Herbalife Plans to Expand Its Business in China

Herbalife (HLF) fell by 3.4% and closed at $64.81 per share during the second week of August 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -3.4%, 9.2%, and 20.9%, respectively, as of August 12. Herbalife is trading 2.4% below its 20-day moving average, 3.9% above its 50-day moving average, and 13.7% above its 200-day moving average.

The PowerShares Dynamic Market Portfolio ETF (PWC) invests 0.55% of its holdings in Herbalife. PWC tracks a quant-selected, tier-weighted index covering the entire US equity market. PWC’s YTD price movement was 2.5% on August 12.

The iShares Russell 3000 ETF (IWV) invests 0.02% of its holdings in Herbalife. IWV 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 peers are as follows:

• GNC Holdings (GNC) – $1.3 billion
• Nu Skin Enterprises (NUS) – $3.3 billion
• Archer Daniels Midland (ADM) – $25.6 billion

China’s Ministry of Commerce approved Herbalife’s operations in the Gansu, Ningxia, and Inner Mongolia provinces. The provinces include three provincial capital cities and 16 districts. China reviewed Herbalife’s current business in the country. The company can start selling activities in these provinces.

Currently, the company operates in 25 other provinces and has 300,000 services providers in China.

Herbalife reported 2Q16 net sales of $1.20 billion—a rise of 3.4% compared to net sales of $1.16 billion in 2Q15. Its sales in North America, EMEA (Europe, the Middle East and Africa), and China rose by 15.9%, 13.0%, and 2.5%, respectively. Its sales in Mexico, South and Central America, and the Asia-Pacific region fell by 7.7%, 10.2%, and 1.9%, respectively, in 2Q16—compared to the same period the previous year.

Its net income and EPS (earnings per share) fell to -$22.9 million and -$0.28, respectively, in 2Q16—compared to $82.8 million and $0.97, respectively, in 2Q15. It reported adjusted EPS of $1.29 in 2Q16—a rise of 4.0% compared to 2Q15.

Herbalife’s cash and cash equivalents rose by 5.3% and its inventories fell by 2.9% in 2Q16—compared to 4Q15. Its current ratio fell to 1.1x in 2Q16—compared to 1.5x in 4Q15.

The company made the following projections for 3Q16 and 2016:

3Q16:

• volume point growth of 5.0%–8.0%
• net sales growth of 2.0%–5.0%
• adjusted EPS of $0.98–$1.08
• capital expenditure of $35.0 million–$45.0 million
• currency adjusted net sales growth of 5.5%–8.5%
• currency adjusted EPS of $1.12–$1.22

The company’s adjusted EPS guidance includes a projected unfavorable impact from currency exchange rates of ~$0.14 per share.

2016

• volume point growth of 4.5%–7.5%
• net sales growth of 1.5%–4.5%
• adjusted EPS of $4.50–$4.80
• capital expenditure of $160.0 million–$180.0 million
• effective tax rate of 27.5%–29.5%
• currency adjusted net sales growth of 7.0%–10.0%
• currency adjusted EPS of $5.40–$5.70

The adjusted EPS guidance includes a projected currency headwind of ~$0.90 per share.

In the next part, we’ll look at Snyder’s-Lance.