Herbalife LTD. (HLF)

HLF 
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Industry: Health Care
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Herbalife Ltd. (HLF)

Q4 2011 Earnings Call

February 22, 2012 11:00 am ET

Executives

Brett R. Chapman – Secretary and General Counsel

Michael O. Johnson – Chairman and Chief Executive Officer

Des Walsh – President

John DeSimone – Chief Financial Officer

Analysts

John P. San Marco – Janney Montgomery Scott LLC

Timothy Ramey – D. A. Davidson & Co.

Mike Schwartz – SunTrust Robinson Humphrey

Linda Bolton-Weiser – Caris & Company

Gary Albanese – Auriga

Anand Vankawala – Avondale Partners

Presentation

Operator

Good morning, and thank you for joining the Fourth Quarter and Full Year 2011 Earnings Conference Call for Herbalife Ltd. On the call today is Michael Johnson, the company’s Chairman and CEO; the company’s President, Des Walsh; John DeSimone, the company’s CFO and Brett Chapman, the company's General Counsel.

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

Brett R. Chapman

Before we begin, 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 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 maybe discussed that differ from comparable measures contained in our financial statements prepared in accordance with the U.S. 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 press release for this quarter, which contains a reconciliation of these measures. Additionally, when management makes reference to volume during this conference call, they are referring to Volume Points.

I'll now turn the call over to Michael.

Michael O. Johnson

Thanks, Brett and good morning everyone, and welcome to our fourth quarter and full year 2011 earnings call. As you read in our press release yesterday, we’ve just had a very strong fourth quarter and the best year in the company’s history. Fourth quarter sales were up 20% and EPS grew 25%. And for the year, sales grew 26% and EPS increased 37%. We now had seven consecutive quarters of double-digit growth in Volume Points and distributor engagements as well as two consecutive years of record sales leader retention.

In 2011, we achieved a mile. So it’s very important to all of us, and team Herbalife. early in Herbalife’s history, Herbalife’s founder, Mark Hughes set an aspirational goal of $5 billion in retail sales and this has been an inspiration and motivation for everyone. In 2011, we’ve reached that goal and we exceeded it.

So let me take a moment to congratulate everybody on team Herbalife, our distributors whose tireless efforts and commitment are making it easier than ever for consumers to access Herbalife’s nutrition product. And to our employees who understand the priority of supporting our distributors and building a world-class infrastructure. while you can see the strength of our business in the financials we reported yesterday record sales, volume and cash flow, the underlying fundamentals in our business are equally exciting and support our confidence and our belief in the future. These fundamentals are broad based volume point growth.

For the quarter, we saw double-digit growth in all six regions and for the full year, five of our six regions, volume grew in excess of 10%. Our average active sales leaders increased 22% in 2011, an indication of a strong distributor engagement.

Record sales leader retention, in 2011 we have retention levels in excess of 50%, the highest retention rate in company’s history. To summarize these fundamental simply, more people are using our nutrition products everyday. More people are coming into the business, staying in the business and moving up the marketing plans.

The interdependency of these three metrics volume growth, engagement and retention metrics that we share publicly, gives us confidence that the best is yet to come and strengthen our belief that we can achieve our aspirational goal of 10 billion Volume Points by 2020. This is also the reason, we raised our 2012 guidance and we are now projecting double-digit volume point growth for the year.

As we have said for the past several years, we offer solutions for three global macro trends, an ever-increasing obesity issue and aging population, and in these times of record unemployment and opportunity for people to earn full-time or supplemental part-time income. Herbalife is truly at the intersection of health and wealth.

In 2011, we continued to benefit from our infrastructure and our seed-to-feed initiatives. We now manufacture more than 25% of our global volume in our own manufacturing facilities. And the product front in 2011, our major product launches included the introduction of Prolessa Duo, a unique (inaudible) and fat reduction product that works with our Formula 1 meal-replacement shake.

Several seasonal Formula 1 flavors and in the U.S. and Europe, we launched our Herbalife24 sports performance product, which applies to an extended customer base that includes premier athletes we sponsor. And now we are seeing a new generation of Herbalife distributors, building their business methods directed at athletic and active consumers.

In 2011, we continued our strategic investment in building our brand. One of our main focus points is soccer, which is a sport well aligned with Herbalife in terms of geography, social economic, distributor activation opportunities and our belief in a healthy active lifestyle. 2011 highlights included our title sponsorship of the World Football Challenge with 13 of the world’s top professional soccer teams competing and it was broadcasted on ESPN, Univision and many networks around the world.

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