Herbalife LTD. (HLF)

HLF 
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Herbalife Ltd. (HLF)

Q3 2009 Earnings Call

November 03, 2009; 11:00 am ET

Executives

Michael Johnson - Chairman & Chief Executive Officer

Des Walsh - Executive Vice President

Richard Goudis - Chief Financial Officer

Brett Chapman - General Counsel

Analysts

Tim Ramey - D.A. Davidson

Doug Lane - Jefferies & Co.

Chris Ferrara - Banc of America

Presentation

Operator

Good day, ladies and gentlemen and welcome the to the quarterly earnings conference call for Herbalife. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today’s program, Mr. Michael Johnson, Chairman and CEO; please go ahead.

Michael Johnson

Good morning and thank you everyone for joining our third quarter 2009 earnings conference call for Herbalife. With me today is our company’s Executive Vice President, Des Walsh; Richard Goudis, our CFO; and Brett Chapman, our General Counsel.

I’d now like to turn the call over to Brett to read the company’s Safe Harbor language.

Brett Chapman

Good morning. Before we begin and as a reminder, during this conference call, comments maybe made that include some forward-looking statements. These statements involve risk and uncertainty and as you know actual results may differ materially from those discuss or anticipated.

We encourage you to refer to yesterday’s earnings release and our SEC filings for a complete discussion of the risks associated with these forward-looking statements and with our business. In addition, during this call certain financial performance measures maybe discussed that differ from comparable measures contained in our financial statements that prepared in accordance with the U.S. generally accepted accounting principles.

Refer to you by the Securities and Exchange Commission as non-GAAP financial measures. We believe these 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, www.herbalife.com to find our third quarter press release containing a reconciliation of these measures. Additionally when management makes reference to volume during this conference call we are referring to volume points.

Now I’ll turn to back Michael.

Michael Johnson

Thanks Brett. We had a really strong third quarter. Our results can be summed up simply. Our business is gaining momentum, led by active distributors focus seen on daily consumption business methods and recruiting. Yesterday, we reported an adjusted EPS of $0.85 which exceeded our internal expectations and also beat the high end of guidance by $0.16.

Reflecting this strong performance coupled with the current positive business trends we are raising our full year EPS estimates by $0.19 of $3.19 to $3.22 and we are providing EPS guidance for 2010 for the first time of $3.50 to $3.65. The stronger than expected third quarter performance was led by local currency sales growth of 7.5% versus 2008 reflecting the resiliency of many of our key markets during difficult global economic times.

Including some of our largest such as the US, Korea, Brazil, and Taiwan. The broad strength of the quarter in terms of local currency sales growth is best represented by the fact that four of our six regions and eight of our top ten markets experienced growth during the quarter. Among the most exciting stories to us during the quarter was India which broke into our top ten volume markets reflecting the focus of our distributors on daily consumption business methods in this large and emerging market and the return of growth in Mexico, our number two market in September.

Turning to our reported net sales we were essentially flat with 2008 as accept headwinds had a negative impact on our growth of 780 basis points. Once again, the broad strength of our business was reflected in the fact that eight of our top ten markets reported year-over-year net sales growth and collectively our top ten markets reported growth of 4.1% despite the negative effect of currency fluctuations in terms of local currency growth.

These top ten groups was up 12.4% with the continued weakness of the dollar we believe the headwinds that we’ve experienced over the past several quarters as turnaround and should provide a tailwind as we exit 2009. As you know, Herbalife’s business model generates a large amount of free cash flow and in the third quarter we had cash flow from operations of $105 million.

We are in an enviable position with an under levered balance sheet and we intend to stay that way. Since the end of the second quarter we have lowered our net debt by $38 million to $94 million while returning $44 million in cash to shareholders through both our dividend and share repurchase programs. While other companies are framing 2009 as a year of retrenchment at Herbalife we remain focused on achieving record volume growth and delivering our second most profitable year in the company’s 29 year history.

I can tell you that throughout the entire organization, from our Board of Directors through our Founder Circle and Chairman’s Club to our employees and distributors around the world, team Herbalife remains committed to driving volume as we close our 2009. We are excited that we will be able to celebrate 30, anniversary in March propelled by the positive momentum that we expect to carry in 2010.

On a product front, in EMEA we introduced a very exciting new Formula 1 express Meal Replacement Bar during the third quarter. In the US, we launched the Mango flavored Aloe which was developed and manufactured in our newly acquired facility here in Southern California. We strive to continually improve our products and as such we are in the process of reformulating nine key markets in our weight management Nutritional lines.

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