- Third quarter adjusted1
EPS of $1.28 per diluted share exceeded guidance of $1.00 -
$1.10; reported EPS of $1.09 per diluted share
- Raises FY’15 adjusted diluted EPS
guidance to a range of $4.65 to $4.75; up from the previous range
of $4.50 to $4.70
- Reported worldwide net sales of $1.1
billion, grew 5% in constant currency and on a reported basis
declined 12% due to the unfavorable impact of currency exchange
rates compared to the prior year period
- Cash flow from operations of $134.5
million increased 32% compared to prior year period
- Initial 2016 volume point guidance
range of 2.5% - 5.5% growth
Herbalife Ltd. (NYSE: HLF) reported third quarter net sales of
$1.1 billion. Local currency net sales grew by 5%, while reported
net sales declined 12% primarily due to the continuing unfavorable
impact of currency exchange rates. Adjusted1 earnings for the
quarter were $1.28 per diluted share compared to $1.45 per diluted
share for the same period in 2014. On a reported basis, third
quarter net income was $93.6 million, or $1.09 per diluted share,
compared to $11.2 million, or $0.13 per diluted share for the same
period in 2014. Third quarter 2015 diluted EPS was negatively
impacted by a $0.422 currency fluctuation.
For the quarter ended September 30, 2015, the company generated
$134.5 million in net operating cash flow, and invested $17.1
million in capital expenditures.
For the full year 2015, the company is raising adjusted diluted
EPS guidance to a range of $4.65 to $4.75, from the previous range
of $4.50 to $4.70. Currency movement since the company’s previous
guidance had a negative $0.14 impact to the current full year 2015
adjusted diluted EPS guidance.
For the full year 2016, the company is providing adjusted EPS
guidance of $4.35 - $4.75 per share, which includes a $0.50
headwind due to an expected unfavorable impact of currency
fluctuations.
Michael Johnson, chairman and CEO stated, “The improving trends
we continue to see in both performance and member metrics reinforce
our belief that we are building an Herbalife focused on creating
the very best customer and member experience while delivering long
term value for our shareholders."
Johnson continued, “We remain focused on building a brand that
is synonymous with good nutrition. Our members have embraced this
concept and their activity and engagement remains high."
Third Quarter and 2015 Key
Metrics3,4
Regional Volume Point and Average Active Sales Leader
Metrics
Volume Points (Mil) Average Active Sales
Leaders Region 3Q'15 Yr/Yr % Chg 3Q'15
Yr/Yr % Chg North America 285.0 -6% 77,066 0%
Asia Pacific 258.0 -15% 77,130 1% EMEA 219.0 10% 74,741 25% Mexico
207.2 -5% 64,640 -3% South & Central America 188.7 -8% 60,726
-6% China 149.8 24% 25,696 31%
Worldwide Total 1,307.7 -3%
367,557 4%
Regional Net Sales and Foreign Exchange (“FX”) Impact
Region Reported Net Sales
3Q '15 (mil)
Growth/Decline
including FX
Growth/Decline
excluding FX
North America $ 219.4 -2 % -1 %
Asia Pacific (ex. China) $ 224.6 -25 % -16 % EMEA $ 182.5 -11 % 13
% Mexico $ 113.4 -21 % -1 % South & Central America $ 138.1 -33
% 19 % China $ 224.9 24 % 27 %
Worldwide Total $ 1,102.9
-12 % 5 %
_______________________________
1 See Schedule A – “Reconciliation of
Non-GAAP Financial Measures” for more detail.
2 Excludes the impact of Venezuela price
increases tied to foreign exchange rate movements.
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.
Outlook
Guidance for the fourth quarter includes an unfavorable impact
from currency exchange rates of approximately $0.27 per diluted
share versus the fourth quarter of 2014.
Full year 2015 guidance includes a currency headwind of
approximately $1.54 per diluted share, including approximately
$0.45 from Venezuela compared to last year. Full year 2015 guidance
also includes a $0.14 negative impact from currency compared to
guidance provided a quarter ago.
Guidance for full year 2016 includes an expected currency
headwind of approximately $0.50 per diluted share.
Based on current business trends the company’s fourth quarter
2015 and full year 2016 guidance is as follows:
Three Months Ending Twelve Months Ending December 31,
2015 December 31, 2015
Low
High
Low
High
Volume Point Growth vs 2014 (1.5%) 1.5% (3.5%) (2.8%) Net Sales
Growth vs 2014 (8.5%) (5.5%) (11.1%) (10.4%) Adjusted Diluted EPS
$0.85 $0.95 $4.65 $4.75 Cap Ex ($ millions) $30.0 $40.0 $80.0 $90.0
Effective Tax Rate 27.5% 29.5% 29.0% 30.0% Currency Adjusted(a) Net
Sales Growth vs 2014 1.6% 4.6% 1.0% 1.7% Currency Adjusted EPS (a)
$1.12 $1.22 $6.19 $6.29 Free Cash Flow ($ millions) (b) $490.0
$510.0 (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. Twelve Months Ending
December 31, 2016
Low
High
Volume Point Growth vs 2015 2.5% 5.5% Net Sales Growth vs 2015 4.5%
7.5% Adjusted Diluted EPS $4.35 $4.75 Cap Ex ($ millions) $115.0
$145.0 Effective Tax Rate 28.0% 30.0% Currency Adjusted(a) Net
Sales Growth vs 2015 7.0% 10.0% Currency Adjusted EPS (a) $4.85
$5.25 Free Cash Flow ($ millions) (b) (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 regulatory inquiries, 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 October. With respect to Venezuela, the guidance
assumes a SIMADI rate of 198 to 1 for the remainder of 2015, for
full-year 2016 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.
Third 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, November 3, 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 51095552). 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 51095552). 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
This earnings release contains “forward-looking statements”
within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. 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;
- 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
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;
- 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;
- restrictions imposed by covenants in
our credit facility;
- uncertainties relating to the
application of transfer pricing, duties, value added taxes, and
other tax regulations, and changes thereto;
- changes in tax laws, treaties or
regulations, or their interpretation;
- taxation relating to our Members;
- product liability claims;
- our incorporation under the laws of the
Cayman Islands;
- 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 Nine Months Ended
9/30/2015
9/30/2014
9/30/2015
9/30/2014
North America $ 219.4 $ 223.6 $ 676.1 $ 722.0 Mexico 113.4
143.9 366.2 435.2 South and Central America 138.1 205.2 433.3 653.2
EMEA 182.5 204.4 562.7 642.9 Asia Pacific 224.6 297.8 706.5 884.5
China 224.9 181.3 625.8 487.2
Worldwide net sales 1,102.9 1,256.2 3,370.6 3,825.0 Cost of Sales
(5) 206.9 255.0 651.6 763.3
Gross Profit 896.0 1,001.2 2,719.0 3,061.7 Royalty Overrides 304.7
363.9 946.4 1,136.5 Selling, General and Administrative Expenses
(6) 429.7 609.7 1,331.6 1,573.7
Operating Income 161.6 27.6 441.0 351.5 Interest Expense, net 24.1
19.9 69.3 56.2 Other Expense, net (7) - 9.8
2.3 13.0 Income (loss) before income taxes 137.5 (2.1
) 369.4 282.3 Income Taxes 43.9 (13.3 ) 114.8
76.9 Net Income $ 93.6 $ 11.2 $ 254.6 $ 205.4
Basic Shares 82.6 81.9 82.5 87.8 Diluted Shares 85.7 86.2 85.1 92.6
Basic EPS $ 1.13 $ 0.14 $ 3.09 $ 2.34 Diluted EPS $
1.09 $ 0.13 $ 2.99 $ 2.22 Dividends declared per
share $ - $ - $ - $ 0.30
(5) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended Sept. 30, 2015,
Cost of Sales includes $0.2 million and $1.9 million of inventory
write downs related to Venezuela for the three and nine months
ended Sept 30, 2015, respectively; and $7.6 million of inventory
write-downs related to Venezuela for the three and nine months
ended Sept. 30, 2014.
(6) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended Sept. 30, 2015,
Selling, General and Administrative Expenses includes $32.9 million
pre-tax unfavorable impact related to the remeasurement of
Venezuela Bolivar-denominated assets and liabilities at the SIMADI
rate for the nine months ended Sept. 30, 2015; and $115.1 million
and $201.4 million pre-tax unfavorable impact related to the
remeasurement of Venezuela Bolivar-denominated assets and
liabilities at the SICAD I and SICAD II rate for the three and nine
months ended Sept. 30, 2014, respectively; and $7.0 million loss on
Venezuela asset impairment for both the three and nine months ended
Sept. 30, 2014.
(7) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended Sept. 30, 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) Sept 30, Dec
31,
2015
2014
ASSETS Current Assets: Cash & cash equivalents $ 813.2 $
645.4 Receivables, net 89.9 83.6 Inventories 315.6 377.7 Prepaid
expenses and other current assets 180.0 186.1 Deferred income tax
assets 93.4 100.6 Total Current Assets
1,492.1 1,393.4 Property, net 335.8 366.7 Deferred
compensation plan assets 27.3 27.4 Other assets 142.6 152.8
Deferred financing cost, net 21.5 22.0 Marketing related
intangibles and other intangible assets, net 310.2 310.4 Goodwill
92.0 102.2 Total Assets $ 2,421.5
$ 2,374.9 LIABILITIES AND SHAREHOLDERS'
DEFICIT Current Liabilities: Accounts payable $ 81.4 $ 72.4 Royalty
overrides 237.5 251.0 Accrued compensation 113.6 69.6 Accrued
expenses 229.1 252.1 Current portion of long-term debt 254.7 100.0
Advance sales deposits 86.2 70.0 Income taxes payable 28.0
59.7 Total Current Liabilities 1,030.5 874.8
Non-current liabilities Long-term debt, net of current
portion 1,398.7 1,711.7 Deferred compensation plan liability 42.5
42.9 Deferred income tax liabilities 7.4 15.3 Other non-current
liabilities 73.1 64.6 Total Liabilities
2,552.2 2,709.3 Contingencies Shareholders' deficit:
Common shares 0.1 0.1 Paid-in capital in excess of par value 436.3
409.1 Accumulated other comprehensive loss (156.3 ) (78.2 )
Accumulated deficit (410.8 ) (665.4 ) Total
Shareholders' Deficit (130.7 ) (334.4 )
Total Liabilities and Shareholders' Deficit $ 2,421.5 $
2,374.9 Herbalife Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (In millions)
(Unaudited) Nine Months Ended
9/30/2015
9/30/2014
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 254.6 $ 205.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 72.6 69.2 Excess tax benefits from
share-based payment arrangements (1.5 ) (4.2 ) Share-based
compensation expenses 34.2 34.4 Non-cash interest expense 39.8 31.2
Deferred income taxes (1.5 ) (59.0 ) Inventory write-downs 22.3
17.7 Foreign exchange transaction (gain) loss (11.9 ) 4.0
Foreign exchange loss from Venezuela currency devaluation 32.9
200.3 Impairments and write-downs relating to Venezuela currency
devaluation 4.3 27.5 Other 8.9 3.1 Changes in operating assets and
liabilities: Receivables (25.1 ) (5.4 ) Inventories (3.2 ) (58.7 )
Prepaid expenses and other current assets 0.4 (59.2 ) Other assets
(16.8 ) (8.8 ) Accounts payable 18.3 15.4 Royalty overrides 5.6 4.4
Accrued expenses and accrued compensation 61.7 11.8 Advance sales
deposits 23.3 27.5 Income taxes (26.6 ) (11.7 ) Deferred
compensation plan liability 0.9 4.6 NET
CASH PROVIDED BY OPERATING ACTIVITIES 493.2
449.5 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of
property, plant and equipment (57.5 ) (140.0 ) Proceeds from sale
of property, plant and equipment 0.3 - Investments in Venezuelan
bonds (0.1 ) (11.8 ) Other 6.0 - NET
CASH (USED IN) INVESTING ACTIVITIES (51.3 ) (151.8 )
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 (202.6 ) (56.3 ) Issuance costs relating to long-term
debt and senior convertible notes (6.2 ) (28.9 ) Share repurchases
(10.7 ) (1,278.4 ) Excess tax benefits from share-based payment
arrangements 1.5 4.2 Proceeds from exercise of stock options and
sale of stock under employee stock purchase plan 1.4 2.4 Other
(1.3 ) - NET CASH (USED IN) FINANCING
ACTIVITIES (217.9 ) (357.8 ) EFFECT OF EXCHANGE RATE
CHANGES ON CASH (56.2 ) (234.7 ) NET CHANGE IN CASH
AND CASH EQUIVALENTS 167.8 (294.8 ) CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 645.4 973.0 CASH
AND CASH EQUIVALENTS, END OF PERIOD $ 813.2 $ 678.2
SUPPLEMENTAL INFORMATION
SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited and unreviewed), (All tables provide Dollars in
millions, 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 Nine Months
Ended 9/30/2015 9/30/2014 9/30/2015 9/30/2014
(in millions)
Net income, as reported $ 93.6 $ 11.2 $ 254.6 $ 205.4
Remeasurement, impairment losses and other charges relating to
Venezuela (8) (9) 0.3 83.7 25.1 152.9 Expenses incurred responding
to attacks on the company's business model (8) (10) 2.8 4.5 10.5
13.5 Expenses related to Regulatory inquiries (8) (11) 4.7 2.8 10.4
6.5 Expenses incurred for the recovery of re-audit fees (8) (12)
0.4 - 0.8 0.4 Foreign exchange gain from Euro/USD exposure on
intercompany balances (8) (13) (0.8 ) - (7.7 ) - Non-cash interest
expense and amortization of non-cash issuance costs (8) (14) 11.2
9.9 32.8 25.9 Legal reserve for the Bostick case (15) - 11.3 - 11.3
Impairment of newly acquired defective manufacturing equipment (16)
- 1.7 - 1.7 Recovery of defective manufacturing equipment
previously impaired (17) (2.0 ) - (2.0 )
- Net income, as adjusted (18) $ 110.1 $ 125.1 $
324.5 $ 417.6
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 Nine Months Ended 9/30/2015
9/30/2014 9/30/2015 9/30/2014 Diluted earnings per share, as
reported $ 1.09 $ 0.13 $ 2.99 $ 2.22 Remeasurement, impairment
losses and other charges relating to Venezuela (8) (9) - 0.97 0.30
1.65 Expenses incurred responding to attacks on the company's
business model (8) (10) 0.03 0.05 0.12 0.15 Expenses related to
Regulatory inquiries (8) (11) 0.05 0.03 0.12 0.07 Expenses incurred
for the recovery of re-audit fees (8) (12) - - 0.01 - Foreign
exchange gain from Euro/USD exposure on intercompany balances (8)
(13) (0.01 ) - (0.09 ) - Non-cash interest expense and amortization
of non-cash issuance costs (8) (14) 0.13 0.12 0.38 0.28 Legal
reserve for the Bostick case (15) - 0.13 - 0.12 Impairment of newly
acquired defective manufacturing equipment (16) - 0.02 - 0.02
Recovery of defective manufacturing equipment previously impaired
(17) (0.02 ) - (0.02 ) - Diluted
earnings per share, as adjusted (18) $ 1.28 $ 1.45 $ 3.81
$ 4.51
(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 $0.9 million and $55.8 million
tax benefit for the three months ended Sept. 30, 2015 and 2014,
respectively; and net of $13.1 million and $76.1 million tax
benefit for the nine months ended Sept. 30, 2015 and 2014,
respectively.
(10) Net of $0.8 million and $1.5 million
tax benefit for the three months ended Sept. 30, 2015 and 2014,
respectively; and net of $4.5 million and $4.8 million tax benefit
for the nine months ended Sept. 30, 2015 and 2014,
respectively.
(11) Net of $3.0 million and $1.8 million
tax benefit for the three months ended Sept. 30, 2015 and 2014,
respectively; and net of $6.4 million and $4.1 million tax benefit
for the nine months ended Sept. 30, 2015 and 2014,
respectively.
(12) Net of $0.3 million and $0.1 million
tax benefit for the three months ended Sept. 30, 2015 and 2014,
respectively; and net of $0.4 million and $0.1 million tax benefit
for the nine months ended Sept. 30, 2015 and 2014,
respectively.
(13) Net of $0.8 million and $0.2 million tax benefit for the three
and nine months ended Sept. 30, 2015, respectively. (14) Relates to
non-cash expense on our convertible notes and prepaid forward share
repurchase contract. (15) Net of $6.2 million tax benefit for the
three and nine months ended Sept. 30, 2014. (16) Net of $0.9
million tax benefit for the three and nine months ended Sept. 30,
2014. (17) Net of $1.1 million tax expense for the three and nine
months ended Sept. 30, 2015. (18) Amounts may not total due to
rounding.
The following is a reconciliation of total long-term debt to net
debt:
9/30/2015 12/31/2014 (in millions) Total
long-term debt (current and long-term portion) $ 1,653.4 $ 1,811.7
Less: Cash and cash equivalents 813.2 645.4 Net debt
$ 840.2 $ 1,166.3
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151103006916/en/
Herbalife Ltd.Media Contact:Julian CacchioliVP, Corporate
Communications213.745.0519orInvestor Contact:Alan QuanVP, Investor
Relations213.745.0541
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