Herbalife Ltd. Announces Record Second Quarter 2011 Results and Raises FY’11 Guidance

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  • Second quarter net sales growth of 27.7 percent on volume growth of 17.1 percent.
  • Second quarter diluted EPS1 of $0.88 increased 35.4 percent compared to the $0.65 diluted EPS from prior year period.
  • Raises FY’11 EPS guidance to a range of $2.97 to $3.07.
  • Board of directors approved a quarterly dividend of $0.20 per share.

LOS ANGELES--(BUSINESS WIRE)-- Herbalife Ltd. (NYSE: HLF) today reported that second quarter net sales increased 27.7 percent and local currency net sales increased 19.9 percent compared to the same time period in 2010. Net income for the quarter of $111.2 million, or $0.88 per diluted share compares to 2010 second quarter net income and EPS of $82.2 million and $0.65, respectively.

“We believe that we are just getting started,” said Michael O. Johnson, the company’s chairman and CEO. “Eight consecutive quarters of growth in the average number of sales leaders ordering illustrates the engagement of the distributors and the strong foundation being built as Herbalife helps consumers tackle the global issues of obesity.”

For the quarter ended June 30, 2011, the company generated cash flow from operations of $142.7 million, an increase of 71.5 percent compared to the second quarter 2010, paid dividends of $23.9 million, invested $16.1 million in capital expenditures and repurchased $98.8 million in common shares related to our share repurchase program.

1 See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for more detail.

Second Quarter 2011 Regional Key Metrics2,3,4

 

Regional Volume Point and Average Active Sales Leader Metrics

 
  Volume Points (Mil)   Average Active Sales Leaders
Region   2Q'11   Yr/Yr % Chg   2Q'11   Yr/Yr % Chg
North America 259.0   6.7% 55,920   13.8%
Asia Pacific 243.8 27.2% 45,501 30.5%
EMEA 136.9 7.4% 37,624 14.3%
Mexico 174.1 26.3% 46,365 25.8%
South & Central America 129.1 34.2% 33,064 21.7%
China   37.6   (8.7%)   8,375   25.4%
Worldwide Total   980.5   17.1%   218,224   21.1%
 
Volume Points (Mil) Average Active Sales Leaders
    2Q'11   Yr/Yr % Chg   2Q'11   Yr/Yr % Chg
Emerging Markets 507.4 22.2% 123,697 24.3%
Established Markets   473.1   12.2%   102,107   16.3%
Worldwide Total   980.5   17.1%   218,224   21.1%
 

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

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

 
  Three Months Ending   Twelve Months Ending

September 30, 2011

December 31, 2011

Low   High Low   High
Volume Point Growth vs 2010 13.0% 15.0% 15.0% 17.0%
Net Sales Growth vs 2010 21.0% 23.0% 22.0% 24.0%
Diluted EPS $0.71 $0.76 $2.97 $3.07
Cap Ex ($ millions) $18.0 $23.0 $90.0 $100.0
Effective Tax Rate 28.7% 29.7% 27.5% 28.5%

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 August 15, 2011 payable on August 29, 2011.

Second 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, August 2, 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 80765801). 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 80765801). 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 76 countries through a network of approximately 2.3 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 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;
  • 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 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.

RESULTS OF OPERATIONS:

Herbalife Ltd.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
         
Quarter Ended Six Months Ended
6/30/2011  

6/30/2010 (3)

6/30/2011  

6/30/2010 (3)

 
North America $ 185,159 $ 166,437 $ 352,159 $ 317,696
Mexico 113,882 80,918 217,759 152,767
South and Central America 130,130 82,797 255,407 174,126
EMEA 162,017 135,553 315,954 266,377
Asia Pacific 237,103 171,850 436,406 312,863
China   51,363   51,251   97,065   83,610
Worldwide net sales 879,654 688,806 1,674,750 1,307,439
Cost of Sales   171,023   136,561   333,816   277,033

1

Gross Profit 708,631 552,245 1,340,934 1,030,406
Royalty Overrides 289,232 224,780 553,609 432,099
SGA   266,225   211,110   510,751   417,993

1

Operating Income 153,174 116,355 276,574 180,314
Interest Expense - net   855   2,146   3,503   4,099
Income before income taxes 152,319 114,209 273,071 176,215
Income Taxes   41,139   32,034   73,872   42,169

1

Net Income   111,180   82,175   199,199   134,046
 

Basic Shares 2

119,007 119,054 118,609 119,686

Diluted Shares 2

126,617 125,685 126,610 126,212
 
Basic EPS 2 $ 0.93 $ 0.69 $ 1.68 $ 1.12
Diluted EPS 2 $ 0.88 $ 0.65 $ 1.57 $ 1.06
 
Dividends declared per share $ 0.20 $ 0.10 $ 0.33 $ 0.20
 

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 June 30, 2011.

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

2010 1

 

 
ASSETS
Current Assets:
Cash & cash equivalents $ 254,467 $ 190,550
Receivables, net 116,555 85,612
Inventories 219,034 182,467
Prepaid expenses and other current assets 104,815 93,963
Deferred income taxes   43,747     42,994  
Total Current Assets 738,618 595,586
 
Property and equipment, net 185,887 177,427
Deferred compensation plan assets 20,591 18,536
Deferred financing cost, net 5,378 998
Other assets 32,031 25,880
Marketing related intangibles and other and other intangible assets, net 312,155 310,894
Goodwill   104,959     102,899  
Total Assets $ 1,399,619   $ 1,232,220  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 64,904 $ 43,784
Royalty Overrides 184,652 162,141
Accrued compensation 61,131 69,376
Accrued expenses 153,956 141,867
Current portion of long term debt 1,781 3,120
Advance sales deposits 62,908 35,145
Income taxes payable   13,333     15,383  
Total Current Liabilities 542,665 470,816
 
Non-current liabilities
Long-term debt, net of current portion 158,797 175,046
Deferred compensation 23,813 20,167
Deferred income taxes 55,181 55,572
Other non-current liabilities   23,112     23,407  
Total Liabilities 803,568 745,008
 
Contingencies
 
Shareholders' equity:
Common shares 118 118
Additional paid in capital 271,749 248,693
Accumulated other comprehensive loss (6,916 ) (27,285 )
Retained earnings   331,100     265,686  
Total Shareholders' Equity   596,051     487,212  
   
Total Liabilities and Shareholders' Equity $ 1,399,619   $ 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 June 30, 2011.

 
Herbalife Ltd.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
Six Months Ended
  6/30/2011      

6/30/2010 1

 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 199,199 $ 134,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 36,657 34,403
Excess tax benefits from share-based payment arrangements (19,544 ) (4,463 )
Share-based compensation expenses 11,103 10,820
Amortization of discount and deferred financing costs 435 248
Deferred income taxes 671 (15,053 )
Unrealized foreign exchange transaction loss (gain) 5,452 (12,345 )
Write-off of deferred financing costs 914 —
Foreign exchange loss from adoption of highly inflationary accounting in Venezuela — 15,131
Other 899 1,619
Changes in operating assets and liabilities:
Receivables (26,966 ) (11,616 )
Inventories (26,489 ) (12,172 )
Prepaid expenses and other current assets (6,391 ) (15,099 )
Other assets (4,977 ) (2,229 )
Accounts payable 19,411 13,781
Royalty overrides 16,873 1,072
Accrued expenses and accrued compensation (2,995 ) 5,670
Advance sales deposits 26,323 30,937
Income taxes payable 16,427 (4,846 )
Deferred compensation plan liability   3,645     729  
NET CASH PROVIDED BY OPERATING ACTIVITIES   250,647     170,633  
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (44,428 ) (23,917 )
Proceeds from sale of property 190 6
Deferred compensation plan assets   (2,055 )   686  
NET CASH USED IN INVESTING ACTIVITIES   (46,293 )   (23,225 )
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (38,689 ) (24,061 )
Borrowings from long-term debt 390,700 229,000
Principal payments on long-term debt (408,329 ) (235,715 )
Deferred financing costs (5,729 ) —
Share repurchases (115,287 ) (79,220 )
Excess tax benefits from share-based payment arrangements 19,544 4,463
Proceeds from exercise of stock options and sale of stock under employee stock purchase plan   8,280     4,400  
NET CASH USED IN FINANCING ACTIVITIES   (149,510 )   (101,133 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH   9,073     (26,858 )
NET CHANGE IN CASH AND CASH EQUIVALENTS 63,917 19,417
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   190,550     150,801  
CASH AND CASH EQUIVALENTS, END OF PERIOD   254,467     170,218  
CASH PAID DURING THE PERIOD
Interest paid $ 4,062   $ 4,988  
Income taxes paid $ 49,738   $ 58,718  
 

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 June 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 6/30/2011
Reported     Adjusted
(GAAP) Adjustment (Non-GAAP)
Net Sales 879,654 879,654
Cost of Sales   171,023     171,023
Gross Profit 708,631 - 708,631
Royalty Overrides 289,232 289,232
SGA   266,225     266,225
Operating Income 153,174 - 153,174
Interest Expense - net   855     855
Income before income taxes 152,319 - 152,319
Income Taxes   41,139     41,139
Net Income   111,180   -   111,180
 
Diluted EPS (1) $ 0.88 $ - $ 0.88
 
 

1 Diluted EPS has been adjusted to reflect the two-for-one stock split.

 
 
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share amount)
(Unaudited)
 
Quarter Ended 6/30/2010
Reported Adjusting Adjusted

(GAAP) 2

Items (Non-GAAP)
Net Sales $ 688,806 $ 688,806
Cost of Sales   136,561     136,561
Gross Profit 552,245 - 552,245
Royalty Overrides 224,780 224,780
SGA   211,110     211,110
Operating Income 116,355 - 116,355
Interest Expense - net   2,146     2,146
Income before income taxes 114,209 - 114,209
Income Taxes   32,034     32,034
Net Income $ 82,175   - $ 82,175
 
Diluted EPS (1) $ 0.65 $ - $ 0.65
 
 

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 June 30, 2011.

 
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share amount)
(Unaudited)
   
Six Months Ended 6/30/2011
Reported       Adjusted
(GAAP) Adjustment (Non-GAAP)
Net Sales 1,674,750 1,674,750
Cost of Sales   333,816     333,816
Gross Profit 1,340,934 - 1,340,934
Royalty Overrides 553,609 553,609
SGA   510,751     510,751
Operating Income 276,574 - 276,574
Interest Expense - net   3,503   (914 )

1

  2,589
Income before income taxes 273,071 914 273,985
Income Taxes   73,872   214  

1

  74,086
Net Income   199,199   700     199,899
 
Diluted EPS (2) $ 1.57 $ 0.01   $ 1.58
 
 

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

2 Diluted EPS has been adjusted to reflect the two-for-one stock split.

 
 
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share amount)
(Unaudited)
 
Six Months Ended 6/30/2010
Reported Adjusting Adjusted

(GAAP) 5

Items (Non-GAAP)
Net Sales $ 1,307,439 $ 1,307,439
Cost of Sales   277,033 $ (12,715 )

1

  264,318
Gross Profit 1,030,406 12,715 1,043,121
Royalty Overrides 432,099 432,099
SGA   417,993   (11,390 )

2

  406,603
Operating Income 180,314 24,105 204,419
Interest Expense - net   4,099     4,099
Income before income taxes 176,215 24,105 200,320
Income Taxes   42,169   14,452  

3

  56,621
Net Income $ 134,046 $ 9,653   $ 143,699
 
Diluted EPS (4) $ 1.06 $ 0.08   $ 1.14
 
 

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 Favorable income taxes related to Venezuela becoming highly inflationary economy

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 June 30, 2011.

 

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

   
  6/30/2011     12/31/2010  
 
Total long-term debt (current and long-term portion) $ 160,578 $ 178,166
Less: Cash and cash equivalents   254,467     190,550  
Net debt $ (93,889 ) $ (12,384 )

Herbalife Ltd.
Media Contact:
Barbara Henderson
SVP, Worldwide Corp. Comm.
213-745-0517
or
Investor Contact:
Amy Greene
VP, Investor Relations
213-745-0474

Source: Herbalife Ltd.

Released Aug 1, 2011 • 4:10pm EDT