Herbalife Ltd. (HLF - Snapshot Report) being a global nutrition company is committed toward providing weight management, energy and fitness and personal care products through dedicated Independent Herbalife members in more than 90 countries. Recently, the company unveiled the Herbalife SKIN Clearify product line to treat acne, blemishes, blackheads and whiteheads, as it aims to enhance the skincare line, and help people live healthier, happier lives through better nutrition.
The Herbalife SKIN Clearify line is a dermatologist-tested treatment that delivers impressive results in four to eight weeks. The product targets consumers of age group 14 to 35 years.
Salicylic acid is the main ingredient in the Herbalife SKIN Clearify line, which also contains fresh scented botanicals, such as aloe and orange oil. None of the products contain sulfates or parabens.
Herbalife’s SKIN Clearify product line includes a cleanser to reduce acne’s severity, a moisturizer to heal the skin, a mask to penetrate pores and eliminate most blemishes, and a spot treatment to dry pimples. The four products can be purchased individually or in a kit containing full-size products of the entire treatment line for $70.25.
We note that this weight management and nutritional products company has managed to beat estimates in the last four quarters, generating an average positive earnings surprise of 21.59%, on the back of volume improvement.
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 witnessing sequential improvements in key metrics in these markets and remains encouraged by the positive trends.
However, Herbalife has been the target of activist investor William Bill Ackman, hedge fund manager of Pershing Square Capital Management since Dec 2012, when he launched his $1 billion short position in Herbalife shares. 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.
It is not the only company which employs sales representatives to sell its products. Other multi-level marketing companies like Nu Skin Enterprises Inc. (NUS - Snapshot Report) , USANA Health Sciences Inc. (USNA - Snapshot Report) and Avon Products Inc. (AVP - Analyst Report) also follow the same model.
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