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Can Herbalife (HLF) Spring a Surprise This Earnings Season?

Zacks Equity Research

Herbalife Ltd. HLF is set to report first-quarter 2017 results on May 4. The question lingering in investors’ minds is whether the marketing company will be able to maintain its positive earnings surprise streak in the to-be-reported quarter. We note that the company has outpaced the Zacks Consensus Estimate in the each of the trailing four quarters, with an average of 14.5%. In fact, the company has posted positive surprise in the past nine straight quarters.

Coming to the share price movement, the stock not only outperformed the Zacks categorized Retail-Drug Stores industry but also the broader Retail sector on a year-to-date basis. Herbalife’s shares rallied 30.7% year-to-date, higher than the Zacks categorized Retail-Drug Stores industry’s growth of 1.2% and sector’s growth of 11.3% year to date.

The industry is part of the bottom 17% of the Zacks Classified industries (219 out of the 265). On the contrary, the broader sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16). This shows that the company has been performing better than the industry as well as the sector.

Let’s delve deeper how things are shaping up for this announcement.

Which Way Are Estimates Trending?

Let’s look at earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company right before the earnings release. The current Zacks Consensus Estimate for the quarter under review has remained unchanged over the past 30 days and is currently pegged at 87 cents, down 36% from $1.36 delivered in the year-ago quarter.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Herbalife is likely to beat earnings estimates this quarter. This is because a stock needs to have both a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Herbalife has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate is 87 cents. Herbalife has a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP for an earnings beat.

Herbalife LTD. Price, Consensus and EPS Surprise


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

Factors Influencing the Quarter

We note that this weight management and nutritional products company is witnessing volume improvement in key markets including Europe, the Middle East and Africa, primarily impacted by its marketing plan changes, which were implemented in Feb 2015. In fact, the company is seeing sequential improvements in key metrics in these markets and remains encouraged by the positive trends.

However, total sales declined in the fourth quarter, after posting three consecutive quarters of growth in revenues, due to currency headwinds and lower overall volumes. Further, the company lowered its full-year 2017 earnings and revenue guidance due to sluggish fourth quarter results. Unfavorable currency, which is a major headwind for the company, continues to hurt earnings in the quarter to be reported.

Herbalife expects sales to fall in the range of 5% to 9% due to a decline in volume of 1% to 5% in the first quarter. On a currency adjusted basis (excludes the impact of expenses relating to challenges to the company’s business model, the impact of non-cash interest costs associated with the company’s convertible notes, FTC settlement implementation and expenses related to regulatory inquiries), sales are expected to decline 3.2% to 7.2%.

For first-quarter 2017, the company expects adjusted earnings per share to grow in the range of 75 cents to 95 cents per share, which includes an unfavorable currency impact of approximately 10 cents per share. Excluding the currency impact, adjusted earnings are expected in a range of 85 cents to $1.05 per share.

Stocks to Consider

Stocks in the broader retail sector carrying both a positive Earnings ESP and a favorable Zacks Rank, and therefore worth considering include:

Best Buy Co., Inc. BBY has an Earnings ESP of +12.5% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Jack In The Box Inc. JACK has an Earnings ESP of +4.4% and carries a Zacks Rank #2.

L Brands Inc. LB has an Earnings ESP of +4.2% and carries a Zacks Rank #3.

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