October 31, 2011

Herbalife Ltd. Announces Record Third Quarter 2011 Results and Raises 2011 Earnings Guidance

  • Third quarter net sales increased 30.0 percent on volume growth of 23.4 percent compared to the prior year period.
  • Third quarter fully diluted EPS of $0.87 increased 45.0 percent compared to the $0.60 adjusted fully diluted EPS1 from prior year period.
  • Initial FY'12 EPS guidance in a range of $3.25 to $3.45.
  • Repurchased 2.8 million shares for $150 million during the third quarter.

Herbalife Ltd. (NYSE: HLF) today reported that third quarter net sales increased 30.0 percent and local currency net sales increased 24.1 percent compared to the same time period in 2010. Net income for the quarter of $108.0 million, or $0.87 per diluted share compares to 2010 third quarter adjusted net income and adjusted EPS of $75.7 million and $0.60, respectively.

"Our business has never been stronger," said Michael O. Johnson, the company's chairman and CEO. "In the third quarter Herbalife saw the highest volume point growth rate of the past five years as we eclipsed the one-billion volume point mark for the first time in the company's history."

For the quarter ended September 30, 2011, the company generated cash flow from operations of $143.0 million, an increase of 42.3 percent compared to the third quarter 2010, paid dividends of $23.5 million, invested $16.9 million in capital expenditures and repurchased $150.0 million in common shares outstanding related to our share repurchase program.

1 See Schedule A — "Reconciliation of Non-GAAP Financial Measures" for more detail.

Third Quarter 2011 Regional Key Metrics 2,3,4

Regional Volume Point and Average Active Sales Leader Metrics

                 
    Volume Points (Mil)   Average Active Sales Leaders
Region   3Q'11   Yr/Yr % Chg   3Q'11   Yr/Yr % Chg
North America   252.9   12.2 %   58,897   15.3 %
Asia Pacific   261.2   36.2 %   51,644   38.5 %
EMEA   132.4   15.8 %   39,227   16.7 %
Mexico   180.6   23.5 %   49,772   25.9 %
South & Central America   149.7   39.5 %   35,993   21.8 %
China   40.3   2.3 %   9,533   26.3 %
Worldwide Total   1017.1   23.4 %   236,191   23.6 %
                 
    Volume Points (Mil)   Average Active Sales Leaders
    3Q'11   Yr/Yr % Chg   3Q'11   Yr/Yr % Chg
Emerging Markets   544.5   26.9 %   134,467   26.4 %
Established Markets   472.6   19.5 %   109,339   19.3 %
Worldwide Total   1017.1   23.4 %   236,191   23.6 %

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

4 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 2011 Guidance

Given the recent volatility in foreign currency exchange rates for many of the company's key markets, guidance provided is reflective of the average exchange rates for the first four weeks of October. The negative EPS impact included in the guidance as a result of the change in foreign exchange rates since June 30, 2011 is approximately $0.10 - $0.12 per quarter.

Based on current business trends and foreign currency rates, the company's fourth quarter, fiscal 2011 and fiscal 2012 guidance is provided below.

           
    Three Months Ending     Twelve Months Ending
   

December 31, 2011

   

December 31, 2011

    Low   High     Low   High
Volume Point Growth vs 2010     17.0 %     19.0 %       19.7 %     20.2 %
Net Sales Growth vs 2010     13.0 %     15.0 %       24.5 %     25.0 %
Diluted EPS   $ 0.68     $ 0.72       $ 3.14     $ 3.18  
Cap Ex ($ millions)   $ 25.0     $ 30.0       $ 85.0     $ 90.0  
Effective Tax Rate     28.2 %     29.2 %       27.3 %     28.3 %

Updated 2012 Guidance

     
    Twelve Months Ending
   

December 31, 2012

    Low   High
Volume Point Growth vs 2011     8.0 %     10.0 %
Net Sales Growth vs 2011     8.0 %     10.0 %
Diluted EPS   $ 3.25     $ 3.45  
Cap Ex ($ millions)   $ 105.0     $ 115.0  
Effective Tax Rate     27.0 %     29.0 %

Announces Quarterly Dividend

The company reported today that its board of directors has approved a dividend of $0.20 per share to shareholders of record effective November 14, 2011 payable on November 28, 2011.

Third Quarter Earnings Conference Call

Herbalife Ltd. (NYSE:HLF) senior management will host an investor conference call to discuss its recent financial results and provide an update on current business trends on Tuesday, November 1, 2011 at 8 a.m. PDT (11 a.m. EDT).

The dial-in number for this conference call for domestic callers is (877) 317-1296 and (706) 634-5671 for international callers (conference ID 15135181). 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 15135181). 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 78 countries through a network of approximately 2.5 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 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 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.

 
Herbalife Ltd.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
                   
    Quarter Ended   Nine Months Ended  
    9/30/2011  

9/30/2010 (3)

  9/30/2011  

9/30/2010 (3)

 
                   
North America   $ 180,735   $ 155,532   $ 532,894   $ 473,228  
Mexico     112,979     83,498     330,738     236,265  
South and Central America     143,659     95,030     399,066     269,156  
EMEA     147,670     121,221     463,624     387,598  
Asia Pacific     255,169     181,555     691,575     494,418  
China     55,006     51,595     152,071     135,205  
Worldwide net sales     895,218     688,431     2,569,968     1,995,870  
Cost of Sales     175,308     133,265     509,124     410,298

(1)

Gross Profit     719,910     555,166     2,060,844     1,585,572  
Royalty Overrides     290,842     224,061     844,451     656,160  
SGA     277,721     230,150     788,472     648,143

(1)

Operating Income     151,347     100,955     427,921     281,269  
Interest Expense - net     345     2,192     3,848     6,291  
Income before income taxes     151,002     98,763     424,073     274,978  
Income Taxes     42,980     19,879     116,852     62,048

(1)

Net Income     108,022     78,884     307,221     212,930  
                   
Basic Shares (2)     116,975     118,442     118,059     119,286  
Diluted Shares (2)     124,275     125,613     125,889     126,216  
                   
Basic EPS (2)   $ 0.92   $ 0.67   $ 2.60   $ 1.79  
Diluted EPS (2)   $ 0.87   $ 0.63   $ 2.44   $ 1.69  
                   
Dividends declared per share   $ 0.20   $ 0.13   $ 0.53   $ 0.33  
                   
                   

(1) Includes impact of items related to adoption of highly-inflationary accounting in Venezuela that are further discussed in Schedule A — "Reconciliation of Non-GAAP Financial Measures".

(2) All share count and per share amounts have been adjusted to reflect the two-for-one stock split.  

(3) During the second quarter of 2011, the Company changed its method of accounting for share-based compensation tax benefits. Prior periods have been adjusted to reflect this change. See Note 2 of the quarterly report on Form 10-Q for the quarter ended September 30, 2011.

 

 

       

 

Herbalife Ltd.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
    Sep 30,   Dec 31,
    2011  

2010 (1)

         
ASSETS        
Current Assets:        
Cash & cash equivalents   $ 261,521     $ 190,550  
Receivables, net     112,475       85,612  
Inventories     222,501       182,467  
Prepaid expenses and other current assets     93,715       93,963  
Deferred income taxes     43,662       42,994  
Total Current Assets     733,874       595,586  
         
Property and equipment, net     182,772       177,427  
Deferred compensation plan assets     19,063       18,536  
Deferred financing cost, net     5,091       998  
Other assets     29,833       25,880  
Marketing related intangibles and other and other intangible assets, net     311,935       310,894  
Goodwill     105,488       102,899  
Total Assets   $ 1,388,056     $ 1,232,220  
         
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current Liabilities:        
Accounts payable   $ 61,857     $ 43,784  
Royalty Overrides     190,697       162,141  
Accrued compensation     69,646       69,376  
Accrued expenses     145,150       141,867  
Current portion of long term debt     1,762       3,120  
Advance sales deposits     60,129       35,145  
Income taxes payable     21,304       15,383  
Total Current Liabilities     550,545       470,816  
         
Non-current liabilities        
Long-term debt, net of current portion     220,298       175,046  
Deferred compensation     22,290       20,167  
Deferred income taxes     55,844       55,572  
Other non-current liabilities     22,600       23,407  
Total Liabilities     871,577       745,008  
         
Contingencies        
         
Shareholders' equity:        
Common shares     116       118  
Additional paid in capital     280,515       248,693  
Accumulated other comprehensive loss     (36,012 )     (27,285 )
Retained earnings     271,860       265,686  
Total Shareholders' Equity     516,479       487,212  
         
Total Liabilities and Shareholders' Equity   $ 1,388,056     $ 1,232,220  
         
         

(1) During the second quarter of 2011, the Company changed its method of accounting for share-based compensation tax benefits. Prior periods have been adjusted to reflect this change. See Note 2 of the quarterly report on Form 10-Q for the quarter ended September 30, 2011.

 

         
Herbalife Ltd.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
    Nine Months Ended
    9/30/2011  

9/30/2010 (1)

CASH FLOWS FROM OPERATING ACTIVITIES        
Net income   $ 307,221     $ 212,930  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization     54,440       51,755  
Excess tax benefits from share-based payment arrangements     (24,030 )     (6,572 )
Share-based compensation expenses     17,244       16,870  
Amortization of discount and deferred financing costs     721       374  
Deferred income taxes     (7,000 )     (16,989 )
Unrealized foreign exchange transaction loss (gain)     8,324       (7,536 )
Write-off of deferred financing costs     914        
Foreign exchange loss from adoption of highly inflationary accounting in Venezuela           15,131  
Other     1,383       2,911  
Changes in operating assets and liabilities:        
Receivables     (31,834 )     (13,965 )
Inventories     (51,649 )     (32,921 )
Prepaid expenses and other current assets     (3,733 )     5,744  
Other assets     (4,742 )     (2,328 )
Accounts payable     19,484       12,852  
Royalty overrides     33,851       3,601  
Accrued expenses and accrued compensation     7,579       11,622  
Advance sales deposits     27,416       32,399  
Income taxes payable     35,914       (16,955 )
Deferred compensation plan liability     2,123       2,198  
NET CASH PROVIDED BY OPERATING ACTIVITIES     393,626       271,121  
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchases of property     (61,514 )     (42,199 )
Proceeds from sale of property     213       64  
Deferred compensation plan assets     (527 )     (371 )
NET CASH USED IN INVESTING ACTIVITIES     (61,828 )     (42,506 )
CASH FLOWS FROM FINANCING ACTIVITIES        
Dividends paid     (62,177 )     (38,934 )
Borrowings from long-term debt     791,700       338,000  
Principal payments on long-term debt     (747,896 )     (379,465 )
Deferred financing costs     (5,728 )      
Share repurchases     (268,795 )     (106,163 )
Excess tax benefits from share-based payment arrangements     24,030       6,572  
Proceeds from exercise of stock options and sale of stock under employee stock purchase plan     15,947       11,521  
NET CASH USED IN FINANCING ACTIVITIES     (252,919 )     (168,469 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (7,908 )     (17,457 )
NET CHANGE IN CASH AND CASH EQUIVALENTS     70,971       42,689  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     190,550       150,801  
CASH AND CASH EQUIVALENTS, END OF PERIOD     261,521       193,490  
CASH PAID DURING THE PERIOD        
Interest paid   $ 6,457     $ 7,195  
Income taxes paid   $ 88,079     $ 84,120  
         
         

(1) During the second quarter of 2011, the Company changed its method of accounting for share-based compensation tax benefits. Prior periods have been adjusted to reflect this change. See Note 2 of the quarterly report on Form 10-Q for the quarter ended September 30, 2011.

 

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 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 amount)
(Unaudited)
                 
    Quarter Ended 9/30/2011
    Reported         Adjusted
   

(GAAP)

  Adjustment   (Non-GAAP)
Net Sales     895,218             895,218
Cost of Sales     175,308             175,308
Gross Profit     719,910       -         719,910
Royalty Overrides     290,842             290,842
SGA     277,721             277,721
Operating Income     151,347       -         151,347
Interest Expense - net     345             345
Income before income taxes     151,002       -         151,002
Income Taxes     42,980             42,980
Net Income     108,022       -         108,022
                 
Diluted EPS   $ 0.87     $ -       $ 0.87
                 
                 
                 
                 
                 
                 
                 
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share amount)
(Unaudited)
                 
    Quarter Ended 9/30/2010
    Reported   Adjusting     Adjusted
   

(GAAP) (2)

  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     19,879       3,228  

(3)

    23,107
Net Income   $ 78,884       (3,228 )     $ 75,656
                 
Diluted EPS (1)   $ 0.63     $ (0.03 )     $ 0.60
                 
                 
                 
(1) Diluted EPS has been adjusted to reflect the two-for-one stock split.

(2) During the second quarter of 2011, the Company changed its method of accounting for share-based compensation tax benefits. Prior periods have been adjusted to reflect this change.

See Note 2 of the quarterly report on Form 10-Q for the quarter ended September 30, 2011.
(3) Tax benefit from an international tax audit settlement.

 

 
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share amount)
(Unaudited)
             
  Nine Months Ended 9/30/2011
 

 

     

 

 

Reported
(GAAP)

    Adjustment  

Adjusted
(Non-GAAP)

Net Sales   2,569,968           2,569,968
Cost of Sales   509,124           509,124
Gross Profit   2,060,844       -       2,060,844
Royalty Overrides   844,451           844,451
SGA   788,472           788,472
Operating Income   427,921       -       427,921
Interest Expense - net   3,848       (914 )

(1)

  2,934
Income before income taxes   424,073       914       424,987
Income Taxes   116,852       214  

(1)

  117,066
Net Income   307,221       700       307,921
             
Diluted EPS $ 2.44     $ 0.01     $ 2.45
             
             
             

(1) Write-off of unamortized deferred financing costs resulting from the debt refinancing arrangement in March 2011.

 

   
             
             
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share amount)
(Unaudited)
             
  Nine Months Ended 9/30/2010
 

Reported

  Adjusting   Adjusted
 

(GAAP) (5)

  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   62,048       17,680  

(3)

  79,728
Net Income $ 212,930     $ 6,425     $ 219,355
             

Diluted EPS (4)

$ 1.69     $ 0.05     $ 1.74
             
             
 

(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.

(4) Diluted EPS has been adjusted to reflect the two-for-one stock split.

(5) During the second quarter of 2011, the Company changed its method of accounting for share-based compensation tax benefits. Prior periods have been adjusted to reflect this change. See Note 2 of the quarterly report on Form 10-Q for the quarter ended September 30, 2011.

 

 

 

 

 

 

 

 

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

       
    9/30/2011   12/31/2010
         

Total long-term debt (current and long-term portion)

  $ 222,060     $ 178,166  
Less: Cash and cash equivalents     261,521       190,550  
Net debt   $ (39,461 )   $ (12,384 )

 

Herbalife Ltd.
Media Contact:
Barbara Henderson
SVP, Worldwide Corp. Comm.
213.745.0517
Investor Contact:
Amy Greene
VP, Investor Relations
213.745.0474

Source: Herbalife Ltd.

 

 

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