Herbalife (HLF) Beats on Q4 Earnings; Misses Revenues - Analyst Blog

Herbalife Ltd. (HLF) recently reported lower-than-expected fourth-quarter 2014 results due to continued sluggish performance in the Americas. The company also slashed its earnings guidance for 2015 owing to weak results.

This weight management and nutritional products company delivered fourth-quarter adjusted earnings of $1.41 per share which beat the Zacks Consensus Estimate of $1.16 by 21.6%. Earnings were slightly above the company’s guidance of $1.30–$1.40. Adjusted earnings, however, increased 10.2% year over year due to lower outstanding shares.

Net sales of $1.1 billion missed the Zacks Consensus Estimate of $1.2 billion by 8.3%. Sales also declined 11% from the prior-year period due to currency headwinds and 6% decline in volume. This compared unfavorably with the company’s guided range of 5% to 8% decline. Excluding currency headwinds, sales remained flat year over year.

Regionally, Europe, the Middle East and Africa reported 17% volume growth backed by the company’s enhanced marketing plan which came into effect in the region during the quarter.

China also outperformed, recording impressive volume point growth of 11%. The Chinese market is vital to Herbalife as it accounts for nearly 15.6% of its revenues. However, volume point declined in North America, Asia Pacific, Mexico and South & Central America by 6%, 10%, 6% and 24%, respectively.

Excluding Venezuelan currency devaluation, net sales and volume declined 4% and 3%, respectively.

Full-Year Results

Full-year 2014 adjusted earnings of $5.93 per share missed the Zacks Consensus Estimate of $5.79 by 2.4%. Adjusted earnings, however, increased 10.4% year over year.

Net sales of $5.0 billion beat the Zacks Consensus Estimate of $4.97 billion marginally. Sales also increased 3% from the prior-year period. This compared unfavorably to the company’s guided range of 3.5% to 4.3% net sales growth for the year. Organic sales increased 8% from the prior-year tally.

First-Quarter 2015 Guidance

Herbalife expects sales decline in the range of 12.5% to 15.5% and volume to decrease 5% to 8%. Organic sales are expected to decline in the range of 4.5% to 7.5%.

For first-quarter fiscal 2015, the company expects adjusted earnings per share in the range of $1.00 to $1.10 as against $1.50 reported in the comparable year-ago quarter. The company expects an unfavorable currency impact of 28 cents including a 10-cent impact from the Venezuelan currency devaluation.

Full-Year 2015 Guidance

For full-year 2015, Herbalife lowered the earnings guidance range. It now expects adjusted earnings in the range of $4.10 to $4.50 down from $5.45 to $5.75 per share. The company maintained its net sales guidance range of 1% to 2%. Volumes are expected to be down 1.5% to 4.5% instead of a range of flat to up 3%. The full-year earnings guidance includes a currency headwind of approximately $1.19 per share, including approximately 45 cents from Venezuela.

Notably, Ackman has been keeping an eye on Herbalife since Dec 2012 and accusing it of being a pyramid scheme i.e. employing deceptive marketing practices for improving business. Ackman believes that the nutrition clubs run by Herbalife's distributors focus on recruitment instead of selling products. (Read: Herbalife Faces Another Ackman Attack)

Ackman's back-to-back allegations have prompted investigations by the Securities and Exchange Commission, Federal Trade Commission, FBI and at least two state attorneys general. However, no action has been taken so far. Herbalife, on its part, has been denying the charges from the very beginning and remains confident of its business model.

Herbalife is not the only company which employs sales representatives to sell its products. Other multi-level marketing companies like Nu Skin Enterprises Inc. (NUS), USANA Health Sciences Inc. (USNA) and Avon Products Inc. (AVP) also follow the same distribution model.

Herbalife has a Zacks Rank #4 (Sell).

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