Why Herbalife Missed Analysts’ 2Q17 Top-Line Estimate
Sales versus estimate
Herbalife’s (HLF) 2Q17 sales of $1.1 billion were below analysts’ estimate and fell 4.6% on a YoY (year-over-year) basis. The company witnessed volume declines across most of its markets. Meanwhile, negative currency movement pressured its top-line growth. Including the 2Q17 sales decline, the company has marked three consecutive quarters where its top line fell on a YoY basis.
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In comparison, Usana Health Sciences (USNA) also marked a YoY decline in its 2Q17 top line. Sales for Nu Skin Enterprises (NUS) and Vitamin Shoppe (VSI) are also projected to fall in the upcoming quarter.
Herbalife’s regional performance
Herbalife reported sluggish sales in 2Q17 across most of its markets, excluding the EMEA. Volume declines and negative currency movement took a toll on its sales growth rate. Herbalife’s volume points fell 18.5% in the US (SPY), which reflects the business transition impact following the Federal Trade Commission’s agreement. Sales in the region witnessed an 18% decline on a YoY basis. Management expects sales to remain challenged in the near term as business transition efforts continue to impact its volume growth.
Meanwhile, the company’s volume points fell 6% in Mexico, while sales fell 3%—reflecting tough YoY comparables and soft trends. Volume points fell 14% in South and Central America, while sales fell 8%. The company’s volume points rose 2% in the EMEA region, while sales rose 3%.
As expected, sales and volumes remained flat in China (FXI), which reflects the impact of the pull-forward volume growth in 1Q17 due to the company’s announcement of a price increase on April 1. The company’s volume points fell 1% in the Asia-Pacific region. Meanwhile, sales remained flat on a YoY basis. A strong performance in Indonesia and Malaysia was offset by declines in South Korea.
Going forward, management projects its 3Q17 sales to remain flat or fall 5%, which reflects a volume decline of 2%–7%. Continued challenges in the US and softness in key markets including Mexico and Central and South America will continue to have a negative impact on its sales.
For 2017, management lowered its sales guidance. It expects sales to fall 3% or rise 2%—down from its earlier growth range of 0.5%–3.5%. Volume points are expected to remain flat or fall 5% in 2017.