Herbalife Tops Expectations but Lowers 2015 Guidance

Photo: REUTERS/Lucy Nicholson


Herbalife Ltd. (HLF—NYSE) beat Wall Street expectations as well as its own consensus Thursday when the company reported adjusted earnings of $121 million in the fourth quarter 2014, or $1.41 per share. Consensus estimates for the nutritional company had been $1.16 per share, with Herbalife’s own outlook range being $1.30 to $1.40. Fourth quarter earnings rose 10 percent from the same period in 2013, when the company earned $1.28 per share.

Earnings were overshadowed by a drop in quarterly revenue, which totaled $1.1 billion, down 11 percent from the comparable period a year ago—and the worst result since early 2009. The drop compares to a 20 percent revenue increase in the fourth quarter of 2013.

The company’s updated 2015 guidance was also lower than anticipated and includes an unfavorable impact from currency rates in Venezuela, which has already affected fourth quarter 2014 net sales. Herbalife expects a sales decline of 12.5 percent to 15.5 percent in the first quarter 2015, and 6 percent to 9 percent for the year. The Los Angeles-based company forecasts adjusted earnings of $1.30 to $1.40 a share for the first quarter and $5.30 to $5.70 for the year.

Also significantly impacting the company’s growth was its adoption of a new sales program called the “Gold Standard” initiative. The new compensation plan initiative takes a more conservative financial approach to sales and gives new distributors more time to qualify for certain financial incentives, so they can buy a particular amount of product, even later in the period, and still qualify for the same rewards.

“2014 was a record year in terms of net sales, volume and sales leader retention,” Johnson stated in the company’s earnings release. “It was also a year of transition, as we continue to implement changes that we believe will create a stronger company with the ideal combination of growth and sustainability. We have seen the success of these changes in early adopter markets and remain confident that our other markets will follow a similar pattern through 2015 and beyond.”

For the full year, the company reported net sales of $5.0 billion, a 3 percent increase compared to 2013. The company also reported net income of $308.7 million, or $3.40 per diluted share. On an adjusted basis, net income of $538.5 million decreased 7 percent versus adjusted net income of $577.4 million for the same period in 2013. Adjusted EPS of $5.93 increased by 10 percent versus $5.37 for 2013.

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