Herbalife Ltd. Beats Earnings Guide

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Herbalife released its third quarter earnings report after closing bell tonight, posting adjusted earnings of $1.28 per share on revenue of $1.1 billion. Analysts had been expecting earnings of $1.05 per share and $1.15 billion in revenue. Management had guided for earnings of $1 to $1.10 per share for the quarter.

Currencies weigh on Herbalife’s net sales

Reported earnings were $1.09 per share. Net sales increased 5% in constant currency but declined 12% on a reported basis. Currency headwinds have weighed heavily on Herbalife and pretty much every other U.S.-based company that does business outside the U.S.

Herbalife reported a 3% decline in volume points year over year, marking declines in all regions except Europe, the Middle East, and Africa. However, the company saw solid growth in active sales leaders in most of its markets, including a 31% increase in China.

New active members in North America increased 34%, while globally, excluding China, the number of new active members increased 21%.

Herbalife posts solid China results

One of the big concerns for Herbalife has been China as it has been a large market for the company and it has faced an investigation there, but China sales increased 24% year over year on a reported basis and 27% in constant currency. Competitor Nu Skin posted disappointing results, blaming China for much of its problems as it took a write-down for inventory there. Nu Skin had warned earlier this month that demand in Greater China was soft as well.

In other some regions, however, Herbalife didn’t perform quite as well. In constant currencies, North America sales fell 1%, while the Asia Pacific region, excluding China, fell 16%. Mexico sales declined 1%, although South and Central America sales increased 19%. Sales in Europe, the Middle East, and Africa increased 13% in constant currency.

Herbalife makes changes to business model

Herbalife has gradually been making changes to its business model as it deals with an ongoing investigation by the Federal Trade Commission and pyramid scheme allegations. Among the changes that have been made was a limit placed on first orders. Analysts have been wondering about the impact this change has had on overall volumes. The limit was implemented in 18 countries as of the end of last year’s third quarter and in the rest of the countries in February.

Distributor retention has also been a hot topic in the Herbalife story. The goal of those first order limits was to improve retention and long term sales growth, although it was expected to cause a bit of a dent in the early quarters of its implementation.

Herbalife ups guidance

For the full year, Herbalife upped its adjusted earnings guide to between $4.65 and $4.75 per share. The previous outlook was between $4.50 and $4.70 per share. Management noted a negative impact of 14 cents per share due to currencies.

For 2016, Herbalife expects adjusted earnings of between $4.35 and $4.75 per share, including a currency headwind of 50 cents per share. Management expects next year’s volume point to represent between 2.5% and 5.5% growth.

As of this writing, shares of Herbalife were down 3.25% at $56.01 per share.

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