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5 Things Herbalife Ltd.'s Management Wants You to Know

Shares of multi-level marketer Herbalife have fallen nearly 30% since the company reported earnings earlier this month. By almost every measure, it was a poor quarter , with earnings, revenue, and guidance coming in short of expectations.

But Herbalife's management did its best to soothe investors on the company's subsequentearnings call Below are five of the most important quotes from that call.

A play on global obesity?

Despite the challenges Herbalife faces, CEO Michael Johnson remains optimistic about the company's long-term future. Although Herbalife bears, particularly hedge fund manager Bill Ackman, have characterized the company as an illegal pyramid scheme, management continues to view the business as a play on several growing, global trends.

Explaining Herbalife's weak results

But even if Herbalife's future is as bright as management contends, the third quarter was indisputably poor. During the call, Johnson cited two factors to explain the weak results: an unfavorable Venezuelan currency exchange rate and a change Herbalife made to its membership policies.

The changes should benefit Herbalife in the long-run

The value of the Venezuelan bolivar has fallen precipitously against the U.S. dollar in recent months -- a factor completely outside of Herbalife's control. But the changes it has made to its membership policies are completely self-inflicted.

Herbalife has made it more difficult to qualify as a "sales leader" -- a mid-level ranking within the Herbalife compensation plan. It has also put buying limits on new members, restricting the amount of Herbalife product they can initially purchase. Although these changes are clearly having a negative effect on its business, Johnson argued that they will be beneficial to the company in the long-run.

A new initiative for the U.S market

In the U.S., Herbalife's business has been weak -- in the third quarter, North American volume points (a measure of product sales) declined 4%. Other markets -- notably China -- have been carrying Herbalife's business.

But management believes it can turn the North American business around. During the call, Herbalife President Des Welsh announced that trial packs have come to the U.S.: for a modest fee, new Herbalife members will be able to purchase a small amount of product. Like its controversial nutrition clubs , Herbalife believes this initiative will help ignite growth.

Pay down debt and return cash to shareholders

But ultimately, investors may be focused more on Herbalife's balance sheet than anything else. In 2014, Herbalife's debt skyrocketed, as the company borrowed money to buy back shares. In total, Herbalife now has $1.1 billion of net debt. According to CFO John DeSimone, the company will use its free cash flow to pay down this debt, and return cash to shareholders.

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The article 5 Things Herbalife Ltd.'s Management Wants You to Know originally appeared on Fool.com.

Sam Mattera owns put options on Herbalife. The Motley Fool has the following options: long January 2016 $57 calls on Herbalife. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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


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

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