NutriSystem shares plunge on profit warning

Shares in NutriSystem Inc., of Horsham, plunged this morning after the company said third-quarter profit would be less than it forecast.

Shares were down $15.31, or 32 percent, to $$32.26 just after 10 a.m. in Nasdaq trading.

At least three analysts downgraded shares of NutriSystem Inc. today, after the diet company cut its third-quarter outlook on a 7 percent decline in new customers.

NutriSystem forecast third-quarter earnings between 62 cents per share and 66 cents per share, with revenue of about $188 million.

Previously, the company projected earnings of 77 cents to 82 cents per share on revenue between $200 million and $208 million.

Kaufman Bros analyst Sameet Sinha blamed the lower outlook on Alli, a competing over-the-counter version of GlaxoSmithKline's weight loss drug Orlistat. Sinha downgraded NutriSystem to "Hold" from "Buy." Sinha also slashed his price target to $40 from $90.

"We believe, for the first time, the likelihood of negative growth in 2008 is a possibility," Sinha wrote in a client note.

However, Citigroup analyst Gregory R. Badishkanian said the impact of Alli may only be short-term in nature, even though demand for Alli has moderated since the company rolled out the drug. Badishkanian said there is still a need for an accompanying food program with the drug, which NutriSystem can provide.

"Given the need for an accompanying food program with the drug, we think NutriSystem is well positioned versus Weight Watcher's International, where you have to prepare meals and attend meetings," Badishkanian wrote in a client note.