Q3 2012 Earnings Call
October 30, 2012 11:00 am ET
Brett R. Chapman - Secretary and General Counsel
Michael O. Johnson - Chairman and Chief Executive Officer
Desmond Walsh - President
John DeSimone - Chief Financial Officer
John P. San Marco - Janney Montgomery Scott LLC, Research Division
Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division
Previous Statements by HLF
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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 may be 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 may be discussed that differ from comparable measures contained in our financial statements, prepared in accordance with 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're 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 Third Quarter 2012 Earnings Conference Call. We have another record quarter with net sales up 14% to $1 billion. Volume points of 1.2 billion increased by 17% over the prior year's third quarter, and EPS is $1.04, a 20% increase. Our growth continues to be broad based. Each of our 6 regions experienced strong double-digit volume point growth in the quarter.
Four of our regions, Asia, Mexico, China and South and Central America exceeded 15% volume point growth. North America had a 14% increase in volume points, and EMEA experienced a 10% volume point growth in the quarter. And our Average Active Sales Leaders increased 22% in the quarter. Des will provide more color around these regional results in just a minute.
The consistency of our growth and financial results reflect the dedication and hard work of everyone on Team Herbalife. So thank you to our independent distributors and employees around the world for another record performance.
For more than 32 years, Herbalife products' independent distributors and employees have been helping millions of people achieve their weight management and daily nutrition goals. This has always been the culture at Herbalife, and the need for good nutrition, it's never been more important than it is right now.
The fundamental change in our business began 10 years ago with the development of Nutrition Clubs in Mexico. This increased our addressable audience by making our products more affordable to more consumers. Over the last several years, a substantial portion of our growth has come from our distributors around the world moving to daily consumption business methods, built on the creation of lifelong customers consuming Herbalife product everyday.
We believe that these business methods now generate approximately 40% of our volume. With approximately 43,000 nonresidential clubs at the end of the third quarter, Herbalife products are now more accessible to more customers than ever before. The success that our Distributors are having throughout our 85 markets continues to be driven by the high-touch, frequent-contact business methods that are the hallmark of daily consumption business methods.
Mexico, our oldest daily consumption market, has continued to experience double-digit volume point growth. The sustainable growth in Mexico highlights to us similar results that are possible in many other markets that are continuing their adoption and expansion of direct selling methods.
Yesterday, we introduced guidance for 2013 volume growth, earnings growth and capital expenditures. This guidance reflects our outlook for continued growth in net sales, volume points and EPS. Additionally, we provided guidance for our capital spending needs. The increase in our CapEx in 2013 primarily reflects our ongoing investment in the manufacturing of our top products, expanding tools for our distributors and creating more product access points.
In 2010, as part of our 10-year planning process, we set an aspirational goal of 10 billion volume points by 2020, basically tripling our volume from our 2009 base. When we discussed the goal, we were cautious to always use the term aspirational because it was just at a stretch. Every year, we update our 5-year plan and layering in growth we've experienced since late 2009, our aspirational goal of 10 billion volume points by 2020 is now a number we believe we can achieve and a goal we are implementing plans and the infrastructure to support.
Investments in our Seed to Feed strategy reflect our high degree of confidence in our business and are crucial to supporting our growth. In August 2009, we announced the acquisition of Lake Forest, California Herbalife manufacturing and innovation facility. Based on our growth expectations in 2009, Lake Forest was designed to produce about 40% of our global and our nutrition product. Our growth has continued to exceed our expectations, and therefore, the facility is now approaching full utilization.