Investors must take a look at Herbalife Nutrition Ltd. HLF, as this nutrition solutions provider has seen its shares surge 64.1% in a year against the industry’s decline of 8%. In fact, this Zacks Rank #2 (Buy) company has gained 10.8% since Aug 1, mainly attributable to its robust second-quarter 2018 earnings results and outlook.
That said, let’s delve into the factors that make Herbalife a promising bet, all the more after its stellar quarterly outcome.
Investments in Distributors Support Direct Selling
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. This is because the sale of nutritional and weight management-related products entails appropriate coaching, motivation and product education. Thus, the company continues to make investments in technology (deal with Salesforce.com), education and training to help distributors enrich services to customers. Markedly, distributors are an exclusive point of difference for Herbalife as they help the company stand out and gain a competitive edge over traditional and online retailers of nutritional products.
Seed-to-Feed Strategy a Strong Driver
Herbalife remains committed toward its seed-to-feed strategy, which includes making solid investments in quality check, product testing, scientific workforce and expanding the level of self-production in the company’s premium products. 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 remains committed to resonating with evolving consumption trends and offering increased product access points near its members and their customers.
Volume Growth on Track
Herbalife’s U.S. volumes returned to growth ahead of plan, in the first quarter of 2018. The company continued this momentum in the second quarter, which also marked Herbalife’s highest ever quarterly volume figure. Markedly, volumes surged 19% in the United States, building on the favorable trends witnessed in the previous quarter. Volumes increased 4% in Mexico. In Asia-Pacific, volumes advanced 10% on the back of improvements in 11 out of 15 markets. Notably, the EMEA region witnessed its 33rd straight quarter of volume point improvement with a 13% increase. In China, 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. Encouragingly, Herbalife raised its 2018 volumes growth outlook to 6-9% from the earlier 3-7%.
Q2 Retains Solid Record, Raised Outlook Drives Estimates
Herbalife delivered second-quarter 2018 results, wherein both top and bottom lines improved year over year and topped the Zacks Consensus Estimate for the third consecutive time. While earnings were driven by robust sales, tax gains and improved gross margin, sales were backed by strength across all regions. Further, Herbalife recorded its highest ever quarterly volume this time, which encouraged management to raise its volumes outlook. At the same time, the company pulled up its earnings view for the year. Adjusted earnings for 2018 are now envisioned in the range of $2.60–$2.80 per share compared with the prior outlook of $2.53-$2.73.
These factors have also made analysts more optimistic about the stock’s ongoing performance. Evidently, the Zacks Consensus Estimate for 2018 has gone up by 7 cents to $2.75 in the past 60 days. Clearly, Herbalife is set to keep its impressive show on.
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