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Feb 18, 2014

Herbalife Ltd. Announces Record Fourth Quarter 2013 and Record Full Year Results, and Raises 2014 Earnings Guidance

 

  • Fourth quarter worldwide volume growth of 13 percent compared to the prior year period.
  • Fourth quarter EPS of $1.15 increased 15 percent, and adjusted1 EPS of $1.28 increased 28 percent, both as compared to the prior year period.
  • Raises FY'14 adjusted2 diluted EPS guidance to a range of $5.85 to $6.05, reflecting the impact of the recent financial transactions and subsequent share repurchase.
  • Annual sales leader retention of approximately 51.8 percent.
  • Generated $773 million in operating cash flow in fiscal 2013.
  • Board of Directors approved a $0.30 per share quarterly dividend.

LOS ANGELES--(BUSINESS WIRE)-- Herbalife Ltd. (NYSE: HLF) today reported fourth quarter net sales of $1.3 billion, reflecting an increase of 20 percent compared to the same period in 2012, on volume point growth of 13 percent. Net income for the quarter was $123.5 million, or $1.15 per diluted share. On an adjustedbasis, adjusted1 net income for the quarter was $137.2 million, or $1.28 per diluted share, as compared to 2012 fourth quarter net income3 of $112.2 million and EPS of $1.00.

For the twelve months ended December 31, 2013, the company reported record net sales of $4.8 billion, an 18 percent increase, on 13 percent growth in volume compared to 2012. For the same period, the company reported net income of $527.5 million, or $4.91 per diluted share. On an adjusted basis, adjusted1 net income of $577.4 million, or $5.37 per diluted share, reflected increases of 24 percent and 36 percent respectively, over 2012 net income3 of $464.0 million and EPS of $3.94.

"Herbalife delivered another year of record financial performance achieved through the consistent execution of key strategies to expand daily consumption of our products," said Michael O. Johnson, Herbalife's chairman and CEO. "The global obesity epidemic continues to expand around the world, having an adverse impact on community health. Our independent Members are uniquely positioned, with education, coaching, and nutritious, industry-leading products to help their customers live healthier lives."

For the year ended December 31, 2013, Herbalife generated cash flow from operations of $772.9 million, an increase of 36 percent compared to 2012; paid dividends of $123.1 million; invested $162.5 million in capital expenditures; and repurchased $297.4 million in common shares outstanding under our previous share repurchase program.

Herbalife recently announced that the Board of Directors approved an increase in its share repurchase authorization to $1.5 billion. Following repurchases made in connection with the company's recent financing transaction on February 7, 2014, the remaining authorized capacity under the repurchase program is $814 million.

Fourth Quarter and Fiscal 2013 Key Metrics4,5

Regional Volume Point and Average Active Sales Leader Metrics

         
    Volume Points (Mil)   Average Active Sales Leaders
Region   4Q'13   Yr/Yr % Chg   4Q'13   Yr/Yr % Chg
North America   287.0   7%   73,511   8%
Asia Pacific   292.4   -4%   73,792   6%
EMEA   183.9   17%   53,776   14%
Mexico   218.7   5%   66,535   8%
South & Central America   278.6   25%   65,690   29%
China   102.7   103%   17,416   39%
Worldwide Total   1,363.3   13%   339,744   13%

 

         
    Volume Points (Mil)   Average Active Sales Leaders
Region   FY 2013   Yr/Yr % Chg   FY 2013   Yr/Yr % Chg
North America   1,249.9   8%   72,058   9%
Asia Pacific   1,225.4   2%   71,542   13%
EMEA   698.0   16%   49,650   13%
Mexico   864.3   6%   63,581   10%
South & Central America   966.2   31%   58,090   29%
China   333.6   62%   14,808   27%
Worldwide Total   5,337.4   13%   318,740   15%

2013 Annual Sales Leader Requalification

By the end of January of each year, sales leaders are required to re-qualify to retain their sales leader status. A record number of sales leaders were retained in 2013. The overall pool of sales leaders needing to re-qualify increased by approximately 10% compared to the prior year and we retained 10% more of them than in the prior year. While size of the group needing to re-qualify increased for the year, our overall retention rate remained fairly constant at 51.8%.

2014 First Quarter and Full Year Guidance

Forward guidance excludes the impact of expenses (primarily for legal and advisory services) relating to the company's response to information put into the marketplace by a short seller, which information the company believes to be inaccurate and misleading, and the impact of non-cash interest costs associated with the company's Convertible Notes. Forward guidance is based on the average daily exchange rates of the first two weeks of January. Included in the guidance is the use of the GAAP rate for Venezuela of 6.3 to 1 for January results and 10 to 1 for the balance of the year and excludes the potential impact of future devaluation of the Venezuelan bolivar and any future repatriation of existing cash balances in Venezuela.

    Three Months Ending   Twelve Months Ending
    March 31, 2014   December 31, 2014
    Low   High   Low   High
Volume Point Growth vs 2013   6.5%   8.5%   6.5%   8.5%
Net Sales Growth vs 2013   8.0%   10.0%   7.5%   9.5%
Diluted EPS as adjusted   $1.25   $1.29   $5.85   $6.05
Cap Ex ($ millions)   $35.0   $45.0   $165.0   $185.0
Effective Tax Rate   27.5%   29.5%   28.0%   30.0%

 

Announces Quarterly Dividend

Herbalife reported today that its Board of Directors has approved a dividend of $0.30 per share to shareholders of record March 4, 2014, payable on March 18, 2014.

Fourth Quarter and Fiscal 2013 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 Wednesday, February 19, 2013 at 8 a.m. PST (11 a.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 31194371). 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 31194371). The webcast of the teleconference will be archived and available on Herbalife's website.

About Herbalife Ltd.

Herbalife Ltd. (NYSE:HLF) is a 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.

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

2 Adjusted diluted EPS excludes non-cash interest expense associated with the company's Convertible Notes.

3 There were no non-GAAP adjustments reported against the company's 2012 fourth quarter or full-year U.S. GAAP results.

4 Supplemental tables that include additional business metrics can be found at http://www.ir.herbalife.com.

5 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.

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:

  • any collateral impact resulting from the ongoing worldwide financial environment, 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 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;
  • uncertainties relating to the interpretation, enforcement or amendment of legislation in India 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 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 thousands, except per share amounts)
(Unaudited)
                 
    Three Months Ended   Twelve Months Ended
    12/31/2013   12/31/2012   12/31/2013   12/31/2012
                 
North America   $ 210,302   $ 197,052   $ 907,999   $ 841,243
Mexico     142,599     132,070     562,369     496,101
South and Central America     290,344     203,252     973,456     688,799
EMEA     197,644     164,684     735,253     627,801
Asia Pacific     279,603     295,166     1,174,607     1,139,867
China     148,387     67,096     471,624     278,519
Worldwide net sales     1,268,879     1,059,320     4,825,308     4,072,330
Cost of Sales     251,807     211,105     963,423     812,583
Gross Profit     1,017,072     848,215     3,861,885     3,259,747
Royalty Overrides     380,735     355,658     1,497,556     1,338,633
Selling, General and Administrative Expenses     454,478     332,764     1,629,052     1,259,667
Operating Income     181,859     159,793     735,277     661,447
Interest Expense - net     2,902     2,453     18,560     10,541
Income before income taxes     178,957     157,340     716,717     650,906
Income Taxes     55,417     45,133     189,192     186,944
Net Income     123,540     112,207     527,525     463,962
                 
Basic Shares     101,211     107,444     102,620     112,359
Diluted Shares     107,234     112,230     107,445     117,856
                 
Basic EPS   $ 1.22   $ 1.04   $ 5.14   $ 4.13
Diluted EPS   $ 1.15   $ 1.00   $ 4.91   $ 3.94
                 
Dividends declared per share   $ 0.30   $ 0.30   $ 1.20   $ 1.20

 

 
Herbalife Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
    Dec 31,   Dec 31,
      2013       2012  
         
ASSETS        
Current Assets:        
Cash & cash equivalents   $ 972,974     $ 333,534  
Receivables, net     100,326       116,139  
Inventories     351,201       339,411  
Prepaid expenses and other current assets     148,774       145,624  
Deferred income taxes     69,845       49,339  
Total Current Assets     1,643,120       984,047  
         
Net Property, plant and equipment     318,860       242,886  
Deferred compensation plan assets     26,821       24,267  
Other assets     63,713       48,805  
Deferred financing cost, net     4,896       7,462  
Marketing related intangibles and other intangible assets, net     310,801       311,186  
Goodwill     105,490       105,490  
Total Assets   $ 2,473,701     $ 1,724,143  
         
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current Liabilities:        
Accounts payable   $ 82,665     $ 75,209  
Royalty overrides     266,952       243,351  
Accrued compensation     111,905       95,220  
Accrued expenses     267,501       181,523  
Current portion of long-term debt     81,250       56,302  
Advance sales deposits     68,079       49,432  
Income taxes payable     43,826       61,325  
Total Current Liabilities     922,178       762,362  
         
Non-current liabilities        
Long-term debt, net of current portion     850,019       431,305  
Deferred compensation plan liability     37,226       29,454  
Deferred income taxes     66,026       62,982  
Other non-current liabilities     46,806       42,557  
Total Liabilities     1,922,255       1,328,660  
         
Commitments and Contingencies        
         
Shareholders' equity:        
Common shares     101       107  
Paid-in capital in excess of par value     323,860       303,975  
Accumulated other comprehensive loss     (19,794 )     (31,695 )
Retained earnings     247,279       123,096  
Total Shareholders' Equity     551,446       395,483  
         
Total Liabilities and Shareholders' Equity   $ 2,473,701     $ 1,724,143  

 

 
Herbalife Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)

 

   
    Twelve Months Ended
      12/31/2013       12/31/2012  
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income   $ 527,525     $ 463,962  

Adjustments to reconcile net income to net cash provided by operating activities:

       
Depreciation and amortization     84,739       74,384  
Excess tax benefits from share-based payment arrangements     (15,566 )     (29,684 )
Share based compensation expenses     29,492       27,906  
Amortization of discount and deferred financing costs     2,579       1,797  
Deferred income taxes     (24,910 )     (7,758 )
Unrealized foreign exchange transaction loss (gain)     5,757       2,121  
Foreign exchange loss from Venezuela currency devaluation     15,116       -  
Other     15,410       532  
Changes in operating assets and liabilities:        
Receivables     9,224       (28,186 )
Inventories     (39,878 )     (82,177 )
Prepaid expenses and other current assets     (9,405 )     249  
Other assets     (9,408 )     (5,288 )
Accounts payable     10,844       17,034  
Royalty overrides     28,765       41,868  
Accrued expenses and accrued compensation     86,039       39,440  
Advance sales deposits     21,959       17,790  
Income taxes     26,821       28,042  
Deferred compensation plan liability     7,772       5,752  
NET CASH PROVIDED BY OPERATING ACTIVITIES     772,875       567,784  
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchases of property, plant and equipment     (146,958 )     (121,524 )
Proceeds from sale of property, plant and equipment     186       280  
Investments in Venezuelan bonds     (4,050 )     -  
Deferred compensation plan assets     -       (3,756 )
NET CASH USED IN INVESTING ACTIVITIES     (150,822 )     (125,000 )
CASH FLOWS FROM FINANCING ACTIVITIES        
Dividends paid     (123,055 )     (135,091 )
Borrowings from long-term debt     763,180       1,430,560  
Principal payments on long-term debt     (319,483 )     (1,146,580 )
Deferred financing costs     -       (4,460 )
Share repurchases     (306,441 )     (556,727 )
Excess tax benefits from share-based payment arrangements     15,566       29,684  

Proceeds from exercise of stock options and sale of stock under employee stock purchase plan

    975       11,373  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     30,742       (371,241 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (13,355 )     3,216  
NET CHANGE IN CASH AND CASH EQUIVALENTS     639,440       74,759  
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR     333,534       258,775  
CASH AND CASH EQUIVALENTS, END OF YEAR     972,974       333,534  
CASH PAID DURING THE YEAR        
Interest paid   $ 23,046     $ 14,268  
Income taxes paid   $ 197,078     $ 169,725  
NON CASH ACTIVITIES        
Accrued capital expenditures   $ 29,625     $ 15,310  

 

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
    12/31/2013   12/31/2012   12/31/2013   12/31/2012
    (in thousands)
                 
Net income, as reported   $ 123,540   $ 112,207   $ 527,525   $ 463,962

Venezuela devaluation impact (net of ($1,442) and $5,354 tax benefit for the three and twelve months ended December 31, 2013, respectively) (1)(2)

    1,442     -     9,761     -

Expenses incurred responding to attacks on the Company's business model (net of $1,372 and $4,613 tax benefit for the three and twelve months ended December 31, 2013, respectively)(1)

    3,938     -     24,527     -

Expenses incurred for the re-audit of 2010 to 2012 financial statements due to resignation of KPMG (net of $2,524 and $4,853 tax benefit for the three and twelve months ended December 31, 2013)(1)

    8,269     -     15,570     -
Net income, as adjusted   $ 137,189   $ 112,207   $ 577,383   $ 463,962
 
                 
                 

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
    12/31/2013   12/31/2012   12/31/2013   12/31/2012
                 
Diluted earnings per share, as reported   $ 1.15   $ 1.00   $ 4.91   $ 3.94

Venezuela devaluation impact (net of ($1,442) and $5,354 tax benefit for the three and twelve months ended December 31, 2013, respectively) (1)(2)

    0.01     -     0.09     -

Expenses incurred responding to attacks on the Company's business model (net of $1,372 and $4,613 tax benefit for the three and twelve months ended December 31, 2013, respectively)(1)

    0.04     -     0.23     -

Expenses incurred for the re-audit of 2010 to 2012 financial statements due to resignation of KPMG (net of $2,524 and $4,853 tax benefit for the three and twelve months ended December 31, 2013)(1)

    0.08     -     0.14     -
Diluted earnings per share, as adjusted   $ 1.28   $ 1.00   $ 5.37   $ 3.94
 
                 
                 

(1) The income tax impact of the non-GAAP adjustments is based on items affecting the Company's 2013 full year GAAP effective tax rate. Adjustments to items unrelated to these non-GAAP adjustments have had an effect on the income tax impact of the non-GAAP adjustments in periods subsequent to the underlying non-GAAP adjustments.

(2) The amount for the three months ended December 31, 2013 relates to the change in tax benefit, as explained in note 1, for the Venezuela devaluation that was recorded in the first quarter.

 

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

      12/31/2013     12/31/2012
         
Total long-term debt (current and long-term portion)   $ 931,269     $ 487,607
Less: Cash and cash equivalents     972,974       333,534
Net debt   $ (41,705 )   $ 154,073

 

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.

 

 

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