Bloomberg News

Herbalife Preliminary Profit Tops Estimates

January 17, 2013

Herbalife Ltd. (HLF:US), the nutrition company that hedge-fund manager Bill Ackman has called a pyramid scheme, posted preliminary fourth-quarter profit that topped analysts’ estimates and said it would resume buying back shares.

Profit in the quarter was $1.02 to $1.05, the Cayman Islands-based company said today in a statement. Analysts projected $1.01, the average of seven estimates (HLF:US) compiled by Bloomberg. Herbalife said Jan. 10 it was likely to “meet or exceed” an October forecast of as much as $1.01 a share.

Herbalife shares have rebounded this year as it fights accusations from Ackman, founder of New York hedge fund Pershing Square Capital Management LP, that it uses inflated pricing, misleading sales information and a complicated incentive structure to hide a pyramid scheme. The company last week held an investor meeting to defend its direct-selling model and said Ackman had grossly mischaracterized its business.

The stock pulled back today, falling (HLF:US) 3.4 percent to $43.52 at the close in New York. The shares have gained 32 percent this year.

The earnings didn’t significantly beat estimates and investors may have expected the company to announce a so-called Dutch Auction instead of resuming its previously announced buyback program, said Tim Ramey, an analyst with D.A. Davidson & Co based in Lake Oswego, Oregon.

In an equities Dutch Auction, the lowest price necessary to sell an entire offering becomes the price at which it is sold. The stock price is gradually lowered until it meets a responsive bid. For corporate repurchases, a range of prices is set by a company within which shareholders are invited to tender their shares for a specific period of time.

Short Sellers

The Dutch Auction would have effectively blocked holders from lending shares to short sellers, Ramey said in a telephone interview.

Ackman said last month that Pershing Square is short more than 20 million shares, which was about 97 percent of the 20.7 million short interest shares outstanding at the time.

Herbalife said full-year profit rose to about $4.02 to $4.05 a share from $3.30 a year earlier. Analysts on average projected $4.03.

On Jan. 14, Herbalife rose 10 percent to the highest price since before Ackman said he had taken a short position in the shares, amid anticipation that the company would announce stock repurchases this week. Through yesterday, the stock had gained 37 percent this year.

To contact the reporters on this story: James Callan in New York at jcallan2@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • HLF
    (Herbalife Ltd)
    • $37.74 USD
    • 0.38
    • 1.01%
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