Will Herbalife (HLF) Q3 Earnings Grow Amid Currency Hurdles?

Shutterstock photo

Herbalife Nutrition Ltd.HLF is slated to release third-quarter 2018 results on Oct 30. The company posted a positive earnings surprise of 17.7% in the last reported quarter and has delivered an average positive earnings surprise of 20.7% in the trailing four quarters.

Let's see what's in store for the company this time around.

Herbalife LTD. Price and EPS Surprise

Herbalife LTD. Price and EPS Surprise | Herbalife LTD. Quote

Factors Likely to Drive Herbalife

Herbalife is expected to gain from efforts that support direct selling, solid volumes and seed-to-feed strategy. Herbalife has been gaining from its direct-selling network. Management believes that offering one-on-one personalized services acts as a major sales driver in case of nutritional products, especially products related to weight-management. Thus, the company continues to make investments in technology (deal with Salesforce.com), education and training to help distributors enrich services to customers.

Herbalife's seed-to-feed strategy includes making considerable investments in quality check, product testing and scientific workforce, among others. The seed-to-feed strategy is based on using superior ingredients along with vertical solid quality manufacturing of Herbalife's most renowned products. Further, it involves checking the finished products for label claim and purity, and efficiently delivering these products to members and their customers. To this end, Herbalife is committed toward resonating with evolving consumption trends and offering increased product access points near its members and their customers.

Backed by such strategic efforts and a robust product portfolio, Herbalife's second quarter of 2018 marked the company's highest ever quarterly volume figure. Volumes surged 19% in the United States, building on favorable trends witnessed in the previous quarter. Apart from this, volumes increased 4% in Mexico, while in Asia-Pacific it advanced 10% on the back of improvements in 11 out of 15 markets. Further, the EMEA region witnessed its 33rd straight quarter of volume point improvement, with a gain of 13%.  In China too, Herbalife reverted to growth as volumes jumped 27%, owing to some pricing actions taken last year.

Clearly, management's efforts to keep pace with consumers' preferences and its effective direct-selling strategy are paying off. Hence, Herbalife raised its volumes outlook for 2018, which gives out positive signals for the quarter to be reported. The company now expects volumes to rise 6-9% in 2018 compared with 3-7% expected earlier.

Will Currency Headwinds be Offset?

Herbalife's significant global presence exposes the company to adverse currency movements. Incidentally, currency headwinds weighed on the company's gross margin in the second quarter. Also, management expects unfavorable currency movements to have a 330-basis point (bp) negative impact on 2018 net sales. Also, Herbalife is likely to witness a 300-bp negative impact from currency movements in the third quarter.

Currency headwinds are also anticipated to hurt earnings per share to the tune of about 4 cents and 13 cents in the third quarter and 2018, respectively. Nonetheless, Herbalife's solid drivers are most likely to offset currency woes and drive growth. This is evident from management's raised volumes and earnings outlook for 2018.

Markedly, the Zacks Consensus Estimate for the quarter under review has gone up in the past 30 days to 66 cents compared with 41 cents per share reported in the year-ago period. Additionally, the consensus mark for revenues stands at $1,226 million, reflecting close to 13% growth from the year-ago reported figure.

What the Zacks Model Unveils

Our proven model shows that Herbalifeis likely to beat bottom-line estimates this quarter.  For this to happen, the stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Herbalife carries a Zacks Rank #2 and has an Earnings ESP of +2.29%, which makes us reasonably confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat:

Lululemon Athletica Inc. LULU , a Zacks #1 Ranked stock, has an Earnings ESP of +1.95%.You can see  the complete list of today's Zacks #1 Rank stocks here .

Ralph Lauren Corporation RL , a Zacks #2 Ranked company, has an Earnings ESP of +0.23%.

PVH Corp. PVH has an Earnings ESP of +0.30% and a Zacks Rank #2.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

lululemon athletica inc. (LULU): Free Stock Analysis Report

Herbalife LTD. (HLF): Free Stock Analysis Report

PVH Corp. (PVH): Free Stock Analysis Report

Ralph Lauren Corporation (RL): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: LULU , HLF , PVH , RL

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?