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Herbalife Disappoints in 3Q17, Stock Falls

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Herbalife Disappoints in 3Q17, Stock Falls PART 2 OF 4

Here’s Why Herbalife Missed 3Q17 Earnings Estimate

Earnings versus consensus

Herbalife (HLF) reported weaker-than-expected 3Q17 EPS (earnings per share) on Thursday, November 2, 2017. Its adjusted EPS of $0.82 was below analysts’ estimate of $0.88 and fell 33.2% on a YoY (year-over-year) basis. The company missed analysts’ expectation after beating it in the past ten quarters, as you can see in the graph below.

On a reported basis, Herbalife reported EPS of $0.66 compared to $1.01 in the prior year’s quarter.

Here&#8217;s Why Herbalife Missed 3Q17 Earnings Estimate

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Factors that affected EPS

Herbalife’s 3Q17 EPS was affected by volume deleverage and lower gross margins. The company’s volume points fell in several markets, including the United States (SPY), Mexico, and China (FXI). Adverse currency rates impacted the cost of goods sold, resulting in lower gross margins and, in turn, lower EPS.

Expenses related to the company’s promotional events, increased interest costs, and a higher adjusted effective tax rate further dented the company’s profitability in 3Q17.

In comparison, Usana Health Sciences’ (USNA) 3Q17 EPS fell 19.2% YoY, reflecting increased costs and a higher effective tax rate. Nu Skin Enterprises’ (NUS) 3Q17 EPS fell 22.4% YoY due to sales deleverage and higher expenses. Analysts expect Vitamin Shoppe (VSI) to report a significant fall in its bottom line for the upcoming quarter.

Guidance

Herbalife expects its 4Q17 adjusted EPS to be $0.84–$1.04, including the $0.04 benefit from favorable currency rates. The company narrowed its 2017 bottom line guidance range. It now estimates EPS to be $4.42–$4.62. Share repurchases are expected to supplement its 2017 EPS by $0.08.

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