uploads///HLF Sales

Do Herbalife’s Fundamentals Support Its Stock Gain?


Aug. 23 2017, Updated 9:07 a.m. ET

Bleak prospects

In the previous part of this series, we saw that Herbalife (HLF) stock has risen more than 41.0% on a YTD (year-to-date) basis. However, the company’s weakening fundamentals paint a grim outlook. Herbalife is witnessing lower volumes in key markets, which in turn are affecting its sales growth rate. The company has posted three consecutive quarters of declining sales.

Sales are projected to remain low since the company’s challenges are not likely to abate in the near term. The negative impact of business transformation in the United States (SPY) following the Federal Trade Commission’s agreement, soft trends in Mexico and Central America, and weakening volumes in China (FXI) are expected to remain a drag.

Herbalife has lowered its fiscal 2017 sales twice, while the bottom line is driven by a lower effective tax rate, which isn’t a good sign for the company.

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Digging more deeply

Herbalife posted sluggish sales across most of its markets during the last reported quarter. Lower volume declines and currency headwinds took a toll on its top-line growth rate. The company’s volume points decreased 18.5% in the United States and fell 14.0% in South and Central America. In China, volumes remained flat. Volumes fell 1.0% in the Asia-Pacific region.

Management expects 3Q17 sales to remain flat or fall 5.0% due to an anticipated decline in volumes. Moreover, it now projects sales to either fall 3.0% or rise 2.0% in 2017. In 3Q17, EPS (earnings per share) is expected to fall compared to the prior year since lower sales will negatively impact its profitability.

However, 2017 EPS is expected to benefit from a lower tax rate and is projected to be in the range of $4.30–$4.70.


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