Usana Health Sciences CEO confident about future

Will Atkinson | Feb 06, 2008 2:34pm EST | Comment

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Usana Health Sciences, Inc. (Nasdaq: USNA) CEO Myron Wentz said the embattled company remains confident in its business outlook and the investment opportunity it provides. The multi-level marketing company, which makes nutritional and skin-care products and sells them through a network of associates, was recently the subject of a Securities and Exchange Commission inquiry that closed in early January. Wentz made the comments during a midday conference call.

After the close of trading on Tuesday, Usana reported fourth-quarter earnings of $11.1 million, or $0.61 per share, compared with $11 million, or $0.67 per share, a year earlier. Wall Street analysts, on average, predicted quarterly earnings of $0.66 per share.

Usana Health’s quarterly net sales totaled $108.7 million, up 11% from $98.1 million during the year-ago period. Analysts projected $109.7 million in revenue.

“These results did not meet our expectations,” David Wentz, Usana’s president, said.

Selling, general and administrative expenses during the fourth quarter climbed 23% to $23.7 million, from $19.2 million during the year-ago quarter. Myron Wentz said the increase was due to wage-related and facility costs, along with an increase in legal expenses. The company incurred $0.5 million due to a class-action lawsuit that asserts Usana operates an illegal pyramid scheme, the chief executive said.

The lawsuit is hurting Usana’s bottom line, David Wentz said, because the resulting public relations problem is increasing the time it takes for the firm to train associates. However, he said the lawsuit-related issues will be “largely behind” the company in 2008. During 2007, Usana had $2.5 million in extraordinary legal expenses.

Aggressive promotions hurt the company, David Wentz said, because it brought in a large number of associates who were unable to be properly trained.

“We believe this led, in part, to a decrease in our associate count in North America, as compared to the third quarter of 2007,” David Wentz said.

Myron Wentz said the firm expects capital expenditures to be between $15 million and $20 million during fiscal 2008. Further decreases are likely in 2009, he said.

Usana didn’t buy back any shares during the fourth quarter, but Myron Wentz noted that the firm bought back 1.9 million shares for approximately $80 million during the year. Going forward, the CEO said Usana has about $50.3 million available under its share repurchase program.

Going forward, Usana said it expects first-quarter sales in the range of $105 million to $109 million. Earnings for the first quarter are projected to be between $0.63 and $0.66 per share. Wall Street analysts, on average, anticipate earnings of $0.72 per share on $113.3 million in revenue. The CEO said the company factored in ongoing legal expenses into its guidance. The earnings and revenue projections for 2008 also include share buybacks, he said.

Before Wednesday’s opening, D.A. Davidson analyst Timothy Ramey reiterated his “buy” rating on Usana, but reduced his target price to $49 from $60.

In midday trading, USNA shares are down 16.33%, or $7.43, at $38.07. Over the last 52 weeks, shares have ranged from $28.51 to $61.80.