Hedge fund manager Clinton Group is pushing Nutrisystem Inc.'s
(NTRI) board to increase its dividend, saying such use of the
weight loss products company's excess capital could improve value
for shareholders and reduce its stock price volatility.
Clinton Group disclosed it increased its ownership in the
company to 5.2% and is now one of its top three stockholders. In a
letter to Nutrisystem Chief Executive Dawn Zier, Clinton Group said
it believes the company's stock is undervalued at its current price
and encouraged the company to increase its dividend as cash flow
improves.
Shares were up by 13 cents to $14.30 in light premarket trading.
The stock is up 73% this year.
The investment manager, which last year encouraged Nutrisystem
to replace its prior CEO and augment its board, said Ms. Zier has
taken steps to put Nutrisystem on "firm footing" since joining the
company 10 months ago. However, Clinton Group said it is
"bewildered" by Nutrisystem's stock price.
Clinton Group said the estimated free cash generated over the
next two years plus existing cash on hand implies a stock price in
the mid-$30s by fall 2015, which would be about equal to the
company's average price from 2006 to 2010 and significantly below
its pre-recession peak of $75.
"Given the fundamental turnaround on the horizon and the
opportunity for an increased dividend, we are surprised the stock
is not trading over $20 today," Clinton Group said. "We believe as
you demonstrate the success of your efforts in returning the
company to its direct marketing roots this coming diet season, the
investment community will recognize the company's opportunities and
the strength of its business model and assets."
Clinton Group cited research from Citigroup that projects
Nutrisystem will have enough free cash flow in 2014 to increase its
dividend by more than 50% if it so desired. The company could more
than double its current dividend in just a few years, Clinton Group
said.
The hedge fund manager noted in a regulatory filing it has
engaged in discussions with Nutrisystem's board regarding strategic
alternatives and direction, board composition and related matters.
Clinton said it may continue to discuss these matters with the
company's management and other shareholders and third parties.
Nutrisystem currently pays a quarterly dividend of 17.5 cents a
share. A company representative wasn't immediately available for
comment.
In July, the company reported its second-quarter profit jumped
55% as costs and expenses declined. However, revenue for the period
fell 22%. The company has said its increased average selling price,
reduced discounting and retail offerings at Wal-Mart Stores Inc.
(WMT) will help the company with its turnaround plan.
Write to Nathalie Tadena at nathalie.tadena@wsj.com
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