) rose 7.2% yesterday after this nutritionist company reported
solid preliminary results for the fourth quarter and full year
2013 on the back of strong fundamentals. The company is scheduled
to release its final results on Feb 18. Herbalife also authorized
a $1.5 billion buyback of shares, 50% more than initially
Fourth Quarter and Full Year 2013 Guidance
For the fourth quarter, the company expects adjusted earnings
in the range of $1.26 to $1.30 per share, much higher than the
Zacks Consensus Estimate of $1.16 and the previous range of
$1.11-$1.15 per share announced in the third quarter 2013
conference call. Herbalife also expects net sales to increase
approximately 19.8% year over year, in-line with the Zacks
Consensus Estimate. The year-over-year increase is higher than
the earlier expected growth range of 13.5%-15.5%. Volume points
for the quarter are expected to increase approximately 12.7%,
higher than the expected year-over-year growth rate range of
For full year 2013, Herbalife expects adjusted earnings in the
range of $5.35 to $5.39 per share, much higher than the Zacks
Consensus Estimate of $5.24 and the previous range of $5.19-$5.23
per share. The company also anticipates net sales to increase
approximately 18.5% year over year, in-line with the Zacks
Consensus Estimate but better than the prior expectation of
17.0%-17.5% growth. Volume points for the year are expected to
increase approximately 13.1%, higher than the expected
year-over-year growth rate range of 12.5%-13.0%.
First Quarter and Full Year 2014 Guidance
The company has reiterated its guidance for 2014. The company
continues to expect volume point growth in the range of 6.5% to
8.5% and adjusted earnings in the range of $5.45 to $5.65.
However, the company expects foreign currency to adversely impact
earnings by approximately 10 cents in 2014.
For first quarter 2014, adjusted earnings are expected in a
range of $1.24 to $1.28, despite currency headwinds of
approximately 20 cents.
During the preliminary results, the company's board of
directors increased the existing share repurchase authorization
of $1.5 billion. The company already has $653 million remaining
under the previous share repurchase authorization of $1
The company increased its share buyback activity as a reward
to its shareholders after Herbalife came out clean in Dec 2013
when its new auditor PricewaterhouseCoopers (PwC) completed the
re-audit of more than three years of Herbalife's financial
statements and found no material changes. This also cleared the
way for additional loans to fund stock repurchasing.
Meanwhile, activist investor William Bill Ackman (hedge fund
manager of Pershing Square) repeated allegations about unethical
practices among Herbalife's distributors, as per media
Herbalife has been facing accusations since last year by
Ackman and the Belgian consumer organization Test-Aankoop
regarding its pyramid scheme business model i.e. deceptive
marketing practices employed for improving business. The company
was accused of making money by recruiting new sales people and
not from its sales. However, on Dec 3, 2013, a Belgian court
quashed the allegations and stated that the company's sales model
complied with Belgian law. But it seems that Ackman continues to
believe that Herbalife is running a pyramid scheme business
Ackman sent a letter to its investors on Dec 24 about the
improper recruiting methods used by the nutrition company. The
billionaire investor also told his clients that Herbalife is
likely violating multi-level market restrictions in China. His
findings are currently with the regulators but would be disclosed
to investors very soon.
Herbalife holds a Zacks Rank #1 (Strong Buy).
Some other stocks worth considering in the retail sector
Tempur Sealy International Inc
Haverty Furniture Companies Inc
). While Conns holds a Zacks Rank #1, Tempur and Haverty hold a
Zacks Rank #2 (Buy).
CONNS INC (CONN): Free Stock Analysis Report
HERBALIFE LTD (HLF): Free Stock Analysis
HAVERTY FURNIT (HVT): Free Stock Analysis
TEMPUR SEALY (TPX): Free Stock Analysis
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