- First quarter adjusted1
EPS of $1.29 per diluted share exceeded guidance and reported
EPS of $0.92 per diluted share increased 24% compared to $0.74 per
diluted share in the first quarter a year ago.
- Worldwide net sales of $1.1 billion
declined 12% due to the unfavorable impact of currency exchange
rates; net sales excluding currency impact grew 4% compared to the
prior year period.
- Raises FY’15 adjusted diluted EPS
guidance to a range of $4.30 to $4.60.
Herbalife Ltd. (NYSE: HLF) today reported first quarter net
sales of $1.1 billion. While local currency net sales grew by 4%,
reported net sales declined 12% primarily due to the unfavorable
impact of currency exchange rates. Adjusted1 earnings for the
quarter were $1.29 per diluted share compared to $1.50 per diluted
share for the same period in 2014. On a reported basis, the company
announced first quarter net income of $78.2 million, or $0.92 per
diluted share, compared to $74.6 million, or $0.74 per diluted
share for the same period in 2014. First quarter 2015 diluted EPS
was negatively impacted by a $0.442 currency headwind.
First quarter 2015 reported net income was negatively impacted
by $36.3 million in pre-tax charges, or $0.30 per diluted share
after tax, related to the devaluation of the Venezuelan Bolivar.
During the first quarter, the company remeasured its
Bolivar-denominated monetary assets and liabilities at the SIMADI
rate.
For the quarter that ended March 31, 2015, the company generated
$161.1 million net operating cash flow, and invested $15.4 million
in capital expenditures.
Michael Johnson, chairman and CEO stated, “Our performance this
quarter was above our expectations and has resulted in us
increasing our full year 2015 guidance.”
Johnson continued, “As reflected in our record sales leader
retention results, we remain confident that we are building a
stable foundation for volume and sales growth, driving long-term
shareholder value creation, and providing an even better experience
for our millions of Members and our customers throughout the
world.”
_____________1 See Schedule A – “Reconciliation of Non-GAAP
Financial Measures” for more detail.2 Excludes the impact of
Venezuela price increases tied to FX rate movements.
First Quarter and 2015 Key
Metrics3,4
Regional Volume Point and Average Active Sales Leader
Metrics
Volume Points (Mil)
Average Active Sales Leaders Region 1Q'15
Yr/Yr % Chg 1Q'15 Yr/Yr % Chg North America 297.8
-11 % 77,480 4 % Asia Pacific 265.9 -12 % 74,767 4 %
EMEA 228.4 13 % 69,256 28 % Mexico 203.4 -8 % 65,340 3 % South
& Central America 210.5 -8 % 62,971 2 % China 113.7
25 % 20,277 22 %
Worldwide Total
1,319.7 -4 % 357,465
8 %
Regional Net Sales and FX Impact
Region
Reported Net Sales
1Q '15 (mil)
Growth/Decline
including FX
Growth/Decline
excluding FX
North America $ 226.7 -9% -8% Asia Pacific
(ex. China) $ 242.8 -13% -10% EMEA $ 186.4 -12% 14% Mexico $ 123.6
-13% -2% South & Central America $ 161.7 -34% 16% China
$ 164.2 21% 23%
Worldwide Total
$ 1,105.4 -12% 4%
_______________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.
2015 Outlook
Guidance for the second quarter includes an unfavorable impact
from currency exchange rates of approximately $0.40 per diluted
share, inclusive of approximately $0.14 resulting from Venezuela.
Full year 2015 guidance includes a currency headwind of
approximately $1.26 per diluted share, including approximately
$0.45 from Venezuela.
Based on current business trends the company’s second quarter
2015 and full year 2015 guidance is as follows:
Three Months Ending Twelve Months
Ending June 30, 2015 December 31, 2015
Low
High
Low
High
Volume Point Growth vs 2014 (7.5%) (4.5%) (4.0%) (1.0%) Net Sales
Growth vs 2014 (13.5%) (10.5%) (9.5%) (6.5%) Adjusted Diluted EPS
$1.05 $1.15 $4.30 $4.60 Cap Ex ($ millions) $20.0 $30.0 $120.0
$140.0 Effective Tax Rate 28.0% 30.0% 28.0% 30.0% Currency
Adjusted(a) Net Sales Growth vs 2014 (3.0%) 0.0% (0.5%) 2.5%
Currency Adjusted EPS (a) $1.45 $1.55 $5.55 $5.85 Free Cash Flow ($
millions) (b) $440.0 $470.0 (a) Excludes the impact of
Venezuela price increases tied to FX rate movements. (b) Free Cash
Flow equals Cash Flow from operations less Capital Expenditures.
Guidance excludes the impact of legal and advisory services and
expenses relating to challenges to the company’s business model,
including expenses related to an FTC Civil Investigative Demand or
CID, the impact of non-cash interest costs associated with the
company’s Convertible Notes and the expenses incurred related to
the effort to recover costs related to the re-audits that occurred
in 2013. Forward guidance is based on the average daily exchange
rates of the first two weeks of April. With respect to Venezuela,
the guidance assumes a SIMADI rate of 192 to 1 for the remainder of
2015 and excludes the potential impact of the recent and any future
devaluation of the Venezuelan Bolivar and future repatriation, if
any, of existing cash balances in Venezuela.
First Quarter 2015 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, May 5, 2015 at 2:30 p.m. PT
(5:30 p.m. ET).
The dial-in number for this conference call for domestic callers
is (877) 317-1296 and (706) 634-5671 for international callers
(conference ID 18313228). 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 18313228). The webcast of the teleconference will be
archived and available on Herbalife's website.
About Herbalife Ltd.
Herbalife Ltd. (NYSE:HLF) is a 35-year-old 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.
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:
• 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;
• our inability to obtain the necessary
licenses to expand our direct selling business in China;
• adverse changes in the Chinese economy;
• 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 millions, except
per share amounts) (Unaudited) Three
Months Ended
3/31/2015
3/31/2014
North America $ 226.7 $ 247.8 Mexico 123.6 142.7 South and
Central America 161.7 244.7 EMEA 186.4 211.2 Asia Pacific 242.8
280.4 China 164.2 135.8 Worldwide net sales 1,105.4
1,262.6 Cost of Sales (5) 215.4 251.2 Gross Profit
890.0 1,011.4 Royalty Overrides 323.0 381.8 Selling, General and
Administrative Expenses (6) 431.4 502.1 Operating
Income 135.6 127.5 Interest Expense, net 21.5 14.9 Other Expense,
net (7) 2.3 3.2 Income before income taxes 111.8
109.4 Income Taxes 33.6 34.8 Net Income $ 78.2 $ 74.6
Basic Shares 82.3 95.4 Diluted Shares 84.6 100.8
Basic EPS $ 0.95 $ 0.78 Diluted EPS $ 0.92 $ 0.74 Dividends
declared per share $ - $ 0.30
(5) As discussed in Note 2 of the quarterly report on Form 10-Q
for the quarter ended March 31, 2015, Cost of Sales includes $1.4
million of inventory write downs related to Venezuela for the three
months ended March 31, 2015.(6) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended March 31, 2015,
Selling, General and Administrative Expenses includes $32.6 million
and $86.1 million pre-tax unfavorable impact related to the
remeasurement of Venezuela Bolivar-denominated assets and
liabilities at the SIMADI and SICAD I rate, for the three months
ended March 31, 2015 and 2014, respectively.(7) As discussed in
Note 2 of the quarterly report on Form 10-Q for the quarter ended
March 31, 2015, Other Expense, net relates to the impairment of
investments in Bolivar-denominated bonds.
Herbalife Ltd. and Subsidiaries Condensed Consolidated
Balance Sheets (In millions) (Unaudited) Mar 31, Dec
31,
2015
2014
ASSETS Current Assets: Cash & cash equivalents $ 715.5 $
645.4 Receivables, net 86.8 83.6 Inventories 335.0 377.7 Prepaid
expenses and other current assets 191.8 186.1 Deferred income tax
assets 99.1 100.6 Total Current Assets
1,428.2 1,393.4 Property, net 356.7 366.7 Deferred
compensation plan assets 29.0 27.4 Other assets 147.9 152.8
Deferred financing cost, net 20.2 22.0 Marketing related
intangibles and other intangible assets, net 310.4 310.4 Goodwill
96.5 102.2 Total Assets $ 2,388.9
$ 2,374.9 LIABILITIES AND SHAREHOLDERS'
DEFICIT Current Liabilities: Accounts payable $ 64.8 $ 72.4 Royalty
overrides 218.6 251.0 Accrued compensation 76.1 69.6 Accrued
expenses 255.2 252.1 Current portion of long-term debt 419.4 100.0
Advance sales deposits 82.8 70.0 Income taxes payable 52.0
59.7 Total Current Liabilities 1,168.9 874.8
Non-current liabilities Long-term debt, net of current
portion 1,393.4 1,711.7 Deferred compensation plan liability 44.1
42.9 Deferred income tax liabilities 16.8 15.3 Other non-current
liabilities 66.9 64.6 Total Liabilities
2,690.1 2,709.3 Contingencies Shareholders' deficit:
Common shares 0.1 0.1 Paid-in capital in excess of par value 414.1
409.1 Accumulated other comprehensive loss (128.2 ) (78.2 )
Accumulated deficit (587.2 ) (665.4 ) Total
Shareholders' Deficit (301.2 ) (334.4 )
Total Liabilities and Shareholders' Deficit $ 2,388.9 $
2,374.9
Herbalife Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (In millions)
(Unaudited)
Three Months Ended
3/31/2015
3/31/2014
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 78.2 $ 74.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22.9 21.3 Excess tax benefits
from share-based payment arrangements (2.5 ) (3.2 ) Share-based
compensation expenses 11.1 11.0 Non-cash interest expense 12.2 7.2
Deferred income taxes 1.3 (2.3 ) Inventory write-downs 4.9 11.0
Unrealized foreign exchange transaction (gain) loss (18.3 ) 3.4
Foreign exchange loss from Venezuela currency devaluation
32.6 86.1 Impairments and write-downs relating to Venezuela
currency devaluation 3.7 3.2 Other 4.6 1.3 Changes in operating
assets and liabilities: Receivables (14.4 ) (18.0 ) Inventories
15.0 14.2 Prepaid expenses and other current assets 10.8 (23.8 )
Other assets (6.2 ) (5.2 ) Accounts payable (1.1 ) 6.2 Royalty
overrides (23.0 ) (3.7 ) Accrued expenses and accrued compensation
22.5 (12.5 ) Advance sales deposits 16.3 17.4 Income taxes (10.6 )
(0.9 ) Deferred compensation plan liability 1.1
3.3 NET CASH PROVIDED BY OPERATING ACTIVITIES
161.1 190.6 CASH FLOWS FROM INVESTING
ACTIVITIES Purchases of property, plant and equipment (22.8 ) (58.5
) Investments in Venezuelan bonds - (3.2 ) Other 6.1
- NET CASH USED IN INVESTING ACTIVITIES (16.7
) (61.7 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends
paid - (30.4 ) Dividends received - 3.4 Payments for Capped Call
Transactions - (123.8 ) Proceeds from senior convertible notes -
1,150.0 Principal payments on senior secured credit facility
and other debt (25.0 ) (18.8 ) Issuance costs relating to long-term
debt and senior convertible notes - (28.9 ) Share repurchases (9.0
) (694.5 ) Excess tax benefits from share-based payment
arrangements 2.5 3.2 Proceeds from exercise of stock options and
sale of stock under employee stock purchase plan 0.4
0.1 NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (31.1 ) 260.3 EFFECT OF EXCHANGE
RATE CHANGES ON CASH (43.2 ) (100.3 ) NET CHANGE IN
CASH AND CASH EQUIVALENTS 70.1 288.9 CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 645.4 973.0 CASH
AND CASH EQUIVALENTS, END OF PERIOD $ 715.5 $ 1,261.9
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
3/31/2015 3/31/2014 (in millions) Net
income, as reported $ 78.2 $ 74.6 Remeasurement and impairment
losses relating to Venezuela (8) (9) 25.2 66.6 Expenses incurred
responding to attacks on the company's business model (8) (10) 2.9
3.3 Expenses related to the FTC inquiry (8) (11) 2.1 0.7 Expenses
incurred for the recovery of re-audit fees (8) 0.1 - Foreign
exchange gain from Euro/USD exposure on intercompany balances (8)
(12) (10.1 ) - Non-cash interest expense and amortization of
non-cash issuance costs (8) (13) 10.5 5.8 Net
income, as adjusted (14) $ 108.8 $ 151.1
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 3/31/2015
3/31/2014 Diluted earnings per share, as reported $
0.92 $ 0.74 Remeasurement and impairment losses relating to
Venezuela (8) (9) 0.30 0.66 Expenses incurred responding to attacks
on the company's business model (8) (10) 0.03 0.03 Expenses related
to the FTC inquiry (8) (11) 0.02 0.01 Expenses incurred for the
recovery of re-audit fees (8) - - Foreign exchange gain from
Euro/USD exposure on intercompany balances (8) (12) (0.12 ) -
Non-cash interest expense and amortization of non-cash issuance
costs (8) (13) 0.12 0.06 Diluted earnings per
share, as adjusted (14) $ 1.29 $ 1.50
(8) Based on interim income tax reporting rules, these expenses
are not considered discrete items. As a result, the company's full
year effective tax rate is impacted by these items. When applying
the full year effective tax rate to year-to-date income, the
company's year-to-date tax provision recorded with respect to these
non-GAAP adjustments is different from the forecasted full-year tax
provision impact of these items. As a consequence, adjustments to
the year-to-date and quarterly tax impacts will be recorded as the
adjusted full year effective tax rate is applied to income in
subsequent periods. Additionally, adjustments to items unrelated to
these non-GAAP adjustments may have an effect on the income tax
impact of these non-GAAP adjustments in subsequent periods. The
company plans to update the income tax impact of these items in
subsequent interim reporting periods.(9) Net of $11.1 million and
$22.7 million tax benefit for the three months ended Mar 31, 2015
and 2014, respectively.(10) Net of $1.5 million and $1.0 million
tax benefit for the three months ended Mar 31, 2015 and 2014,
respectively.(11) Net of $1.3 million and $0.2 million tax benefit
for the three months ended March 31, 2015 and 2014,
respectively.(12) Net of $2.7 million tax expense for the three
months ended March 31, 2015.(13) Relates to non-cash expense on our
convertible notes and prepaid forward share repurchase
contract.(14) Amounts may not total due to rounding.
The following is a reconciliation of total long-term debt to net
debt:
3/31/2015
3/31/2014 (in millions) Total long-term debt (current
and long-term portion) $ 1,812.8 $ 1,848.3 Less: Cash and cash
equivalents 715.5 1,261.9 Net debt $ 1,097.3
$ 586.4
Herbalife Ltd.Media Contact:Julian CacchioliVP, Corporate
Communications213.745.0519orInvestor Contact:Alan QuanVP, Investor
Relations213.745.0541
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