for this company is that they are an industry leader for beauty device systems and have been so for four years up to 2020, according to a study from Euromonitor as reported by Bloomberg. Given these recent developments and the details that can be seen in the financial reports of the company as well as the consistency of the company with giving out dividends are very attractive prospects medium and long-term wise. Investors under this timeframe can buy the stock for value. For short-term investors, watch the stock trend in the next month for opportunities to enter the market and to gauge whether the stock will exit the consolidation stage.
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