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Herbalife Ltd. (HLF) 4Q15 Conference Call Overview

Herbalife Ltd. (HLF) announced the fourth quarter and full year 2015 results today. Below is a summary of the financials and key points we covered on our call, in case you weren’t able to listen in. Please don’t hesitate to get in touch with any questions.

Herbalife Ltd. (HLF) 4Q15 Conference Call Overview

  • I am pleased to report that we finished 2015 strong with a return to growth, exceeding the expectations that we had set out to achieve. We reported another quarter of improving volume trends and positive member metrics:
    • Total worldwide volume points grew 5% compared to 4Q’14, representing a return to year-over-year volume growth and significantly exceeding guidance.
    • Net sales grew 9.7% in local currency this quarter compared to 4Q’14 and were up 4.7% for the year.
    • 4Q adjusted EPS of $1.19 per diluted share significantly exceeded the high end of guidance of $1.00.
    • Cash flow from operations of $135.5 million compared to $61.9 million in 4Q’14.

On the call, we noted that our improving performance this year demonstrates the sustainability of our business and our members’ resolve to succeed through specific market challenges – particularly given the marketing plan changes we implemented in early 2015.

  • Under the new Marketing Plan changes, we are not only seeing positive financial results, but also a healthy pattern of member activity.
    • Sales leaders qualifying through the 4K cumulative method rose to 76% for the year compared to 48% the year prior.
    • The number of active sales leaders increased 5% YOY, and annual sales leader retention was ~54.2%.
    • New orders per month increased to 2.2 million this year compared to 2.1 million in 2014.
  • We are most excited about our long-term opportunity for continued success given the significant macro health trends impacting the world around us, and our unique position in personalized nutrition.
    • The world’s population is getting older, with an estimated 1 billion people over 65 years of age by 2030, all of whom are actively searching for ways to lead a healthier life.
    • From Los Angeles to Beijing, governments and corporations are looking for ways to reduce spiraling obesity-led health care costs.
    • The global market for meal replacement and protein supplement products – of which Herbalife’s Formula 1 product holds the leading market share – is expected to grow from $7.5 billion in 2010 to $12 billion in 2020.
    • Data shows that the global markets for healthy-aging, meal replacement and protein supplement products, as well as the consumption of smoothies, are all drastically increasing, which points to a consumer base that is changing their eating habits and taking their nutrition more seriously.
    • Additionally, direct selling continues to gain appeal worldwide, as we see an increasing number of people value the freedom to earn income on their terms – an opportunity that Herbalife is proud to offer.
  • Herbalife’s ability to personalize a consumer’s nutrition experience and provide them with one-on-one support positions us ideally at the intersection between the world’s chronic health burden and rising consumer focus on health goals.
    • Our members add unique value beyond our off-the-shelf products. Consumers choose Herbalife because of our members and the emotional, social and community support they provide, which is essential to achieve results and commit to nutrition and wellness as a long-term pursuit.
    • This creates a great opportunity for us to drive performance across the company and to be an even stronger leader in global health and wellness.

The call also touched on some important initiatives we undertook in 2015 to enhance our ability to capitalize on these growing trends and stay ahead of the competition in the evolving field of nutrition health.

  • We recently hired accomplished physician, public health official and global executive Dr. John Agwunobi as our first Chief Health and Nutrition Officer.
    • Dr. Agwunobi will be responsible for simplifying the language of nutrition for our members and their customers, and for integrating our nutrition philosophy, science and member education into our product development process.
  • In 2015, we continued to further enhance our varied, appealing and life-stage appropriate product range, expanding our top brands and introducing new products across all our regions.
    • We launched 13 new product lines in 47 markets appealing to local tastes and preferences – which equates to half of our markets benefitting from a new product line in 2015.
    • Our new sports hydration drink CR7 Drive is now available in 29 markets.
    • In Mexico, we launched a powdered form of our targeted calcium supplement Xtra-Cal, which can be added to daily shakes. Since its launch, sales have increased 50%.

Given our strong finish to the year with a return to growth and the macro trends supporting our unique business model and phenomenal products, we feel very good about our place in the growing market. We provided guidance for the first quarter and full year 2016 accordingly.

Adjusted diluted EPS guidance for Q1 is estimated to be in a range of $0.97 to $1.07, which includes a $0.27 currency headwind per diluted share compared to the first quarter of 2015.

  • Our full year volume point guidance for 2016 remains unchanged from previous guidance on an absolute value basis, which translates to a growth rate in the expected range 1.5% to 4.5% compared to 2015.

Alan Hoffman, Executive Vice President – Global Corporate Affairs

Herbalife Ltd. HLF

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