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Herbalife (HLF) Q3 Earnings Top; Dips as CEO to Step Down
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Despite a sales miss, Herbalife Ltd. (HLF - Free Report) reported better-than-expected third-quarter 2016 earnings and also raised its full-year earnings view. However, the dietary supplements maker's shares were down 2.57% at the end of Tuesday’s session, after its earnings results declined year over year and the company announced that its chief executive officer (“CEO”) would step down.
Quarter in Detail
This weight management and nutritional products company delivered third-quarter adjusted earnings of $1.21 per share, which beat the Zacks Consensus Estimate of $1.08 by 12.0%. Earnings were ahead of the guided range of 98 cents to $1.08 per share.
Adjusted earnings, however, declined 4% year over year due to a 21 cents negative impact from currency, excluding the impact of Venezuela price increases tied to foreign exchange rate movements.
Net sales of $1.122 billion grew 2% from the prior-year period. This marked the third consecutive quarter of year-over-year net sales growth despite ongoing currency headwinds. This was at the low end of the guided range of 2%−3%. Excluding currency headwinds, sales rose 5% year over year, lower than the company’s guidance range of 5.5%−8.5% growth. Sales lagged the Zacks Consensus Estimate of $1.151 billion by 2.5%.
The improvement in the top line was driven by 6% growth in volumes, within the expected range of 5%−8%. This was the second time that Herbalife recorded higher volume points in five out of the six regions. The year-over-year volume point growth resulted from an improvement in volume trends and positive member metrics due to strategic changes made to the business model.
Regionally, Europe, the Middle East and Africa reported 15% volume growth, backed by the company’s enhanced marketing plan, while Mexico recorded 13% growth. North America and Asia Pacific both reported impressive volume point growth of 9% and 7%. Volume in China was up 2%. However, South & Central America volume decreased 15% in the third quarter.
Herbalife has been witnessing improving volume point trends in key markets, primarily impacted by its marketing plan changes, which were implemented in Feb 2015. In fact, the company is seeing sequential improvements in key metrics in these markets and remains encouraged by the positive trends.
Q4 Guidance
Herbalife expects sales in the range of down 2.5% to up 1.5% and volume in the range of down 1.5% to up 2.5% in the fourth quarter. On a currency adjusted basis (excluding the impact of Venezuela price increases tied to foreign exchange rate movements), sales are expected in the range of down 0.5% to up 3.5%.
For the fourth quarter, the company expects adjusted earnings per share in a range of 80 cents to $1.00 per share, which includes an unfavorable currency impact of approximately 12 cents per share. Excluding the currency impact (excluding the impact of Venezuela price increases tied to foreign exchange rate movements), adjusted earnings are expected in a range of 92 cents to $1.12 per share.
Full-Year 2016 Guidance
The company has raised its earnings guidance for 2016 on the back of better-than-expected third-quarter earnings results. For full-year 2016, management now expects adjusted earnings in a range of $4.65−$4.85 per share compared with $4.50−$4.80 expected previously. This includes currency impact of 96 cents, up from 90 cents expected earlier. On a currency adjusted basis (excluding Venezuelan currency devaluation), earnings are expected in a range of $5.61 to $5.81 per share compared with the previous range of $5.40 to $5.70.
However, the company has lowered its guidance on sales and volumes. Herbalife now expects sales to grow in a range of 1% to 2%, compared with the prior-year growth of 1.5% to 4.5%. Volumes are expected to increase 4.5%−5.5% in 2016 compared with 4.5%−7.5% growth expected earlier. On a currency adjusted basis (excluding Venezuelan currency devaluation), sales are expected to increase 6.3%−7.3%, lower than 7%−10% growth expected earlier.
Full-Year 2017 Guidance
The company has provided its guidance for 2017. It expects adjusted earnings in a range of $4.60−$5.00 per share. This includes currency impact of 15 cents per share. On a currency adjusted basis (excluding Venezuelan currency devaluation), earnings are expected in a range of $4.75 to $5.15 per share.
Herbalife expects sales to grow in a range of 3.5% to 6.5%, on volume growth of 2% to 5% in 2017. On a currency adjusted basis (excluding Venezuelan currency devaluation), sales are expected to increase 3.9% to 6.9%.
Total long-term debt at the end of the third quarter was $1.018 billion, and cash and cash equivalents totaled $788.3 million.
Concurrent with its earnings release, Herbalife announced that its CEO Michael Johnson will step down next year in June and will take up the role of executive chairman. He will be replaced by Chief Operating Officer (“COO”) Richard Goudis.
We note that Herbalife has been getting a lot of attention of late, with activist investor Carl Icahn acquiring a large stake in the company, while rival Bill Ackman heavily shorts the stock and refers to it as a "pyramid scheme."
William Bill Ackman, hedge fund manager of Pershing Square Capital Management has launched his $1 billion short position in Herbalife shares since Dec 2012. Ackman believes that the company was running a pyramid scheme business model, in which profits are largely derived from recruiting new distributors and not from product sales.
Since then Ackman has been trying every means to prove that Herbalife runs a pyramid scheme model. Ackman's back-to-back allegations prompted a civil investigative demand in 2014 by the U.S. Federal Trade Commission (“FTC”) related to the company’s marketing practices.
Nevertheless, in mid-Jul 2016, Herbalife reached a settlement with the FTC, and agreed to pay $200 million as penalty charges. The FTC had charged that Herbalife's earnings potential claims were deceptive and its compensation structure hinged on recruiting other product distributors instead of its selling capability.
Ackman, however, maintains his stance against Herbalife even after the maker of weight-loss shakes and supplements reached a settlement with the FTC.
On the other hand, activist investor Carl Icahn, the largest shareholder in Herbalife, is on a buying spree. He has asked the FTC for permission to buy as much as 50% of Herbalife. The step signals Icahn’s confidence in the nutritional products maker despite continuous allegations by fellow billionaire Bill Ackman who calls Herbalife’s business model a pyramid scheme.
Herbalife is not the only company, which employs sales representatives to sell its products. Other multi-level marketing companies like Nu Skin Enterprises Inc. (NUS - Free Report) , USANA Health Sciences Inc. (USNA - Free Report) and Avon Products Inc. also follow the same distribution model.
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Herbalife (HLF) Q3 Earnings Top; Dips as CEO to Step Down
Despite a sales miss, Herbalife Ltd. (HLF - Free Report) reported better-than-expected third-quarter 2016 earnings and also raised its full-year earnings view. However, the dietary supplements maker's shares were down 2.57% at the end of Tuesday’s session, after its earnings results declined year over year and the company announced that its chief executive officer (“CEO”) would step down.
Quarter in Detail
This weight management and nutritional products company delivered third-quarter adjusted earnings of $1.21 per share, which beat the Zacks Consensus Estimate of $1.08 by 12.0%. Earnings were ahead of the guided range of 98 cents to $1.08 per share.
Adjusted earnings, however, declined 4% year over year due to a 21 cents negative impact from currency, excluding the impact of Venezuela price increases tied to foreign exchange rate movements.
Net sales of $1.122 billion grew 2% from the prior-year period. This marked the third consecutive quarter of year-over-year net sales growth despite ongoing currency headwinds. This was at the low end of the guided range of 2%−3%. Excluding currency headwinds, sales rose 5% year over year, lower than the company’s guidance range of 5.5%−8.5% growth. Sales lagged the Zacks Consensus Estimate of $1.151 billion by 2.5%.
The improvement in the top line was driven by 6% growth in volumes, within the expected range of 5%−8%. This was the second time that Herbalife recorded higher volume points in five out of the six regions. The year-over-year volume point growth resulted from an improvement in volume trends and positive member metrics due to strategic changes made to the business model.
Regionally, Europe, the Middle East and Africa reported 15% volume growth, backed by the company’s enhanced marketing plan, while Mexico recorded 13% growth. North America and Asia Pacific both reported impressive volume point growth of 9% and 7%. Volume in China was up 2%. However, South & Central America volume decreased 15% in the third quarter.
Herbalife has been witnessing improving volume point trends in key markets, primarily impacted by its marketing plan changes, which were implemented in Feb 2015. In fact, the company is seeing sequential improvements in key metrics in these markets and remains encouraged by the positive trends.
Q4 Guidance
Herbalife expects sales in the range of down 2.5% to up 1.5% and volume in the range of down 1.5% to up 2.5% in the fourth quarter. On a currency adjusted basis (excluding the impact of Venezuela price increases tied to foreign exchange rate movements), sales are expected in the range of down 0.5% to up 3.5%.
For the fourth quarter, the company expects adjusted earnings per share in a range of 80 cents to $1.00 per share, which includes an unfavorable currency impact of approximately 12 cents per share. Excluding the currency impact (excluding the impact of Venezuela price increases tied to foreign exchange rate movements), adjusted earnings are expected in a range of 92 cents to $1.12 per share.
Full-Year 2016 Guidance
The company has raised its earnings guidance for 2016 on the back of better-than-expected third-quarter earnings results. For full-year 2016, management now expects adjusted earnings in a range of $4.65−$4.85 per share compared with $4.50−$4.80 expected previously. This includes currency impact of 96 cents, up from 90 cents expected earlier. On a currency adjusted basis (excluding Venezuelan currency devaluation), earnings are expected in a range of $5.61 to $5.81 per share compared with the previous range of $5.40 to $5.70.
However, the company has lowered its guidance on sales and volumes. Herbalife now expects sales to grow in a range of 1% to 2%, compared with the prior-year growth of 1.5% to 4.5%. Volumes are expected to increase 4.5%−5.5% in 2016 compared with 4.5%−7.5% growth expected earlier. On a currency adjusted basis (excluding Venezuelan currency devaluation), sales are expected to increase 6.3%−7.3%, lower than 7%−10% growth expected earlier.
Full-Year 2017 Guidance
The company has provided its guidance for 2017. It expects adjusted earnings in a range of $4.60−$5.00 per share. This includes currency impact of 15 cents per share. On a currency adjusted basis (excluding Venezuelan currency devaluation), earnings are expected in a range of $4.75 to $5.15 per share.
Herbalife expects sales to grow in a range of 3.5% to 6.5%, on volume growth of 2% to 5% in 2017. On a currency adjusted basis (excluding Venezuelan currency devaluation), sales are expected to increase 3.9% to 6.9%.
HERBALIFE LTD Price, Consensus and EPS Surprise
HERBALIFE LTD Price, Consensus and EPS Surprise | HERBALIFE LTD Quote
Other Financial Update
Total long-term debt at the end of the third quarter was $1.018 billion, and cash and cash equivalents totaled $788.3 million.
Concurrent with its earnings release, Herbalife announced that its CEO Michael Johnson will step down next year in June and will take up the role of executive chairman. He will be replaced by Chief Operating Officer (“COO”) Richard Goudis.
We note that Herbalife has been getting a lot of attention of late, with activist investor Carl Icahn acquiring a large stake in the company, while rival Bill Ackman heavily shorts the stock and refers to it as a "pyramid scheme."
William Bill Ackman, hedge fund manager of Pershing Square Capital Management has launched his $1 billion short position in Herbalife shares since Dec 2012. Ackman believes that the company was running a pyramid scheme business model, in which profits are largely derived from recruiting new distributors and not from product sales.
Since then Ackman has been trying every means to prove that Herbalife runs a pyramid scheme model. Ackman's back-to-back allegations prompted a civil investigative demand in 2014 by the U.S. Federal Trade Commission (“FTC”) related to the company’s marketing practices.
Nevertheless, in mid-Jul 2016, Herbalife reached a settlement with the FTC, and agreed to pay $200 million as penalty charges. The FTC had charged that Herbalife's earnings potential claims were deceptive and its compensation structure hinged on recruiting other product distributors instead of its selling capability.
Ackman, however, maintains his stance against Herbalife even after the maker of weight-loss shakes and supplements reached a settlement with the FTC.
On the other hand, activist investor Carl Icahn, the largest shareholder in Herbalife, is on a buying spree. He has asked the FTC for permission to buy as much as 50% of Herbalife. The step signals Icahn’s confidence in the nutritional products maker despite continuous allegations by fellow billionaire Bill Ackman who calls Herbalife’s business model a pyramid scheme.
Herbalife is not the only company, which employs sales representatives to sell its products. Other multi-level marketing companies like Nu Skin Enterprises Inc. (NUS - Free Report) , USANA Health Sciences Inc. (USNA - Free Report) and Avon Products Inc. also follow the same distribution model.
Herbalife has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>