Herbalife Ltd. Announces Record Second Quarter, Raises FY'10 Guidance and Increases Quarterly Dividend
-- Worldwide volume growth of 19.9 percent including U.S. volume growth of
21.8 percent compared to the prior year period.
-- Second quarter EPS increased 71.4 percent to $1.32 compared to the prior
year period.
-- Raises FY'10 EPS guidance to a range of $4.30 to $4.40 on higher volume
and net sales growth.
-- Repurchased 1.1 million shares during the quarter under the existing $1
billion authorization
-- Board of Directors authorizes increase in quarterly cash dividend from
$0.20 to $0.25.
LOS ANGELES--(BUSINESS WIRE)-- Herbalife Ltd. (NYSE:HLF) today reported second quarter net sales increased 20.5 percent to $688.8 million. The record revenue reflects volume point growth of 19.9 percent and an increase in Average Active Sales Leaders of 11.9 percent, both compared to the second quarter of 2009.
For the quarter ended June 30, 2010, the company reported net income of $81.9 million, or $1.32 per diluted share compared to $48.3 million or $0.77 per diluted share in the second quarter of 2009, primarily reflecting the contribution margin from higher volume combined with a lower effective tax rate, partially offset by the impact of foreign currency fluctuations.
For the quarter ended June 30, 2010, the company generated cash flow from operations of $83.0 million, paid dividends of $12.0 million, invested $12.3 million in capital expenditures and repurchased $51.2 million in common stock. The company's net debt balance at the end of the second quarter was $73.1 million, reflecting an improvement of $26.4 million from December 31, 2009.
"This quarter our distributors have truly outdone themselves and delivered the three highest months of volume in our 30-year history, which far exceeded even our most optimistic expectations," said Chairman and Chief Executive Officer Michael O. Johnson. "Not only was our growth broad-based, but some of the countries we have been operating in the longest like the United States, Mexico and Korea are each experiencing double-digit growth even though they have been open 30, 20 and 15 years respectively. These results demonstrate the opportunity in front of us as our distributors continue to build sustainable businesses with long-term customers."
During the second quarter the company hosted approximately 43,000 people at Extravaganzas in Nanjing, China, Rio de Janiero, Brazil and Singapore.
Second Quarter 2010 Regional Key Metrics1, 2
Regional Breakdown
2Q'10 2Q'10
Volume 2Q'10 Average Active
Region Points % Chg Average Active Sales Leaders
(Mil) (Y/Y) Sales Leaders % Chg (Y/Y)
North America 242.8 21.1 % 49,120 15.0 %
Asia Pacific 191.6 52.8 % 34,871 36.1 %
EMEA 127.5 8.6 % 32,904 3.3 %
Mexico 137.8 10.8 % 36,848 9.5 %
South & Central America 96.2 (1.9 %) 27,173 0.7 %
China 41.2 25.7 % 6,676 4.9 %
Worldwide Total 837.1 19.9 % 180,132 11.9 %
Emerging and Established Market Breakdown
2Q'10 2Q'10
Volume 2Q'10 Average Active
Region Points % Chg Average Active Sales Leaders
(Mil) (Y/Y) Sales Leaders % Chg (Y/Y)
Emerging Markets 417.9 16.2 % 100,349 11.3 %
Established Markets 419.2 23.8 % 87,517 13.5 %
Updated 2010 Guidance
Based on current business trends, the company's third quarter 2010 and fiscal 2010 guidance is provided below.
Third Quarter - The company's third quarter 2010 diluted earnings per share guidance range is $0.99 to $1.03 on volume point 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 30.5 percent to 31.5 percent. The company's third quarter 2010 capital expenditures are expected to be in the range of $20.0 million to $25.0 million.
Fiscal 2010 - The company's new full-year diluted earnings per share guidance is $4.30 to $4.401 on volume point growth of 12.0 percent to 14.0 percent and a net sales increase of 15.0 percent to 17.0 percent compared to 2009, respectively, along with an effective tax rate range of 29.0 percent to 30.0 percent3. Full-year 2010 capital expenditures are expected to be in the range of $70.0 million to $80.0 million.
1 "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.
2 Supplemental tables that include additional business metrics can be found at http://www.ir.herbalife.com
3 FY'10 guidance excludes the impact from the first quarter implementation of highly inflationary accounting in Venezuela.
Dividend Update
The company's board of directors has authorized a 25 percent increase in the quarterly cash dividend from $0.20 to $0.25 per share to shareholders of record effective August 12, 2010, payable on August 26, 2010.
"The company's first priority with cash flow generated from operations has always been to make investments in initiatives that enhance and support our distributors in growing their business," said Chief Financial Officer John DeSimone. "With the company's strong financial position and positive outlook, we believe we will be able to continue to make significant additional investments in our business while at the same time accelerating returns to shareholders through this increase in our cash dividend and the continued execution of our $1.0 billion share buyback authorization."
Second Quarter Earnings Conference Call
Herbalife's senior management team will host an investor conference call Tuesday, August 3, 2010 at 8 a.m. PDT (11 a.m. EDT) to discuss its recent financial results and provide an update on current business trends.
The dial-in number for this conference call for domestic callers is 866-903-5314 and 706-634-5671 for international callers (conference ID 82531104). 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 (playback ID 66642385). 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 73 countries through a network of approximately 2.1 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.
RESULTS OF OPERATIONS:
Herbalife Ltd.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Quarter Ended Six Months Ended
6/30/2010 6/30/2009 6/30/2010 6/30/2009
North America $ 166,437 $ 138,389 $ 317,696 $ 261,464
Mexico 80,918 66,352 152,767 125,591
South and Central America 82,797 85,404 174,126 160,668
EMEA 135,553 126,575 266,377 249,888
Asia Pacific 171,850 114,539 312,863 228,483
China 51,251 40,546 83,610 67,394
Worldwide net sales 688,806 571,805 1,307,439 1,093,488
Cost of Sales 136,561 122,442 277,033 (1) 224,842
Gross Profit 552,245 449,363 1,030,406 868,646
Royalty Overrides 224,780 186,750 432,099 362,282
SGA 211,110 190,794 417,993 (1) 372,252
Operating Income 116,355 71,819 180,314 134,112
Interest Expense - net 2,146 1,338 4,099 3,050
Income before income 114,209 70,481 176,215 131,062
taxes
Income Taxes 32,276 22,228 42,411 (1) 41,267
Net Income $ 81,933 $ 48,253 $ 133,804 $ 89,795
Basic Shares 59,527 61,642 59,843 61,583
Diluted Shares 62,103 62,929 62,389 62,413
Basic EPS $ 1.38 $ 0.78 $ 2.24 $ 1.46
Diluted EPS $ 1.32 $ 0.77 $ 2.14 $ 1.44
Dividends declared per $ 0.20 $ 0.20 $ 0.40 $ 0.40
share
1Includes 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)
Jun 30, Dec 31,
2010 2009
ASSETS
Current Assets:
Cash & cash equivalents $ 170,218 $ 150,801
Receivables, net 85,411 76,958
Inventories 152,035 145,962
Prepaid expenses and other current assets 114,097 101,181
Deferred income taxes 53,546 38,600
Total Current Assets 575,307 513,502
Property and equipment, net 167,320 178,009
Deferred compensation plan assets 16,724 17,410
Deferred financing cost, net 1,250 1,498
Other assets 22,587 21,306
Marketing related intangibles and other intangible 311,091 311,782
assets, net
Goodwill 102,899 102,543
Total Assets $ 1,197,178 $ 1,146,050
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 48,318 $ 37,330
Royalty Overrides 141,017 144,689
Accrued compensation 52,100 65,043
Accrued expenses 117,090 107,943
Current portion of long term debt 3,071 12,402
Advance sales deposits 51,770 22,261
Income taxes payable 29,126 40,298
Total Current Liabilities 442,492 429,966
Non-current liabilities
Long-term debt, net of current portion 240,280 237,931
Deferred compensation 17,358 16,629
Deferred income taxes 79,273 77,613
Other non-current liabilities 23,659 24,600
Total Liabilities 803,062 786,739
Contingencies
Shareholders' equity:
Common shares 118 120
Additional paid in capital 232,735 222,882
Accumulated other comprehensive loss (39,126 ) (23,396 )
Retained earnings 200,389 159,705
Total Shareholders' Equity 394,116 359,311
Total Liabilities and Shareholders' Equity $ 1,197,178 $ 1,146,050
Herbalife Ltd.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
6/30/2010 6/30/2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 133,804 $ 89,795
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 34,403 29,686
(Excess) Deficiency in tax benefits from (4,705 ) 982
share-based payment arrangements
Share-based compensation expenses 10,820 10,024
Amortization of discount and deferred financing 248 244
costs
Deferred income taxes (15,053 ) (1,657 )
Unrealized foreign exchange transaction (gain) (12,345 ) 2,545
loss
Foreign exchange loss from adoption of highly 15,131 --
inflationary accounting in Venezuela
Other 1,619 154
Changes in operating assets and liabilities:
Receivables (11,616 ) (4,938 )
Inventories (12,172 ) 12,022
Prepaid expenses and other current assets (15,099 ) 971
Other assets (2,229 ) (679 )
Accounts payable 13,781 1,202
Royalty overrides 1,072 (3,622 )
Accrued expenses and accrued compensation 5,670 (19,587 )
Advance sales deposits 30,937 17,164
Income taxes payable (4,604 ) (12,599 )
Deferred compensation plan liability 729 557
NET CASH PROVIDED BY OPERATING ACTIVITIES 170,391 122,264
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property (23,917 ) (26,801 )
Proceeds from sale of property 6 60
Deferred compensation plan assets 686 (252 )
NET CASH USED IN INVESTING ACTIVITIES (23,225 ) (26,993 )
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (24,061 ) (24,617 )
Borrowings from long-term debt 229,000 59,000
Principal payments on long-term debt (235,715 ) (97,009 )
Share repurchases (79,220 ) (972 )
Excess (Deficiency in) tax benefits from 4,705 (982 )
share-based payment arrangements
Proceeds from exercise of stock options and sale 4,400 791
of stock under employee stock purchase plan
NET CASH USED IN FINANCING ACTIVITIES (100,891 ) (63,789 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH (26,858 ) (893 )
NET CHANGE IN CASH AND CASH EQUIVALENTS 19,417 30,589
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 150,801 150,847
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 170,218 $ 181,436
CASH PAID DURING THE PERIOD
Interest paid $ 4,988 $ 6,560
Income taxes paid, net $ 58,718 $ 54,473
NON CASH ACTIVITIES
Assets acquired under capital leases and other $ -- $ 327
long-term debt
Herbalife Ltd
Volume Points by Region
(Unaudited, In thousands)
Three Months Ended June 30,
2010 2009 % Change
North America 242,819 200,457 21.1 %
Asia Pacific (excluding China) 191,628 125,410 52.8 %
EMEA 127,470 117,346 8.6 %
Mexico 137,752 124,270 10.8 %
South & Central America 96,155 97,968 (1.9 %)
China 41,224 32,802 25.7 %
Worldwide 837,048 698,253 19.9 %
SUPPLEMENTAL INFORMATION
SCHEDULE A: FINANCIAL GUIDANCE
2010 Guidance
For the Three Months Ending September 30, 2010 and Twelve Months
Ending December 31, 2010
Three Months Ending Twelve Months Ending
September 30, 2010 December 31, 2010
Low High Low High
Volume point growth vs 2009 13.0 % 15.0 % 12.0 % 14.0 %
Net sales growth vs 2009 13.0 % 15.0 % 15.0 % 17.0 %
EPS 1 $ 0.99 $ 1.03 $ 4.30 $ 4.40
Cap Ex ($ millions) $ 20.0 $ 25.0 $ 70.0 $ 80.0
Effective Tax Rate 1 30.5 % 31.5 % 29.0 % 30.0 %
1 FY'10 guidance excludes the impact from the first quarter
implementation of highly inflationary accounting in Venezuela.
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 6/30/2010
Reported Adjusting Adjusted
(GAAP) 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 32,276 32,276
Net Income $ 81,933 $ 81,933
Diluted EPS $ 1.32 $ 1.32
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Quarter Ended 6/30/2009
Reported Adjusting Adjusted
(GAAP) Items (Non-GAAP)
Net Sales $ 571,805 $ 571,805
Cost of Sales 122,442 122,442
Gross Profit 449,363 449,363
Royalty Overrides 186,750 186,750
SGA 190,794 $ (814 ) 1 189,980
Operating Income 71,819 814 72,633
Interest Expense - net 1,338 1,338
Income before income taxes 70,481 814 71,295
Income Taxes 22,228 (277 ) 1 21,951
Net Income $ 48,253 $ 1,091 $ 49,344
Diluted EPS $ 0.77 $ 0.02 $ 0.78 2
1 Related to international income tax audit settlement
2 Amounts may not total due to rounding
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Six Months Ended 6/30/2010
Reported Venezuela Adjusted
(GAAP) 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 42,411 14,452 3 56,863
Net Income $ 133,804 $ 9,653 $ 143,457
Diluted EPS $ 2.14 $ 0.15 $ 2.30 4
1 Incremental U.S. dollar costs of 2009 imports 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 Amounts may not total due to rounding
Herbalife Ltd.
Supplemental Schedule
Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Six Months Ended 6/30/2009
Reported Adjusting Adjusted
(GAAP) Items (Non-GAAP)
Net Sales $ 1,093,488 $ 1,093,488
Cost of Sales 224,842 224,842
Gross Profit 868,646 868,646
Royalty Overrides 362,282 362,282
SGA 372,252 $ (1,404 ) 1 370,848
Operating Income 134,112 1,404 135,516
Interest Expense - net 3,050 3,050
Income before income taxes 131,062 1,404 132,466
Income Taxes 41,267 (92 ) 1 41,175
Net Income $ 89,795 $ 1,496 $ 91,291
Diluted EPS $ 1.44 $ 0.02 $ 1.46
1 Related to restructuring charge of $590 with tax benefit of $185 and
an international income tax audit settlement of $814 with tax charge
of $277.
The following is a reconciliation of total long-term debt to net debt:
6/30/2010 12/31/2009
Total long-term debt (current and long-term portion) $ 243,351 $ 250,333
Less: Cash and cash equivalents 170,218 150,801
Net debt $ 73,133 $ 99,532
Source: Herbalife Ltd.
Released Aug 2, 2010 • 4:24pm EDT