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How Herbalife’s Earnings Are Looking for 2018

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What could affect Herbalife’s EPS in near term

The declining volumes across the majority of Herbalife’s (HLF) markets have adversely impacted the company’s earnings. Herbalife’s volume points fell across most regions, including the US (SPY), Mexico, and China (FXI).

Pressure on its margins from unfavorable currency rates has also been a drag on HLF’s earnings. Herbalife’s cost of goods sold was affected by the adverse currency rates, which resulted in lower gross margins and lower earnings. Higher interest costs were also a drag.

That said, the company’s focus on strategic sourcing, self-manufacturing, and retail price increases has partially offset the negatives stemming from its volume deleverage and the rise in its cost of goods sold.

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Herbalife’s 4Q17 adjusted earnings are expected to be $0.84–$1.04 per share. This guidance includes a $0.04 benefit from favorable currency fluctuations. But the company’s full-year earnings are projected to fall 5%–9% on a YoY (year-over-year) basis, reflecting weak performance in the first three quarters of the current fiscal year.

Increased promotional events, weakness in China and the US, and the negative impact of the recent earthquakes in Mexico are expected to hurt Herbalife’s margins in the near term.

Peer comparison

Analysts expect Herbalife’s bottom line to mark a fall of ~6% in 2017. By comparison, analysts expect rivals Usana Health Sciences (USNA) and Vitamin Shoppe (VSI) to register YoY declines in their earnings for 2017, though Nu Skin Enterprises (NUS) is expected to report a YoY improvement.

Outlook for 2018

Herbalife’s management expects its earnings to show a recovery in 2018, as margin headwinds are projected to subside and volume points are anticipated to improve across key regions. Herbalife expects its adjusted EPS (earnings per share) to be in the range of $4.60–$5.00 in 2018.

The guidance excludes the impact of the future share buybacks, which could further supplement Herbalife’s bottom-line growth rate.

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