Consumer Products

Why Herbalife Earnings Didn't Impress Investors

Herbalife Ltd. (NYSE: HLF) reported fourth-quarter and full-year 2016 results after the markets closed Thursday. The nutrition and weight loss company posted adjusted diluted earnings per share (EPS) of $1.00 on revenues of $1.05 billion. In the same period a year ago, Herbalife reported EPS of $1.17 on revenues of $1.1 billion. The consensus estimates called for EPS of $0.97 and $1.05 billion in revenue.

For the full year Herbalife reported adjusted EPS of $4.85 and revenues of $4.49 billion compared with EPS of $4.95 and revenues of $4.47 billion in 2015. Analysts were looking for EPS of $4.84 and revenues of $4.49 billion. Foreign currency exchange rates cost the company $0.95 per share for the full year and $0.11 per share in the fourth quarter.

In a separate press release this afternoon, the company announced that it has reached an agreement in principle to form a joint venture with China’s Tasly Holding Group, a traditional Chinese medicine provider.

CEO Michael Johnson said:

2016 was a dynamic and record-breaking year. Our members continue to successfully build customer-focused businesses, which is evident in our record volume and retention metrics. In addition, our new share buyback authorization is a further testament of our commitment to enhance shareholder value.

Excluding the impact of share buybacks, Herbalife expects first-quarter currency-adjusted EPS in a range of $0.85 to $1.05 and full-year EPS of $4.20 to $4.60. First-quarter sales are forecast down 5% to 9% with full-year sales forecast to rise 2% to 5%. Adjusted for currency effects, Herbalife expects first-quarter sales to decline by 3.2% to 7.2% and full-year sales to drop by 3.6% to 6.6%.

Analysts had forecast first-quarter adjusted EPS at $1.29 on sales of $1.12 billion, essentially flat with the year-ago first quarter. Full-year EPS is forecast at $5.00 and sales are tabbed at $4.55 billion.

The company’s weakish outlook will weigh on the shares more than the slight earnings beat. Investors like to hear better news than declining sales and profits well below consensus estimates.

Herbalife shares closed at $59.40 Thursday in a 52-week trading range of $44.36 to $72.22. Shares are down nearly 2% in after-hours trading at $58.25. The consensus 12-month price target was $72.50 before this afternoon’s report.

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