The board of
) recently announced that the company would repurchase $266 million
worth of shares from Bank of America Merrill Lynch, a unit of
Bank of America Corp.
). The move is in accordance with the company's decision to
terminate the company's quarterly cash dividend henceforth and
instead utilize its cash to repurchase shares. The decision was
taken at the recently held first quarter conference call.
Under the share repurchase terms, the total number of shares
repurchased will depend upon the volume-weighted average share
price over the course of the program. Herbalife will thereby pay
$266 million and will receive a portion of the shares based on an
Interim Share Delivery schedule, and the remainder upon completion
of the program. The share repurchase program is expected to be
complete by the end of the second quarter of 2014.
This weight management and nutritional products company believes
in returning cash to its shareholders and has repurchased
approximately $2.85 billion worth of shares since 2007. Share
repurchases signal the underlying strength of the business and free
cash flow generation ability of the company.
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. For second quarter 2014, the
company expects to repurchase shares worth $581 million as part of
its previously announced $1.5 billion share repurchase program.
Last month, Herbalife reported better-than-expected first
quarter 2014 results and raised its guidance for 2014 despite being
weighed down by investigations. Adjusted earnings of $1.50 per
share exceeded the Zacks Consensus Estimate by 16.3% and 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
and grew 12.4% from the prior-year period fueled by volume growth
Solid first quarter 2014 results, increased share buyback and
growth in China led the company to raise its earnings guidance for
full year 2014.
Despite consistently impressive earnings performance,
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.
Herbalife's operations are also being probed by the Federal
Bureau of Investigation, the Department of Justice, the U.S.
Securities and Exchange Commission, Federal Trade Commission, 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 operations of 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.
) also follow the same distribution model.
Herbalife holds a Zacks Rank #3 (Hold).
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