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How Herbalife's CEO is trying to pick up the pieces from Bill Ackman's failed short-selling attack

Brian Sozzi
Editor-at-Large

One can sense the disdain for Bill Ackman in the voice of Herbalife CEO Richard Goudis.

“I think we are beyond it [the Ackman ordeal] — the facts now spell out who was right and who got it wrong,” Goudis, a 14-year veteran Herbalife executive who took over as CEO in the spring of 2017, told Yahoo Finance.

After dealing with six years of highly publicized attacks from hedge fund manager Ackman, who claimed that the supplement seller was nothing more than a pyramid scheme, Herbalife (HLF) has a new name (now Herbalife Nutrition) and one of the hottest stocks in the market. Herbalife shares have rocketed about 60% year-to-date as the company’s business continues to recover from the sales hit borne via Ackman’s attacks from 2012 to 2018.

The stock has also been boosted by several other factors.

One is the involvement of long-time Ackman foe and activist investor Carl Icahn. The 82-year old billionaire corporate raider owns 22% of Herbalife through his holding company Icahn Enterprises. Four Icahn Enterprises representatives sit on Herbalife’s board. Icahn’s backing is seen as a vote of confidence in the company among Wall Street pros.

Goudis said Icahn is in Herbalife for the long-term and drinks one of the company’s shakes each day.

A spokeswoman for Icahn Enterprises didn’t return a request to comment on Icahn’s Herbalife product use.

Another element in play is the perception that Herbalife has cleaned up its act enough to keep regulators at bay. In July 2017, Herbalife settled with the Federal Trade Commission (FTC) for $200 million regarding its business practices.

“This company has somehow defied the odds — multi-level marketing is always viewed skeptically” said regulatory expert and partner at Rivkin Radler Marc Ullman. “For now they have dealt with the regulatory issues.”

In March, Ackman closed out on his disastrous $1 billion short bet on Herbalife. The stock more than doubled during his holding period. Ackman through a spokesman declined to comment for this story.

Yahoo Finance: By the Numbers

Herbalife shares have been on fire in 2018.

Dissecting Herbalife’s business

Herbalife isn’t an easy company for investors to understand by any stretch of the imagination. The company’s financial releases are littered with corporate jargon. Not many Wall Street research firms cover the company, either.

“It’s a very complicated operation to understand, their business is constantly under scrutiny,” Ullman said.

At its core, Herbalife is a direct seller of nutrition products. The more people — or “entrepreneurs” as Goudis calls them — selling its products to the masses, the better it does. If these sellers could hawk more product with existing contacts, Herbalife wins even more.

That looks to be playing out again in Herbalife’s life after Ackman. Herbalife said Wednesday sales rose 15% from the prior year behind strength in North America and Asia. Earnings of 49 cents a share improved from 41 cents a share a year ago as it pushed through price increases.

Herbalife believes it can grow sales in 2019 as much as 6.8%. Executivess unveiled a new $1.5 billion share repurchase plan.

“After five years of muted growth owing to short attacks and ensuing regulatory changes, Herbalife’s sales look poised to accelerate to a more normal level. The company competes in large, growing categories that remain highly fragmented, suggesting plenty of room for long-term growth in the range of 5% to 9%,” wrote Jefferies analyst Akshay Jagdale in a recent client note.

Yahoo Finance talked with Goudis about the business and what lie ahead. What follows is an edited and condensed version of the interview.

Herbalife CEO Richard Goudis (right) pictured alongside former CEO and now executive chairman Michael Johnson (left).

Yahoo Finance: How is Herbalife trying to get beyond Bill Ackman’s short-selling campaign? It was very public.

Richard Goudis: Listen, I think we are beyond it. The facts now spell out who was right and who got it wrong. I will leave the public markets to Bill [Ackman] and Carl [Icahn] to figure out. But for us it’s about operating a nutrition company. Maybe sometimes our company is misunderstood — maybe sometimes on purpose, maybe sometimes by accident.

Yahoo Finance: You have been with Herbalife for a while. What did you learn from going through that type of public spectacle about yourself and Herbalife?

Goudis: We are guided by our values, which are very simple. We do the right thing. It’s that simple. The executive team has stayed intact the entire time. In fact, we have built and strengthened our team and our business. The facts speak for themselves.

I don’t know why Bill chose us, I am not in that world. But I think we were just misunderstood. That gave us sort of a nudge to get out there and tell people who we are and what we stand for.

Yahoo Finance: How should an average investor think about Herbalife, it’s a complex business? How are you making money?

Goudis: We are a global nutrition company and we sell results. It’s that simple. We compete in categories that are growing such as weight management, wellness and sports. If you look at the five-year compounded annual growth rate for weight management its 5.3%, wellness is 5.8% and sports is 11%. We play in the mega trends that are going on around the world that are undeniable. One is the obesity epidemic. Another is healthy aging where people want to be healthy as they age. Another is skyrocketing health care costs.

Yahoo Finance: So how would explain your quarterly results to someone?

Goudis: I think there is consumer demand, that is one of them. But more importantly, there is this trend of rising entrepreneurs. We have been fortunate since 1980 to be an entrepreneur-based company. That was the wisdom behind how this business started. More than anything else, the nutrition needs of people are constantly changing. The ability to have a personalized coach — someone who uses the product themselves —  that is significantly different than walking into CVS, Rite Aid, Whole Foods or Costco.

This model is historically misunderstood. You can play in the historical stereotypes like Bill Ackman tried to do, but when you meet these people this is the fabric of the American dream if you will.

Yahoo Finance: Biggest challenge you deal with each quarter? Finding more of these sellers? Developing more products?

Herbalife tries to fight back after vicious short-selling campaign.

Goudis: I think we don’t have enough products. I think we can sell more products to existing customers. Historically we thought and behaved as a weight management company. Since I have taken over, we have tried to accelerate innovation. We believe that consumers give us permission to help them throughout their entire day with their nutrition needs.

Additionally because of our brand and ingredient transparency, I believe we can attract new consumers to this business. People didn’t think of us as a nutrition company such as the millennial working out.

Yahoo Finance: What does the next 10 years look like for Herbalife?

Goudis: The companies that are going to stay in this business for the next 10 years, they have to have strong science and world-class infrastructure. That’s just to stay in the business because consumers are expecting more trace-ability, more transparency. To grow along with the category you are going to have to have innovation. To take market share, you will need personalized products — that’s where we have opportunities to sell more to people.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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