Herbalife LTD. (HLF)

HLF 
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Herbalife Ltd. (HLF)

F4Q08 Earnings Call

February 25, 2009 11:00 am ET

Executives

Michael O. Johnson - Chairman and Chief Executive Officer

Des Walsh - Executive Vice-President

Richard Goudis - Chief Financial Officer

Brett R. Chapman - General Counsel, Corporate Secretary

Rob Levy - Senior Vice President Sales and Distributor Marketing

Analysts

Chris Ferrara - Merrill Lynch

Tim Ramey - D.A. Davidson & Co.

Karen Howland - Lehman Brothers

Douglas Lane - Jefferies & Company, Inc.

Scott VanWinkle - Canaccord Adams

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Fourth Quarter 2008 Earnings Results Conference Call for Herbalife Limited. On the call today are Michael Johnson, the company’s Chairman and CEO; Des Walsh, Executive Vice-President: Richard Goudis, the company’s Chief Financial Officer and Brett Chapman, the company’s General Counsel. I would now like to turn the call over to Brett to read the company’s Safe Harbor language.

Brett Chapman

Thank you. Before we begin and as a reminder, during this conference call comments may be made that include some forward-looking statements. These statements involve risks and uncertainty and as you know actual results may differ materially from those discussed or anticipated. We encourage you to refer to yesterday’s earnings release and our SEC filings for a complete discussion of risks associated with these forward-looking statements and our business.

In addition, during this call certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements that have been prepared in accordance with US generally accepted accounting principles, referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe these non-GAAP financial measures assist management and investors in evaluating and comparing period-to-period results of operations in a more meaningful and consistent manner.

Please refer to the Investor Relations section of our website herbalife.com to find our fourth quarter press release containing a reconciliation of these measures.

I will now turn the conference over to Michael.

Michael Johnson

Thanks Brett, and good morning and welcome to everyone. You know I just finished my Herbalife shake doing this morning what millions of people around the world do every single day and what millions more will be doing, I’m confident, in the future.

Today I want to address three areas with you: Our record financial and distributor performance in 2008; our fourth quarter results; and most importantly what we’re doing in 2009 to improve our business at every single level, including invigorating distributor activity in order to accelerate our growth in our top markets, improving our margins, and maintaining a pristine balance sheet, one of our greatest assets.

First let me address our record year. As you know volume points reached $2.8 billion, up 3% over last year. We had net sales of $2.4 billion, which is an increase of 10%. We had an adjusted operating income of $339 million, a 75 increase. Our adjusted net income of $232 million is an increase of 18%. Our EPS of $353 is an increase of 30% and we generated free cash flow of $166 million. Those are pretty good numbers and a lot of company’s would love to have them.

This year we invested over $100 million in capital, our largest investment year in our company’s history. We did this to provide expanded support globally to our distributors through the role out of Oracle, new and expanded facilities and enhanced technology tools to improve distributor productivity.

Our net debt of $201 million has been used to finance our share repurchase program. Since the inception of this plan we have repurchased $503 million in stock, representing a repurchase of 18% o the shares that were outstanding at the time the plan was announced. Additionally, we have paid $92 million in dividends since the inception of our dividend program. Together we have returned almost $600 million to investors over the past 18 months. Our dividend represents a 5% yield which is approximately 22% and 31% of our 2008 net income in free cash flow.

Let me repeat that. Our dividend of 5% yield was 22% and 31% of our 2008 net income and free cash flow.

As you read in our press release last Friday, we have maintained our quarterly dividend at $0.20 per share.

We are in an enviable position today that our business generates significant free cash and we do not need access to the public credit markets. We are not likely to be directly affected by the global credit crisis as our revolver and term loans are not due until 2012 and 2013 respectively.

Our financial position remains strong and our balance sheet is pristine and conservatively leveraged with a net debt to EBITA ratio of approximately 0.5. Two great attributes to have during these unprecedented and uncertain economic times.

Our record financial performance during 2008 was a result of the work and achievements by our distributors. At year-end we had more than 1.9 million distributors, an increase of 15%. With 505,000 supervisors, an increase of 7%, we added 111 new price team members, an increase of 10%; we added our first brand investor in China, the highest level in the China marketing plan and we also added four new Chairman’s Club members, an increase of 13%, to our prestigious Chairman’s Club group.

We held a record eight extravaganzas in 2008 and continue the roll out of our science based nutrition products worldwide. We also launched our digestive health line in the US with two new products, Herbal Aloe Powder and Active Fiber Complex and we launched new flavors of Liftof in the US and H3O Pro our isotonic sports drink in Europe.

Secondly, fourth quarter results as we progress through out the year, the economy here and abroad continued to weaken, including unprecedented FX volatility during the last five months in 2008. The global economic headwinds coupled with some market specific issues in certain of our top markets slowed our momentum from earlier in the year and resulted in a soft finish for the year.

In the fourth quarter we had sales of $513 million and an adjusted EPS of $0.69. Through out the quarter we saw volume trends weakening and we were impacted by unfavorable currency fluctuations. We took proactive steps to help mitigate the effect to the bottom line by eliminating certain spending and deferring some investments as well as implementing a restructuring plan, which we began to develop in early August.

We anticipate that these actions will save us in excess of $40 million in 2009. Volume points in the fourth quarter were down 9% compared to 2007; however reflecting geographic diversification of our market, we experienced growth in seven of our top ten markets, demonstrating that our business can successfully weather these tough economic times as long as our distributors remain confident, and engaged, and recruit new distributors into the business, and implement business models that focus on daily consumption and use methods which lower the cost of entry to join Herbalife, such as our Success Builder program.

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