HLF Herbalife Ltd

Herbalife Ltd. (NYSE: HLF) today reported third quarter record net sales of $1.0 billion, a 14 percent increase, driven by a 17 percent increase in volume points compared to the prior year period. The company reported net income of $117.8 million, or $1.04 per diluted share, compared to the third quarter 2011 net income of $108.0 million, or $0.87 per diluted share, reflecting an increase of 9 percent and 20 percent, respectively.

“Our business momentum has continued through the third quarter with double digit volume growth from all six of our geographical regions,” said Michael O. Johnson, the company’s chairman and CEO. “Our 2013 guidance for double-digit volume and EPS growth illustrates our belief in continued growth driven by the ongoing global expansion of daily consumption and our city by city approach to deepen our penetration in existing markets.”

For the quarter ended September 30, 2012, the company generated cash flow from operations of $142.4 million, paid dividends of $32.4 million, and invested $20.0 million in capital expenditures. Also in the third quarter, the company repurchased $181.9 million in common shares outstanding, completing the $427.9 million repurchase agreement announced on May 3, 2012.

Third Quarter Regional Key Metrics1,2

Regional Volume Point and Average Active Sales Leader Metric

            Volume Points (Mil)   Average Active Sales Leaders Region 3Q'12

Yr/Yr % Chg

  3Q'12

Yr/Yr % Chg

North America 287.4 14 % 67,826 15 % Asia Pacific 305.6 17 % 66,433 29 % EMEA 145.5 10 % 44,861 14 % Mexico 211.2 17 % 60,123 21 % South & Central America 186.0 24 % 46,466 29 % China 57.1 42 %   12,692 33 % Worldwide Total 1,192.8 17 %   288,397 22 %

1 Supplemental tables that include additional business metrics can be found at http://www.ir.herbalife.com.

2 Worldwide Average Active Sales Leaders may not equal the sum of the Average Active Sales Leaders in each region due to the calculation being an average of Sales Leaders active in a period, not a summation, and the fact that some sales leaders are active in more than one region but are counted only once in the worldwide amount.

Updated 2012 Guidance

Guidance for fully diluted 2012 EPS is based on the average daily exchange rates of the first two weeks of October 2012.

Based on current business trends the company’s fourth quarter fiscal 2012 and fiscal 2012 guidance is provided below.

Three Months Ending   Twelve Months Ending

December 31, 2012

December 31, 2012

Low High Low High Volume Point Growth vs 2011 13.0% 15.0% 18.0% 20.0% Net Sales Growth vs 2011 17.0% 19.0% 16.0% 18.0% Diluted EPS $0.97 $1.01 $3.99 $4.03 Cap Ex ($ millions) $50.0 $60.0 $110.0 $120.0 Effective Tax Rate 26.0% 28.0% 26.0% 28.0%  

2013 Guidance

Guidance for 2013 assumes a Venezuelan FX rate of 10:1 compared to prior utilization of a 5.3 bolivars to 1 USD on all ongoing operations but excludes any potential one-time impact from a devaluation or the repatriation of existing cash balances.

Twelve Months Ending

December 31, 2013

Low

  High

Volume Point Growth vs 2012

8.5

%

 

10.5

%

Net Sales Growth vs 2012

10.0

%

12.0

%

Diluted EPS

$

4.40

$

4.55

Cap Ex ($ millions)

$

165.0

$

185.0

Effective Tax Rate

26.5

%

28.5

%

 

Announces Quarterly Dividend

The company reported today that its board of directors has approved a dividend of $0.30 per share to shareholders of record on November 14, 2012, payable on November 28, 2012.

Third Quarter Earnings Conference Call

Herbalife senior management will host an investor conference call to discuss its recent financial results and provide an update on current business trends on Tuesday, October 30, 2012 at 8 a.m. PST (11 a.m. EST).

The dial-in number for this conference call for domestic callers is (877) 317-1296 and (706) 634-5671 for international callers (conference ID 33885084). 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 (855) 859-2056 for domestic callers or (404) 537-3406 for international callers (conference ID 33885084. The webcast of the teleconference will be archived and available on Herbalife's website.

About Herbalife Ltd.

Herbalife Ltd. (NYSE:HLF) is a global nutrition company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle. Herbalife products are sold in 85 countries to and through a network of 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 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 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 difficult 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;

• 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 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 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. Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited)               Three Months Ended Nine Months Ended   9/30/2012     9/30/2011   9/30/2012     9/30/2011   North America $ 208,819 $ 180,735 $ 644,191 $ 532,894 Mexico 127,473 112,979 364,031 330,738 South and Central America 167,493 143,659 485,547 399,066 EMEA 147,490 147,670 463,117 463,624 Asia Pacific 288,205 255,169 844,701 691,575 China   77,407   55,006   211,423   152,071 Worldwide net sales 1,016,887 895,218 3,013,010 2,569,968 Cost of Sales   201,597   175,308   601,478   509,124 Gross Profit 815,290 719,910 2,411,532 2,060,844 Royalty Overrides 330,247 290,842 982,975 844,451 SGA   324,200   277,721   926,903   788,472 Operating Income 160,843 151,347 501,654 427,921 Interest Expense - net   3,546   345   8,088   3,848 Income before income taxes 157,297 151,002 493,566 424,073 Income Taxes   39,518   42,980   134,257   116,852 Net Income   117,779   108,022   359,309   307,221   Basic Shares 108,816 116,975 113,838 118,059 Diluted Shares 113,646 124,275 119,376 125,889   Basic EPS $ 1.08 $ 0.92 $ 3.16 $ 2.60 Diluted EPS $ 1.04 $ 0.87 $ 3.01 $ 2.44     Dividends declared per share $ 0.30 $ 0.20 $ 0.90 $ 0.53   Herbalife Ltd. Condensed Consolidated Balance Sheets (In thousands) (Unaudited)   Sep 30,   Dec 31, 2012 2011   ASSETS Current Assets: Cash & cash equivalents $ 321,722 $ 258,775 Receivables, net 114,161 89,660 Inventories 313,581 247,696 Prepaid expenses and other current assets 124,095 117,073 Deferred income taxes   51,628     55,615   Total Current Assets 925,187 768,819   Property, plant and equipment, net 198,562 193,703 Deferred compensation plan assets 23,977 20,511 Deferred financing cost, net 8,121 4,797 Other assets 45,477 41,125 Marketing related intangibles and other intangible assets, net 311,283 311,764 Goodwill   105,490     105,490   Total Assets $ 1,618,097   $ 1,446,209       LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 80,119 $ 57,095 Royalty overrides 223,839 197,756 Accrued compensation 87,493 76,435 Accrued expenses 169,722 152,744 Current portion of long term debt 50,384 1,542 Advance sales deposits 38,890 31,702 Income taxes payable   13,501     31,415   Total Current Liabilities 663,948 548,689   Non-current liabilities Long-term debt, net of current portion 450,053 202,079 Deferred compensation plan liability 28,717 23,702 Deferred income taxes 62,808 72,348 Other non-current liabilities   41,166     39,203   Total Liabilities 1,246,692 886,021   Commitments and Contingencies   Shareholders' equity: Common shares 108 116 Additional paid in capital 297,879 291,950 Accumulated other comprehensive loss (36,625 ) (37,809 ) Retained earnings   110,043     305,931   Total Shareholders' Equity   371,405     560,188       Total Liabilities and Shareholders' Equity $ 1,618,097   $ 1,446,209     Herbalife Ltd. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)         Nine Months Ended   9/30/2012       9/30/2011   CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 359,309 $ 307,221 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 55,402 54,440 Excess tax benefits from share-based payment arrangements (28,073 ) (24,030 ) Share based compensation expenses 20,850 17,244 Amortization of discount and deferred financing costs 1,135 721 Deferred income taxes (9,246 ) (7,000 ) Unrealized foreign exchange transaction loss (gain) (3,529 ) 8,324 Write-off of deferred financing costs - 914 Other 172 1,383 Changes in operating assets and liabilities: Receivables (26,444 ) (31,834 ) Inventories (58,705 ) (51,649 ) Prepaid expenses and other current assets (7,977 ) (3,733 ) Other assets (3,098 ) (4,742 ) Accounts payable 22,674 19,484 Royalty overrides 22,432 33,851 Accrued expenses and accrued compensation 20,028 7,579 Advance sales deposits 7,384 27,416 Income taxes 22,561 35,914 Deferred compensation plan liability   5,015     2,123   NET CASH PROVIDED BY OPERATING ACTIVITIES   399,890     393,626   CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (59,229 ) (61,514 ) Proceeds from sale of property, plant and equipment 243 213 Deferred compensation plan assets   (3,466 )   (527 ) NET CASH USED IN INVESTING ACTIVITIES   (62,452 )   (61,828 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (102,687 ) (62,177 ) Borrowings from long-term debt 1,387,557 791,700 Principal payments on long-term debt (1,090,748 ) (747,896 ) Deferred financing costs (4,460 ) (5,728 ) Share repurchases (506,331 ) (268,795 ) Excess tax benefits from share-based payment arrangements 28,073 24,030 Proceeds from exercise of stock options and sale of stock under employee stock purchase plan   10,819     15,947   NET CASH USED IN FINANCING ACTIVITIES   (277,777 )   (252,919 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH   3,286     (7,908 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 62,947 70,971 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   258,775     190,550   CASH AND CASH EQUIVALENTS, END OF PERIOD   321,722     261,521   CASH PAID DURING THE YEAR Interest paid $ 10,263   $ 6,457   Income taxes paid $ 123,063   $ 88,079    

SUPPLEMENTAL INFORMATION

SCHEDULE A: 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 investors in analyzing period to period comparisons of the Company’s results. However, non-GAAP financial measures should not be considered substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP.

The following is a reconciliation of net income, presented and reported in accordance with U.S. generally   accepted accounting principles, to net income adjusted for certain items:                           Three Months Ended Nine Months Ended   9/30/2012   9/30/2011   9/30/2012   9/30/2011   Net income, as reported $ 117,779 $ 108,022 $ 359,309 $ 307,221 Write-off of unamortized deferred financing cost from debt refinancing (net of $214 tax benefit)   -   -   -   700 Net income, as adjusted $ 117,779 $ 108,022 $ 359,309 $ 307,921                     The following is a reconciliation of diluted earnings per share, presented and reported in accordance with U.S. generally accepted accounting principles, to diluted earnings per share adjusted for certain items:                     Three Months Ended   Nine Months Ended   9/30/2012   9/30/2011     9/30/2012   9/30/2011   Diluted earnings per share, as reported $ 1.04 $ 0.87 $ 3.01 $ 2.44 Write-off of unamortized deferred financing cost from debt refinancing   -   -     -   0.01 Diluted earnings per share, as adjusted $ 1.04 $ 0.87   $ 3.01 $ 2.45  

The following is a reconciliation of total long-term debt to net debt:

  9/30/2012     12/31/2011     Total long-term debt (current and long-term portion) $ 500,437 $ 203,621 Less: Cash and cash equivalents   321,722   258,775   Net debt $ 178,715 $ (55,154 )