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 )
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