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Why Herbalife Stock Fell despite Strong 4Q17 Results

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Feb. 23 2018, Updated 1:44 p.m. ET

4Q17 summary

Herbalife (HLF) reported better-than-expected 4Q17 results on February 22, 2018. It exceeded analysts’ expectations for both sales and earnings. The company’s top line returned to growth in 4Q17. However, its stock fell 3.8% during after-hours trading.

Before 4Q17, Herbalife’s sales fell in the previous four quarters, reflecting a weakness in the United States, Mexico, China, and South and Central America. However, improved pricing, favorable currency rates, and strong volumes growth in China and the EMEA (Europe, the Middle East, and Africa) boosted the company’s 4Q17 sales.

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Despite finishing the year on a strong note, Herbalife’s 1Q18 sales are projected to decline, given tough YoY (year-over-year) comparisons in China. In 1Q17, sales in China benefited from pull forward volumes due to the announcement of a price increase. Its US business is expected to report lower sales, reflecting disruptions due to a business transition.

Herbalife’s 4Q17 bottom line gained from lower costs, favorable currency rates, and a lower adjusted tax rate. However, management’s 1Q18 guidance marks a YoY decline as soft sales and near-term margin headwinds are expected to remain a drag.

Herbalife’s stock performance

Herbalife stock made a strong start to the year and outperformed its peers and the S&P 500 Index (SPX-INDEX). The stock has risen 22.8% on a YTD (year-to-date) basis as of February 22, 2018. The stock prices of Nu Skin Enterprises (NUS) and Usana Health Sciences (USNA) rose 4.7 and 3.5%, respectively. Vitamin Shoppe (VSI) stock reported a decrease of 10.2% on a YTD basis, while the S&P 500 has risen 1.1%.

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