Herbalife Ltd. (NYSE:HLF) today reported that fourth quarter net
sales increased 17 percent and local currency net sales increased
19 percent compared to the same time period in 2009. Net income for
the quarter of $81.0 million, or $1.31 per diluted share compares
to 2009 fourth quarter adjusted1 net income and EPS of $61.7
million and $0.98, respectively.
For the twelve months ended December 31, 2010, the company
reported record net sales of $2.7 billion, an 18 percent increase
on 14 percent volume growth compared to 2009. For the same period,
the company’s reported adjusted1 net income of $297.0 million, or
$4.77 per diluted share improved 43 percent and 45 percent
respectively compared to the adjusted1 2009 results of $207.1
million or $3.28 per diluted share. On a reported basis, EPS of
$4.67 increased 45 percent compared to 2009.
The full year improvements in earnings were predominantly a
result of strong volume growth. For the second consecutive quarter
and for the year ended December 31, 2010, as compared to full year
2009, each of the company’s six regions experienced volume growth.
“The continued broad-based growth we are experiencing further
confirms the strength of the business methods our Distributors are
using,” said Chairman and Chief Executive Officer Michael O.
Johnson. “Our nutrition products have never been more relevant, our
Distributors’ engagement has never been higher and their methods
are reaching more consumers every day.”
For the year ended December 31, 2010, the company generated cash
flow from operations of $380.4 million, an increase of 33.4 percent
compared to 2009, paid dividends of $53.7 million, invested $68.1
million in capital expenditures and repurchased $150.1 million in
common shares as part of its $1 billion share repurchase
authorization program. The company has reduced its net debt by
$111.9 million from December 2009 levels.
1See Schedule B – “Reconciliation of Non-GAAP Financial
Measures” for more detail.
Fourth Quarter and Full Year 2010
Regional Key Metrics2,3
Regional Volume Point and Average Active Sales Leader
Metrics
Volume Points (Mil) Avg Active Sales
Leaders Region 4Q'10
Yr/Yr %Chg
FY'10
Yr/Yr %Chg
4Q'10
Yr/Yr %Chg
North America 200.2 8.0 % 888.5 13.9 % 51,174
13.0 % Asia Pacific 188.0 23.6 % 723.6 26.8 % 39,531 22.7 %
EMEA 125.3 8.5 % 486.6 4.3 % 35,552 5.4 % Mexico 154.8 26.5 % 563.0
14.1 % 41,485 15.7 % South & Central America 122.9 12.5 % 427.4
3.7 % 31,348 5.8 % China 38.0 29.3 % 144.2
25.1 % 7,851 31.3 %
Worldwide
Total 829.2 16.1 %
3,233.3 13.9 %
202,178 14.4 %
Volume Points (Mil) Avg Active Sales Leaders
4Q'10
Yr/Yr %Chg
FY'10
Yr/Yr %Chg
4Q'10
Yr/Yr %Chg
Emerging Markets 457.2 19.3 % 1,677.6 12.5 % 112,715 20.4 %
Established Markets 372.0 12.5 % 1,555.7
15.6 % 93,301 13.1 %
Worldwide
Total 829.2 16.1 %
3,233.3 13.9 %
202,178 14.4 %
2 “Emerging markets” are defined herein as those countries that
the World Bank categorized as having “low” or “medium” GDP per
capita, while “Established markets” are defined as those countries
categorized by the World Bank as having “high” GDP per capita.
3 Supplemental tables that include additional business metrics
can be found at http://www.ir.herbalife.com
2010 Annual Sales Leader Requalification
By January of each year, sales leaders are required to
re-qualify. In February of each year, we remove from the rank of
sales leaders those individuals who did not satisfy the sales
leader qualification requirements during the preceding 12-months.
For the latest 12-month re-qualification period ending January
2011, 48.9 percent of the eligible sales leaders re-qualified,
reflecting an improvement from 43.0 percent in 2009.
Updated 2011 Guidance
Based on current business trends and foreign currency rates, the
company’s first quarter and fiscal 2011 guidance is provided
below.
First Quarter – The company’s first quarter 2011 diluted
earnings per share guidance range is $1.17 to $1.21 on volume point
growth of 14.0 percent to 16.0 percent and net sales growth of 18.0
percent to 20.0 percent compared to the same period in 2010,
respectively, and an effective tax rate range of 28.0 percent to
29.0 percent. The company’s first quarter 2011 capital expenditures
are expected to be in the range of $18.0 million to $23
million.
Fiscal 2011 – The company’s fiscal 2011 diluted earnings per
share guidance range is $5.15 to $5.40 on volume point growth of
8.0 percent to 10.0 percent and net sales growth of 13.0 percent to
15.0 percent compared to the same period in 2010, respectively, and
an effective tax rate range of 28.0 percent to 29.0 percent. The
company’s fiscal 2011 capital expenditures are expected to be in
the range of $80.0 million to $90.0 million.
Board of Directors Approved Stock Split
The Herbalife Board of Directors has approved a two-for-one
split of Herbalife’s Common Shares, subject to shareholder
approval. If approved by the shareholders, the stock split would be
effected by the subdivision of each outstanding Common Share of a
par value of $0.002 each into two Common Shares of a par value of
$0.001 each and a proportional amendment of the authorized share
capital. Shareholder approval of the stock split will be sought by
the company during its annual general meeting of Shareholders which
will be held on April 28, 2011.
“We are pleased to announce this pending two-for-one stock
split,” said John DeSimone, chief financial officer at Herbalife.
“This decision by the board of directors acknowledges our track
record of providing our shareholders solid long-term returns and
demonstrates our confidence in the company’s positive outlook for
future growth. We believe that the pending stock split will improve
liquidity in our stock and is representative of our ongoing
commitment to shareholder value.” The Board of Directors
established May 10, 2011, as the record date for the stock split.
Each shareholder of record as of the close of business on the
record date will receive one additional Common Share for every
share held. The new shares will be distributed on or about May 17,
2011.
Announces Quarterly Dividend
The company reported today that its board of directors approved
a $0.25 per share dividend to shareholders of record effective
March 8, 2011 payable on March 22, 2011.
Fourth Quarter Earnings Conference Call
Herbalife’s senior management team will host an investor
conference call Wednesday, February 23, 2011 at 11 a.m. EST (8 a.m.
PST) to discuss its recent financial results and provide an update
on current business trends.
The dial-in number for this conference call for domestic callers
is 866.903.5314 and 706.634.5671 for international callers
(conference ID 82536023). Live audio of the conference call 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 conference call in MP3 format or by dialing 800.642.1687 for
domestic callers or 706.645.9291 for international callers
(conference ID 82536023). The webcast of the teleconference 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 75 countries through a network of approximately 2.1 million
independent distributors. The company supports the Herbalife Family
Foundation and its Casa Herbalife program to help bring good
nutrition to children. Herbalife's website 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 website from time to
time, as information is updated and new information is posted.
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 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, disruptions or conflicts with our
third-party importers, 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 market or otherwise.
We do not undertake any obligation to update or release any
revisions to any forward-looking statements or to report any events
or circumstances after the date hereof or to reflect the occurrence
of unanticipated events, except as required by law.
RESULTS OF OPERATIONS:
Herbalife Ltd. Consolidated Statements of Income (In thousands,
except per share data) (unaudited)
Quarter Ended Year Ended
12/31/2010
12/31/2009 12/31/2010
12/31/2009 North America $ 140,898 $ 126,715 $
614,126 $ 529,009 Mexico 97,716 69,132 333,981 263,013 South and
Central America 121,277 113,223 390,433 366,925 EMEA 140,146
130,932 527,744 504,154 Asia Pacific 189,081 151,468 683,499
509,191 China 49,238 39,401 184,443
152,285 Worldwide net sales 738,356 630,871 2,734,226 2,324,577
Cost of Sales 148,513 136,515 558,811
493,134 Gross Profit 589,843 494,356 2,175,415 1,831,443 Royalty
Overrides 244,088 204,580 900,248 761,501 SGA 239,512
205,691 887,655 773,911 Operating Income 106,243
84,085 387,512 296,031 Interest Expense 1,944 1,836 9,664 9,613
Interest Income 818 820 2,247 4,510
Income before income taxes 105,117 83,069 380,095 290,928 Income
Taxes 24,127 27,413 89,562 87,582 Net
Income 80,990 55,656 290,533 203,346
Basic Shares 59,082 60,492 59,502 61,221 Diluted Shares
62,058 63,004 62,256 63,097 Basic EPS $ 1.37 $ 0.92 $ 4.88 $
3.32 Diluted EPS $ 1.31 $ 0.88 $ 4.67 $ 3.22 Dividends
declared per share $ 0.25 $ 0.20 $ 0.90 $
0.80
Herbalife Ltd. Consolidated Balance Sheets (In thousands)
(unaudited) Dec 31, Dec 31,
2010 2009
ASSETS Current Assets: Cash & cash equivalents $ 190,550 $
150,801 Receivables, net 85,612 76,958 Inventories 182,467 145,962
Prepaid expenses and other current assets 93,963 101,181 Deferred
income taxes 42,994 38,600 Total
Current Assets 595,586 513,502 Property, plant and
equipment, net 177,427 178,009 Deferred compensation plan assets
18,536 17,410 Deferred financing cost, net 998 1,498 Other assets
25,880 21,306 Marketing related intangibles and other intangible
assets, net 310,894 311,782 Goodwill 102,899
102,543 Total Assets $ 1,232,220 $ 1,146,050
LIABILITIES AND SHAREHOLDERS' EQUITY Current
Liabilities: Accounts payable $ 43,784 $ 37,330 Royalty Overrides
162,141 144,689 Accrued compensation 69,376 65,043 Accrued expenses
141,867 107,943 Current portion of long term debt 3,120 12,402
Advance sales deposits 35,145 22,261 Income taxes payable
15,383 40,298 Total Current Liabilities
470,816 429,966 Non-current liabilities Long-term debt, net
of current portion 175,046 237,931 Deferred compensation 20,167
16,629 Deferred income taxes 55,572 77,613 Other non-current
liabilities 23,407 24,600 Total
Liabilities 745,008 786,739 Commitments and Contingencies
Shareholders' equity: Common shares 118 120 Additional paid
in capital 257,375 222,882 Accumulated other comprehensive loss
(27,285 ) (23,396 ) Retained earnings 257,004
159,705 Total Shareholders' Equity 487,212
359,311 Total Liabilities and
Shareholders' Equity $ 1,232,220 $ 1,146,050
Herbalife Ltd.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Year Ended
12/31/2010
12/31/2009 CASH
FLOWS FROM OPERATING ACTIVITIES Net income $ 290,533 $ 203,346
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 68,621 62,437
Excess tax benefits from share-based payment arrangements (16,410 )
(3,266 ) Share based compensation expenses 22,969 20,907
Amortization of discount and deferred financing costs 500 491
Deferred income taxes (24,631 ) (11,226 ) Unrealized foreign
exchange transaction loss (gain) (7,142 ) 4,809 Foreign exchange
loss from adoption of highly inflationary accounting in Venezuela
15,131 — Other 2,527 340 Changes in operating assets and
liabilities: Receivables (7,593 ) 2,361 Inventories (31,516 )
(1,742 ) Prepaid expenses and other current assets 10,254 (7,781 )
Other assets (3,485 ) 2,109 Accounts payable 6,650 (9,500 ) Royalty
overrides 15,732 9,102 Accrued expenses and accrued compensation
31,092 (3,461 ) Advance sales deposits 12,439 8,779 Income taxes
payable (8,807 ) 4,700 Deferred compensation plan liability
3,538 2,651 NET CASH PROVIDED BY OPERATING
ACTIVITIES 380,402 285,056 CASH
FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and
equipment (68,125 ) (59,768 ) Proceeds from sale of property, plant
and equipment 115 102 Deferred compensation plan assets (1,126 )
(1,656 ) Acquisition of business - (10,000 )
NET CASH USED IN INVESTING ACTIVITIES (69,136 )
(71,322 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends
paid (53,740 ) (48,721 ) Borrowings from long-term debt 427,000
211,974 Principal payments on long-term debt (499,451 ) (313,089 )
Share repurchases (160,008 ) (74,641 ) Excess tax benefits from
share-based payment arrangements 16,410 3,266 Proceeds from
exercise of stock options and sale of stock under employee stock
purchase plan 15,309 7,884 NET CASH
USED IN FINANCING ACTIVITIES (254,480 ) (213,327 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH (17,037 )
(453 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 39,749 (46 ) CASH
AND CASH EQUIVALENTS, BEGINNING OF YEAR 150,801
150,847 CASH AND CASH EQUIVALENTS, END OF YEAR $
190,550 $ 150,801 CASH PAID DURING THE PERIOD
Interest paid $ 9,295 $ 10,011 Income taxes paid $
111,497 $ 95,139 NON CASH ACTIVITIES Assets acquired
under capital leases and other long-term debt $ 576 $ 388
Regional Volume Point and Average Active Sales Leader Metrics
– 4Q’10 & FY’10
Volume Points (Mil) Average Active Sales
Leaders
Region 4Q'10
Yr/Yr %Chg
FY'10
Yr/Yr %Chg
4Q'10
Yr/Yr %Chg
FY'10
Yr/Yr %Chg
North America 200.2 8.0 % 888.5 13.9 % 51,174
13.0 % 49,305 13.9 % Asia Pacific 188.0 23.6 %
723.6 26.8 % 39,531 22.7 % 35,899 25.8 % EMEA 125.3 8.5 % 486.6 4.3
% 35,552 5.4 % 33,531 2.9 % Mexico 154.8 26.5 % 563.0 14.1 % 41,485
15.7 % 38,084 10.2 % South & Central America 122.9 12.5 % 427.4
3.7 % 31,348 5.8 % 28,821 3.2 % China 38.0 29.3 %
144.2 25.1 % 7,851 31.3 % 6,848
15.7 %
Worldwide Total 829.2
16.1 % 3,233.3 13.9
% 202,178 14.4 %
185,774 11.5 %
Volume Points (Mil) Average Active
Sales Leaders 4Q'10
Yr/Yr %Chg
FY'10
Yr/Yr %Chg
4Q'10
Yr/Yr %Chg
FY'10
Yr/Yr %Chg
Emerging Markets 457.2 19.3 % 1,677.6 12.5 112,715 20.4 % 102,782
22.6 % Established Markets 372.0 12.5 %
1,555.7 15.6 93,301 13.1 %
88,137 31.3 %
Worldwide Total 829.2
16.1 % 3,233.3
13.9 % 202,178 14.4
% 185,774 11.5 %
SUPPLEMENTAL INFORMATION
Schedule A: Financial Guidance
2011 Guidance
For the Three Months Ending March 31, 2011 and Twelve Months
Ending December 31, 2011
Three Months EndingMarch 31, 2011
Twelve Months EndingDecember 31, 2011
Low High Low
High Volume point growth vs 2010 14.0 % 16.0 % 8.0 %
10.0 % Net sales growth vs 2010 18.0 % 20.0 % 13.0 % 15.0 %
EPS
$ 1.17 $ 1.21 $ 5.15 $ 5.40 Cap Ex ($ millions) $ 18.0 $ 23.0 $
80.0 $ 90.0
Effective Tax Rate
28.0 % 29.0 % 28.0 % 29.0 %
SCHEDULE B: RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
(unaudited), (Dollars in Thousand, 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 investor in 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 12/31/2010 Reported Adjusting
Adjusted
(GAAP) Items
(Non-GAAP) Net Sales $ 738,356 $ 738,356 Cost of Sales
148,513 148,513 Gross Profit 589,843 589,843
Royalty Overrides 244,088 244,088 SGA 239,512
239,512 Operating Income 106,243 106,243 Interest Expense - net
1,126 1,126 Income before income taxes 105,117
105,117 Income Taxes 24,127 24,127 Net Income
$ 80,990 $ - $ 80,990 Diluted EPS $ 1.31 $ - $ 1.31
Herbalife Ltd. Supplemental Schedule Non-GAAP Financial
Measures (In thousands, except per share data) (Unaudited)
Twelve Months Ended 12/31/2010 Reported Adjusting
Adjusted
(GAAP) Items
(Non-GAAP) Net Sales $ 2,734,226 $ 2,734,226 Cost of
Sales 558,811 $ (12,715 )
(1)
546,096 Gross Profit 2,175,415 12,715 2,188,130 Royalty
Overrides 900,248 900,248 SGA 887,655 (11,390
)
(2)
876,265 Operating Income 387,512 24,105 411,617 Interest
Expense - net 7,417 7,417 Income
before income taxes 380,095 24,105 404,200 Income Taxes
89,562 17,680
(3)
107,242 Net Income $ 290,533 $ 6,425 $
296,958 Diluted EPS $ 4.67 $ 0.10
$ 4.77 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 12/31/2009 Reported
Adjusting Adjusted
(GAAP)
Items (Non-GAAP) Net Sales $
630,871 $ 630,871 Cost of Sales 136,515
(12,544 )
(1)
123,971 Gross Profit 494,356 12,544 506,900 Royalty
Overrides 204,580 204,580 SGA 205,691 $ 2,368
(2)
208,059 Operating Income 84,085 10,176 94,261 Interest
Expense - net 1,016 1,016
Income before income taxes 83,069 10,176 93,245 Income Taxes
27,413 4,099
(3)
31,512 Net Income $ 55,656 $ 6,077
$ 61,733 Diluted EPS $ 0.88 $ 0.10
$ 0.98 1 Related to incremental U.S.
dollar costs of imports into Venezuela at the unfavorable parallel
market exchange rate rather than the official currency exchange
rate 2 Related to foreign exchange gain for Venezuela
resulting from receipt of U.S. dollars approved by CADIVI at the
official exchange rate 3 Includes $3,562 tax benefit of
Venezuela items and tax benefit of $537 from an international
income tax audit settlement Herbalife Ltd. Supplemental
Schedule Non-GAAP Financial Measures (In thousands, except per
share data) (Unaudited) Twelve Months Ended
12/31/2009 Reported Adjusting Adjusted
(GAAP)
Items (Non-GAAP) Net Sales $ 2,324,577 $
2,324,577 Cost of Sales 493,134 (12,544 )
(1)
480,590 Gross Profit 1,831,443 12,544 1,843,987 Royalty
Overrides 761,501 761,501 SGA 773,911 $ 257
(2)
774,168 Operating Income 296,031 12,287 308,318 Interest
Expense - net 5,103 5,103 Income before
income taxes 290,928 12,287 303,215 Income Taxes 87,582
8,536
(3)
96,118 Net Income $ 203,346 $ 3,751 $ 207,097
Diluted EPS $ 3.22 $ 0.06 $ 3.28
1 Related to incremental U.S. dollar costs of imports into
Venezuela at the unfavorable parallel market exchange rate rather
than the official currency exchange rate 2 Includes $1,297
restructuring charges, $814 expense from an international income
tax audit settlement and $2,368 foreign exchange gain for Venezuela
resulting from receipt of U.S. dollars approved by CADIVI at the
official exchange rate 3 Includes $4,852 tax benefit from
expiration of certain statutes of limitation, tax charge of $277
from an international income tax audit settlement, $399 tax benefit
of restructuring charges and $3,562 tax benefit of Venezuela items
The following is a reconciliation of total long-term debt to net
debt:
12/31/2010 12/31/2009
Total long-term debt (current and long-term portion) $ 178,166 $
250,333 Less: Cash and cash equivalents 190,550
150,801 Net debt $ (12,384 ) $ 99,532
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