- Fourth quarter adjusted1
EPS increased 10% to $1.41 per diluted share compared to $1.28
per diluted share for the prior year comparable quarter. Reported
EPS increased 5% to $1.21 per diluted share compared to $1.15 per
diluted share in the prior year.
- Fourth quarter worldwide net sales
of $1.1 billion, down 11% due to an unfavorable impact from
currency; net sales excluding currency impact were flat compared to
the prior year period.
- Annual sales leader retention of
approximately 54.2% percent.
- FY'15 adjusted EPS guidance to a
range of $4.10 to $4.50.
Herbalife Ltd. (NYSE: HLF) today reported fourth quarter net
sales of $1.1 billion, reflecting a decline of 11 percent,
primarily due to the unfavorable impact of currency fluctuations.
Net sales, excluding currency impact, were flat compared to the
prior year. Adjusted net income for the quarter was $121.0 million,
or $1.41 per diluted share, compared to $137.2 million, or $1.28
per diluted share for the same period in 2013. On a reported basis,
the company announced fourth quarter net income of $103.3 million,
or $1.21 per diluted share, compared to $123.5 million, or $1.15
per diluted share for the same period in 2013. Fourth quarter 2014
EPS was negatively impacted by a $0.31 currency headwind.
For the twelve months ended December 31, 2014, the company
reported net sales of $5.0 billion, a 3 percent increase compared
to 2013. Net sales, excluding currency impact, increased 8 percent
compared to 2013. For the twelve months ended December 31, 2014,
the company reported net income of $308.7 million, or $3.40 per
diluted share. On an adjusted basis, net income of $538.5 million
decreased 7 percent versus adjusted net income of $577.4 million
for the same period in 2013. Adjusted EPS for full year 2014 of
$5.93 increased by 10 percent versus adjusted EPS of $5.37 for full
year 2013.
Michael Johnson, chairman and CEO stated, “2014 was a record
year in terms of net sales, volume and sales leader retention. It
was also a year of transition, as we continue to implement changes
that we believe will create a stronger company with the ideal
combination of growth and sustainability. We have seen the success
of these changes in early adopter markets and remain confident that
our other markets will follow a similar pattern through 2015 and
beyond.”
Johnson continued, "Our revised guidance reflects the currency
landscape faced by all global companies and the short-term volume
impact of the enhancements we are making. We believe we are
executing the right long-term strategy and are confident in our
ability to create sustainable value for our shareholders and the
millions of Herbalife members and their customers worldwide."
For the year ended December 31, 2014, the company generated cash
flow from operations of $511.4 million, invested $156.7 million in
capital expenditures, and repurchased approximately $1.3 billion in
common shares outstanding under the approved share repurchase
program.
______________________________1 See Schedule A – “Reconciliation
of Non-GAAP Financial Measures” for more detail.
Fourth Quarter and Fiscal 2014 Key
Metrics2,3
Regional Volume Point and Average Active Sales Leader
Metrics
Volume Points (Mil) Average Active Sales
Leaders Region 4Q'14 Yr/Yr % Chg
4Q'14 Yr/Yr % Chg North America 268.6 -6% 77,490
5% Asia Pacific 263.0 -10% 78,211 6% EMEA 215.5 17% 66,422
24% Mexico 204.9 -6% 68,242 3% South & Central America 211.6
-24% 66,534 1% China 118.2 15% 20,528
18%
Worldwide Total 1,281.8 -6%
366,489 8% Venezuela 20.2
-68% 8,146 -32%
Worldwide Total excl Venezuela
1,261.6 -3% 358,963
9% Volume Points (Mil)
Average Active Sales Leaders Region FY 2014
Yr/Yr % Chg FY 2014 Yr/Yr % Chg North America
1,244.0 0% 76,180 6% Asia Pacific 1,189.8 -3% 75,351
5% EMEA 835.4 20% 59,224 19% Mexico 875.2 1% 65,861 4% South &
Central America 850.1 -12% 63,712 10% China 448.5 34%
18,857 27%
Worldwide Total
5,443.0 2% 347,321
9% Venezuela 91.1 -57% 8,593
-18%
Worldwide Total excl Venezuela 5,351.9
4% 339,395 10%
2 Supplemental tables that include additional business metrics
can be found at http://www.ir.herbalife.com.3 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.
Regional Net Sales and FX
Impact
Region Reported Net Sales
4Q '14 (mil)
Growth/Decline
including FX
Growth/Decline
excluding FX
North America $ 204.8 -3 % -3 % Asia Pacific (ex. China) $ 245.6
-12 % -10 % EMEA $ 200.2 1 % 17 % Mexico $ 132.7 -7 % -1 % South
& Central America $ 173.2 -40 % -12 % China $ 177.1 19 %
20 %
Worldwide Total $ 1,133.6
-11 % 0 % Venezuela $ 9.5
-90 % -19 %
Worldwide Total excl Venezuela $
1,124.1 -4 % 1 %
Region Reported Net Sales
FY 2014 (mil)
Growth/Decline
including FX
Growth/Decline
excluding FX
North America $ 926.8 2 % 2 % Asia Pacific (ex.
China) $ 1,130.1 -4 % -2 % EMEA $ 843.1 15 % 20 % Mexico $ 567.9 1
% 5 % South & Central America $ 826.4 -15 % 4 % China $ 664.3
41 % 41 %
Worldwide Total $
4,958.6 3 % 8 %
Venezuela $ 140.3 -47 % -1 %
Worldwide Total excl
Venezuela $ 4,818.3 6 %
9 %
2015 Annual Sales Leader Requalification 4
Each year, by the end of January, sales leaders are required to
re-qualify to retain their sales leader status. A record number of
sales leaders were retained in 2015. The pool of sales leaders
needing to re-qualify increased by approximately 2% compared to the
prior year, and we retained 7% more of them than in the prior year.
Our overall retention rate increased to 54.2% compared to 51.8%
from the prior year.
2015 First Quarter and Full Year Guidance
Guidance includes an unfavorable impact from currency rates. For
the first quarter, we expect an approximately $0.28 impact,
inclusive of approximately $0.10 resulting from Venezuela. Full
year guidance includes a currency headwind of approximately $1.19,
including approximately $0.45 from Venezuela.
Based on current business trends the company’s first quarter
fiscal 2015 and full year fiscal 2015 guidance is as follows:
Three Months Ending Twelve Months Ending March 31, 2015
December 31, 2015
Low High
Low High Volume Point Growth vs 2014
(8.0%) (5.0%) (4.5%) (1.5%) Net Sales Growth vs 2014 (15.5%)
(12.5%) (9.0%) (6.0%) Currency Adjusted Net Sales Growth vs 2014
(7.5%) (4.5%) (1.0%) 2.0% Diluted EPS $1.00 $1.10 $4.10 $4.50
Currency Adjusted EPS $1.30 $1.40 $5.30 $5.70 Cap Ex ($ millions)
$30.0 $40.0 $120.0 $140.0 Effective Tax Rate 27.0% 29.0% 27.0%
29.0% Free Cash Flow ($ millions) $430.0 $460.0
Guidance excludes the impact of expenses primarily related to
legal and advisory services relating to the company’s ongoing
business matters, expenses related to an FTC Civil Investigative
Demand or CID, and the impact of non-cash interest costs associated
with the company’s Convertible Notes and the expenses incurred
related to the effort to recover costs related to the re-audits
that occurred in 2013. Forward guidance is based on the average
daily exchange rates of the first three weeks of January. With
respect to Venezuela, the guidance assumes a rate of 50 to 1 for
all of 2015 and excludes the potential impact of the recent and any
future devaluation of the Venezuelan Bolivar and future
repatriation, if any, of existing cash balances in Venezuela.
______________________________4 Results exclude China, Venezuela
and Argentina
Fourth Quarter and Fiscal 2014 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 Thursday, February 26, 2015 at 2:30
p.m. PST (5:30 p.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 67375297). 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 67375297). The webcast of the teleconference will be
archived and available on Herbalife's website.
About Herbalife Ltd.
Herbalife Ltd. (NYSE:HLF) is a 35-year-old global nutrition
company that sells weight-management, nutrition and personal care
products intended to support a healthy lifestyle. Herbalife
products are sold in more than 90 countries to and through a
network of independent members. 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 financial and other information about the company 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
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:
• our relationship with, and our ability to influence the
actions of, our Members;
• improper action by our employees or Members in violation of
applicable law;
• adverse publicity associated with our products or network
marketing organization, including our ability to comfort the
marketplace and regulators regarding our compliance with applicable
laws;
• 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 Member
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;
• 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 Members;
• product liability claims;
• whether we will purchase any of our shares in the open markets
or otherwise; and
• share price volatility related to, among other things,
speculative trading and certain traders shorting our common
shares.
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.
RESULTS OF OPERATIONS:
Herbalife Ltd. and Subsidiaries Condensed Consolidated Statements
of Income (In millions, except per share amounts) (Unaudited)
Three
Months Ended Twelve Months Ended
12/31/2014
12/31/2013
12/31/2014 12/31/2013
North America $ 204.8 $ 210.3 $ 926.8 $ 908.0 Mexico 132.7
142.6 567.9 562.4 South and Central America 173.2 290.3 826.4 973.5
EMEA 200.2 197.7 843.1 735.2 Asia Pacific 245.6 279.6 1,130.1
1,174.6 China 177.1 148.4 664.3 471.6
Worldwide net sales 1,133.6 1,268.9 4,958.6 4,825.3 Cost of Sales
(1) 219.6 251.8 982.9 963.4 Gross
Profit 914.0 1,017.1 3,975.7 3,861.9 Royalty Overrides 334.6 380.7
1,471.1 1,497.5 Selling, General and Administrative Expenses (2)
417.4 454.6 1,991.1 1,629.1 Operating
Income 162.0 181.8 513.5 735.3 Interest Expense, net 23.0 2.9 79.2
18.6 Other Expense, net (3) 0.0 - 13.0
- Income before income taxes 139.0 178.9 421.3 716.7 Income Taxes
35.7 55.4 112.6 189.2 Net Income $
103.3 $ 123.5 $ 308.7 $ 527.5 Basic Shares 82.1 101.2 86.3
102.6 Diluted Shares 85.5 107.2 90.8 107.4 Basic EPS $ 1.26
$ 1.22 $ 3.58 $ 5.14 Diluted EPS $ 1.21 $ 1.15 $ 3.40 $ 4.91
Dividends declared per share $ - $ 0.30 $ 0.30 $ 1.20 (1) As
discussed in Note 2 of the annual report on Form 10-K for the year
ended December 31, 2014, Cost of Sales includes $7.6 million of
inventory write downs related to Venezuela for the twelve months
ended December 31, 2014. (2) As discussed in Note 2 of the annual
report on Form 10-K for the year ended December 31, 2014, Selling,
General and Administrative Expenses includes $103.4 million and
$98.0 million pre-tax unfavorable impact related to the
remeasurement of Venezuela Bolivar-denominated assets and
liabilities at the SICAD I and SICAD II rate, respectively, and
$7.0 million loss on Venezuela asset impairment for the twelve
months ended December 31, 2014. (3) As discussed in Note 2 of the
annual report on Form 10-K for the year ended December 31, 2014,
Other Expense, net relates to the impairment of investments in
Bolivar-denominated bonds. Herbalife Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (In millions) (Unaudited)
Dec 31, Dec 31,
2014
2013 ASSETS Current Assets: Cash
& cash equivalents $ 645.4 $ 973.0 Receivables, net 83.6 100.3
Inventories 377.7 351.2 Prepaid expenses and other current assets
186.1 148.8 Deferred income tax assets 100.6
69.8 Total Current Assets 1,393.4 1,643.1 Property,
net 366.7 318.9 Deferred compensation plan assets 27.4 26.8 Other
assets 152.8 63.7 Deferred financing cost, net 22.0 4.9 Marketing
related intangibles and other intangible assets, net 310.4 310.8
Goodwill 102.2 105.5 Total Assets $
2,374.9 $ 2,473.7 LIABILITIES AND
SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 72.4 $
82.7 Royalty overrides 251.0 267.0 Accrued compensation 69.6 111.9
Accrued expenses 252.1 267.5 Current portion of long-term debt
100.0 81.3 Advance sales deposits 70.0 68.1 Income taxes payable
59.7 43.8 Total Current Liabilities
874.8 922.3 Non-current liabilities Long-term debt, net of
current portion 1,711.7 850.0 Deferred compensation plan liability
42.9 37.2 Deferred income tax liabilities 15.3 66.0 Other
non-current liabilities 64.6 46.8 Total
Liabilities 2,709.3 1,922.3 Commitments and Contingencies
Shareholders' (deficit) equity: Common shares 0.1 0.1
Paid-in capital in excess of par value 409.1 323.9 Accumulated
other comprehensive loss (78.2 ) (19.8 ) (Accumulated deficit)
retained earnings (665.4 ) 247.2 Total
Shareholders' (Deficit) Equity (334.4 ) 551.4
Total Liabilities and Shareholders'
(Deficit) Equity
$ 2,374.9 $ 2,473.7 Herbalife Ltd. and
Subsidiaries Condensed Consolidated Statements of Cash Flows (In
millions)
(Unaudited)
Twelve Months Ended
12/31/2014
12/31/2013 CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 308.7 $ 527.5 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation and
amortization 93.2 84.7 Excess tax benefits from share-based payment
arrangements (10.4 ) (15.6 ) Share-based compensation expenses 45.7
29.5 Non-cash interest expense 43.5 2.6 Deferred income taxes (84.8
) (24.9 ) Inventory write-downs 24.5 29.8 Unrealized foreign
exchange transaction (gain) loss (6.2 ) 5.8 Foreign exchange loss
from Venezuela currency devaluation 200.3 15.1 Impairments and
write-downs relating to Venezuela currency devaluation 27.5 - Other
6.1 0.6 Changes in operating assets and liabilities: Receivables
6.0 9.2 Inventories (99.4 ) (54.8 ) Prepaid expenses and other
current assets (34.9 ) (9.4 ) Other assets (36.7 ) (9.4 ) Accounts
payable (5.2 ) 10.8 Royalty overrides 6.7 28.8 Accrued expenses and
accrued compensation (11.5 ) 86.0 Advance sales deposits 10.4 22.0
Income taxes 22.2 26.8 Deferred compensation plan liability
5.7 7.8 NET CASH PROVIDED BY OPERATING
ACTIVITIES 511.4 772.9 CASH FLOWS FROM
INVESTING ACTIVITIES Purchases of property, plant and equipment
(173.7 ) (146.9 ) Proceeds from sale of property, plant and
equipment - 0.2 Investments in Venezuelan bonds (12.6 ) (4.1 )
Deposit in escrow (15.0 ) - NET CASH USED IN
INVESTING ACTIVITIES (201.3 ) (150.8 ) CASH FLOWS
FROM FINANCING ACTIVITIES Dividends paid (30.4 ) (123.1 ) Dividends
received 3.4 - Payments for Capped Call Transactions (123.8 ) -
Borrowings from senior secured credit facility and other debt 50.0
763.1 Proceeds from senior convertible notes 1,150.0 - Principal
payments on senior secured credit facility and other debt (131.3 )
(319.4 ) Issuance costs relating to long-term debt and senior
convertible notes (28.9 ) - Share repurchases (1,291.9 ) (306.5 )
Excess tax benefits from share-based payment arrangements 10.4 15.6
Proceeds from exercise of stock options and sale of stock under
employee stock purchase plan 3.0 1.0
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (389.5 )
30.7 EFFECT OF EXCHANGE RATE CHANGES ON CASH
(248.2 ) (13.3 ) NET CHANGE IN CASH AND CASH EQUIVALENTS
(327.6 ) 639.5 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
973.0 333.5 CASH AND CASH EQUIVALENTS, END OF
YEAR $ 645.4 $ 973.0 CASH PAID DURING THE YEAR
Interest paid $ 39.2 $ 23.0 Income taxes paid $ 180.8
$ 197.1 NON CASH INVESTING ACTIVITIES Accrued capital
expenditures $ 12.3 $ 29.6 NON CASH FINANCING
ACTIVITIES Forward transaction non-cash issuance cost $ 35.8
$ -
SUPPLEMENTAL INFORMATION
SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES(Unaudited and unreviewed), (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 in analyzing period to
period comparisons of the Company’s results.
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 Twelve Months Ended
12/31/2014 12/31/2013 12/31/2014
12/31/2013 (in millions) Net income, as reported $ 103.3 $
123.5 $ 308.7 $ 527.5 Remeasurement and impairment losses relating
to Venezuela (1) (2) (0.4 ) 1.4 152.4 9.8 Non-recurring expenses
associated with Member payments related to Venezuela (1) 1.8 - 1.8
- Expenses incurred responding to attacks on the Company's business
model (1) (3) 3.1 3.9 16.6 24.5 Expenses incurred for the re-audit
of 2010 to 2012 financial statements (1) (4) - 8.3 - 15.6 Expenses
related to the FTC inquiry (1) (5) 2.8 - 9.4 - Expenses incurred
for the recovery of re-audit fees (1) (6) 0.1 - 0.4 - Non-cash
interest expense and amortization of non-cash issuance costs (1)
(7) 10.8 - 36.7 - Legal reserve for the Bostick case (1) (8) (0.4 )
- 10.9 - Impairment of newly acquired defective manufacturing
equipment (1) (9) (0.1 ) - 1.6 - Net
income, as adjusted (10) $ 121.0 $ 137.2 $ 538.5 $ 577.4
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 Twelve Months Ended
12/31/2014 12/31/2013 12/31/2014
12/31/2013 Diluted earnings per share, as reported $
1.21 $ 1.15 $ 3.40 $ 4.91 Remeasurement and impairment losses
relating to Venezuela (1) (2) (0.01 ) 0.01 1.68 0.09 Non-recurring
expenses associated with Member payments related to Venezuela (1)
0.02 0.02 Expenses incurred responding to attacks on the Company's
business model (1) (3) 0.04 0.04 0.18 0.23 Expenses incurred for
the re-audit of 2010 to 2012 financial statements (1) (4) - 0.08 -
0.14 Expenses related to the FTC inquiry (1) (5) 0.03 - 0.10 -
Expenses incurred for the recovery of re-audit fees (1) (6) - - - -
Non-cash interest expense and amortization of non-cash issuance
costs (1) (7) 0.13 - 0.40 - Legal reserve for the Bostick case (1)
(8) - - 0.12 - Impairment of newly acquired defective manufacturing
equipment (1) (9) - - 0.02 -
Diluted earnings per share, as adjusted (10) $ 1.41 $ 1.28 $
5.93 $ 5.37 (1) Based on interim income tax reporting rules,
these expenses are not considered discrete items. As a result, the
Company's full year effective tax rate is impacted by these items.
When applying the full year effective tax rate to year-to-date
income, the Company's year-to-date tax provision recorded with
respect to these non-GAAP adjustments is different from the
forecasted full-year tax provision impact of these items. As a
consequence, adjustments to the year-to-date and quarterly tax
impacts will be recorded as the adjusted full year effective tax
rate is applied to income in subsequent periods. (2) Net of $0.4
million and $(1.4 million) tax benefit for the three months ended
Dec. 31, 2014 and 2013, respectively; and net of $76.6 million and
$5.4 million tax benefit for the twelve months ended Dec. 31, 2014
and 2013, respectively. (3) Net of $3.7 million and $1.4 million
tax benefit for the three months ended Dec. 31, 2014 and 2013,
respectively; and net of $8.5 million and $4.6 million tax benefit
for the twelve months ended Dec. 31, 2014 and 2013, respectively.
(4) Net of $2.5 million and $4.9 million tax benefit for the three
and twelve months ended Dec. 31, 2013, respectively. (5) Net of
$1.6 million and $5.7 million tax benefit for the three and twelve
months ended Dec. 31, 2014, respectively. (6) Net of $0.1 million
and $0.2 million tax benefit for the three and twelve months ended
Dec. 31, 2014, respectively. (7) Relates to non-cash expense on our
convertible notes and prepaid forward share repurchase contract.
(8) Net of $0.4 million and $6.6 million tax benefit for the three
and twelve months ended Dec 31, 2014, respectively. (9) Net of $0.1
million and $1.0 million tax benefit for the three and twelve
months ended Dec. 31, 2014, respectively. (10) Amounts may not
total due to rounding.
The following is a reconciliation of total long-term debt to
net debt:
12/31/2014 12/31/2013 (in
millions) Total long-term debt (current and long-term
portion) $ 1,811.7 $ 931.3 Less: Cash and cash equivalents
645.4 973.0 Net debt $ 1,166.3 $ (41.7 )
Herbalife Ltd.Media Contact:Julian CacchioliVP, Corporate
Communications213.745.0519orInvestor Contact:Alan QuanVP, Investor
Relations213.745.0541
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