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

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 America

339.9

11

%

72,282

10

%

Asia Pacific

316.9

1

%

70,802

15

%

EMEA

179.3

16

%

48,008

12

%

Mexico

219.9

8

%

62,940

13

%

South & Central America

222.6

33

%

54,614

30

%

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

High

Low

High

Volume Point Growth vs 2012

11.5

%

13.5

%

11.5

%

13.5

%

Net Sales Growth vs 2012

16.5

%

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 Rate

22.5

%

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 Ended

Six 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

Mexico

145,638

119,449

278,527

236,558

South and Central America

222,362

152,583

441,877

318,054

EMEA

186,286

161,635

355,871

315,627

Asia Pacific

299,240

296,548

610,986

556,496

China

118,149

77,072

186,588

134,016

Worldwide net sales

1,219,239

1,031,948

2,342,886

1,996,123

Cost of Sales

247,224

203,737

473,201

399,881

Gross Profit

972,015

828,211

1,869,685

1,596,242

Royalty Overrides

379,551

335,195

743,580

652,728

SGA

400,107

306,310

764,827

602,703

Operating Income

192,357

186,706

361,278

340,811

Interest Expense - net

5,559

3,169

10,932

4,542

Income before income taxes

186,798

183,537

350,346

336,269

Income Taxes

43,636

51,586

88,311

96,387

Net Income

143,162

131,951

262,035

239,882

Basic Shares

102,993

116,557

103,551

116,376

Diluted Shares

107,083

121,482

107,589

122,182

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.

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, net

110,790

116,139

Inventories

331,529

339,411

Prepaid expenses and other current assets

160,444

145,624

Deferred income taxes

51,499

49,339

Total Current Assets

1,503,965

984,047

Property, plant and equipment, net

255,206

242,886

Deferred compensation plan assets

24,934

24,267

Deferred financing cost, net

6,165

7,462

Other assets

47,250

48,805

Marketing related intangibles and other intangible assets, net

310,993

311,186

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 overrides

235,994

243,351

Accrued compensation

82,113

95,220

Accrued expenses

227,468

181,523

Current portion of long term debt

68,819

56,302

Advance sales deposits

51,574

49,432

Income taxes payable

48,751

61,325

Total Current Liabilities

792,254

762,362

Non-current liabilities

Long-term debt, net of current portion

893,767

431,305

Deferred compensation plan liability

32,981

29,454

Deferred income taxes

60,033

62,982

Other non-current liabilities

41,349

42,557

Total Liabilities

1,820,384

1,328,660

Contingencies

Shareholders' equity:

Common shares

103

107

Paid-in capital in excess of par value

305,742

303,975

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