Herbalife Ltd. Announces Record Second Quarter 2013 and Raises 2013 Earnings Guidance

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Herbalife Ltd. Announces Record Second Quarter 2013 and Raises 2013 Earnings Guidance

  • Second quarter worldwide volume growth of 14 percent compared to the prior year period.
  • Second quarter adjusted1EPS of $1.41 increased 29 percent compared to the prior year period.
  • Raising FY'13 adjusted EPS guidance to a range of $4.83 to $4.95.
  • Generated $214 million in operating cash flow during the second quarter
  • Board of directors approved a $0.30 per share quarterly dividend.

LOS ANGELES--(BUSINESS WIRE)-- Herbalife Ltd. (NYS: HLF) today reported second quarter net sales of $1.2 billion, reflecting an increase of 18 percent compared to the same time period in 2012, on volume point growth of 14 percent. Adjusted1 net income for the quarter of $150.7 million, or $1.41 per diluted share, compares to the second quarter 2012 net income of $132.0 million and EPS of $1.09, respectively. On an as reported basis, second quarter 2013 EPS of $1.34 increased 23 percent compared to the $1.09 reported in the comparable quarter last year.


"We reported our fifteenth quarter in a row of double digit top-line growth, reflecting the success that our products and distribution model are having in markets around the world helping to mitigate the adverse effects of the obesity epidemic. The second quarter record results for volume point and net sales were driven by the ongoing engagement of our distributors and consumer demand for our weight loss and nutrition products worldwide," said Michael O. Johnson, Herbalife's chairman and CEO.

For the quarter ended June 30, 2013 the company generated cash flow from operations of $213.8 million, an increase of 56 percent compared to 2012; paid dividends of $30.9 million and invested $31.3 million in capital expenditures.

Second Quarter 2013 Key Metrics2,3

Regional Volume Point and Average Active Sales Leader Metrics

 Volume Points (Mil) Average Active Sales Leaders
Region 2Q'13 Yr/Yr % Chg 2Q'13 Yr/Yr % Chg
North America339.9 11%72,282 10%
Asia Pacific316.91%70,80215%
EMEA179.316%48,00812%
Mexico219.98%62,94013%
South & Central America222.633%54,61430%
China 85.9 49% 14,070 18%
Worldwide Total 1,364.5 14% 311,503 15%
 

Updated 2013 Guidance

Guidance for fully diluted 2013 EPS is based on the average daily exchange rates of the first two weeks of July 2013. Our 2013 guidance continues to assume a Venezuelan exchange rate of 10 to 1 for the balance of the year, excludes the impact of the February devaluation of the bolivar as well as any potential future devaluation, and excludes the impact of any repatriation of existing cash balances in Venezuela. Guidance for the year also excludes the following which were recognized in the first half of the year: $15.1 million in expenses (post-tax), mostly legal and advisory services relating to the Company's response to information put into the marketplace by a short seller which information the Company believes to be inaccurate and misleading, and $2.7 million in expenses (post-tax) incurred for the re-audit of 2010-2012 financial statements resulting from KPMG LLP's resignation, as well as any additional expenses related to these matters that are expected to be incurred in the second half of the year.

Based on current business trends the company's third quarter fiscal 2013 and full year fiscal 2013 guidance is provided below.

Three Months Ending Twelve Months Ending

September 30, 2013

December 31, 2013

Low HighLow High
Volume Point Growth vs 201211.5%13.5%11.5%13.5%
Net Sales Growth vs 201216.5%18.5%16.0%18.0%
Diluted EPS as adjusted$1.09$1.13$4.83$4.95
Cap Ex ($ millions)$40.0$50.0$165.0$185.0
Effective Tax Rate22.5%24.5%24.5%

26.5

%
 

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 August 13, 2013, payable on August 27, 2013.

Second Quarter 2013 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 30, 2013 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 11550232). 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 11550232). The webcast of the teleconference will be archived and available on Herbalife's website.

About Herbalife Ltd.

Herbalife Ltd.  (NYS: 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 over 80 countries through and to 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 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.

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:

• the resignation of our former independent registered public accounting firm, its withdrawal of its audit reports with respect to certain of our historical financial statements, and any difficulties PricewaterhouseCoopers, our successor accounting firm encounters in the re-audits of such relevant historical financial statements or any material modifications to such historical financial statements PricewaterhouseCoopers believes should be made as a result of such re-audits;

• any collateral impact resulting from the ongoing worldwide financial environment, 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, 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 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;

• 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 distributors;

• 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.

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.

RESULTS OF OPERATIONS:

           
Herbalife Ltd. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited and Unreviewed) (1)
          
Three Months EndedSix Months Ended
6/30/2013 

6/30/2012 (2)

 

 

6/30/2013  

6/30/2012 (2)

 
North America$247,564$224,661$469,037$435,372
Mexico145,638119,449278,527236,558
South and Central America222,362152,583441,877318,054
EMEA186,286161,635355,871315,627
Asia Pacific299,240296,548610,986556,496
China 118,149 77,072 186,588 134,016 
Worldwide net sales1,219,2391,031,9482,342,8861,996,123
Cost of Sales 247,224 203,737 473,201 399,881 
Gross Profit972,015828,2111,869,6851,596,242
Royalty Overrides379,551335,195743,580652,728
SGA 400,107 306,310 764,827 602,703 
Operating Income192,357186,706361,278340,811
Interest Expense - net 5,559 3,169 10,932 4,542 
Income before income taxes186,798183,537350,346336,269
Income Taxes 43,636 51,586 88,311 96,387 
Net Income 143,162 131,951 262,035 239,882 
 
Basic Shares102,993116,557103,551116,376
Diluted Shares107,083121,482107,589122,182
 
Basic EPS$1.39$1.13$2.53$2.06 
Diluted EPS$1.34$1.09$2.44$1.96 
 
Dividends declared per share$0.30$0.30$0.60$0.60 
           
 

(1) As a result of the resignation of KPMG, the unaudited interim financial information presented has not been reviewed by an outside independent accounting firm. See Note 2 of the quarterly report on Form 10-Q for the quarter ended June 30, 2013.

(2) As discussed in Note 2 of the quarterly report on Form 10-Q for the quarter ended June 30, 2013, prior year amounts have been revised for income tax errors that were considered not material, individually or in the aggregate, to any of the prior reporting periods.

 

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Herbalife Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)

(Unaudited and Unreviewed) (1)

 
Jun 30, Dec 31,
2013

2012 (2)

 
ASSETS
Current Assets:
Cash & cash equivalents$849,703$333,534
Receivables, net110,790116,139
Inventories331,529339,411
Prepaid expenses and other current assets160,444145,624
Deferred income taxes 51,499  49,339 
Total Current Assets1,503,965984,047
 
Property, plant and equipment, net255,206242,886
Deferred compensation plan assets24,93424,267
Deferred financing cost, net6,1657,462
Other assets47,25048,805
Marketing related intangibles and other intangible assets, net310,993311,186
Goodwill 105,490  105,490 
Total Assets$2,254,003 $1,724,143 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable$77,535$75,209
Royalty overrides235,994243,351
Accrued compensation82,11395,220
Accrued expenses227,468181,523
Current portion of long term debt68,81956,302
Advance sales deposits51,57449,432
Income taxes payable 48,751  61,325 
Total Current Liabilities792,254762,362
 
Non-current liabilities
Long-term debt, net of current portion893,767431,305
Deferred compensation plan liability32,98129,454
Deferred income taxes60,03362,982
Other non-current liabilities 41,349  42,557 
Total Liabilities1,820,3841,328,660
 
Contingencies
 
Shareholders' equity:
Common shares103107
Paid-in capital in excess of par value305,742303,975
Accumulated other comprehensive loss(44,283)(31,695)
Retained earnings 172,057  123,096 
Total Shareholders' Equity 433,619  395,483 
  
Total Liabilities and Shareholders' Equity