- Second quarter worldwide volume
growth of 5 percent compared to the prior year period.
- Adjusted1 EPS of $1.55
increased 10 percent compared to the prior year. Reported EPS of
$1.31 primarily reflects the impact of the non-cash costs
associated with the convert and other items.
- Raising FY’14 adjusted diluted EPS
guidance to a range of $6.17 to $6.32.
- Repurchased $581 million or 9.8
million shares during the quarter.
Herbalife Ltd. (NYSE: HLF) today reported second quarter net
sales of $1.3 billion, reflecting an increase of 7 percent compared
to the same time period in 2013 on volume point growth of 5
percent. Adjusted1 net income for the quarter of $141.4 million, or
$1.55 per diluted share, compares to 2013 second quarter adjusted
net income of $150.7 million, or $1.41 per diluted share. On a
reported basis, second quarter 2014 net income of $119.5 million,
or $1.31 per diluted share compares to $143.2 million, or $1.34 per
diluted share for the same period in 2013.
“Herbalife has once again delivered strong results in sales and
profitability while demonstrating our continued ability to enhance
our earnings per share,” said Michael Johnson, Herbalife’s chairman
and CEO. “Our performance is a testament to the enthusiasm our
millions of consumers and members have for our products.
Additionally, our independent members are successfully executing
numerous growth strategies to further develop customer loyalty and
encourage individuals across our network to lead healthier,
nutritious lives. Our members are proud to be a part of a solution
to global public health issues and we value the integral role they
play in Herbalife’s mission.”
For the quarter ended June 30, 2014 the company generated cash
flow from operations of $156.9 million; invested $39.6 million in
capital expenditures; and repurchased $581.3 million in common
shares outstanding under our share repurchase program.
Second Quarter 2014 Key
Metrics2,3
Regional Volume Point and Average Active Sales Leader
Metrics
Volume Points
(Mil) Average Active Sales Leaders Region
2Q'14 Yr/Yr % Chg 2Q'14 Yr/Yr % Chg
North America 335.8 (1%) 75,772 5% Asia Pacific 320.2
1% 74,916 6% EMEA 218.8 22% 56,692 18% Mexico 231.3 5% 64,656 3%
South & Central America 206.3 (7%) 62,172 14% China
118.5 38% 18,703 33%
Worldwide Total
1,430.9 5% 340,644
9%
Updated 2014 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 the
company believes to be inaccurate and misleading, expenses related
to a FTC inquiry, and 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
reaudit that occurred last year. Forward guidance is based on the
average daily exchange rates of the first two weeks of July.
Included in the guidance is the use of the GAAP rate for Venezuela
of 10.6 to 1 for the balance of the year and excludes the potential
impact of future devaluation of the Venezuelan bolivar and future
repatriation, if any, of existing cash balances in Venezuela.
Based on current business trends the company’s third quarter
fiscal 2014 and full year fiscal 2014 guidance is provided
below.
Three Months Ending Twelve Months Ending
September 30, 2014
December 31, 2014
Low
High
Low
High
Volume Point Growth vs 2013 5.5% 7.5% 6.0% 8.0% Net Sales Growth vs
2013 9.0% 11.0% 8.5% 10.5% Diluted EPS as adjusted $1.49 $1.53
$6.17 $6.32 Cap Ex ($ millions) $45.0 $55.0 $175.0 $195.0 Effective
Tax Rate 27.0% 29.0% 27.5% 29.5%
Share Repurchase Program Update
During the second quarter, the company repurchased 9.8 million
shares at an average cost of $59.41. There is currently $232.9
million remaining on the existing $1.5 billion share repurchase
authorization.
Second Quarter 2014 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 29, 2014 at 8 a.m. PT
(11 a.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 66932104). 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 66932104). 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 through and to 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 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.
_____________________1 See Schedule A – “Reconciliation of
Non-GAAP Financial Measures” for more detail.2 Supplemental tables
that include additional business metrics can be found at
http://www.ir.herbalife.com.3 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:
• 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 Six Months Ended
6/30/2014
6/30/2013
6/30/2014
6/30/2013
North America $ 250,601 $ 247,564 $ 498,461 $ 469,037 Mexico
148,658 145,638 291,321 278,527 South and Central America 203,352
222,362 447,974 441,877 EMEA 227,254 186,286 438,506 355,871 Asia
Pacific 306,307 299,240 586,687 610,986 China 170,028
118,149 305,900 186,588 Worldwide net sales 1,306,200
1,219,239 2,568,849 2,342,886 Cost of Sales 257,221
247,224 508,386 473,201 Gross Profit 1,048,979
972,015 2,060,463 1,869,685 Royalty Overrides 390,774 379,551
772,593 743,580 Selling, General and Administrative Expenses (1)
461,917 400,107 963,979 764,827
Operating Income 196,288 192,357 323,891 361,278 Interest Expense,
net 21,406 5,559 36,367 10,932 Other Expense, net (1) -
- 3,161 - Income before income taxes 174,882
186,798 284,363 350,346 Income Taxes 55,350 43,636
90,203 88,311 Net Income 119,532
143,162 194,160 262,035 Basic Shares 86,113
102,993 90,732 103,551 Diluted Shares 91,172 107,083 95,934 107,589
Basic EPS $ 1.39 $ 1.39 $ 2.14 $ 2.53 Diluted EPS $ 1.31 $
1.34 $ 2.02 $ 2.44 Dividends declared per share $ - $ 0.30 $
0.30 $ 0.60
(1) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended June 30, 2014,
Selling, General and Administrative Expenses and Other Expense, net
for the six months ended June 30, 2014 includes an $89.5 million
pre-tax unfavorable impact related to the remeasurement of
Venezuela Bolivar-denominated assets and liabilities at the SICAD I
rate.
Herbalife Ltd. and Subsidiaries Condensed
Consolidated Balance Sheets (In thousands) (Unaudited)
Jun 30, Dec 31,
2014
2013
ASSETS Current Assets: Cash & cash equivalents $ 773,517
$ 972,974 Receivables, net 103,782 100,326 Inventories 343,447
351,201 Prepaid expenses and other current assets 206,654 148,774
Deferred income taxes 67,389 69,845
Total Current Assets 1,494,789 1,643,120 Property, net
363,165 318,860 Deferred compensation plan assets 27,597 26,821
Deferred financing cost, net 25,677 4,896 Other assets 108,358
63,713 Marketing related intangibles and other intangible assets,
net 310,608 310,801 Goodwill 105,490 105,490
Total Assets $ 2,435,684 $ 2,473,701
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Accounts payable $ 97,065 $ 82,665 Royalty overrides 253,261
266,952 Accrued compensation 89,358 111,905 Accrued expenses
287,516 267,501 Current portion of long-term debt 93,751 81,250
Advance sales deposits 88,071 68,079 Income taxes payable
33,344 43,826 Total Current Liabilities
942,366 922,178 Non-current liabilities Long-term debt, net
of current portion 1,744,236 850,019 Deferred compensation plan
liability 41,795 37,226 Deferred income taxes 59,952 66,026 Other
non-current liabilities 51,403 46,806
Total Liabilities 2,839,752 1,922,255 Contingencies
Shareholders' (deficit) equity: Common shares 92 101 Paid-in
capital in excess of par value 398,436 323,860 Accumulated other
comprehensive loss (22,657 ) (19,794 ) (Accumulated deficit)
retained earnings (779,939 ) 247,279 Total
Shareholders' (Deficit) Equity (404,068 ) 551,446
Total Liabilities and Shareholders' (Deficit)
Equity $ 2,435,684 $ 2,473,701
Herbalife Ltd. and Subsidiaries Condensed
Consolidated Statements of Cash Flows (In thousands)
(Unaudited)
Six Months Ended
6/30/2014
6/30/2013
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 194,160 $ 262,035
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 44,776 42,310 Excess tax benefits
from share-based payment arrangements (6,693 ) (15 ) Share-based
compensation expenses 23,398 15,253 Non-cash interest expense
19,021 1,295 Deferred income taxes (7,838 ) (7,939 ) Inventory
write-downs 12,373 10,448 Unrealized foreign exchange transaction
loss (gain) 2,532 (44 ) Foreign exchange loss relating to Venezuela
86,108 15,116 Other 3,717 (674 ) Changes in operating assets and
liabilities: Receivables (1,163 ) (312 ) Inventories (2,409 )
(14,094 ) Prepaid expenses and other current assets (50,669 )
(13,150 ) Other assets (4,642 ) (534 ) Accounts payable 13,038
4,586 Royalty overrides (12,113 ) (2,051 ) Accrued expenses and
accrued compensation 16,661 43,761 Advance sales deposits 20,915
4,481 Income taxes (8,158 ) (12,546 ) Deferred compensation plan
liability 4,569 3,527 NET CASH PROVIDED
BY OPERATING ACTIVITIES 347,583 351,453
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant
and equipment (105,482 ) (56,048 ) Proceeds from sale of property,
plant and equipment 11 33 Investments in Venezuelan bonds
(7,588 ) - NET CASH USED IN INVESTING ACTIVITIES
(113,059 ) (56,015 ) CASH FLOWS FROM FINANCING
ACTIVITIES Dividends paid (30,400 ) (61,823 ) Dividends received
3,416 - Payments for Capped Call Transactions (123,825 ) -
Borrowings from senior secured credit facility and other debt -
513,227 Proceeds from senior convertible notes 1,150,000 -
Principal payments on senior secured credit facility and other debt
(37,500 ) (38,250 ) Issuance costs relating to long-term debt and
senior convertible notes (28,927 ) - Share repurchases (1,277,929 )
(165,726 ) Excess tax benefits from share-based payment
arrangements 6,693 15 Proceeds from exercise of stock options and
sale of stock under employee stock purchase plan 2,039
971 NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (336,433 ) 248,414 EFFECT OF
EXCHANGE RATE CHANGES ON CASH (97,548 ) (27,683 ) NET
CHANGE IN CASH AND CASH EQUIVALENTS (199,457 ) 516,169 CASH AND
CASH EQUIVALENTS, BEGINNING OF PERIOD 972,974
333,534 CASH AND CASH EQUIVALENTS, END OF PERIOD
773,517 849,703 CASH PAID DURING THE PERIOD
Interest paid $ 14,417 $ 12,004 Income taxes paid $
109,337 $ 117,120 NON CASH ACTIVITIES Accrued capital
expenditures $ 13,090 $ 8,040
SUPPLEMENTAL INFORMATION
SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES(unaudited and unreviewed), (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.
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 6/30/2014
6/30/2013 6/30/2014 6/30/2013 (in
thousands) Net income, as reported $ 119,532 $ 143,162 $
194,160 $ 262,035 Remeasurement loss relating to Venezuela (1)(2)
2,558 (2,217 ) 69,160 8,307 Expenses incurred responding to attacks
on the Company's business model (1)(3) 5,609 7,125 8,916 15,104
Expenses incurred for the re-audit of 2010 to 2012 financial
statements (1)(4) - 2,661 - 2,661 Expenses related to the FTC
inquiry (1)(5) 3,095 - 3,765 - Expenses incurred for the recovery
of costs associated with the re-audit (1) 411 - 411 - Non-cash
interest expense and amortization of non-cash issuance costs (6)
10,166 - 16,009 - Net income, as
adjusted $ 141,371 $ 150,731 $ 292,421 $ 288,107
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 6/30/2014 6/30/2013 6/30/2014
6/30/2013 Diluted earnings per share, as reported $
1.31 $ 1.34 $ 2.02 $ 2.44 Remeasurement loss relating to Venezuela
(1)(2) 0.03 (0.02 ) 0.72 0.08 Expenses incurred responding to
attacks on the Company's business model (1)(3) 0.06 0.07 0.09 0.14
Expenses incurred for the re-audit of 2010 to 2012 financial
statements (1)(4) - 0.02 - 0.02 Expenses related to the FTC inquiry
(1)(5) 0.03 - 0.04 - Expenses incurred for the recovery of costs
associated with the re-audit (1) - - - - Non-cash interest expense
and amortization of non-cash issuance costs (6) 0.11
- 0.17 -
Diluted earnings per share, as adjusted
(7)
$ 1.55 $ 1.41 $ 3.05 $ 2.68
(1) 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. (2) Net of ($2,349) and
$2,217 tax benefit for the three months ended June 30, 2014 and
2013, respectively; and net of $20,318 and $6,808 tax benefit for
the six months ended June 30, 2014 and 2013, respectively. (3) Net
of $2,371 and $953 tax benefit for the three months ended June 30,
2014 and 2013, respectively; and net of $3,366 and $2,468 tax
benefit for the six months ended June 30, 2014 and 2013,
respectively. (4) Net of $796 tax benefit for the three and six
months ended June 30, 2013. (5) Net of $2,038 and $2,278 tax
benefit for the three and six months ended June 30, 2014. (6)
Relates to non-cash expense on our convertible notes and prepaid
forward share repurchase contract (7) Amounts may not total due to
rounding.
The following is a reconciliation of total long-term debt to net
debt:
6/30/2014 12/31/2013 Total
long-term debt (current and long-term portion) $ 1,837,987 $
931,269 Less: Cash and cash equivalents 773,517
972,974 Net debt $ 1,064,470 $ (41,705 )
Herbalife Ltd.Media Contact:Barbara
HendersonSVP, Worldwide Corp. Comm.213.745.0517orInvestor Contact:Amy GreeneSVP, Investor
Relations213.745.0474
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