Here's Why Herbalife Ltd. (HLF) Stock Fell Today

Shares of Herbalife Ltd. HLF dropped 7.24% on Monday after the weight management and nutritional supplement company cut its sales guidance for the current quarter.

Herbalife now projects revenues to decline between 2% and 6% for the second quarter, which ends June 30. The company previously projected declines of 0.5% to 4.5%. The lowered expectations come amid changes at the company due to a massive Federal Trade Commission ruling last July.

The California-based company announced that its sales took a hit due to new regulations it faces in the aftermath of its $200 million FTC settlement in July. On top of that, Herbalife pointed to lighter sales in Mexico as a reason for its downgraded revenue guidance.

Billionaire investor and Herbalife short-seller Bill Ackman previously accused the company of being a pyramid scheme based on its sales tactics. Last summer's FTC settlement forced the company to pay $200 million in fines and settlements without being named a pyramid scheme. At the time, some of the company's large network of independent distributors, which sold its supplements, earned more money for recruiting new distributors than they did actually selling products. Since then, Herbalife has been forced to prove that 80% of its annual sales come from documented consumer purchases.

The company has been forced to add new technology and tools to its workflow in order to track and prove real consumer sales, including preparing its distributors for the changes, which it also referenced as a reason for its downgraded sales forecast. But Herbalife noted that since May 1 90% of its sales now meet the new FTC regulation.

"Whenever we introduce change in the marketplace there is typically a short-lived slowdown in sales followed by a return to growth," Herbalife spokesman Alan Hoffman said in an email. "We believe this is a short-term episode and that the second part of 2017 will pick up."

"We knew we would be able to meet the threshold test of 80% because we knew we had real customers," Hoffman continued.

Along with the positive consumer sales news, the company upgraded its second quarter earnings estimates to between $0.95 and $1.15 per share compared to $0.88 to $1.08 per share it previously projected. The company is also currently a Zacks Rank #1 (Strong Buy).

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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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