Herbalife Ltd. Announces Record Third Quarter, Raises FY'10 Guidance and Provides Initial FY'11 Guidance
-- Worldwide volume growth of 13.5 percent with increases in each of its
six regions compared to the prior year period.
-- Third quarter adjusted1EPS of $1.17 increased 37.6 percent compared to
the prior year period.
-- Raises FY'10 adjusted1EPS guidance to a range of $4.54 to $4.58.
-- Introduces FY'11 EPS guidance range of $5.00 to $5.25.
LOS ANGELES--(BUSINESS WIRE)-- Herbalife Ltd. (NYSE:HLF) today reported that third quarter net sales increased 14.7 percent to $688.4 million. The net sales reflect volume point growth of 13.5 percent and an increase in Average Active Sales Leaders of 11.8 percent, both compared to the third quarter of 2009. Excluding the impact from adjusting items in the third quarter1, net income was $72.5 million, or $1.17 per diluted share, representing increases of 34.1 percent and 37.6 percent respectively compared to $54.1 million or $0.85 per diluted share in the third quarter of 2009. These 2010 third quarter adjusted results exclude an income tax benefit of $3.2 million, or $0.05 benefit to diluted EPS resulting from an international income tax audit settlement.
For the quarter ended September 30, 2010, the company reported net income of $75.7 million or $1.22 per diluted share compared to $57.9 million and $0.91 per diluted share in the third quarter of 2009, primarily reflecting the benefit of higher net sales, improved margins and a lower effective tax rate, partially offset by the impact of foreign currency fluctuations.
For the quarter ended September 30, 2010, the company generated cash flows from operations of $97.3 million, paid dividends of $14.9 million, invested $18.3 million in capital expenditures and repurchased $24.9 million in common shares as part of the company's $1 billion share repurchase authorization program. The company's net debt balance at the end of the third quarter was $15.6 million, reflecting an improvement of $83.9 million from December 31, 2009.
"Our distributors are driving momentum around the world by attracting and retaining long-term customers for our nutrition products, which builds successful and sustainable businesses," said Chairman and Chief Executive Officer Michael O. Johnson. "We are pleased by the broad and ongoing strength of our results this quarter, with all six of our regions experiencing volume growth and year-over-year improvement in active sales leaders."
During the third quarter the company hosted approximately 35,600 distributors at Extravaganzas in Ukraine, Italy, Sweden and Mexico.
Third Quarter 2010 Regional Key Metrics2,3
Regional and Emerging/Established Market Breakdowns
3Q'10
3Q'10 Volume % Chg
Regional Points 3Q'10 Avg Active Average Active Sales
(Y/Y) Sales Leaders Leaders
(Mil)
% Chg (Y/Y)
North America 225.4 8.6 % 51,095 13.7 %
Asia Pacific 191.8 29.4 % 37,291 26.7 %
EMEA 114.3 4.5 % 33,625 3.0 %
Mexico 146.2 15.7 % 39,521 11.4 %
South & Central 107.3 5.0 % 29,548 3.9 %
America
China 39.4 22.0 % 7,548 19.7 %
Worldwide Total 824.4 13.5 % 191,072 11.8 %
3Q'10
3Q'10 Volume % Chg
Points 3Q'10 Avg Active Average Active Sales
(Y/Y) Sales Leaders Leaders
(Mil)
% Chg (Y/Y)
Emerging Markets 431.6 14.8 % 107,271 11.6 %
Established 392.8 12.2 % 91,238 12.5 %
Markets
Updated 2010 Guidance
Based on current business trends, the company's fourth quarter and fiscal 2010 guidance are provided below.
Fourth Quarter 2010 - The company's fourth quarter 2010 diluted earnings per share guidance range is $1.07 to $1.11 on volume point growth of 11.0 percent to 13.0 percent and net sales growth of 13.0 percent to 15.0 percent compared to the same period in 2009 and an effective tax rate range of 30.0 percent to 31.0 percent. The company's fourth quarter 2010 capital expenditures are expected to be in the range of $23.0 million to $33.0 million.
Fiscal 2010 - Excluding the impact from adjusting item4 the company's new full-year diluted earnings per share guidance is $4.54 to $4.58 on volume point growth of 12.5 percent to 13.5 percent and a net sales increase of 16.5 percent to 17.0 percent compared to 2009, respectively, along with an effective tax rate range of 28.0 percent to 29.0 percent. Full-year 2010 capital expenditures are expected to be in the range of $65.0 million to $75.0 million.
2011 Guidance
Based on current business trends, FX rates as of the end of September, 2010, and the company's outlook for future performance, the company is initiating guidance for 2011 with a diluted earnings per share guidance range of $5.00 to $5.25 on a volume point growth of 8.0 to 10.0 percent and a net sales growth of 11.0 percent to 13.0 percent compared to the same period in 2010 and an effective tax rate range of 29.0 percent to 30.0 percent. The company's guidance for capital spending in 2011 is in the range of $80 million to $90 million.
Third Quarter Earnings Conference Call
Herbalife's senior management team will host an investor conference call Tuesday, November 2, 2010 at 8 a.m. ET (5 a.m. PT) to discuss its recent financial results and provide an update on current business trends preceding its annual analyst day to discuss its recent financial results and provide an update on current business trends.
The dial-in number for this presentation for domestic callers is (866) 903-5314 and (706) 634-5671 for international callers (conference ID 82534647). Live audio of the presentation 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 presentation in MP3 format or by dialing (800) 642-1687 (domestic callers) or (706) 645-9291 (international callers) and entering Encore ID 66642385. The webcast of the presentation 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 73 countries through a network of approximately 2.0 million independent distributors. The company supports the Herbalife Family Foundation and its Casa Herbalife program to help bring good nutrition to children. Herbalife's Web site 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 Web site from time to time, as information is updated and new information is posted.
Disclosure Regarding Forward-Looking Statements
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;
-- third party legal challenges to our network marketing program;
-- risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, 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.
1 See Schedule B - "Reconciliation of Non-GAAP Financial Measures" for more detail.
2 "Emerging" markets are being defined as those countries which the World Bank categorizes as having "low" or "medium" GDP per capita, while "Established" are those that the World Bank considers to have "high" GDP per capita.
3 Supplemental tables that include additional business metrics can be found at http://www.ir.herbalife.com
4 FY'10 guidance excludes the impact from the first quarter implementation of highly inflationary accounting in Venezuela and a third quarter tax benefit from international income tax audit settlement.
RESULTS OF OPERATIONS:
Herbalife Ltd.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
9/30/2010 9/30/2009 9/30/2010 9/30/2009
North America $ 155,532 $ 140,829 $ 473,228 $ 402,294
Mexico 83,498 68,290 236,265 193,881
South and Central 95,030 93,035 269,156 253,702
America
EMEA 121,221 123,334 387,598 373,222
Asia Pacific 181,555 129,240 494,418 357,723
China 51,595 45,490 135,205 112,884
Worldwide net sales 688,431 600,218 1,995,870 1,693,706
Cost of Sales 133,265 131,777 410,298 (1 ) 356,619
Gross Profit 555,166 468,441 1,585,572 1,337,087
Royalty Overrides 224,061 194,639 656,160 556,921
SGA 230,150 195,968 648,143 (1 ) 568,220
Operating Income 100,955 77,834 281,269 211,946
Interest Expense - net 2,192 1,037 6,291 4,087
Income before income 98,763 76,797 274,978 207,859
taxes
Income Taxes 23,024 18,902 65,435 (1 ) 60,169
Net Income $ 75,739 $ 57,895 $ 209,543 $ 147,690
Basic Shares 59,221 61,234 59,643 61,467
Diluted Shares 61,946 63,397 62,250 63,049
Basic EPS $ 1.28 $ 0.95 $ 3.51 $ 2.40
Diluted EPS $ 1.22 $ 0.91 $ 3.37 $ 2.34
Dividends declared per $ 0.25 $ 0.20 $ 0.65 $ 0.60
share
1 Includes impact of items related to adoption of highly-inflationary
accounting in Venezuela that are further discussed in Schedule B -
"Reconciliation of Non-GAAP Financial Measures"
Herbalife Ltd.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
Sep 30, Dec 31,
2010 2009
ASSETS
Current Assets:
Cash & cash equivalents $ 193,490 $ 150,801
Receivables, net 91,394 76,958
Inventories 183,144 145,962
Prepaid expenses and other current assets 97,716 101,181
Deferred income taxes 56,237 38,600
Total Current Assets 621,981 513,502
Property and equipment, net 169,308 178,009
Deferred compensation plan assets 17,781 17,410
Deferred financing cost, net 1,124 1,498
Other assets 24,271 21,306
Marketing related intangibles and other intangible 310,992 311,782
assets, net
Goodwill 102,899 102,543
Total Assets $ 1,248,356 $ 1,146,050
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 50,068 $ 37,330
Royalty Overrides 149,215 144,689
Accrued compensation 67,318 65,043
Accrued expenses 122,453 107,943
Current portion of long term debt 3,232 12,402
Advance sales deposits 54,637 22,261
Income taxes payable 16,602 40,298
Total Current Liabilities 463,525 429,966
Non-current liabilities
Long-term debt, net of current portion 205,894 237,931
Deferred compensation 18,827 16,629
Deferred income taxes 76,045 77,613
Other non-current liabilities 23,476 24,600
Total Liabilities 787,767 786,739
Contingencies
Shareholders' equity:
Common shares 118 120
Additional paid in capital 247,189 222,882
Accumulated other comprehensive loss (24,636 ) (23,396 )
Retained earnings 237,918 159,705
Total Shareholders' Equity 460,589 359,311
Total Liabilities and Shareholders' Equity $ 1,248,356 $ 1,146,050
Herbalife Ltd.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
9/30/2010 9/30/2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 209,543 $ 147,690
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 51,755 45,646
(Excess) Deficiency in tax benefits from (9,959 ) 759
share-based payment arrangements
Share-based compensation expenses 16,870 15,100
Amortization of discount and deferred financing 374 367
costs
Deferred income taxes (16,989 ) (3,098 )
Unrealized foreign exchange transaction (gain) (7,536 ) 6,763
loss
Foreign exchange loss from adoption of highly 15,131 --
inflationary accounting in Venezuela
Other 2,911 233
Changes in operating assets and liabilities:
Receivables (13,965 ) (9,265 )
Inventories (32,921 ) 10,451
Prepaid expenses and other current assets 5,744 (5,724 )
Other assets (2,328 ) 354
Accounts payable 12,852 (4,851 )
Royalty overrides 3,601 9,525
Accrued expenses and accrued compensation 11,622 5,870
Advance sales deposits 32,399 21,011
Income taxes payable (13,568 ) (15,529 )
Deferred compensation plan liability 2,198 1,992
NET CASH PROVIDED BY OPERATING ACTIVITIES 267,734 227,294
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (42,199 ) (41,776 )
Proceeds from sale of property 64 93
Acquisition of business -- (10,000 )
Deferred compensation plan assets (371 ) (1,321 )
NET CASH USED IN INVESTING ACTIVITIES (42,506 ) (53,004 )
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (38,934 ) (36,727 )
Borrowings from long-term debt 338,000 138,974
Principal payments on long-term debt (379,465 ) (180,540 )
Share repurchases (106,163 ) (33,630 )
Excess (Deficiency in) tax benefits from 9,959 (759 )
share-based payment arrangements
Proceeds from exercise of stock options and sale 11,521 2,209
of stock under employee stock purchase plan
NET CASH USED IN FINANCING ACTIVITIES (165,082 ) (110,473 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH (17,457 ) 737
NET CHANGE IN CASH AND CASH EQUIVALENTS $ 42,689 $ 64,554
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 150,801 150,847
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 193,490 $ 215,401
CASH PAID DURING THE PERIOD
Interest paid $ 7,195 $ 8,443
Income taxes paid, net $ 84,120 $ 77,397
NON CASH ACTIVITIES
Assets acquired under capital leases and other $ 524 $ 339
long-term debt
Herbalife Ltd
Volume Points by Region
(Unaudited, In thousands)
Three Months Ended September 30,
2010 2009 % Change
North America 225,379 207,612 8.6 %
Asia Pacific (excluding China) 191,824 148,184 29.4 %
EMEA 114,274 109,429 4.4 %
Mexico 146,236 126,375 15.7 %
South & Central America 107,286 102,166 5.0 %
China 39,364 32,270 22.0 %
Worldwide 824,363 726,036 13.5 %
SUPPLEMENTAL INFORMATION
SCHEDULE A: FINANCIAL GUIDANCE
2010 Guidance
For the Three Months and Twelve Months Ending December 31, 2010
Three Months Ending Twelve Months Ending
December 31, 2010 December 31, 2010
Low High Low High
Volume point growth vs 2009 11.0 % 13.0 % 12.5 % 13.5 %
Net sales growth vs 2009 13.0 % 15.0 % 16.5 % 17.0 %
EPS 1 $ 1.07 $ 1.11 $ 4.54 $ 4.58
Cap Ex ($ millions) $ 23.0 $ 33.0 $ 65.0 $ 75.0
Effective Tax Rate 1 30.0 % 31.0 % 28.0 % 29.0 %
2011 Guidance
For the Twelve Months Ending December 31, 2011
Twelve Months Ending
December 31, 2011
Low High
Volume point growth vs 2010 8.0 % 10.0 %
Net sales growth vs 2010 11.0 % 13.0 %
EPS 1 $ 5.00 $ 5.25
Cap Ex ($ millions) $ 80.0 $ 90.0
Effective Tax Rate 1 29.0 % 30.0 %
1 FY'10 guidance excludes the impact from the first quarter implementation of highly inflationary accounting in Venezuela and a tax benefit from international income tax audit settlement.
SCHEDULE B: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited), (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 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 data)
(Unaudited)
Quarter Ended 9/30/2010
Reported Adjusting Adjusted
(GAAP) 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 23,024 3,228 (1 ) 26,252
Net Income $ 75,739 $ (3,228 ) $ 72,511
Diluted EPS $ 1.22 $ (0.05 ) $ 1.17
1 Tax benefit from an international income tax audit settlement
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Nine Months Ended 9/30/2010
Reported Adjusting Adjusted
(GAAP) 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 65,435 17,680 (3 ) 83,115
Net Income $ 209,543 $ 6,425 $ 215,968
Diluted EPS $ 3.37 $ 0.10 $ 3.47
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
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Quarter Ended 9/30/2009
Reported Adjusting Adjusted
(GAAP) Items (Non-GAAP)
Net Sales $ 600,218 $ 600,218
Cost of Sales 131,777 131,777
Gross Profit 468,441 468,441
Royalty Overrides 194,639 194,639
SGA 195,968 $ (707 ) (1 ) 195,261
Operating Income 77,834 707 78,541
Interest Expense - net 1,037 1,037
Income before income taxes 76,797 707 77,504
Income Taxes 18,902 4,529 (2 ) 23,431
Net Income $ 57,895 $ (3,822 ) $ 54,073
Diluted EPS $ 0.91 $ (0.06 ) $ 0.85
1 Related to restructuring charge
2 Includes $4,852 tax benefit from expiration of certain statutes of
limitation, tax charge of $537 from an international income tax audit
settlement and $214 tax impact of restructuring charges
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Nine Months Ended 9/30/2009
Reported Adjusting Adjusted
(GAAP) Items (Non-GAAP)
Net Sales $ 1,693,706 $ 1,693,706
Cost of Sales 356,619 356,619
Gross Profit 1,337,087 1,337,087
Royalty Overrides 556,921 556,921
SGA 568,220 $ (2,111 ) (1 ) 566,109
Operating Income 211,946 2,111 214,057
Interest Expense - net 4,087 4,087
Income before income taxes 207,859 2,111 209,970
Income Taxes 60,169 4,437 (2 ) 64,606
Net Income $ 147,690 $ (2,326 ) $ 145,364
Diluted EPS $ 2.34 $ (0.04 ) $ 2.31 (3 )
1 Includes $1,297 restructuring charges and $814 expense from an
international income tax audit settlement
2 Includes $4,852 tax benefit from expiration of certain statutes of
limitation, tax charge of $814 from an international income tax audit
settlement and $399 tax impact of restructuring charges
3 Amounts may not total due to rounding.
9/30/2010 12/31/2009
Total debt (current and long-term portion) $ 209,126 $ 250,333
Less: Cash and cash equivalents 193,490 150,801
Net debt $ 15,636 $ 99,532
Source: Herbalife Ltd.
Released Nov 1, 2010 • 5:16pm EDT