Herbalife Nutrition Ltd. (HLF - Free Report) has been a preferred pick for investors, courtesy of its strong past record, which has been gaining from impressive product portfolio, focus on seed-to-feed strategy and solid investments to support direct selling. These upsides have helped Herbalife’s shares gain 43.5% in a year, comfortably outpacing the industry’s growth of 3.4%.
However, Herbalife has been witnessing adverse currency movements of late, which also remains a headwind for the third quarter of 2018. So, let’s delve deep and see if Herbalife’s growth initiatives can provide a cover to this obstacle and sustain this Zacks Rank #3 (Hold) company’s robust momentum.
Here’s What Keeps Herbalife Well Placed
Herbalife is committed toward its seed-to-feed strategy, which includes making solid investments in quality check, product testing, scientific workforce and expanding the level of self-production in the company’s premium products. The seed-to-feed strategy is based on using superior ingredients along with vertical solid quality manufacturing of Herbalife’s most renowned products. Further, it involves checking the finished products for label claim and purity, and efficiently delivering these products to members and their customers. To this end, Herbalife will be resonating with evolving consumption trends and offering increased product access points near its members and their customers.
Further, the company has been gaining from its direct-selling network. Management believes that offering one-on-one personalized services acts as a major sales driver in case of nutritional products, especially those related to weight management. This is because the sale of nutritional and weight management-related products entails appropriate coaching, motivation and product education. Thus, the company continues to make investments in technology (deal with Salesforce.com), education and training to help distributors enrich services to customers.
Thanks to such efforts, Herbalife’s U.S. volumes returned to growth, ahead of plan, in the first quarter of 2018. The company continued this momentum in the second quarter, which also marked Herbalife’s highest ever quarterly volume figure. Markedly, volumes surged 19% in the United States, building on the favorable trends witnessed in the previous quarter. Volumes were strong in Mexico, Asia-Pacific, EMEA and China regions. In China, Herbalife reverted to growth, owing to some pricing actions taken last year. Clearly, management’s efforts to keep pace with consumers’ preferences and its effective direct-selling strategy are paying off. Encouragingly, Herbalife raised its 2018 volumes growth outlook to 6-9% from the earlier 3-7%.
Will Currency Headwinds Hamper Growth?
Herbalife’s significant global presence exposes the company to adverse currency movements. Incidentally, currency headwinds weighed on Herbalife’s gross margin in the second quarter. Also, management expects unfavorable currency movements to have a 330-basis point (bp) negative impact on the third quarter and 2018 net sales. Consequently, the company lowered its net sales view when it reported second-quarter results, and now anticipates net sales to advance 8.3-12.3% in 2018. Further, currency headwinds are estimated to hurt earnings per share to the tune of about 4 cents and 13 cents in the third quarter and 2018, respectively.
However, the company pulled up its earnings view for the year. Adjusted earnings for 2018 are now envisioned to be $2.60-$2.80 per share compared with the prior outlook of $2.53-$2.73. That said, we expect the aforementioned upsides to counter the hurdles in Herbalife’s path and continue to drive growth.
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