- Second quarter adjusted1
EPS of $1.24 per diluted share exceeded guidance of $1.05 -
$1.15; reported EPS of $0.97 per diluted share
- Raises FY’15 adjusted diluted EPS
guidance to a range of $4.50 to $4.70; up from previous range of
$4.30 to $4.60
- Reported worldwide net sales of $1.2
billion declined 11% due to unfavorable impact of currency exchange
rates; net sales excluding currency impact grew 1% compared to
prior year period
- Cash flow from operations of $197.6
million increased 26% compared to prior year period
Herbalife Ltd. (NYSE: HLF) reported second quarter net sales of
$1.2 billion. Local currency net sales grew by 1%, while reported
net sales declined 11% primarily due to the continuing unfavorable
impact of currency exchange rates. Adjusted1 earnings for the
quarter were $1.24 per diluted share compared to $1.55 per diluted
share for the same period in 2014. On a reported basis, second
quarter net income was $82.8 million, or $0.97 per diluted share,
compared to $119.5 million, or $1.31 per diluted share for the same
period in 2014. Second quarter 2015 diluted EPS was negatively
impacted by a $0.412 currency fluctuation.
For the quarter ended June 30, 2015, the company generated
$197.6 million in net operating cash flow, and invested $16.2
million in capital expenditures.
The company is raising its adjusted diluted EPS guidance for the
year to a range of $4.50 to $4.70, from the previous range of $4.30
to $4.60.
Michael Johnson, chairman and CEO, stated, “The second quarter
continued the improving trends we saw in the previous quarter in
terms of sales volumes and key sales leader metrics, and we believe
we will see these positive trends continue through the second half
of the year.”
Johnson continued, “Our Members around the world are more
excited and engaged than ever as we invest in innovative new
products and enhance our marketing and infrastructure to support
their businesses and ensure we are putting customers first in all
we do. We continue to see what we believe is the positive impact of
the changes we implemented and remain confident that we are
creating an even stronger platform for sustainable growth that will
deliver long-term value for our shareholders.”
Second Quarter and 2015 Key
Metrics3,4
Regional Volume Point and Average Active Sales Leader
Metrics
Volume Points (Mil)
Average Active Sales Leaders Region 2Q'15
Yr/Yr % Chg 2Q'15 Yr/Yr % Chg North America 305.4
-9% 75,856 0% Asia Pacific 271.2 -15% 75,051 0% EMEA
228.3 4% 71,221 26% Mexico 219.9 -5% 64,600 0% South & Central
America 173.1 -16% 57,868 -7% China 164.0 38%
23,906 28%
Worldwide Total 1,361.9
-5% 356,357 5%
Regional Net Sales and Foreign Exchange (“FX”) Impact
Reported
Net Sales Growth/Decline Growth/Decline Region
2Q '15 (mil) including FX excluding FX North America
$ 230.0 -8% -8% Asia Pacific (ex. China) $ 239.1 -22% -17% EMEA $
193.8 -15% 8% Mexico $ 129.2 -13% 2% South & Central America $
133.5 -34% 0% China $ 236.7 39% 39%
Worldwide Total $ 1,162.3
-11% 1%
____________________
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.
2015 Outlook
Guidance for the third quarter includes an unfavorable impact
from currency exchange rates of approximately $0.40 per diluted
share, inclusive of approximately $0.13 resulting from Venezuela.
Full year 2015 guidance includes a currency headwind of
approximately $1.40 per diluted share, including approximately
$0.45 from Venezuela.
Based on current business trends the company’s third quarter
2015 and full year 2015 guidance is as follows:
Three Months Ending Twelve Months Ending
September 30, 2015 December 31, 2015
Low
High
Low
High
Volume Point Growth vs 2014 (4.0%) (1.0%) (4.0%) (1.0%) Net Sales
Growth vs 2014 (10.0%) (7.0%) (9.5%) (6.5%) Adjusted Diluted EPS
$1.00 $1.10 $4.50 $4.70 Cap Ex ($ millions) $40.0 $50.0 $110.0
$130.0 Effective Tax Rate 28.5% 30.5% 28.0% 30.0% Currency
Adjusted(a) Net Sales Growth vs 2014 1.0% 4.0% 0.5% 3.5%
Currency Adjusted EPS (a)
$1.40 $1.50 $5.90 $6.10 Free Cash Flow ($ millions) (b) $470.0
$490.0
(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 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 July. With respect to Venezuela, the guidance assumes
a SIMADI rate of 198 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.
Second 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 Wednesday, August 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 74088923). 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 74088923). 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 Six
Months Ended
6/30/2015
6/30/2014
6/30/2015
6/30/2014
North America $ 230.0 $ 250.6 $ 456.7 $ 498.4 Mexico 129.2
148.6 252.8 291.3 South and Central America 133.5 203.3 295.2 448.0
EMEA 193.8 227.3 380.2 438.5 Asia Pacific 239.1 306.3 481.9 586.7
China 236.7 170.1 400.9 305.9 Worldwide
net sales 1,162.3 1,306.2 2,267.7 2,568.8 Cost of Sales (5)
229.3 257.2 444.7 508.3 Gross Profit 933.0
1,049.0 1,823.0 2,060.5 Royalty Overrides 318.7 390.8 641.7 772.5
Selling, General and Administrative Expenses (6) 470.5
461.9 901.9 964.0 Operating Income 143.8 196.3
279.4 324.0 Interest Expense, net 23.7 21.4 45.2 36.4 Other
Expense, net (7) - - 2.3 3.2 Income
before income taxes 120.1 174.9 231.9 284.4 Income Taxes
37.3 55.4 70.9 90.2 Net Income $ 82.8 $ 119.5
$ 161.0 $ 194.2 Basic Shares 82.6 86.1 82.5 90.7 Diluted
Shares 85.2 91.2 84.8 95.9 Basic EPS $ 1.00 $ 1.39 $ 1.95 $
2.14 Diluted EPS $ 0.97 $ 1.31 $ 1.90 $ 2.02 Dividends
declared per share $ - $ - $ - $ 0.30
(5) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended June 30, 2015,
Cost of Sales includes $0.3 million and $1.7 million of inventory
write downs related to Venezuela for the three and six months ended
June 30, 2015, respectively.
(6) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended June 30, 2015,
Selling, General and Administrative Expenses includes $0.3 million
and $32.9 million pre-tax unfavorable impact related to the
remeasurement of Venezuela Bolivar-denominated assets and
liabilities at the SIMADI rate for the three and six months ended
June 30, 2015, respectively; and $0.2 million and $86.3 million
pre-tax unfavorable impact related to the remeasurement of
Venezuela Bolivar-denominated assets and liabilities at the SICAD I
rate for the three and six months ended June 30, 2014.
(7) As discussed in Note 2 of the
quarterly report on Form 10-Q for the quarter ended June 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)
Jun 30, Dec 31,
2015
2014
ASSETS Current Assets: Cash & cash equivalents $ 749.6 $
645.4 Receivables, net 96.5 83.6 Inventories 321.9 377.7 Prepaid
expenses and other current assets 192.6 186.1 Deferred income tax
assets 100.1 100.6 Total Current Assets
1,460.7 1,393.4 Property, net 347.3 366.7 Deferred
compensation plan assets 28.9 27.4 Other assets 147.1 152.8
Deferred financing cost, net 23.8 22.0 Marketing related
intangibles and other intangible assets, net 310.3 310.4 Goodwill
97.0 102.2 Total Assets $ 2,415.1
$ 2,374.9 LIABILITIES AND SHAREHOLDERS'
DEFICIT Current Liabilities: Accounts payable $ 83.5 $ 72.4 Royalty
overrides 232.7 251.0 Accrued compensation 96.4 69.6 Accrued
expenses 262.5 252.1 Current portion of long-term debt 293.5 100.0
Advance sales deposits 98.6 70.0 Income taxes payable 30.3
59.7 Total Current Liabilities 1,097.5 874.8
Non-current liabilities Long-term debt, net of current
portion 1,389.5 1,711.7 Deferred compensation plan liability 44.4
42.9 Deferred income tax liabilities 11.9 15.3 Other non-current
liabilities 68.2 64.6 Total Liabilities
2,611.5 2,709.3 Contingencies Shareholders' deficit:
Common shares 0.1 0.1 Paid-in capital in excess of par value 426.3
409.1 Accumulated other comprehensive loss (118.4 ) (78.2 )
Accumulated deficit (504.4 ) (665.4 ) Total
Shareholders' Deficit (196.4 ) (334.4 )
Total Liabilities and Shareholders' Deficit $ 2,415.1 $
2,374.9
Herbalife Ltd. and Subsidiaries Condensed
Consolidated Statements of Cash Flows (In millions)
(Unaudited)
Six Months Ended
6/30/2015
6/30/2014
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 161.0 $ 194.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 48.0 44.8 Excess tax benefits from
share-based payment arrangements (1.5 ) (6.7 ) Share-based
compensation expenses 23.9 23.4 Non-cash interest expense 25.5 19.0
Deferred income taxes (2.5 ) (7.8 ) Inventory write-downs 17.7 12.4
Foreign exchange transaction (gain) loss (12.3 ) 2.5 Foreign
exchange loss from Venezuela currency devaluation 32.9 86.1
Impairments and write-downs relating to
Venezuela currency devaluation
4.0 3.2 Other 9.3 0.5 Changes in operating assets and liabilities:
Receivables (24.4 ) (1.2 ) Inventories 16.5 (2.4 ) Prepaid expenses
and other current assets 6.4 (50.7 ) Other assets (10.1 ) (4.6 )
Accounts payable 16.8 13.0 Royalty overrides (9.3 ) (12.1 ) Accrued
expenses and accrued compensation 50.1 16.7 Advance sales deposits
31.8 20.9 Income taxes (26.6 ) (8.2 ) Deferred compensation plan
liability 1.5 4.6 NET CASH PROVIDED BY
OPERATING ACTIVITIES 358.7 347.6 CASH
FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and
equipment (39.9 ) (105.5 ) Proceeds from sale of property, plant
and equipment 0.1 - Investments in Venezuelan bonds (0.1 ) (7.6 )
Other 5.6 - NET CASH (USED IN)
INVESTING ACTIVITIES (34.3 ) (113.1 ) 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 (163.8 ) (37.5 )
Issuance costs relating to long-term debt and senior
convertible notes (6.2 ) (28.9 ) Share repurchases (9.1 ) (1,277.9
) Excess tax benefits from share-based payment arrangements 1.5 6.7
Proceeds from exercise of stock options and sale of stock under
employee stock purchase plan 0.9 2.0
NET CASH (USED IN) FINANCING ACTIVITIES (176.7 )
(336.4 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH (43.5 )
(97.6 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 104.2 (199.5
) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 645.4
973.0 CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 749.6 $ 773.5
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 Six Months Ended
6/30/2015 6/30/2014 6/30/2015 6/30/2014
(in millions) Net income, as reported $ 82.8 $ 119.5 $ 161.0
$ 194.2 Remeasurement and impairment losses relating to Venezuela
(8) (9) (0.4 ) 2.6 24.8 69.2 Expenses incurred responding to
attacks on the company's business model (8) (10) 4.8 5.6 7.7 8.9
Expenses related to Regulatory inquiries (8) (11) 3.7 3.1 5.8 3.8
Expenses incurred for the recovery of re-audit fees (8) 0.3 0.4 0.4
0.4 Foreign exchange loss (gain) from Euro/USD exposure on
intercompany balances (8) (12) 3.3 - (6.8 ) -
Non-cash interest expense and amortization
of non-cash issuance costs (8) (13)
11.1 10.2 21.5 16.0 Net
income, as adjusted $ 105.6 $ 141.4 $ 214.4 $ 292.5
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 6/30/2015
6/30/2014 6/30/2015 6/30/2014 Diluted earnings
per share, as reported $ 0.97 $ 1.31 $ 1.90 $ 2.02 Remeasurement
and impairment losses relating to Venezuela (8) (9) - 0.03 0.29
0.72 Expenses incurred responding to attacks on the
company's business model (8) (10) 0.06 0.06 0.09 0.09 Expenses
related to Regulatory inquiries (8) (11) 0.04 0.03 0.07 0.04
Expenses incurred for the recovery of re-audit fees (8) - - - -
Foreign exchange loss (gain) from Euro/USD exposure on
intercompany balances (8) (12) 0.04 - (0.08 ) -
Non-cash interest expense and amortization
of non-cash issuance costs (8) (13)
0.13 0.11 0.25 0.17
Diluted earnings per share, as adjusted (14) $ 1.24 $ 1.55 $
2.53 $ 3.05
(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 $1.0 million tax benefit and
$2.3 million tax expense for the three months ended June 30, 2015
and 2014, respectively; and net of $12.1 million and $20.3 million
tax benefit for the six months ended June 30, 2015 and 2014,
respectively.
(10) Net of $2.3 million and $2.4 million
tax benefit for the three months ended June 30, 2015 and 2014,
respectively; and net of $3.7 million and $3.4 million tax benefit
for the six months ended June 30, 2015 and 2014, respectively.
(11) Net of $2.1 million and $2.0 million
tax benefit for the three months ended June 30, 2015 and 2014,
respectively; and net of $3.4 million and $2.3 million tax benefit
for the six months ended June 30, 2015 and 2014, respectively.
(12) Net of $2.1 million tax benefit and $0.6 million tax expense
for the three and six months ended June 30, 2015, respectively.
(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:
6/30/2015
12/31/2014 (in millions) Total long-term debt (current and
long-term portion) $ 1,683.0 $ 1,811.7 Less: Cash and cash
equivalents 749.6 645.4 Net debt $ 933.4
$ 1,166.3
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150805006486/en/
Herbalife Ltd.Media Contact:Julian CacchioliVP, Corporate
Communications213.745.0519orInvestor Contact:Alan QuanVP, Investor
Relations213.745.0541
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