Herbalife Ltd. (HLF:US), the nutrition company that hedge fund manager Bill Ackman has accused of being a pyramid scheme, posted a 10 percent rise in fourth-quarter profit and boosted its forecast as sales gained in China.
Net income increased to $123.5 million, or $1.15 a share, from $112.2 million, or $1, a year earlier, the Cayman Islands-based company said yesterday in a statement. Excluding some items, profit was $1.28 a share, matching the average of three analysts’ estimates compiled by Bloomberg.
Chief Executive Officer Michael Johnson, who earlier this month rewarded shareholders by boosting Herbalife’s buyback, is working to expand sales of vitamins, skin creams and meal-replacement shakes while fending off Ackman’s accusations. Revenue rose 20 percent to $1.27 billion, helped by sales more than doubling in China and climbing 43 percent in South and Central America.
Adjusted profit per share in the current year will be $5.85 to $6.05, reflecting the buyback, up from a previous forecast of $5.45 to $5.65, Herbalife said yesterday. Analysts estimated $5.85, on average.
Herbalife fell 4 percent to $66.18 at the close in New York. The shares have dropped 16 percent this year, compared with a 1.1 percent decline for the Standard & Poor’s 500 Index.
Herbalife Chief Financial Officer John Desimone said yesterday in an interview that the company’s China unit hasn’t been adversely affected by a government probe into allegations of abuses by Nu Skin Enterprises Inc. China plans to tighten rules on how direct-sales companies train staff and introduce products, two people familiar with the matter said earlier this week.
“It’s always our approach to navigate the regulatory landscape in the most appropriate way, so whatever the new rules are, we’ll adapt,” Desimone said. “We don’t even know if they require adapting.”
The company on Feb. 3 increased its share buyback plan by 50 percent to $1.5 billion and announced a sale of $1 billion of convertible bonds. The move came after new auditor PricewaterhouseCoopers LP’s examination of its books gave the company a clean bill of health and cleared the way for additional borrowings.
That may be a boon for Herbalife’s largest investor, Carl Icahn, who maintained his 16.8 percent position in the fourth quarter, and Perry Capital LLC, the ninth-largest investor, which added to its holdings. George Soros’s Soros Fund Management LLC trimmed its stake after the stock climbed by at least 60 percent from when the billionaire’s family office purchased the shares last year.
Meanwhile, Ackman has continued to press his case that the company misrepresents sales figures, misleads distributors about potential earnings and sells a commodity product at inflated prices.
Earlier this month, an advocacy group called the League of United Latin American Citizens met with U.S. Federal Trade Commission Chairwoman Edith Ramirez to describe alleged abuses by Herbalife. The group has said Herbalife deceives Latinos and low-income consumers with false promises of wealth and success. Peter Kaplan, a spokesman for the agency, declined to comment or confirm the meeting’s content.
U.S. Senator Edward Markey, a Massachusetts Democrat, sent letters last month to the U.S. Securities and Exchange Commission and the FTC urging the agencies to look into Herbalife’s business practices.
Herbalife, which operates in more than 80 countries, has repeatedly denied Ackman’s claims.
Pershing Square Capital Management LP, Ackman’s New York-based hedge fund, initially sold short at least 20 million Herbalife shares. He had lost money on the bet as the stock more than doubled in 2013.
Last year, Ackman reduced the equity short position in the company while maintaining his bet through long-term put options. Ackman, who has vowed to crusade against Herbalife “to the end of the Earth,” said last week that he now stands to gain more from Herbalife’s demise than when he started his campaign against it.
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