Herbalife Ltd. (NYSE:HLF) today reported that third quarter net
sales increased 14.7 percent to $688.4 million. The net sales
reflect volume point growth of 13.5 percent and an increase in
Average Active Sales Leaders of 11.8 percent, both compared to the
third quarter of 2009. Excluding the impact from adjusting items in
the third quarter1, net income was $72.5 million, or $1.17 per
diluted share, representing increases of 34.1 percent and 37.6
percent respectively compared to $54.1 million or $0.85 per diluted
share in the third quarter of 2009. These 2010 third quarter
adjusted results exclude an income tax benefit of $3.2 million, or
$0.05 benefit to diluted EPS resulting from an international income
tax audit settlement.
For the quarter ended September 30, 2010, the company reported
net income of $75.7 million or $1.22 per diluted share compared to
$57.9 million and $0.91 per diluted share in the third quarter of
2009, primarily reflecting the benefit of higher net sales,
improved margins and a lower effective tax rate, partially offset
by the impact of foreign currency fluctuations.
For the quarter ended September 30, 2010, the company generated
cash flows from operations of $97.3 million, paid dividends of
$14.9 million, invested $18.3 million in capital expenditures and
repurchased $24.9 million in common shares as part of the company’s
$1 billion share repurchase authorization program. The company’s
net debt balance at the end of the third quarter was $15.6 million,
reflecting an improvement of $83.9 million from December 31,
2009.
“Our distributors are driving momentum around the world by
attracting and retaining long-term customers for our nutrition
products, which builds successful and sustainable businesses,” said
Chairman and Chief Executive Officer Michael O. Johnson. “We are
pleased by the broad and ongoing strength of our results this
quarter, with all six of our regions experiencing volume growth and
year-over-year improvement in active sales leaders.”
During the third quarter the company hosted approximately 35,600
distributors at Extravaganzas in Ukraine, Italy, Sweden and
Mexico.
Third Quarter 2010 Regional Key
Metrics2, 3
Regional and Emerging/Established
Market Breakdowns
Regional 3Q'10 Volume Points
(Mil)
% Chg
(Y/Y)
3Q'10 Avg Active Sales Leaders 3Q'10
Average Active Sales Leaders
% Chg (Y/Y)
North America 225.4 8.6 % 51,095 13.7 % Asia Pacific 191.8 29.4 %
37,291 26.7 % EMEA 114.3 4.5 % 33,625 3.0 % Mexico 146.2 15.7 %
39,521 11.4 % South & Central America 107.3 5.0 % 29,548 3.9 %
China 39.4 22.0 % 7,548 19.7 % Worldwide Total
824.4 13.5 % 191,072 11.8 %
3Q'10 Volume Points
(Mil)
% Chg
(Y/Y)
3Q'10 Avg Active Sales Leaders 3Q'10
Average Active Sales Leaders
% Chg (Y/Y)
Emerging Markets
431.6
14.8 % 107,271 11.6 % Established Markets 392.8 12.2 %
91,238 12.5 %
Updated 2010 Guidance
Based on current business trends, the company’s fourth quarter
and fiscal 2010 guidance are provided below.
Fourth Quarter 2010 - The company’s fourth quarter 2010 diluted
earnings per share guidance range is $1.07 to $1.11 on volume point
growth of 11.0 percent to 13.0 percent and net sales growth of 13.0
percent to 15.0 percent compared to the same period in 2009 and an
effective tax rate range of 30.0 percent to 31.0 percent. The
company’s fourth quarter 2010 capital expenditures are expected to
be in the range of $23.0 million to $33.0 million.
Fiscal 2010 - Excluding the impact from adjusting item4 the
company’s new full-year diluted earnings per share guidance is
$4.54 to $4.58 on volume point growth of 12.5 percent to 13.5
percent and a net sales increase of 16.5 percent to 17.0 percent
compared to 2009, respectively, along with an effective tax rate
range of 28.0 percent to 29.0 percent. Full-year 2010 capital
expenditures are expected to be in the range of $65.0 million to
$75.0 million.
2011 Guidance
Based on current business trends, FX rates as of the end of
September, 2010, and the company’s outlook for future performance,
the company is initiating guidance for 2011 with a diluted earnings
per share guidance range of $5.00 to $5.25 on a volume point growth
of 8.0 to 10.0 percent and a net sales growth of 11.0 percent to
13.0 percent compared to the same period in 2010 and an effective
tax rate range of 29.0 percent to 30.0 percent. The company’s
guidance for capital spending in 2011 is in the range of $80
million to $90 million.
Third Quarter Earnings Conference Call
Herbalife's senior management team will host an investor
conference call Tuesday, November 2, 2010 at 8 a.m. ET (5 a.m. PT)
to discuss its recent financial results and provide an update on
current business trends preceding its annual analyst day to discuss
its recent financial results and provide an update on current
business trends.
The dial-in number for this presentation for domestic callers is
(866) 903-5314 and (706) 634-5671 for international callers
(conference ID 82534647). Live audio of the presentation will be
simultaneously webcast in the investor relations section of the
company's website at http://ir.herbalife.com.
An audio replay will be available following the completion of
the presentation in MP3 format or by dialing (800) 642-1687
(domestic callers) or (706) 645-9291 (international callers) and
entering Encore ID 66642385. The webcast of the presentation will
be archived and available on Herbalife's website.
About Herbalife Ltd.
Herbalife Ltd. (NYSE:HLF) is a global network marketing company
that sells weight-management, nutrition, and personal care products
intended to support a healthy lifestyle. Herbalife products are
sold in 73 countries through a network of approximately 2.0 million
independent distributors. The company supports the Herbalife Family
Foundation and its Casa Herbalife program to help bring good
nutrition to children. Herbalife’s Web site contains a significant
amount of information about Herbalife, including financial and
other information for investors at http://ir.herbalife.com. The company encourages
investors to visit its Web site from time to time, as information
is updated and new information is posted.
Disclosure Regarding Forward-Looking Statements
FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical fact are
“forward-looking statements” for purposes of federal and state
securities laws, including any projections of earnings, revenue or
other financial items; any statements of the plans, strategies and
objectives of management for future operations; any statements
concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the
foregoing. Forward-looking statements may include the words “may,”
“will,” “estimate,” “intend,” “continue,” “believe,” “expect” or
“anticipate” and any other similar words.
Although we believe that the expectations reflected in any of
our forward-looking statements are reasonable, actual results could
differ materially from those projected or assumed in any of our
forward-looking statements. Our future financial condition and
results of operations, as well as any forward-looking statements,
are subject to change and to inherent risks and uncertainties, such
as those disclosed or incorporated by reference in our filings with
the Securities and Exchange Commission. Important factors that
could cause our actual results, performance and achievements, or
industry results to differ materially from estimates or projections
contained in our forward-looking statements include, among others,
the following:
• any collateral impact resulting from the ongoing worldwide
financial “crisis,” including the availability of liquidity to us,
our customers and our suppliers or the willingness of our customers
to purchase products in a recessionary economic environment
• our relationship with, and our ability to influence the
actions of, our distributors;
• improper action by our employees or distributors in violation
of applicable law;
• adverse publicity associated with our products or network
marketing organization;
• changing consumer preferences and demands;
• our reliance upon, or the loss or departure of any member of,
our senior management team which could negatively impact our
distributor relations and operating results;
• the competitive nature of our business;
• regulatory matters governing our products, including potential
governmental or regulatory actions concerning the safety or
efficacy of our products, and network marketing program including
the direct selling market in which we operate;
• third party legal challenges to our network marketing
program;
• risks associated with operating internationally and the effect
of economic factors, including foreign exchange, inflation, pricing
and currency devaluation risks, especially in countries such as
Venezuela;
• uncertainties relating to the application of transfer
pricing, duties, value added taxes, and other tax regulations, and
changes thereto;
• uncertainties relating to interpretation and enforcement of
recently enacted legislation in China governing direct selling;
• our inability to obtain the necessary licenses to expand our
direct selling business in China;
• adverse changes in the Chinese economy, Chinese legal system
or Chinese governmental policies
• our dependence on increased penetration of existing
markets;
• contractual limitations on our ability to expand our
business;
• our reliance on our information technology infrastructure and
outside manufacturers;
• the sufficiency of trademarks and other intellectual property
rights;
• product concentration;
• changes in tax laws, treaties or regulations, or their
interpretation;
• taxation relating to our distributors;
• product liability claims; and
• whether we will purchase any of our shares in the open
markets or otherwise.
We do not undertake any obligation to update or release any
revisions to any forward-looking statement or to report any events
or circumstances after the date hereof or to reflect the occurrence
of unanticipated events, except as required by law.
1 See Schedule B – “Reconciliation of Non-GAAP Financial
Measures” for more detail.
2 “Emerging” markets are being defined as those countries which
the World Bank categorizes as having “low” or “medium” GDP per
capita, while “Established” are those that the World Bank considers
to have “high” GDP per capita.
3 Supplemental tables that include additional business metrics
can be found at http://www.ir.herbalife.com
4 FY’10 guidance excludes the impact from the first quarter
implementation of highly inflationary accounting in Venezuela and a
third quarter tax benefit from international income tax audit
settlement.
RESULTS OF OPERATIONS:
Herbalife Ltd. Consolidated Statements of Income (In thousands,
except per share data) (Unaudited)
Quarter Ended Nine Months Ended
9/30/2010 9/30/2009
9/30/2010 9/30/2009
North America $ 155,532 $ 140,829 $ 473,228 $ 402,294 Mexico 83,498
68,290 236,265 193,881 South and Central America 95,030 93,035
269,156 253,702 EMEA 121,221 123,334 387,598 373,222 Asia Pacific
181,555 129,240 494,418 357,723 China 51,595 45,490
135,205 112,884 Worldwide net sales 688,431 600,218
1,995,870 1,693,706 Cost of Sales 133,265 131,777
410,298 (1 ) 356,619 Gross Profit 555,166 468,441
1,585,572 1,337,087 Royalty Overrides 224,061 194,639 656,160
556,921 SGA 230,150 195,968 648,143 (1 )
568,220 Operating Income 100,955 77,834 281,269 211,946
Interest Expense - net 2,192 1,037 6,291
4,087 Income before income taxes 98,763 76,797 274,978
207,859 Income Taxes 23,024 18,902 65,435 (1 )
60,169 Net Income $ 75,739 $ 57,895 $ 209,543 $ 147,690
Basic Shares 59,221 61,234 59,643 61,467 Diluted Shares
61,946 63,397 62,250 63,049 Basic EPS $ 1.28 $ 0.95 $ 3.51 $
2.40 Diluted EPS $ 1.22 $ 0.91 $ 3.37 $ 2.34 Dividends
declared per share $ 0.25 $ 0.20 $ 0.65 $ 0.60
1 Includes impact of items related to
adoption of highly-inflationary accounting in Venezuela that are
further discussed in Schedule B – "Reconciliation of Non-GAAP
Financial Measures”
Herbalife Ltd. Consolidated Balance Sheets (In thousands)
(Unaudited) Sep 30, Dec 31,
2010
2009 ASSETS Current
Assets: Cash & cash equivalents $ 193,490 $ 150,801
Receivables, net 91,394 76,958 Inventories 183,144 145,962 Prepaid
expenses and other current assets 97,716 101,181 Deferred income
taxes 56,237 38,600 Total Current
Assets 621,981 513,502 Property and equipment, net 169,308
178,009 Deferred compensation plan assets 17,781 17,410 Deferred
financing cost, net 1,124 1,498 Other assets 24,271 21,306
Marketing related intangibles and other intangible assets, net
310,992 311,782 Goodwill 102,899 102,543
Total Assets $ 1,248,356 $ 1,146,050
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Accounts payable $ 50,068 $ 37,330 Royalty Overrides 149,215
144,689 Accrued compensation 67,318 65,043 Accrued expenses 122,453
107,943 Current portion of long term debt 3,232 12,402 Advance
sales deposits 54,637 22,261 Income taxes payable 16,602
40,298 Total Current Liabilities 463,525
429,966 Non-current liabilities Long-term debt, net of
current portion 205,894 237,931 Deferred compensation 18,827 16,629
Deferred income taxes 76,045 77,613 Other non-current liabilities
23,476 24,600 Total Liabilities 787,767
786,739 Contingencies Shareholders' equity: Common
shares 118 120 Additional paid in capital 247,189 222,882
Accumulated other comprehensive loss (24,636 ) (23,396 ) Retained
earnings 237,918 159,705 Total
Shareholders' Equity 460,589 359,311
Total Liabilities and Shareholders' Equity $
1,248,356 $ 1,146,050 Herbalife Ltd.
Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended
9/30/2010 9/30/2009
CASH FLOWS FROM OPERATING ACTIVITIES Net income $
209,543 $ 147,690 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
51,755 45,646 (Excess) Deficiency in tax benefits from share-based
payment arrangements (9,959 ) 759 Share-based compensation expenses
16,870 15,100 Amortization of discount and deferred financing costs
374 367 Deferred income taxes (16,989 ) (3,098 ) Unrealized foreign
exchange transaction (gain) loss (7,536 ) 6,763 Foreign exchange
loss from adoption of highly inflationary accounting in Venezuela
15,131 — Other 2,911 233 Changes in operating assets and
liabilities: Receivables (13,965 ) (9,265 ) Inventories (32,921 )
10,451 Prepaid expenses and other current assets 5,744 (5,724 )
Other assets (2,328 ) 354 Accounts payable 12,852 (4,851 ) Royalty
overrides 3,601 9,525 Accrued expenses and accrued compensation
11,622 5,870 Advance sales deposits 32,399 21,011 Income taxes
payable (13,568 ) (15,529 ) Deferred compensation plan liability
2,198 1,992 NET CASH PROVIDED BY
OPERATING ACTIVITIES 267,734 227,294
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property (42,199
) (41,776 ) Proceeds from sale of property 64 93 Acquisition of
business — (10,000 ) Deferred compensation plan assets (371
) (1,321 ) NET CASH USED IN INVESTING ACTIVITIES
(42,506 ) (53,004 ) CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (38,934 ) (36,727 ) Borrowings from long-term debt
338,000 138,974 Principal payments on long-term debt (379,465 )
(180,540 ) Share repurchases (106,163 ) (33,630 ) Excess
(Deficiency in) tax benefits from share-based payment arrangements
9,959 (759 ) Proceeds from exercise of stock options and sale of
stock under employee stock purchase plan 11,521
2,209 NET CASH USED IN FINANCING ACTIVITIES
(165,082 ) (110,473 ) EFFECT OF EXCHANGE RATE CHANGES ON
CASH (17,457 ) 737 NET CHANGE IN CASH AND CASH
EQUIVALENTS $ 42,689 $ 64,554 CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 150,801 150,847 CASH AND CASH
EQUIVALENTS, END OF PERIOD $ 193,490 $ 215,401 CASH
PAID DURING THE PERIOD Interest paid $ 7,195 $ 8,443
Income taxes paid, net $ 84,120 $ 77,397 NON CASH
ACTIVITIES Assets acquired under capital leases and other long-term
debt $ 524 $ 339
Herbalife Ltd
Volume Points by Region
(Unaudited, In thousands)
Three Months Ended September 30, 2010 2009 %
Change North America 225,379 207,612 8.6 % Asia
Pacific (excluding China) 191,824 148,184 29.4 % EMEA 114,274
109,429 4.4 % Mexico 146,236 126,375 15.7 % South & Central
America 107,286 102,166 5.0 % China 39,364 32,270 22.0 % Worldwide
824,363 726,036 13.5 %
SUPPLEMENTAL INFORMATION
SCHEDULE A: FINANCIAL GUIDANCE
2010 Guidance For the Three Months and Twelve Months
Ending December 31, 2010 Three Months Ending
Twelve Months Ending December 31, 2010 December 31,
2010
Low High Low
High Volume point growth vs 2009
11.0 % 13.0 %
12.5
%
13.5
% Net sales growth vs 2009 13.0 % 15.0 %
16.5
%
17.0
% EPS 1 $
1.07
$
1.11
$
4.54
$
4.58
Cap Ex ($ millions) $ 23.0 $ 33.0 $ 65.0 $ 75.0 Effective Tax Rate
1
30.0 % 31.0 % 28.0 %
29.0 % 2011 Guidance For the Twelve
Months Ending December 31, 2011 Twelve Months Ending
December 31, 2011
Low
High
Volume point growth vs 2010
8.0 % 10.0
% Net sales growth vs 2010
11.0
%
13.0
% EPS 1
$
5.00
$
5.25
Cap Ex ($ millions)
$ 80.0 $ 90.0
Effective Tax Rate 1
29.0 % 30.0 %
1 FY’10 guidance excludes the impact from the first quarter
implementation of highly inflationary accounting in Venezuela and a
tax benefit from international income tax audit settlement.
SCHEDULE B: RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
(Unaudited), (Dollars in Thousands, Except Per Share
Data)
In addition to its reported results, the Company has included
in the tables below adjusted results that the Securities and
Exchange Commission defines as “non-GAAP financial measures.”
Management believes that such non-GAAP financial measures, when
read in conjunction with the Company’s reported results, can
provide useful supplemental information for investors analyzing
period to period comparisons of the Company’s results.
The following is a reconciliation of net income and diluted
earnings per share, presented and reported in accordance with U.S.
generally accepted accounting principles, to net income adjusted
for certain items:
Herbalife Ltd.
Supplemental Schedule Non-GAAP Financial Measures (In thousands,
except per share data) (Unaudited)
Quarter Ended 9/30/2010 Reported Adjusting Adjusted
(GAAP) Items (Non-GAAP) Net
Sales $ 688,431 $ 688,431 Cost of Sales 133,265
133,265 Gross Profit 555,166 555,166 Royalty Overrides
224,061 224,061 SGA 230,150 230,150 Operating
Income 100,955 100,955 Interest Expense - net 2,192
2,192 Income before income taxes 98,763 98,763 Income Taxes
23,024 3,228 (1 ) 26,252 Net Income $
75,739 $ (3,228 ) $ 72,511 Diluted EPS $ 1.22 $ (0.05 ) $
1.17 1 Tax benefit from
an international income tax audit settlement Herbalife Ltd.
Supplemental Schedule Non-GAAP Financial Measures (In thousands,
except per share data) (Unaudited)
Nine Months Ended 9/30/2010 Reported Adjusting
Adjusted
(GAAP) Items
(Non-GAAP) Net Sales $ 1,995,870 $ 1,995,870 Cost of
Sales 410,298 $ (12,715 ) (1 ) 397,583 Gross Profit
1,585,572 12,715 1,598,287 Royalty Overrides 656,160 656,160 SGA
648,143 (11,390 ) (2 ) 636,753 Operating
Income 281,269 24,105 305,374 Interest Expense - net 6,291
6,291 Income before income taxes 274,978 24,105
299,083 Income Taxes 65,435 17,680 (3 )
83,115 Net Income $ 209,543 $ 6,425 $ 215,968 Diluted
EPS $ 3.37 $ 0.10 $ 3.47
1 Incremental U.S. dollar costs of 2009
imports in Venezuela which were recorded at the unfavorable
parallel market exchange rate and were not devalued based on 2010
exchange rates but rather recorded at their historical dollar costs
as products were sold
2 Includes $15,131 foreign exchange loss
related to remeasurement of Venezuela's monetary assets and
liabilities resulting from adoption of highly inflationary
accounting and $3,741 foreign exchange gain resulting from receipt
of U.S. dollar approved by CADIVI at the official exchange rate
relating to 2009 product importations which were previously
registered with CADIVI
3 Includes $14,452 favorable income taxes related to Venezuela
becoming highly inflationary economy and $3,228 tax benefit from an
international income tax audit settlement Herbalife Ltd.
Supplemental Schedule Non-GAAP Financial Measures (In thousands,
except per share data) (Unaudited)
Quarter Ended 9/30/2009 Reported Adjusting
Adjusted
(GAAP) Items
(Non-GAAP) Net Sales $ 600,218 $ 600,218 Cost of Sales
131,777 131,777 Gross Profit 468,441 468,441
Royalty Overrides 194,639 194,639 SGA 195,968 $ (707 ) (1 )
195,261 Operating Income 77,834 707 78,541 Interest Expense
- net 1,037 1,037 Income before income taxes
76,797 707 77,504 Income Taxes 18,902 4,529 (2
) 23,431 Net Income $ 57,895 $ (3,822 ) $ 54,073
Diluted EPS $ 0.91 $ (0.06 ) $ 0.85
1 Related to restructuring charge 2 Includes
$4,852 tax benefit from expiration of certain statutes of
limitation, tax charge of $537 from an international income tax
audit settlement and $214 tax impact of restructuring charges
Herbalife Ltd. Supplemental Schedule Non-GAAP Financial
Measures (In thousands, except per share data) (Unaudited)
Nine Months Ended 9/30/2009 Reported
Adjusting Adjusted
(GAAP) Items
(Non-GAAP) Net Sales $ 1,693,706 $ 1,693,706 Cost of
Sales 356,619 356,619 Gross Profit 1,337,087
1,337,087 Royalty Overrides 556,921 556,921 SGA 568,220 $
(2,111 ) (1 ) 566,109 Operating Income 211,946 2,111
214,057 Interest Expense - net 4,087 4,087
Income before income taxes 207,859 2,111 209,970 Income Taxes
60,169 4,437 (2 ) 64,606 Net Income $
147,690 $ (2,326 ) $ 145,364 Diluted EPS $ 2.34 $ (0.04 ) $
2.31 (3 )
1 Includes $1,297 restructuring charges and $814 expense
from an international income tax audit settlement 2 Includes $4,852
tax benefit from expiration of certain statutes of limitation, tax
charge of $814 from an international income tax audit settlement
and $399 tax impact of restructuring charges 3 Amounts may not
total due to rounding. 9/30/2010
12/31/2009 Total debt (current and long-term portion) $
209,126 $ 250,333 Less: Cash and cash equivalents 193,490
150,801 Net debt $ 15,636 $ 99,532
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