Herbalife Beats Expectations in 2Q, Raises Outlook


Herbalife Ltd. reported Monday that its second-quarter net income climbed 8 percent on stronger sales volume. Its adjusted results far exceeded market expectations, and the nutrition supplement company raised its full-year outlook, which sent its shares up sharply in after-hours trading.

The company said after the market closed that it earned $143.2 million, or $1.34 per share, for the three months that ended June 30. That is up from $132 million, or $1.09 per share, in the same quarter last year.

After adjusting for costs tied to the resignation of its auditors, legal costs to defend itself in a contentious investor dispute and other special items, it earned $1.41 per share, versus $1.09 per share in the 2012 second quarter.

Total revenue for the period increased 18 percent, to $1.22 billion from $1.03 billion last year.

Analysts polled by FactSet, on average, were anticipating earnings of $1.18 per share, on revenue of $1.16 billion.

Herbalife has been in a delicate position since late last year, when the company became the center of a feud between two well-known investors — Carl Icahn and Bill Ackman.

Ackman publicly attacked Herbalife, saying its business model amounts to a pyramid scheme that generates money by recruiting new salespeople, rather than selling products. Icahn disagreed and increased his stake in the company. The debate became very public in February, when Ackman and Icahn got into a shouting match on live media.

Herbalife has vehemently fought the negative accusations, saying they are inaccurate and misleading.

The company ultimately agreed to nominate two individuals to its board chosen by Icahn, in return for him capping his stake in the company at 25 percent. Analysts and investors previously speculated that the activist investor might try to take Herbalife private.

Herbalife also had to hire a new auditor in May after its prior auditor, KPMG, resigned following insider trading allegations against a rogue executive of the accounting firm. The former KPMG partner, Scott London, has been charged with conspiracy to commit securities fraud.

The new auditor, PricewaterhouseCoopers, will re-audit Herbalife’s financial records for fiscal years 2010, 2011 and 2012, and review the company’s results for the first quarter of 2013.

Herbalife said Monday that it expects to earn between $4.83 and $4.95 per share for the year on an adjusted basis, which excludes the $15.1 million it paid in legal and other expenses to defend itself in the investor debate, and $2.7 million in re-audit related costs.

It anticipates its revenue will increase 16 to 18 percent for the year. Based on its 2012 revenue of $4.07 billion, its latest forecast would result in revenue of roughly $4.72 billion to $4.81 billion for the year.

Analysts were anticipating earnings of $4.79 per share for the year, on revenue of $4.62 billion.

This forecast is up from its updated prediction in April of earnings of $4.60 to $4.80 per share on revenue gains of 13 to 15 percent for the year.

Herbalife also said Monday that it expects to earn $1.09 to $1.13 per share for its third quarter, on revenue gains of 16.5 to 18.5 percent. Based on its revenue of $1.02 billion in the third quarter last year, the forecast suggests revenue of $1.19 billion to $1.21 billion. Analysts were anticipating earnings of $1.16 per share for the quarter, on revenue of $1.16 billion.

Shares soared $3.64, more than 6 percent, to $64.21 in after-hours trading. The stock dove as low as a closing price of $26 in late December amid the investor dispute, but has been climbing since then. It added $2.12, or 3.6 percent, to close regular trading at $60.57.

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