Back to top

Image: Bigstock

Will U.S. Volume Growth Aid Herbalife (HLF) in Q2 Earnings?

Read MoreHide Full Article

Herbalife Nutrition Ltd. (HLF - Free Report) is slated to release second-quarter 2018 results on Aug 1. The provider of nutrition and weight management solutions has outperformed the Zacks Consensus Estimate by an average of 25.6% in the trailing four quarters. Let’s see what’s in store this time.

Strong Volumes & Growth Initiatives Raise Hope

Herbalife’s U.S. volumes returned to growth ahead of time in the first quarter of 2018. Clearly, management’s efforts to keep pace with consumers’ preferences and effective direct-selling strategy are paying off. Encouragingly, the company expects these trends to continue in the second quarter and projects U.S. volumes to be higher than expected throughout the year. This propelled management to raise volumes outlook for 2018.

Notably, the company has been focusing on improving direct-selling capabilities through empowering distributors. Progressing along these lines, the company has been investing in technology (deal with Salesforce.com), education and training to help distributors improve services to customers. Markedly, carrying out business through distributors is a unique method, which provides Herbalife a competitive edge over traditional and online retailing of nutritional products.

Moreover, the company is focused on undertaking innovations, to align with the changing requirements of consumers and to provide high-quality products. In this respect, Herbalife is committed toward seed-to-feed strategy. This strategy involves making considerable investments in quality check, product testing, scientific workforce and expanding the level of self-production in the company’s premium products. Additionally, the company is working toward increasing product access points near members and customers.

Such well-spun strategies combined with strong U.S. volumes encouraged management to raise 2018 outlook. Herbalife expects 2018 net sales to advance 9-13%, while volumes are expected to rise 3-7%. This raises optimism regarding the company’s top-line performance in the second quarter. To top it, the Zacks Consensus Estimate for revenues is pegged at $1,269 million, reflecting a rise of 10.6% year over year.

Herbalife LTD. Price, Consensus and EPS Surprise

Headwinds Likely to Eclipse Performance

Herbalife’s gross margin has been contracting year over year for the past few quarters. In the first quarter of 2018, gross margin fell 180 basis points on account of adverse currency movements and high self-manufacturing expenses. Also, increased inventory write-offs were a hurdle. Persisting headwinds may continue to strain margins. Further, volumes in China have been quite volatile for the past six to eight quarters. After witnessing year-over-year growth in the fourth quarter, Herbalife witnessed soft trend in the first quarter of 2018, wherein volume points in China slumped 22%.

Such adverse conditions are likely to drag the company’s performance. Incidentally, the Zacks Consensus Estimate for earnings is currently pegged at 68 cents, which shows a 10.5% decline from the year-ago quarter’s tally. The estimate has been stable in the last 30 days.

All said, let’s take a sneak-peak into the picture into what the Zacks Model has to unveil regarding the upcoming earnings announcement.

Zacks Model

Further, our proven model doesn’t indicate that Herbalife is likely to beat bottom-line estimates this quarter. For this, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Though Herbalife carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Urban Outfitters, Inc (URBN - Free Report) a Zacks #2 Ranked stock, has an Earnings ESP of +1.46%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Signet Jewelers Limited (SIG - Free Report) , a Zacks #2 Ranked stock, has an Earnings ESP of +38.67%.

Costco Wholesale Corporation (COST - Free Report) has an Earnings ESP of +0.30% and a Zacks Rank of 3.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

 

Published in