Herbalife Reports Q1 Earnings Beat, Eliminates Dividend

Approximately 85,000 new members joined Herbalife’s U.S. ranks in the first quarter, the largest increase in the company’s 34-year history.

Despite ongoing scrutiny by regulators in response to prods from short-seller Bill Ackman, Herbalife U.S. posted 8 percent net sales growth for the quarter. The company’s Tuesday morning earnings call reported new U.S. members up 20 percent compared to the prior year. Herbalife U.S. also recorded its largest sales month ever in March.

The report marks the 18th consecutive quarter of record sales for the world’s No. 3 direct selling company. Following the better-than-projected first quarter, Herbalife also raised its full-year earnings guidance and announced plans to halt its quarterly dividend payment in favor of an ongoing stock buyback.

Herbalife raised its full-year earnings guidance to between $6.10 and $6.30 per share. For the first quarter Herbalife reported adjusted earnings of $1.50, up 18 percent over the prior-year period. Reported earnings were 74 cents, negatively impacted by currency losses in the company’s Venezuelan business. After jumping more than 5 percent in intraday trading, Herbalife stock closed Tuesday up 2 percent on the news.

The company reported cash flow of $191 million in the first quarter. Despite 9 percent volume growth in business worldwide, profit fell to $74.6 million from $118.9 million in the first quarter of 2013 due to the currency fluctuations in Venezuela and other one-time events.

Under its existing $1.5 billion repurchasing program, Herbalife has spent $255 million thus far in April to repurchase 4.5 million shares of its common stock. Now the nutritional supplements seller is eliminating its quarterly dividend payment to accelerate the buyback. Herbalife executives have announced plans to repurchase $581 million common shares in the second quarter.

Carl Icahn, Herbalife’s largest investor and a staunch supporter of the company against fellow activist investor Ackman, applauded the company’s decision. “Great move by #HLF to suspend dividend & buyback shares. $HLF accelerates return to shareholders. Confirms confidence in the future,” Icahn posted to his Twitter account.

“We are extremely proud at Herbalife of who we are and what we do to create opportunity in the lives of our customers and members,” said CEO Michael Johnson during the company’s earnings call. “With the incredible amount of money and energy being thrown against us to try to distort who we really are, we are—and we always have been—confident in the integrity of our long-standing business and the company’s compliance with applicable laws and regulations.”

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