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Herbalife (HLF) Stock Gains on Robust Q2 Earnings & Outlook

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Herbalife Nutrition Ltd. (HLF - Free Report) delivered second-quarter 2018 results, wherein both top and bottom lines improved year over year and topped the Zacks Consensus Estimate for the third consecutive time. Further, Herbalife recorded its highest ever quarterly volume this time, which encouraged management to raise its volumes outlook, while it also pulled up its earnings view for 2018.

Consequently, shares of the company gained close to 3% during yesterday’s after-market trading session. In fact, Herbalife’s strong record has helped this Zacks Rank #3 (Hold) stock rally almost 28% in the past six months against the industry’s drop of 7.2%.

Q2 in Detail

Adjusted earnings of 80 cents per share came way ahead of the Zacks Consensus Estimate of 68 cents and jumped 5.3% year over year. Also, the quarterly figure came ahead of the company’s guided range. The better-than-expected bottom line was backed by upbeat sales, tax gains and improved gross margin. Adjusted effective tax rate came in at 26.8%, which was lower than management’s expectations.

Herbalife LTD. Price, Consensus and EPS Surprise

Herbalife LTD. Price, Consensus and EPS Surprise | Herbalife LTD. Quote

Net sales of $1,285.8 million advanced nearly 12% year over year and surpassed the Zacks Consensus Estimate of $1,269 million. Net sales were backed by growth across all six regions (in local currency). This could be attributable to highest ever quarterly volume recorded by the company.

Volume points advanced 12% to 1.5 billion, comfortably exceeding management’s guidance.  Notably, volumes witnessed double-digit growth in four out of the top five markets.

Regionally, volumes surged 19% in the United States, building on the favorable trends witnessed in the previous quarter. In China, Herbalife reverted to growth as volumes jumped 27%, owing to some pricing actions taken last year. Volumes increased 4% in Mexico, while in Asia-Pacific it advanced 10% on the back of improvements in 11 out of 15 markets. Markedly, the EMEA region witnessed its 33rd straight quarter of volume point improvement, with a gain of 13%.  

Gross margin expanded nearly 80 (basis points) bps to 81.7%, courtesy of higher retail pricing and lower inventory write-downs, somewhat countered by currency headwinds and higher self-manufacturing costs stemming from planned reduction in inventories.
Other Financial Updates

Herbalife ended the quarter with cash of $800 million, total debt of $2.2 billion and net debt of $1.4 billion. Total shareholders’ deficit amounted to $779.4 million as of Jun 30, 2018.

Further, the company generated cash flow from operating activities of approximately $345 million during the first six months of 2018.


Management raised its earnings and volumes outlook for 2018. However, the company lowered its net sales view, owing to a 330-bp headwind expected from currency translations. Consequently, the company now anticipates net sales in 2018 to advance 8.3-12.3%, down from the previously guided range of 9-13%.

On the other hand, volumes are now expected to rise 6-9%, compared to 3-7% expected earlier. Further, adjusted earnings for 2018 are now envisioned in the range of $2.60–$2.80 per share, in comparison to the prior outlook of $2.53-$2.73. This includes a negative impact of about 13 cents from adverse currency movements.

Adjusted effective tax rate for 2018 is expected to be lower, ranging between 22% and 27%, down from the prior forecast of 23% and 28%.

Capital expenditure is now envisioned in a band of $100-$120 million, down from $110-$140 million projected earlier.

Q3 Guidance

For third-quarter 2018, Herbalife expects net sales growth in a range of 9-14%, including adverse impact of roughly 300 bps from currency headwinds. Volumes are expected to rise in a range of 8.5-12.5%.

Adjusted effective tax rate for the third quarter is expected to be 27.5-34.5%.

Additionally, the company expects adjusted earnings per share to range from 58 cents to 68 cents. This includes a negative impact of about 4 cents from adverse currency movements.

Check These Solid Retail Stocks

Burlington Stores (BURL - Free Report) , a Zacks Rank #2 (Buy) stock, delivered positive earnings surprises in the past four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores (ROST - Free Report) , with long-term earnings per share growth rate of 10%, also carries a Zacks Rank #2.

TJX Companies (TJX - Free Report) , with a Zacks Rank #2, has long-term earnings per share growth rate of 10.6%.

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