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Jul 30, 2012

Herbalife Ltd. Announces Record Second Quarter 2012 and Raises 2012 Earnings Guidance

 

  • Second quarter volume points of 1.2 billion increased 23 percent with increases in each of its six regions compared to the prior year period.
  • Second quarter EPS of $1.10 increased 25 percent compared to the prior year period EPS.
  • Raising FY'12 EPS guidance to a range of $3.88 to $3.98.
  • Board of directors approved a $0.30 per share quarterly dividend.
  • Board of directors approved a new $1 billion share repurchase authorization.
  • Company announces a $500 million increase in its credit facility.

LOS ANGELES--(BUSINESS WIRE)-- Herbalife Ltd. (NYSE: HLF) today reported second quarter record net sales of $1.0 billion, a 17 percent increase, driven by a 23 percent increase in volume points compared to the prior year period. The company reported net income of $133.4 million, or $1.10 per diluted share, compared to the second quarter 2011 net income of $111.2 million, or $0.88 per diluted share, reflecting an increase of 20 percent and 25 percent, respectively.

"The broad strength of our business success continued throughout the second quarter with strong sales performance from each of our six regions, along with record earnings and strong cash flow," said Michael O. Johnson, the company's chairman and CEO. "We believe the underlying drivers of our current business success, engaged distributors focused on globalizing daily consumption sales methods and products which are relevant for today's global macro trends of obesity and an aging population, will continue to provide the catalyst for future growth."

For the quarter ended June 30, 2012, the company generated cash flow from operations of $137.1 million, paid dividends of $35.1 million, invested $15.0 million in capital expenditures and repurchased $239.0 million in common shares outstanding under our share repurchase program. As of July 27, 2012 the company has completed the $427.9 million repurchase agreement announced on May 3, 2012. The company repurchased a total of 9.2 million shares at an average price of $46.37.

Second Quarter Regional Key Metrics1,2

Regional Volume Point and Average Active Sales Leader Metrics

            Volume Points (Mil)         Average Active Sales Leaders
Region           2Q'12         Yr/Yr % Chg         2Q'12         Yr/Yr % Chg
North America           305.0         18 %         65,828         18 %
Asia Pacific           313.8         29 %         61,329         35 %
EMEA           154.5         13 %         42,972         14 %
Mexico           203.9         17 %         55,969         21 %
South & Central America           167.2         30 %         41,966         27 %
China           57.7         54 %         11,949         43 %
Worldwide Total           1,202.1         23 %         269,974         24 %
                                           

Updated 2012 Guidance

Guidance for fully diluted 2012 EPS is based on the average daily exchange rates of the first two weeks of July 2012.

Based on current business trends the company's third quarter fiscal 2012 and fiscal 2012 guidance is provided below.

            Three Months Ending           Twelve Months Ending
            September 30, 2012           December 31, 2012
            Low         High           Low         High
Volume Point Growth vs 2011             13.0 %           15.0 %             17.0 %           19.0 %
Net Sales Growth vs 2011             10.0 %           12.0 %             15.0 %           17.0 %
Diluted EPS           $ 0.97           $ 1.01             $ 3.88           $ 3.98  
Cap Ex ($ millions)           $ 35.0           $ 45.0             $ 110.0           $ 120.0  
Effective Tax Rate             23.0 %           25.0 %             26.5 %           28.5 %
                                                             

Announces Quarterly Dividend

The company reported today that its board of directors has approved a dividend of $0.30 per share to shareholders of record on August 14, 2012, payable on August 30, 2012.

Share Repurchase Program Update

Following the completion of the prior $1 billion share repurchase authorization, the company's Board of Directors authorized a new $1 billion share repurchase authorization available to be utilized over the next 5 year period, expiring on June 30, 2017.

John DeSimone, the company's chief financial officer, said, "This additional authorization speaks to our Board's and management's confidence in the company's business' fundamentals, financial results and on-going earnings power. The company intends to continue to utilize a meaningful portion of our excess free cash flow to return value to investors." Since 2007, the company has returned $1.5 billion to shareholders through the repurchase of approximately 52.6 million shares and $350 million in dividends for a total of approximately $1.9 billion, or 118% of net income.

Herbalife's future share repurchases, if any, may take place from time to time at management's discretion based on market conditions, and shares may be purchased in open-market, privately negotiated or other transactions.

Announces a New $500 million Term Note Added to its Credit Facility

The company amended its credit facility to add a new $500 million term loan to the existing $700 million senior credit facility entered into in March 2011. This new facility was arranged by Bank of America Merrill Lynch with RaboBank, HSBC and Wells Fargo as joint lead arrangers and joint book managers.

Chief financial officer John DeSimone stated, "we believe that this new credit facility is yet another reflection of the financial strength of the company and will provide additional flexibility as we look to continue to increase shareholder value."

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, July 31, 2012 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 96426914). 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 96426914). 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 83 countries to and through a network of 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 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 statements 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 Supplemental tables that include additional business metrics can be found at http://www.ir.herbalife.com.

2 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.

RESULTS OF OPERATIONS:

Herbalife Ltd.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
                                                 
            Three Months Ended           Six Months Ended
              6/30/2012             6/30/2011             6/30/2012             6/30/2011
                                                 
North America           $ 224,661           $ 185,159           $ 435,372           $ 352,159
Mexico             119,449             113,882             236,558             217,759
South and Central America             152,583             130,130             318,054             255,407
EMEA             161,635             162,017             315,627             315,954
Asia Pacific             296,548             237,103             556,496             436,406
China             77,072             51,363             134,016             97,065
Worldwide net sales             1,031,948             879,654             1,996,123             1,674,750
Cost of Sales             203,737             171,023             399,881             333,816
Gross Profit             828,211             708,631             1,596,242             1,340,934
Royalty Overrides             335,195             289,232             652,728             553,609
SGA             306,310             266,225             602,703             510,751
Operating Income             186,706             153,174             340,811             276,574
Interest Expense - net             3,169             855             4,542             3,503
Income before income taxes             183,537             152,319             336,269             273,071
Income Taxes             50,169             41,139             94,739             73,872
Net Income             133,368             111,180             241,530             199,199
                                                 
Basic Shares             116,557             119,007             116,376             118,609
Diluted Shares             121,482             126,617             122,182             126,610
                                                 
Basic EPS           $ 1.14           $ 0.93           $ 2.08           $ 1.68
Diluted EPS           $ 1.10           $ 0.88           $ 1.98           $ 1.57
                                                 
Dividends declared per share           $ 0.30           $ 0.20           $ 0.60           $ 0.33
                                                 

 

Herbalife Ltd.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
            Jun 30,             Dec 31,
              2012                 2011  
                           
ASSETS                          
Current Assets:                          
Cash & cash equivalents           $ 286,166               $ 258,775  
Receivables, net             108,633                 89,660  
Inventories             262,386                 247,696  
Prepaid expenses and other current assets             131,919                 117,073  
Deferred income taxes             56,998                 55,615  
Total Current Assets             846,102                 768,819  
                           
Property, plant and equipment, net             196,787                 193,703  
Deferred compensation plan assets             23,119                 20,511  
Deferred financing cost, net             4,222                 4,797  
Other assets             43,644                 41,125  
Marketing related intangibles and other intangible assets, net             311,428                 311,764  
Goodwill             105,490                 105,490  
Total Assets           $ 1,530,792               $ 1,446,209  
                           
                           
LIABILITIES AND SHAREHOLDERS' EQUITY                          
Current Liabilities:                          
Accounts payable           $ 79,031               $ 57,095  
Royalty overrides             206,079                 197,756  
Accrued compensation             71,131                 76,435  
Accrued expenses             156,672                 152,744  
Current portion of long term debt             763                 1,542  
Advance sales deposits             36,298                 31,702  
Income taxes payable             16,356                 31,415  
Total Current Liabilities             566,330                 548,689  
                           
Non-current liabilities                          
Long-term debt, net of current portion             555,051                 202,079  
Deferred compensation plan liability             27,118                 23,702  
Deferred income taxes             72,828                 72,348  
Other non-current liabilities             38,746                 39,203  
Total Liabilities             1,260,073                 886,021  
                           
Commitments and Contingencies                          
                           
Shareholders' equity:                          
Common shares             112                 116  
Additional paid in capital             288,050                 291,950  
Accumulated other comprehensive loss             (42,927 )               (37,809 )
Retained earnings             25,484                 305,931  
Total Shareholders' Equity             270,719                 560,188  
                           
Total Liabilities and Shareholders' Equity           $ 1,530,792               $ 1,446,209  
                           

 

Herbalife Ltd.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
             
            Six Months Ended
              6/30/2012                 6/30/2011  
CASH FLOWS FROM OPERATING ACTIVITIES                          
Net income           $ 241,530               $ 199,199  
Adjustments to reconcile net income to net cash provided by                          
operating activities:                          
Depreciation and amortization             36,613                 36,657  
Excess tax benefits from share-based payment arrangements             (27,212 )               (19,544 )
Share based compensation expenses             12,497                 11,103  
Amortization of discount and deferred financing costs             572                 435  
Deferred income taxes             (4,896 )               671  
Unrealized foreign exchange transaction loss (gain)             (4,909 )               5,452  
Write-off of deferred financing costs             -                 914  
Other             120                 899  
Changes in operating assets and liabilities:                          
Receivables             (21,317 )               (26,966 )
Inventories             (14,476 )               (26,489 )
Prepaid expenses and other current assets             (9,367 )               (6,391 )
Other assets             (3,124 )               (4,977 )
Accounts payable             22,948                 19,411  
Royalty overrides             7,932                 16,873  
Accrued expenses and accrued compensation             (3,516 )               (2,995 )
Advance sales deposits             5,199                 26,323  
Income taxes             15,433                 16,427  
Deferred compensation plan liability             3,416                 3,645  
NET CASH PROVIDED BY OPERATING ACTIVITIES             257,443                 250,647  
CASH FLOWS FROM INVESTING ACTIVITIES                          
Purchases of property, plant and equipment             (39,719 )               (44,428 )
Proceeds from sale of property, plant and equipment             43                 190  
Deferred compensation plan assets             (2,609 )               (2,055 )
NET CASH USED IN INVESTING ACTIVITIES             (42,285 )               (46,293 )
CASH FLOWS FROM FINANCING ACTIVITIES                          
Dividends paid             (70,310 )               (38,689 )
Borrowings from long-term debt             806,560                 390,700  
Principal payments on long-term debt             (454,371 )               (408,329 )
Deferred financing costs             -                 (5,729 )
Share repurchases             (505,636 )               (115,287 )
Excess tax benefits from share-based payment arrangements             27,212                 19,544  
Proceeds from exercise of stock options and sale of stock under                          
employee stock purchase plan             10,356                 8,280  
NET CASH USED IN FINANCING ACTIVITIES             (186,189 )               (149,510 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH             (1,578 )               9,073  
NET CHANGE IN CASH AND CASH EQUIVALENTS             27,391                 63,917  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD             258,775                 190,550  
CASH AND CASH EQUIVALENTS, END OF PERIOD             286,166                 254,467  
CASH PAID DURING THE YEAR                          
Interest paid           $ 5,884               $ 4,062  
Income taxes paid           $ 86,214               $ 49,738  
                           

 

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 investors in analyzing period to period comparisons of the Company's results. However, non-GAAP financial measures should not be considered substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP.

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           Six Months Ended
                6/30/2012             6/30/2011             6/30/2012             6/30/2011
                                                   
Net income, as reported             $ 133,368           $ 111,180           $ 241,530           $ 199,199
Write-off of unamortized deferred financing cost                                                  
from debt refinancing (net of $214 tax benefit)               -             -             -             700
Net income, as adjusted             $ 133,368           $ 111,180           $ 241,530           $ 199,899
                                                   
                                                   
                                                   

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           Six Months Ended
                6/30/2012             6/30/2011             6/30/2012             6/30/2011
                                                   
Diluted earnings per share, as reported             $ 1.10           $ 0.88           $ 1.98           $ 1.57
Write-off of unamortized deferred financing cost                                                  
from debt refinancing               -             -             -             0.01
Diluted earnings per share, as adjusted             $ 1.10           $ 0.88           $ 1.98           $ 1.58
                                                   

 

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

                6/30/2012                 12/31/2011  
                               
Total long-term debt (current and long-term portion)             $ 555,814               $ 203,621  
Less: Cash and cash equivalents               286,166                 258,775  
Net debt             $ 269,648               $ (55,154 )
                               

 

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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