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December 01, 2016

Financial News

Herbalife Announces CEO Transition, 6% Growth in Worldwide Volume

by Andrea Tortora

Photo: Herbalife Nutrition’s COO, Richard P. Goudis (right) will become CEO when Chairman and CEO Michael O. Johnson transitions to executive chairman in June 2017.

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Herbalife’s settlement with the Federal Trade Commission may have positively impacted its third quarter earnings.

That’s according to a recent review of the nutrition products company from one analyst. Timothy Ramey, with Pivotal Research, suggested Herbalife Ltd. (HLF—NYSE) was incentivized to boost sales in the quarter before new FTC rules take effect.

The FTC and Herbalife reached a settlement in July after a 26-month probe and government investigation into the company’s distribution model, which rewards independent resellers for recruiting new members. In the settlement, Herbalife agreed to pay $200 million in consumer relief and modify its business practices.

For the third quarter, Herbalife recorded adjusted earnings of $1.21 per share, beating the $1.09 a share predicted by analysts. Revenue was $1.12 billion, just missing analysts’ estimates. Revenue was up 2 percent from a year ago.

Net income for the quarter was $87.7 million, down from $93.6 million in the third quarter 2015. Currency fluctuations took their toll, negatively impacting net income by $17.9 million and negatively impacting EPS by 21 cents a share.

Ramey expected earnings of $1.10 a share. He said Herbalife boosted its distributor engagement so much in the quarter that it “arguably could have some positive growth.” 

Michael O. Johnson, Chairman and CEO, said Herbalife, “delivered another strong quarter with 6% growth in worldwide volume and relentless management of expenses… exceeding the high end of third quarter EPS guidance.”

Johnson will step down as CEO in June, taking on the role of executive chairman, where he will be active in guiding Herbalife’s strategy.

During Johnson’s tenure, the company quadrupled annual net sales from $1.1 billion to $4.5 billion, making it the No. 3 direct selling company in the world, as ranked on the DSN Global 100.

Rich Goudis, Herbalife’s Chief Operations Officer and former Chief Financial Officer, will become the new CEO. Goudis became COO in 2010. In that time, Herbalife added five Herbalife Innovation and Manufacturing facilities and now manufactures more than 70 percent of its own products.

With Herbalife looking to refinance $1.1 billion of convertible bonds due in 2019, Ramey writes the company may execute such a move with more relaxed terms. He says this could allow Herbalife to buy back $1.2 billion to $1.5 billion of shares.

“Herbalife is delivering above expectations on powerful unit growth and strong constant-currency sales,” Ramey wrote. “The tone of the business is solid. Powerful drivers such as a share buyback lie ahead.”

Management guidance for full-year 2016 on diluted and adjusted diluted EPS ranges from $2.77 to $2.97 and $4.65 to $4.85, up from previous estimates.

For full-year 2017, the company is providing initial volume guidance in the range of 2 percent to 5 percent growth. Initial full-year 2017 GAAP diluted and adjusted diluted EPS guidance is in the range of $3.95 to $4.35 and $4.60 to $5.00, respectively. Each range includes a 15-cent headwind due to the expected unfavorable impact of currency fluctuations.