Bleak near-term outlook
On August 1, Herbalife (HLF) stock fell ~4% in after-hour trading following its mixed 2Q17 results and bleak outlook. The company’s EPS (earnings per share) was ahead of analysts’ estimate and rose on a YoY (year-over-year) basis. However, most of the growth stemmed from a lower effective tax rate and a delay in expenses. Notably, the company’s sales fell again and were short of analysts’ expectations.
Given the soft sales trend and continued volume declines in major markets, Herbalife lowered its 2017 sales guidance. Notably, this is the second consecutive time in the current year that the company reduced its fiscal sales forecasts. In 3Q17, the company will likely be challenged. There’s weakness in the US (SPY) due to business transformation and soft trends in Mexico and Central America, which will likely remain a drag on its top-line growth. Meanwhile, a shift in the timing of marketing and promotion expenses from 2Q to 3Q is expected to hurt the company’s bottom-line results.
The company is focusing on reducing costs through self-manufacturing and strategic sourcing. It’s implementing a price increase, which should help drive EPS growth. However, sales deleverage and currency headwinds will likely take a toll on its performance at least in the near term.
YTD stock movement
Herbalife stock has outperformed its peers in terms of stock price gain. As of August 1, 2017, the company’s stock rose 38.2% on a YTD (year-to-date) basis. Meanwhile, Nu Skin Enterprises (NUS) stock rose 32.1% during the same period. In contrast, Usana Health Sciences (USNA) and Vitamin Shoppe (VSI) stock fell 7.5% and 55.4% on a YTD basis.
Herbalife stock has exceeded the broader index in terms of returns. The S&P 500 Index (SPX) has gained ~10.6% since the beginning of the current year.
Herbalife reported its 2Q17 sales and earnings results on August 1, 2017. We’ll analyze the company’s 2Q17 performance in this series and look at analysts’ current ratings on Herbalife stock.