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Icahn Throws a Monkey Wrench in Ackman’s Herbalife Theory

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Sep. 6 2016, Updated 4:04 p.m. ET

Price movement

Herbalife (HLF) has a market cap of $5.7 billion. It rose by 0.29% to close at $61.35 per share on September 2, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.4%, -9.2%, and 14.4%, respectively, on the same day.

HLF is trading 3.8% below its 20-day moving average, 2.9% below its 50-day moving average, and 6.5% above its 200-day moving average.

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Related ETFs and peers

The PowerShares Dynamic Market Portfolio ETF (PWC) invests 0.55% of its holdings in Herbalife. The ETF tracks a quantity-selected, tier-weighted index covering the entire US equity market. The YTD price movement of PWC was 3.1% on September 2.

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 microcaps.

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

  • GNC Holdings (GNC) — $1.4 billion
  • Nu Skin Enterprises (NUS) — $3.3 billion
  • Archer Daniels Midland Company (ADM) — $25.1 billion

Latest news on Herbalife

In a press release on September 2, 2016, Bloomberg reported, “Carl Icahn, the biggest shareholder in nutrition-supplements company Herbalife Ltd., bought another 306,846 shares of the company this week.”

The release continued, “Icahn paid $60.39 a share for the added stake on Aug. 31, according to a filing Friday, Herbalife closed at $61.35 in New York, giving it a market value of about $5.7 billion.”

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Performance in 2Q16

Herbalife reported 2Q16 net sales of $1.2 billion, a rise of 3.4% over 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, in the quarter. Its sales in Mexico, South and Central America, and the Asia-Pacific region fell by 7.7%, 10.2%, and 1.9%, respectively, between 2Q15 and 2Q16.

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% over 2Q15.

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

Projections

The company has made the following projections for 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.

The company has made the following projections for 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 million–$180 million
  • effective tax rate of 27.5%–29.5%
  • currency adjusted net sales growth of 7%–10%
  • currency adjusted EPS of $5.4–$5.7

The adjusted EPS guidance includes a projected currency headwind of ~$0.90 per share. Next, we’ll look at Sonoco Products (SON).

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