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Why Did Herbalife Fall ~2% on May 25?

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May. 26 2016, Published 11:06 a.m. ET

Price movement of Herbalife

Herbalife (HLF) has a market cap of $5.6 billion. It fell by 2.0% to close at $60.71 per share on May 25, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.1%, 1.3%, and 13.2%, respectively, on the same day. This means that HLF is trading 0.56% above its 20-day moving average, 0.64% above its 50-day moving average, and 9.5% above its 200-day moving average.

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Related ETF and peers

The PowerShares Dynamic Market Portfolio ETF (PWC) invests 0.43% of its holdings in Herbalife. The ETF tracks a quant-selected, tier-weighted index covering the entire US equity market. The YTD price movement of PWC was -2.2% as of May 25, 2016.

The market caps of Herbalife’s competitors are as follows:

  • GNC Holdings (GNC) — $1.9 billion
  • Nu Skin Enterprises (NUS) — $2.2 billion
  • Archer-Daniels-Midland Company (ADM) — $25.3 billion

Herbalife’s talks with the FTC

Herbalife fell by 2.0% on May 25, 2016, after the announcement from CNBC that the discussion between Herbalife and the Federal Trade Commission is ongoing, and several issues still need to be discussed. On May 24, 2016, the company rose ~4% after news came out that the issues were preliminarily settled.

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Performance of Herbalife in 1Q16

Herbalife reported fiscal 1Q16 net sales of $1.12 billion, a rise of 1.3% compared to net sales of $1.10 billion in fiscal 4Q15. The company’s gross profit margin and operating income rose by 0.50% and 24.1%, respectively, in fiscal 1Q16 compared to fiscal 1Q15.

The company’s net income and EPS (earnings per share) rose to $95.8 million and $1.12, respectively, in fiscal 1Q16, compared to $78.2 million and $0.92, respectively, in fiscal 4Q15.

Herbalife’s cash and cash equivalents fell by 13.0%, and its inventories rose by 1.4% in fiscal 1Q16 compared to fiscal 4Q15. Its current ratio fell to 1.2x in fiscal 1Q16 compared to 1.5x in fiscal 4Q15.

Projections

Herbalife has made the following projections for fiscal 2Q16:

  • volume point growth: 1.5%–4.5%
  • net sales growth: 0.0%–3.0%
  • adjusted EPS: $1.10–$1.20
  • capital expenditure: $65.0 million–$75.0 million
  • currency adjusted net sales growth: 5.5%–8.5%
  • currency adjusted EPS: $1.30–$1.40

The company has made the following projections for fiscal 2016:

  • volume point growth: 2.0%–5.0%
  • net sales growth: 1.5%–4.5%
  • adjusted EPS: $4.40–$4.75
  • capital expenditure: $145.0 million–$175.0 million
  • effective tax rate: 28.0%–30.0%
  • currency adjusted net sales growth: 6.0%–9.0%
  • currency adjusted EPS: $5.10–$5.45

The guidance for currency-adjusted net sales growth and EPS exclude the impact of price increases in its Venezuela operations tied to foreign exchange movements.

Now let’s take a look at Hormel Foods.

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