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Herbalife (HLF) Q4 Earnings Likely to Fall Y/Y: Here's Why

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Herbalife (HLF) Q4 Earnings Likely to Fall Y/Y: Here's Why

Herbalife (HLF) has long been grappling with soft volumes, especially in its North American and Mexico operations. Unfortunately, this trend lingered in Q4.

Herbalife Ltd. HLF is slated to release fourth-quarter 2017 results on Feb 22. In third-quarter 2017, the company’s earnings met estimates. This provider of nutrition and weight management solutions has outperformed the Zacks Consensus Estimate by an average of 22.1% in the trailing four quarters. Let’s see what’s in store this time.

Herbalife LTD. Price and EPS Surprise

Herbalife LTD. Price and EPS Surprise | Herbalife LTD. Quote


Soft Volumes Remains a Concern

Herbalife has been grappling with soft volumes for quite some time now, especially in its North American and Mexico operations. Unfortunately, the weak volume trend lingered in fourth-quarter 2017, as evident from the recently reported preliminary volume points data. Herbalife’s preliminary regional volume metrics reveal declines of 7.3%, 8.4% and 6.6% across North American, Mexico and South & Central American regions, respectively. Preliminary results for the upcoming quarter indicate sales volume point growth of 0.2%, 9.6% and 4.5% in its Asia Pacific, China and the EMEA regions respectively. However, the upsides were inadequate to offset the declines in the aforementioned regions. As a result, the company’s overall sales volume points went down 1.8%.

As mentioned earlier, volumes have long been a concern for Herbalife. This was also witnessed in third-quarter 2017, wherein earnings and sales declined year over year due to soft volumes and adverse currency fluctuations. Volumes slid 5.6%, with North America suffering the maximum plunge of 16.1%. Volumes at Mexico tumbled 9%, while South & Central America and China witnessed volume declines of 6.8% and 3.5%, respectively. Mexico's volume was lower than expected in particular, owing to exposure to areas affected by earthquakes. Management stated that this natural disaster hurt Mexican volumes by 200 bps in the quarter and the impact also lingered in early fourth quarter.

Final Thoughts & Q4 Expectations

Nevertheless, Herbalife continues to focus on implementing new technologies; shifting distributors’ inclination toward learning latest business methods, undertaking innovations and launching new products. Additionally, the company has been on track with its expense management efforts.

Considering all factors, management projected adjusted earnings per share for the fourth quarter in the range of 84 cents - $1.04, during its third-quarter conference call. Excluding the currency impact, adjusted earnings are expected in a range of 80 cents-$1.00 per share. For 2017, Herbalife forecasted adjusted earnings in the range of $4.42-$4.62 per share.

The current Zacks Consensus Estimate for the quarter under review is pegged at 96 cents, which shows a 4% decline from $1.00 recorded in the year-ago period. This estimate has remained stable in the last 30 days. However, analysts polled by Zacks expect revenues of $1,089 million, up 4.2% from the year-ago quarter.

What the Zacks Model Unveils

Further, our proven model shows doesn’t conclude that Herbalife is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Herbalife carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies that possess the right combination of elements to post an earnings beat:

Foot Locker FL has an Earnings ESP of +4.30% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowe’s Companies LOW has an Earnings ESP of +1.03% and a Zacks Rank #2.

Kroger KR has an Earnings ESP of +3.61% and carries a Zacks Rank #3.

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