Herbalife Beats on Earnings, Boosts 2016 Guidance

Herbalife Ltd. (HLF—NYSE) boosted its guidance for the year in its latest earnings report, released late Wednesday and watched closely by investors following the nutrition company’s settlement with the Federal Trade Commission.

Results exceeded Wall Street estimates for the quarter ended June 30, just weeks before Herbalife announced a settlement with the FTC. The long-awaited deal concluded a U.S. probe into the company’s business practices that had stretched on for more than two years, following accusations by hedge fund manager Bill Ackman that Herbalife rewards distributors for recruiting new members rather than sales of its shakes and supplements. Ackman has backed his claims with large bets against the company’s stock.

In its complaint, the commission did not accuse Herbalife of being a pyramid scheme, and the company is able to continue its U.S. operations, with some new restrictions. Herbalife agreed to pay a $200 million judgment and implement various policy and procedural changes, including distinguishing between those who sign up to sell products and those who only wish to purchase products at a discount.

Additionally, to compensate distributors at current levels, at least 80 percent of Herbalife’s product sales must be to legitimate end-users, rather than for the distributor’s personal consumption.

Taking into account the impact of these changes, management expects full-year adjusted earnings of $4.50 to $4.80 a share, up from May guidance of $4.40 to $4.75.

The company recorded a second-quarter loss of $22.9 million, or 28 cents a share, including a $203 million charge related to regulatory settlements. Excluding items, earnings were $1.29 a share, up 4 percent from a year ago. Analysts polled by Thomson Reuters had predicted $1.21 a share.

Overall sales rose 3 percent to $1.20 billion, in line with the $1.19 billion expected by analysts.

The company is developing new tools and apps to help distributors implement agreed-to changes within the 10 months provided by the FTC. During a call with investors, Chairman and CEO Michael Johnson said Herbalife will “likely roll out” many of the changes globally, once it has studied affects in the U.S.

Herbalife Settles with FTC

Herbalife Ltd. and the Federal Trade Commission have reached a long-awaited settlement agreement resolving an investigation of the Los Angeles-based nutrition company that began more than two years ago. The deal, which requires Herbalife to make specific changes to its U.S. operations and pay $200 million, will be studied closely by the wider direct selling channel.

Herbalife also reached a settlement with the Illinois Attorney General, resulting in the company agreeing to pay $3 million to the office, separate from the FTC agreement.

Company executives and investors responded positively to the settlements, with shares in the company trading above $66 at midday, an increase of more than 10 percent.

“The settlements are an acknowledgment that our business model is sound and underscore our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms,” Herbalife Chairman and CEO Michael O. Johnson said in a statement announcing the settlement. The statement went on to say that the company believes many of the allegations made by the FTC are factually incorrect but that the settlement is in the company’s best interest in light of the financial cost and distraction of protracted litigation. Herbalife said management can now focus all of its energies on continuing to build the business.

The FTC commenced an investigation into Herbalife 26 months ago, following accusations by hedge fund manager Bill Ackman that the company is defrauding customers. Ackman launched a campaign against the supplement seller in December 2012, backing his claims with a $1 billion short position in Herbalife stock.

As part of the deal, the company will pay a $200 million judgment and has agreed to various business procedures and policy enhancements. The $200 million figure is what Herbalife had floated in its first-quarter financial report as the company’s best estimate of a settlement. The FTC said this is the largest such consumer redress settlement obtained by the FTC and that it will provide information at a later date about how it will make those funds available for consumers.

The business procedures and policy enhancements included in the settlement pertain largely to Herbalife’s compensation model and marketing claims, which the FTC criticized in its complaint against the company. The settlement stipulates that the company must distinguish between individuals looking to build an Herbalife business and those who sign up simply to purchase products at a discount—a practice Herbalife management, in fact, implemented several years ago. Discount buyers are not eligible to sell product or earn rewards. The company is also required to ensure that at least two-thirds of rewards paid out to distributors are based on verified retail sales, rather than distributors’ personal consumption. And, in order to pay compensation to distributors at current levels, at least 80 percent of Herbalife’s product sales must be comprised of sales to legitimate end-users. If that threshold is not met, rewards to distributors must be reduced.

The company also agreed to:

  • require distributors to complete their first year, as well as a …

 

Click here to read the rest of the article at Direct Selling News.

Herbalife Quarterly Results Come in ahead of Expectations

Quarterly results were better than projected at Herbalife Ltd. (HLF—NYSE), the nutrition company reported after the close on Thursday.

The shake and supplement seller, which has spent three years fending off attacks on its business model by hedge fund manager Bill Ackman, posted $1.1 billion in revenue for fourth quarter 2015 and adjusted earnings of $1.19 a share, beating consensus estimates of $1.06 billion and 94 cents a share. Reported earnings fell to $84.5 million, or 98 cents a share, from $103.3 million, or $1.21 a share, a year ago.

Herbalife China continued to drive growth, as quarterly revenue increased 24 percent to $220.4 million. Sales in North America remained flat, while the remainder of Asia Pacific and EMEA dipped 6 percent and 4 percent, respectively. The company reported a 21 percent decline in South and Central America and a 14 percent decline in Mexico.

For the full year, revenue totaled $4.5 billion, down 9.9 percent from 2014. Excluding the impact of currency fluctuations, revenue rose 4.7 percent. Earnings were $3.97 a share on income of $339 million, compared to $309 million, or $3.40 a share, in 2014.

Chairman and CEO Michael O. Johnson said Herbalife in 2015 completed an overhaul of its marketing plan to strengthen the business in the long term. “We successfully navigated the associated short-term challenges, believing that we were making the right changes at the right time, and despite ongoing currency and macroeconomic challenges, we finished the year returning to growth.”

Facing sustained currency headwinds, Herbalife lowered its first-quarter guidance to adjusted EPS of 97 cents to $1.07, undercutting the average estimate of $1.09 by analysts. For the full year, management expects adjusted earnings in the range of $4.05 to $4.50 a share.

This Week: Herbalife’s Attorney Warns off Ackman, J.Hilburn CEO Talks Holiday Style

Catch up on this week’s industry chatter with these click-worthy links:

  • Fox Business Network’s Charlie Gasparino set Herbalife’s stock price aflutter on Tuesday with news of a letter from Herbalife’s legal counsel to OTG Research Group, the outside research firm of Bill Ackman’s Pershing Square Capital Management. The letter calls on the firm to cease and desist what it terms “improper conduct” on behalf of Herbalife short seller Ackman, including contacting current and former Herbalife employees and offering compensation for confidential information on the company.
  • After having her first child, model Erin Joy Henry found herself mentally and physically depleted, with less time to meet the demands of her career. That’s when she began using health products recommended by a friend in direct selling, despite her skepticism about the business model. Writing for the Huffington Post, Henry shared her evolution from skeptic to direct sales entrepreneur and holistic nutrition counselor, helping other people improve their health and finances in what she calls a “dream career.”
  • Also at HuffPost, J.Hilburn’s Veeral Rathod has some tips on how to be the best-dressed man at any holiday party. Drawing on his expertise as Co-Founder and CEO of the custom menswear company, Rathod lays out a few rules of thumb to help his fellow men celebrate the holiday season in style.
  • Two top Avon executives will exit the company at year-end, according to a report by The Wall Street Journal. The beauty brand’s strategy chief and supply chain head, both brought on by CEO Sheri McCoy in 2013, were named by an anonymous source (paywall). News of the decision, reportedly communicated within the company last month, comes as activist investors including Barington Capital Management LP call for restructuring and new leadership within the company.
  • Scentsy is lighting up the night with an elaborate holiday display at the company’s Meridian, Idaho headquarters. To get the job done, the home fragrance seller tapped a local husband-and-wife team, who set out in October to string 20 miles of lights on hundreds of trees across the corporate campus.

Direct Selling Day Brings More than 500 Distributors to Capitol Hill

Photo: Direct Selling Day participants gather outside the U.S. Capitol.


More than 500 direct selling entrepreneurs converged upon Washington, D.C., Thursday for the third annual Direct Selling Day on Capitol Hill. The U.S. Direct Selling Association (DSA) initiative is an opportunity for independent consultants to share with lawmakers the value of the business model, both to individuals and the economy.

Throughout the day participants from 32 states took part in one-on-one meetings with representatives and heard from congressional speakers from both parties. The event also featured a Direct Selling Marketplace in the Rayburn House Office Building, where Members of Congress and their staffs could see firsthand the kinds of products and services sold through direct selling companies. In a statement from the floor by Rep. Marsha Blackburn (R-TN), Co-Chair of the recently formed Direct Selling Caucus, the House of Representatives marked the occasion by formally recognizing Oct. 29, 2015, as Direct Selling Day.

“As a full-time student, direct selling provided me with the flexibility necessary to pay for college while in school,” Blackburn said of her own experience in direct selling. “Running my own business was an extremely rewarding experience and served as great preparation for my career in public service. It is a vibrant sector of the economy that embraces entrepreneurship and helps people achieve their American dream.”

Blackburn also emphasized the importance of the business ethics and consumer safeguards put in place under the DSA’s leadership. Those efforts were the topic of discussion at the DSA Global Regulatory Summit, held two weeks earlier in Washington, D.C. The summit brought together regulators, law enforcement officials, and industry leaders to explore various challenges facing direct selling companies, including issues raised by the Federal Trade Commission’s ongoing pyramid scheme lawsuit against Vemma Nutrition Co. and hedge fund manager Bill Ackman’s three-year short campaign against Herbalife Ltd. Both Direct Selling Day and the Global Regulatory Summit are part of what DSA President Joseph Mariano calls a “tapestry of communication and advocacy” the organization is weaving at the federal and state level to provide an accurate picture of direct selling.

“We want to have the important and sometimes difficult dialogue with regulators on issues that are of concern, but we also want to have this important conversation with lawmakers and policymakers, as a demonstration of who we are, and then we want to have involvement in the community by our member companies and members of the field,” Mariano told DSN. “It’s all of those things together, along with the day-to-day activities of the association and the Direct Selling Education Foundation (DSEF) that will end up, we trust, creating a positive understanding of direct selling and protecting and supporting us in the marketplace.”

Herbalife Announces New Additions to Corporate Affairs Team

Herbalife Ltd. is expanding its corporate affairs team with three executive appointments, the nutrition company announced Tuesday.

The Los Angeles-based brand welcomed a new Senior Vice President for Global Government Relations, Ric Hobby; Senior Vice President for Global Corporate Communications, Megan Jordan; and Vice President, Government and Industry Affairs, Randall Popelka.

The new appointments bolster the department’s regulatory expertise as Herbalife faces ongoing scrutiny from the public and regulators following accusations of fraud by hedge-fund manager Bill Ackman. Hobby formerly served as Herbalife Vice President, Worldwide Regulatory, Government and Industry Affairs. Popelka hails from Washington, D.C., where he worked with global leaders in the administration of President George W. Bush and later in the private sector.

“Herbalife is one of the world’s leading nutrition companies and has created important economic opportunities for people around the globe,” said Jordan, who most recently headed up communications for prominent utilities provider Southern California Edison. “I’m eager to join such a dynamic and passionate community and share how Herbalife is impacting the lives of millions of people.”

The restructuring also adds new responsibilities for Herbalife’s Vice President of Global Corporate Communications, Julian Cacchioli, who will now coordinate the brand’s public policy strategy and corporate social responsibility program. Another department veteran, Elaine Pacheco, has taken on the role of Strategic Project Manager in the office of EVP for Global Corporate Affairs.

Herbalife Raises 2015 Forecast on Strength of Earnings Beat

Herbalife Ltd. set off a flurry of after-hours trading Tuesday evening as the Los Angeles nutrition company posted first-quarter earnings that easily beat expectations and boosted its profit forecast for the year.

Though revenue fell 12 percent to $1.1 billion, the report topped analysts’ estimates on the strength of higher sales in China. Sales in the market rose 21 percent, offsetting a 34 percent decrease in South and Central America and a 9 percent dip in North America.

Investors responded by driving the stock up 15 percent in after-hours trading to $46.21, its highest level of 2015. The stock had climbed to $48.38 by mid-day today.

In the first three months of 2015, net income rose 4.8 percent to $78.2 million, or 92 cents a share, from $74.6 million, or 74 cents. Adjusted EPS was $1.29, surpassing Herbalife’s own quarterly guidance of $1.00 to $1.10 a share and the Wall Street consensus estimate of $1.00 a share.

Analysts’ forecasts declined in the month leading up to Herbalife’s report, amid renewed accusations from activist investor Bill Ackman that the company employs deceptive marketing practices. Speaking to Bloomberg Television at the start of the week, the hedge fund manager, who has campaigned against Herbalife for two years since shorting the stock $1 billion, said he anticipated poor quarterly results and “continued deterioration of the business.”

Herbalife’s regulatory filing reflected April reports of an ongoing probe by the U.S. Department of Justice. In an earlier statement to CNBC, the supplement seller had acknowledged that it is cooperating in a “federal criminal investigation” into manipulation of Herbalife stock by Ackman.

In Herbalife’s earnings report, Chairman and CEO Michael Johnson pointed to the company’s sales leader retention—up in all markets with EMEA leading the way at 28 percent over a year ago—as a positive indicator of future sales growth.

For the full year, the company expects earnings will be as much as $4.60 a share, excluding some items. Herbalife previously told investors to expect maximum earnings of $4.50 a share.

via Herbalife Raises 2015 Forecast on Strength of Earnings Beat — Direct Selling News.

Fox Business: Herbalife to Launch Million Dollar Ad Campaign

Herbalife is once again going on a public relations offensive with a major advertising campaign reportedly hitting radio, TV, print and online outlets as early as Wednesday.

FOX News Senior Correspondent Charlie Gasparino reports on FOX Business Network that the supplement maker is crafting a “seven-figure” campaign aimed at changing the narrative around the company as it continues to push back against short seller Bill Ackman and his Pershing Square firm. On Monday’s Countdown to the Closing Bell, Gasparino told host Liz Claman the buy will initially focus on the Los Angeles and Miami markets, potentially including spots during the NCAA March Madness tournament.

The report comes a week after a Los Angeles judge dismissed a lawsuit by Herbalife shareholders, who claimed they lost money because the company is operating a pyramid scheme. The lawsuit echoed many of the allegations brought against Herbalife by activist investor Ackman in his two-year campaign to discredit the company as an illegitimate business that victimizes its salespeople.

U.S. District Judge Dale S. Fischer ruled that the “plaintiffs did not show that accusations by activist investor Bill Ackman proved fraud by Herbalife,” AP reports. Finding no evidence of misrepresentation on Herbalife’s part, the judge dismissed the allegation that the company caused its shareholders to suffer losses.

“Herbalife welcomes the decision by the U.S. District Court for the Central District of California to dismiss the case,” the company stated in response to the ruling. “As we have consistently stated, we are confident in the strong fundamentals of our business model and remain committed to helping people and communities improve their nutrition.”

The LA-based nutrition company has seen its stock price climb more than 40 percent in March.

Are We Winning?

by John Fleming

Click here to order the February 2015 issue in which this article appeared or click here to download it to your mobile device.


It’s hard to keep a scorecard on the direct selling industry! Those who tend to look for a way to criticize can always find something. Those of us who see within the industry and have the opportunity to interact with industry decision makers gain much insight and perspective. And this is a time of year to reflect. The corporate scorecard will be the year-end financial statements that will recap the business of the previous year. Businesses will win or lose depending upon the bottom-line numbers of profit or loss and the top-line number of revenue generated in comparison to the prior measurement period. But the question for those of us affiliated with the direct selling industry might be: What is the industry scorecard? Are we winning or are we losing?

Some scorekeepers like Bill Ackman, the hedge fund manager who has specifically targeted Herbalife with venomous attacks on the company’s method of conducting business (direct sales), completes his scorecard based on a set of very personal criteria that leads to an accusation and attack on, in this case, Herbalife in particular. However, this type of scorecard has implications for the entire industry. Direct selling, as a channel of distribution, is executed in many different ways, from what we often refer to as party plan to network marketing, social entrepreneurship, social selling, and social commerce, or even simply person to person. Today, the actual definition of direct selling is so very broad that direct sellers utilize online methods for delivering messages and transacting business as effectively as any channel of distribution.

In response to a scorekeeper like Bill Ackman and his staff, we remind such scorekeepers of the fact that the industry has a formal code of ethics as well as an informal code of ethics. The industry code and the more stringent company codes of ethics serve to govern the manner in which those who utilize the direct selling channel engage both employees of the company and the independent brand partners representing the company’s products, services and business opportunity. Independent contractors are also consumers as it simply makes sense to be your own best customer.


Today, the actual definition of direct selling is so very broad that direct sellers utilize online methods for delivering messages and transacting business as effectively as any channel of distribution.


The formal Code of Ethics is provided by the U.S. Direct Selling Association, and this code is public information. Members of the U.S. DSA pledge to abide by the U.S. DSA Code of Ethics. Many non-members of the U.S. DSA (direct selling companies) have created their own company codes and often use the DSA Code of Ethics as their benchmark. In either case, the direct selling industry overall has done a good job of policing itself and has grown as a channel of distribution to over $30 billion in U.S. revenue and $150 billion in worldwide revenue, generated by approximately 16 million U.S. independent contractors and 90 million worldwide independent contractors.

Every organization and every business has some type of scorecard for reflection on previous-year results and the planning of the new year. It is part of our nature to desire a scorecard to determine if we are winning or losing. Each winter, the NFL hosts the ultimate scorecard in professional football, the Super Bowl, where thousands will witness the final score that determines the best football team of the year. The same process holds true for all professional sports teams and leagues wherever they are located in the world. Hundreds of millions watch these events on television.

Direct Selling News created a scorecard for the direct selling industry when we first published the Direct Selling News Global 100 listing in 2009. Each year, this enormous research project serves to identify the top 100 direct selling companies in the world who certify their revenue performance by submitting the DSN Revenue Certification Form and complete a profile of their company. This process results in the publishing of perhaps the most important scorecard on the industry issued by anyone.

However, there is more to score on a company-by-company basis, and we offer on this page a potential scorecard profile that we believe tells even more of the story about an industry that shows such diversity in its representation of people from all walks of life. Direct selling as a method of distribution provides people with hope and with training to learn the basic knowledge and skills to be able to build a business. This could be a small part-time effort or a more serious effort that not only develops customers but also provides the opportunity to recruit and train others to do this, resulting in a much larger business opportunity. Because a scorecard is so important, we encourage each direct selling company to submit your Global 100 information and profile, as in so doing you participate in a valid process for scoring an incredible industry.

In going through the scoring process, we remain optimistic that we will have experienced another year of overall growth with respect to the first two categories on the scorecard pictured. Within the growth, there will always be those companies that did not grow, and the reasons for that are many, some of which are mentioned below and are also being researched by Direct Selling News.

Continue to Direct Selling News to see the scorecard and find out if we are winning or not.

 

 

Direct Selling Association President Responds to NYT Op-Ed

Direct Selling Association President Joseph Mariano has a message for New York Times columnist Joe Nocera. Earlier this month, the opinion writer added to the abundant ink that has been spilled on the topic of activist investor Bill Ackman’s $1 billion Herbalife short. This week Mariano penned a Letter to the Editor addressing the questions raised by Nocera.

The salient question appears in Nocera’s headline: “Riddle of the Pyramids: What Is Herbalife?” He compares the volleys between Ackman and Herbalife, with its bullish investors behind it, to a “hotly contested political race”—very entertaining at times, but a sideshow to more serious issues. In Herbalife’s case, that issue is whether a company is duping millions of individuals through deceptive business practices.

It is a question currently under investigation by the Federal Trade Commission (FTC) and the Department of Justice. Though the FTC declined to provide comment to the Times editorial page, Mariano gives some background on the regulations governing pyramid schemes in his response.

“There is no riddle,” Mariano writes. “Federal law and statutes in a majority of the states clearly define a pyramid as an operation that pays salespeople primarily for recruiting additional members into a network instead of selling products. The Federal Trade Commission further warns that pyramids may require members to buy large amounts of inventory, meaning you couldn’t consume it yourself, or unwanted items.”

Mariano also points to the clear distinction between the multilevel marketing business model and illegal business operations—a distinction that falls through the cracks of Nocera’s argument.

“We should consider the consequences to the individuals who sell and consume their products—and the communities their parent companies serve—before placing scarlet letters upon their legitimate businesses,” Mariano concludes.