) recently reported impressive first quarter 2014 results and
raised its guidance for 2014 despite being weighed down by
This weight management and nutritional products company
delivered first quarter adjusted earnings of $1.50 per share,
which exceeded the Zacks Consensus Estimate of $1.29 by 16.3%.
Earnings were ahead of the company's guidance of $1.25-$1.29 per
share, announced during fourth quarter earnings. Adjusted
earnings increased 18% year over year on the back of double-digit
growth in the top line.
Net sales of $1.263 billion beat the Zacks Consensus Estimate
of $1.234 billion. Net sales grew 12.4% from the prior-year
period fueled by volume growth of 9%. This was slightly higher
than the company's guided range of 8.0% to 10.0% net sales growth
and 6.5% to 8.5% volume growth.
China outperformed in the first quarter with extraordinary
volume growth of 91.1%. The Chinese market is vital to Herbalife
as nearly 11% of its revenues are generated from China. However,
volumes declined 6% in Asia Pacific. The company believes that
rising health consciousness among consumers worldwide increased
the demand for Herbalife's products.
Other Financial Details
In the first quarter of 2014, the company paid $30.4 million
in dividends and repurchased $685.8 million of shares under the
previous share repurchase program. However, the company has
decided to terminate the company's quarterly cash dividend
henceforth and instead utilize its cash to repurchase shares
during the second quarter of 2014.
Full Year 2014
Following solid first quarter 2014 results, increased share
buyback and growth in China, Herbalife raised its earnings
guidance for full year 2014.
For 2014, the company expects adjusted earnings in the range
of $6.10-$6.30 per share, higher than the previous guidance range
of $5.85 to $6.05. It is also higher than the year-ago earnings
of $5.37 per share. The company now expects sales growth in the
range of 10.0% to 12.0%, higher than the prior expectation of
7.5% to 9.5%. Volume growth is expected in the range of 8% to 10%
for 2014 versus prior range of 6.5% to 8.5%. However, in the year
2013, net sales grew 18% driven by volume growth of 13%.
Second Quarter 2014
For the second quarter of 2014, the company expects its
adjusted earnings in the range of $1.51 to $1.55 per share, much
higher than $1.41 per share earned in second quarter 2013. Net
sales growth is expected in the range of 10.0% to 12.0% driven by
volume growth of 7.0% to 9.0%. However, in the last year quarter,
net sales grew 18% driven by volume growth of 14%.
The company expects to repurchase shares worth $581 million as
part of its previously announced $1.5 billion share repurchase
Despite impressive earnings, Herbalife's business practices
have been criticized since Dec 2012, when activist investor
William Bill Ackman, hedge fund manager of Pershing Square, first
accused the company of making money by recruiting new sales
personnel and not from its sales. Ackman also unveiled a $1
billion short position in the company's shares in 2012.
Reportedly, Ackman tried to lobby Congress members in Mar 2014 to
push for an investigation against Herbalife by state and federal
regulators, especially the Federal Trade Commission (FTC). It
seems that Ackman's persistent push for investigation finally met
with success. As of now, Herbalife's operations are being probed
by the Federal Bureau of Investigation, the Department of
Justice, the U.S. Securities and Exchange Commission, FTC, and
two attorney generals. Additionally, as per a report by New York
Post in Jan 2014, the Canadian Competition Bureau is also looking
into the company.
Herbalife, on its part, has been denying the charges since
2012 and has welcomed the inquiry. It stated that it will
co-operate with the investigation as it is confident that its
operations comply with all applicable laws and regulations. Carl
Icahn, the company's biggest shareholder with a 16.8% stake, also
supports Herbalife in its fight against Ackman.
Herbalife is not the only company, which employs sales
representatives to sell its products. Other multi-level marketing
Nu Skin Enterprises Inc.
USANA Health Sciences Inc.
Avon Products Inc.
) also follow the same distribution model.
We appreciate the fact that despite allegations of a pyramid
scheme business model and numerous attacks on its multi-level
marketing model, the company's earnings continue to increase.
This signals that the stock has potential and will continue to
move higher, going ahead.
Herbalife holds a Zacks Rank #3 (Hold).
AVON PRODS INC (AVP): Free Stock Analysis
HERBALIFE LTD (HLF): Free Stock Analysis
NU SKIN ENTERP (NUS): Free Stock Analysis
USANA HLTH SCI (USNA): Free Stock Analysis
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