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Why Did Herbalife Rise by ~10% on July 15?

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Price movement

Herbalife (HLF) has a market cap of $5.5 billion. It rose by 9.9% to close at $65.25 per share on July 15, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 6.9%, 10.2%, and 21.7%, respectively, on the same day. HLF is trading 10.2% above its 20-day moving average, 8.7% above its 50-day moving average, and 16.7% above its 200-day moving average.

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Related ETFs and peers

The PowerShares Dynamic Market Portfolio ETF (PWC) invests 0.51% 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 2.1% on July 15.

The iShares Russell 3000 ETF (IWV) invests 0.02% of its holdings in Herbalife. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps.

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

  • GNC Holdings (GNC)—$1.8 billion
  • Nu Skin Enterprises (NUS)—$2.8 billion
  • Archer Daniels Midland (ADM)—$25.6 billion

Latest news on Herbalife

In a press release on July 15, 2016, Herbalife reported, “Global nutrition company Herbalife (HLF) announced it has reached a settlement agreement with the FTC (Federal Trade Commission) resolving the FTC’s multi-year investigation of the company. The terms of the settlement do not change Herbalife’s business model as a direct selling company and set new standards for the industry.”

Under this agreement, the investigation of Herbalife is complete. It also noted that “Herbalife and the Illinois Attorney also reached a settlement, and the company agreed to pay $3 million as part of this separate agreement.”

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Performance in 1Q16

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

Its net income and EPS (earnings per share) rose to $95.8 million and $1.12, respectively, in 1Q16, as compared to $78.2 million and $0.92, respectively, in 4Q15.

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

Projections

Herbalife made the following projections for 2Q16:

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

The company made the following projections for 2016:

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

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

For ongoing analysis of this sector, please visit Market Realist’s Consumer Discretionary page.

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