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Herbalife Posts Mixed 2Q17 Results, Grim Near-Term Outlook

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Part 2
Herbalife Posts Mixed 2Q17 Results, Grim Near-Term Outlook PART 2 OF 4

Analyzing Herbalife’s 2Q17 Earnings Beat

Adjusted EPS versus consensus

Herbalife (HLF) reported better-than-expected 2Q17 bottom-line results after the market closed on August 1, 2017. Herbalife’s adjusted EPS (earnings per share) of $1.51 surpassed analysts’ estimate of $1.12 and rose 17.1%—compared to 2Q16. On a reported basis, Herbalife posted EPS of $1.61 in 2Q17—compared to a loss per share of $0.28 in 2Q16. Notably, Herbalife exceeded analysts’ earnings estimates in the past ten consecutive quarters, as you can see in the following graph.

Analyzing Herbalife’s 2Q17 Earnings Beat

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Factors that drove EPS beat

As we noted above, Herbalife’s bottom line rose 17.1% YoY (year-over-year) despite reporting sluggish sales. The company’s EPS got a considerable boost (about $0.25) from the lower effective tax rate. Besides, a shift in the timing of costs related to marketing and promotions from 2Q to 3Q supplemented the company’s EPS by $0.13. Also, cost savings from the company’s strategic sourcing and self-manufacturing and retail price increases more than offset the negative impact of currency movements.

In comparison, the company’s peer Usana Health Sciences (USNA) reported 2Q17 adjusted EPS of $0.98—lower than analysts’ estimate of $1.15. Meanwhile, analysts expect Nu Skin Enterprises (NUS) and Vitamin Shoppe (VSI) to report a YoY decline in their EPS for 2Q17.

Outlook

Herbalife’s management expects its 3Q17 adjusted EPS to be $0.65–$0.85, which reflects a significant decline compared to EPS of $1.21 in 3Q16. The guidance includes the negative impact of $0.13 and $0.05 from the shift in the timing of expenses from 2Q to 3Q and currency headwinds, respectively. Besides, management thinks that lower sales due to challenges in the major markets will continue to dent its profitability.

For fiscal 2017, management raised its adjusted EPS guidance to $4.30–$4.70. Previously, it expected the EPS to be $4.10–$4.50. The company would benefit from a lower effective tax rate and cost-saving measures. However, lower sales and negative currency movements will continue to be a drag.

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