Herbalife Boosts Expectations, Offers $1 Billion in Convertible Notes

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Weight management and nutritional products company Herbalife Ltd. (NYSE: HLF) Monday morning released preliminary fourth-quarter and full-year 2013 results that exceeded consensus estimates. The company also said it plans to offer $1 billion in convertible senior notes due 2019 in a private offering.

Herbalife expects fourth-quarter sales to rise 19.8% compared with fourth quarter 2012 sales of $1.06 billion. That works out to about $1.27 billion, compared with a consensus estimate of $1.22 billion. Adjusted diluted earnings per share (EPS) is now guided to a range of $1.26 to $1.30, versus a consensus estimate of $1.17.

For the full fiscal year, Herbalife now anticipates revenues will rise 18.5% above last year’s total of $4.07 billion. That calculates to a new revenue total of about $4.82 billion, compared with a consensus estimate of $4.78 billion. Full-year EPS is now forecast in a range of $5.35 to $5.39, compared with the analysts’ consensus estimate of $5.26. Herbalife is scheduled to report 2013 results on February 18.

Herbalife did not change its full-year 2014 EPS guidance, currently a range of $5.45 to $5.65, although it expects a 10% negative impact from foreign currency exchange rates. First-quarter EPS is forecast at $1.24 to $1.28, and the company expects a $0.02 per share negative impact from exchange rates. The current consensus full-year EPS estimate is $5.87 and the first quarter EPS estimate is $1.40.

The company also increased its share repurchase authorization to $1.5 billion, up from a previous authorization of $1 billion, of which $653 million was still available. Herbalife said only that it “expects to begin repurchasing shares of Herbalife common stock.”

The $1 billion in senior convertible notes will be placed with Bank of America Merrill Lynch, Credit Suisse, HSBC and Morgan Stanley. The company expects to grant the purchasers an option on an additional $150 million in convertible debt. Herbalife will enter into “prepaid forward share repurchase transactions” with the buyers and expects to enter one or more capped call transactions with one or more of the buyers or other financial institutions. Herbalife plans to use the funds to fund its share buyback program and for working capital and general corporate purposes.

Herbalife shares are up more than 80% in the past 12 months, but a recent letter from Senator Edward Markey seeking an FCC investigation into the company’s operations has chopped about $15 a share from the stock’s 52-week high of $83.51 posted early in January. The stock was up about 130% before Markey’s letter.

Herbalife shares were up about 3.7% in premarket trading Monday, at $64.37 in a 52-week range of $30.84 to $83.51.

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