Midday Report: Embattled Herbalife Has Another Healthy Quarter
The nutrition and weight loss supplement company is at the center of a massive battle between several very rich investors. And despite the controversy about the structure of its business, Herbalife continues to churn out great results.
Last night it reported its seventeenth straight quarter with profits that beat Wall Street expectations. Earnings rose 10 percent from a year before to nearly $119 million. Over the last five quarters, its earnings per share have increased by 22 percent, 25 percent, 19.5 percent, 22 percent, and most recently, 44 percent.
So who are Herbalife's critics, and where are they coming from? It started a year ago, on a company call with analysts. Hedge fund manager David Einhorn pointedly questioned Herbalife's business model.
And then late last year, another hedge fund manager, Bill Ackman, took up the cudgel. He called Herbalife a pyramid scheme that generates most of its money from recruiting new salespeople, rather than selling products.
Fast forward to the early part of this year. Two more big money investors entered the fray, this time on Herbalife's side. Dan Loeb took an eight percent stake in the company, and Carl Icahn acquired 13 percent.
All of this has sent Herbalife shares on a wild ride. The stock is up 19 percent so far this year, but down 44 percent from one year ago – a lot of that coming right after Einhorn made his initial accusations (while betting against the company, as The Wall Street Journal reported).
Over the past year, Herbalife stock has traded over a wide range. Shares were above $70 a year ago, and dropped to $24. Today the stock is trading above $39 a share.
So what is Herbalife's business model? It operates a network of 2.7 million independent distributors in 84 countries. They make money by selling the company's products, and by taking a percentage of the sales of people they recruit as salespeople. The company calls it a multilevel marketing system, but adamantly denies that it's a pyramid scheme.
Revenue last quarter – the actual value of goods sold – totaled $1.1 billion dollars, up 17 percent from a year ago.
–Produced by Drew Trachtenberg