Nature’s Sunshine Products Reports Third Quarter 2014 Results

November 11, 2014
By Team Business For Home International

Nature's Sunshine Products, a leading natural health and wellness company engaged in the manufacture and direct selling of nutritional and personal care products, reported its financial results for the third quarter and declared a quarterly cash dividend of $0.10 per share.

The third quarter reflected continued positive momentum in several key areas of our business which was offset by continued declines our NSP Russia, Central and Eastern Europe business, commented Gregory L. Probert, Chairman and Chief Executive Officer. Importantly, Synergy posted its fifth consecutive record setting sales quarter driven by strength in South Korea, Japan, and a return to growth in Europe.

Strong distributor leadership in these key markets combined with sustained momentum since last year's global summit and launch of the SLMsmart weight management program continue to be strong contributors of growth. Sales in NSP North America have begun to improve with NSP United States and NSP Canada posting net sales growth for the first time since the second quarter of 2013 and the first quarter of 2012, respectively.

We remain cautiously optimistic about the future of this core market as our new products and sales programs continue to gain traction. We are confident in our ability to leverage science-based innovation to address mega-trend health problems and drive distributor adoption, leadership and engagement.

In that respect, we are thrilled to have added four professionals during the quarter to our Medical and Scientific Advisory Board. These key individuals will further support our global organization in educating and training distributors, assisting with product development, conducting extensive research and clinical studies and speaking at various company events.

Mr. Probert continued, We are moving ahead with our multi-brand, multi-channel go-to-market strategy in China with several key new hires including the appointment of Paul Noack as our new President of China and New Markets and two new Managing Directors of NSP China and Synergy China products. Paul and the new Managing Directors all have prior leadership experience in the Chinese consumer products market. We are pleased with the progress made to-date in the regulatory approvals process, and are very excited to enter China as quickly as possible with our partner Fosun Pharma.

Mr. Probert concluded, We are also pleased to have paid a special cash dividend of $1.50 per share in September following the closing of the private placement and joint venture with Fosun Pharma and to announce a new share repurchase program of $20 million. We continue to operate from a position of financial strength and have ample liquidity to continue executing our growth strategies to create long-term shareholder value. Our regular dividend and ongoing share repurchase program reflect our continued commitment to return value to our shareholders.

For the Third Quarter of 2014:

Net sales revenue increased 2.6 percent to $94.9 million, compared to $92.5 million in the third quarter of 2013. In local currencies, net sales revenue increased by 3.2 percent.
Selling, general and administrative expenses increased 18.8 percent to $33.5 million, compared with $28.2 million in the third quarter of 2013. The increase was primarily related to a $2.9 million impairment charge incurred in connection with the currency devaluation for the Company's Venezuelan fixed assets, $0.8 million in one-time restructuring costs in certain markets, $0.6 million of increased health insurance and other benefit costs, and $0.4 million in start-up costs for the China joint venture.
Operating income decreased 60.9 percent to $2.6 million, compared to $6.7 million in the third quarter of 2013. The decrease was primarily due to the increase in one-time selling, general and administrative expenses noted above. Excluding the Venezuela fixed assets impairment charge of $2.9 million, pro forma operating income would have been $5.6 million, compared with $6.7 million in the same quarter a year ago, a decrease of 17.0 percent.
Adjusted EBITDA, defined here as net income before taxes, depreciation, amortization and other income adjusted to exclude share-based compensation expense and Venezuela related impairment charges, decreased 9.6 percent to $7.7 million, compared to $8.5 million in the third quarter of 2013.
Net income was $1.0 million, or $0.06 per diluted common share, compared to $4.9 million, or $0.29 per diluted common share in the third quarter of 2013. Excluding the Venezuela fixed assets impairment charge of $2.9 million and Venezuela foreign exchange losses of $1.2 million, pro forma net income would have been $5.2 million, or $0.29 per diluted common share.
The Company has decided to exit the Venezuelan market due to the difficulties and uncertainties related to import controls, difficulties associated with repatriating cash and high inflation. As a result, the Company expects to incur additional exit costs of $0.6 million to $0.8 million in the fourth quarter of 2014. During the three and nine months ended September 30, 2014, the Company's Venezuelan's subsidiary's net sales revenue represented approximately 1.5 and 1.8 percent of consolidated net sales, respectively.
Cash and cash equivalents as of September 30, 2014, were $70.5 million, compared to $77.2 million as of December 31, 2013.
Shareholders' equity as of September 30, 2014, was $136.6 million, compared to $105.3 million as of December 31, 2013.
Active Managers worldwide were 16,100 and active Distributors and customers worldwide were 299,300 as of September 30, 2014, compared to 16,900 and 324,900, respectively, in the third quarter of 2013.

NSP Americas, Asia Pacific and Europe Results for the Third Quarter of 2014:

Net sales revenue decreased 4.3 percent to $48.4 million, compared to $50.6 million in the third quarter of 2013. In local currencies, net sales revenue decreased by 1.6 percent compared to the third quarter of 2013. The decrease was primarily driven by net sales declines in Japan of $0.8 million (due to the consolidation of NSP and Synergy Japan businesses), $0.6 million in Venezuela (due to currency devaluation) and $1.2 million in the United Kingdom (due to the transition to an export market).
The NSP United States market recorded its first quarter of growth since the second quarter of 2013. In the third quarter, we continued to see our new sales programs gain traction. We have seen increased adoption of the IN.FORM transformational health program, focused on weight management; the building of a daily Habit of Health; and our retail sales tools. We are following the same strategy in our NSP Canada market, which recorded its first local currency net sales growth since the first quarter of 2012.
Contribution margin, defined as net sales revenue less cost of sales and volume incentive expense, decreased 0.3 percent to $19.9 million, compared to $20.0 million in the third quarter of 2013, primarily reflecting lower net sales revenue.
Active Managers within the segment were approximately 7,700 and active Distributors and customers within the segment were approximately 141,800 as of September 30, 2014, as compared to 8,500 and 153,200, respectively, as of September 30, 2013. Managers were down 9.4 percent, and Distributors and customers were down 7.4 percent compared to the prior year quarter. Excluding Japan, where NSP Managers and Distributors have joined Synergy Worldwide, and the United Kingdom, Managers were down 1.5 percent, and active Distributors and customers were down 4.1 percent, compared to the prior year quarter.

NSP Russia, Central and Eastern Europe Results for the Third Quarter of 2014:

Net sales revenue decreased 19.4 percent to $11.8 million, compared to $14.6 million in the third quarter of 2013. Net sales in Ukraine continue to be the most heavily affected by the escalation of political unrest, although other markets across the region were also adversely affected. In conjunction with the political unrest, the weakness of the Ukrainian hryvnia and the Russian ruble have contributed to lower revenues as the Company's products in the region are priced in U.S. dollars and therefore become more expensive when the local currency declines in value.
The Company must caution that near-term sales in NSP Russia, Central and Eastern Europe will undoubtedly continue to be impacted by the political unrest in Ukraine and Russia, possible sanctions in Russia and the impact of currency devaluation. Net sales revenue decreased 8.5 percent to $11.8 million, compared to $12.8 million in the second quarter of 2014. However, despite the net sales decrease from the second quarter to the third quarter of 2014, the Company began to see signs of stabilization in this market towards the end of the third quarter of 2014.
Contribution margin decreased 22.6 percent to $4.2 million, compared to $5.4 million in the third quarter of 2013, primarily due to lower net sales revenue.
Active Managers within the segment were approximately 4,400 and active Distributors and customers within the segment were approximately 99,500 as of September 30, 2014, as compared to 5,200 and 119,400, respectively, as of September 30, 2013. Managers were down 15.4 percent, and Distributors and customers were down 16.7 percent compared to the prior year quarter.

Synergy WorldWide Results for the Third Quarter of 2014:

Net sales revenue increased 27.1 percent to $34.7 million, compared to $27.3 million in the third quarter of 2013. This marks the fifth consecutive record-setting sales quarter for Synergy. In local currencies, net sales revenue increased by 24.1 percent compared to the third quarter of 2013, driven by increased sales in South Korea, Japan, and Europe, partially offset by declines in North America. The increase in net sales revenue is primarily a result of re-engaged leadership, strong execution, and momentum stemming from Synergy's global summit and the launch of Synergy's SLMsmart weight-management program in Asia Pacific. The quarterly increase in local currency net sales in Europe was our first since the fourth quarter of 2013.
A key component of growth in South Korea was continued adoption of the SLMsmart weight management program. As a result, Synergy's weight management product category has grown from $1.5 million to $2.6 million, or from 5.6 percent to 7.4 percent of net sales.
Contribution margin increased 26.4 percent to $12.0 million, compared to $9.5 million in the third quarter of 2013, primarily as a result of increased net sales revenue.
Active Managers within the segment were approximately 4,000 and active Distributors and customers within the segment were approximately 58,000 as of September 30, 2014, as compared to 3,200 and 52,300, respectively, as of September 30, 2013. Managers were up 25.0 percent, while Distributors and customers were up 10.9 percent compared to the prior year quarter.

About Nature's Sunshine Products

Nature's Sunshine Products, a leading natural health and wellness company, markets and distributes nutritional and personal care products through a global direct sales force of over 680,000 independent Managers, Distributors and customers in more than 40 countries. Nature's Sunshine manufactures most of its products through its own state-of-the-art facilities to ensure its products continue to set the standard for the highest quality, safety and efficacy on the market today. The Company has three reportable business segments that are divided based on the characteristics of their Distributor base, similarities in compensation plans, as well as the internal organization of NSP's officers and their responsibilities (NSP Americas, Asia Pacific and Europe; NSP Russia, Central and Eastern Europe; and Synergy WorldWide). The Company also supports health and wellness for children around the world through its partnership with the Sunshine Heroes Foundation. Additional information about the Company can be obtained at its website, www.naturessunshine.com.