Herbalife Net Turn A Profit Preview
This is a Herbalife earnings preview. I am an (extreme) bull on this stock - but I volition attempt to province it equally neutrally equally possible. If the bears wishing to comment that is fine.
The FTC inquiry
The thing that matters for Herbalife stock (for both bulls together with bears) is non "earnings": it is the province of the Federal Trade Commission enquiry into the company.
There is no assurance that the results of an FTC enquiry volition come upward amongst earnings nevertheless the run a peril of an FTC resultant inward the medium term is high. [The society has indicated small town is close together with they late settled a real similar flat activity case.]
The FTC enquiry has a make of outcomes from ordering the society to close, to a fine addition imposed changes inward occupation concern practise to doing nothing.
Given marketplace expectations a a fine together with compliance changes consistent amongst the changes that the society has seat inward house (and agreed to equally role of the flat activity settlement) would live a substantial victory for Herbalife bulls.
Contra: a fine greater than $100 i 1000 one thousand together with highly restrictive occupation concern atmospheric condition would live a real large loss for the society together with shutting downwards the U.S.A. of America operations of the society would live catastrophic.
If the society were to live closed bespeak well-nigh earnings would live silly. "Apart from that Mrs Lincoln how did you lot bask the play?"
Herbalife is an event-driven stock.
The residuum of this postal service is based on the supposition that Herbalife eventually clears the FTC enquiry amongst minimal damage. It exclusively makes feel to verbalize well-nigh earnings on that basis. The shorts I verbalize to are convinced the FTC volition closed Herbalife.
Shorts hollo back at that topographic point is no dot inward this post. There ain't no dot talking well-nigh the company's earnings ability when the bullet has already passed through the brain.
Volume increment past times region
Herbalife has grown VOLUMES inward almost every part inward almost every quarter for a real long time. This volume increment slowed inward the terminal quarter. The slowing volume increment was a large disappointment to some longs (including me).
Most longs are far more interested inward volume increment than inward actual profits. It is the quondam saw: turn a profit increment is practiced volume increment is better. If volume is growing the considerable dissonance inward this quarter (Venezuela, legal costs associated amongst defending the flat action, small town provisions) volition teach away. And the turn a profit volition grow inward the future. If volume increment is higher than the discount charge per unit of measurement (say higher than 8 percent) it is almost impossible to model what Herbalife is genuinely worth inward a DCF model. With high volume increment you lot tin give the sack plausibly brand the instance that Herbalife is worth a real large cost to earnings multiple. You take away hold to value it equally a increment stock.
By contrast if volume is shrinking together with so it volition deserve a depression price-to-earnings multiple regardless of electrical flow earnings.
Fortunately for Herbalife volume increment has been practiced for many years (roughly coinciding amongst the arrival of Michael Johnson equally CEO). The increment was soundless practiced terminal quarter albeit markedly slower together with if the slow-down continues it isn't practiced for longs.
This is easily seen past times looking at the information on VOLUME POINTS past times quarter. Influenza A virus subtype H5N1 volume dot is a stair out of how much Herbalife production is sold. The volume points decide remuneration of the sales forcefulness together with their Definition has non changed. Volume points are thence a real practiced stair out of volume.
Below I am going to cutting together with glue volume points from the results for the terminal twelve quarters. This volition demo the nature of the slowdown inward the terminal quarter.
2011Q3
Here is the table from the report
Regional Volume Point and Average Active Sales Leader Metrics
These rates are absurdly good. Volume increment is high inward every part except mainland People's Republic of China (where the base of operations was tiny). The increment charge per unit of measurement inward mature regions (North America, Mexico) grew at 12.2 together with 23.5 per centum respectively. Growth was faster inward emerging markets.
2011Q4
The society gave twelvemonth on twelvemonth together with quarter on quarter volume increment statistics inward the press release. Here is the quarter on quarter:
These are soundless astounding numbers but you lot volition notice that increment inward North America accelerated somewhat together with increment inward United Mexican States slowed somewhat.
2012Q1
Here are the quarterly numbers from the first quarter of 2012:
Regional Volume Point and Average Active Sales Leader Metrics
The aggregate increment charge per unit of measurement has genuinely risen together with at i time mainland People's Republic of China is meaningful. There was also a massive acceleration inward North America growth.
By this phase you lot should realize that increment rates inward private regions is volatile. Also the increment charge per unit of measurement (24 percent) defies conventional discounted cash catamenia analysis.
2012Q2
Here is 2012Q2 -
Regional Volume Point and Average Active Sales Leader Metrics
Now mainland People's Republic of China has taken off - increment a torrid 51 percent. But North American increment has shrunk to a mere eighteen percent. The aggregate increment charge per unit of measurement soundless sits inward the 23-24 per centum range.
2012Q3
The third quarter of 2012 has the source meaningful slowdown inward growth.
Regional Volume Point and Average Active Sales Leader Metric
Volume increment is only 17 percent. North America is dorsum at xiv per centum having been equally high equally 23 percent.
2012Q4
The Bill Ackman laid on on Herbalife was precisely earlier Christmas inward the dying days of this quarter. If Ackman was going to impact sales it was non probable to live meaningful this quarter.
Regional Volume Point and Average Active Sales Leader Metrics
The increment charge per unit of measurement globally pipped upward from 17 per centum to eighteen percent. Growth inward mainland People's Republic of China dropped from 42 per centum to 17 percent. South together with Central America went ballistic growing at 34 percent.
2013Q1
This was the source total quarter afterward Bill Ackman's attack. If at that topographic point was going to live a slowdown you lot would run into it here. Moreover you lot would likely run into it inward North America because Bill Ackman is far higher profile at that topographic point than elsewhere. I dubiety many Herbalife consumers inward Brazil take away hold heard of him.
Regional Volume Point and Average Active Sales Leader Metrics
And yep - you lot tin give the sack run into it a little. The North American increment charge per unit of measurement had slowed to three per centum together with (at thirteen percent) this was genuinely the slowest increment globally recorded inward this sequence.
United Mexican States - which is the best marketplace of all for Herbalife - has slowed to a mere 8 per centum volume growth.
2013Q2
At the terminate of the source quarter Herbalife implemented several of import changes inward role inward answer to Bill Ackman. The most of import of these is that they banned Pb selling together with kicked the Pb sellers out of the organization. The Herbalife distributor who was the source of Bill Ackman's nastiest examples (Shawn Dahl) moved to some other distributor of diet shakes.
The society suggested that this would take away hold a depression single-digit negative number on sales. Essentially they argued Bill Ackman's examples came from a little minority tagged onto a gigantic together with effective selling machine.
Here are the results:
Regional Volume Point and Average Active Sales Leader Metrics
If the Ackman laid on together with the removal of the nasty lead-selling distributors has caused a work you lot can't genuinely run into it inward North American sales (11 per centum growth). mainland People's Republic of China had taken off again.
2013Q3
This quarter was interesting - but i time to a greater extent than the work was non North America.
Regional Volume Point and Average Active Sales Leader Metrics
An Ackman number is non plainly present. The U.S.A. of America increment charge per unit of measurement is a real prissy ix per centum - slightly slower than the instant quarter.
mainland People's Republic of China took off producing a rip-snorting 71 per centum growth.
The Asia Pacific part printed a minus three per centum number. This is the source negative number reported - together with it took me some fourth dimension to operate out what went wrong. The master copy ground appeared to live the province caput inward Malaysia leaving for a competitor together with stealing the customer listing equally he went out the door.
Still the increment charge per unit of measurement for the society was soundless at thirteen per centum - a charge per unit of measurement most companies would envy - but clearly a slower increment charge per unit of measurement than inward 2011-12.
2013Q4
The quaternary quarter of 2014 was a continuation of the tertiary quarter but on steroids:
Regional Volume Point and Average Active Sales Leader Metrics
Global increment remained at thirteen per centum - but Asia Pacific was at i time minus 4 percent, North America slowed a petty together with mainland People's Republic of China was a rip-snorting 103 percent.
2014Q1
The source quarter of 2014 showed the slowest increment always - but soundless inside guidance. Here are the numbers:
Regional Volume Point and Average Active Sales Leader Metrics
By at i time Asia Pacific looks outright bad - minus vi percent. North America (the house where Ackman volition take away hold had most affect) is soundless fine at ix percent. mainland People's Republic of China is outrageous - at 91 per centum - albeit downwards from 103 per centum inward the previous quarter.
But the global increment charge per unit of measurement at ix per centum represents a slowing. It didn't thrill the longs.
Herbalife equally a increment stock of the highest quality
Growth hither is lumpy but almost no companies curt of Facebook, Twitter etc grow similar this. This is a increment charge per unit of measurement associated amongst the highest value silicon value companies.
The disconnect betwixt longs together with shorts inward Herbalife was extreme. As a bull I regarded Herbalife equally i of the highest character increment stocks I had always seen - deserving of a premium multiple.
Shorts run into a criminal conspiracy.
For dozens of quarters inward a row Herbalife trounce its earnings guidance together with raised guidance again. They tended to low-ball guidance but amongst increment similar this it was possible to heighten guidance sharply almost every quarter.
Stocks amongst this variety of tape merchandise at twoscore addition times earnings non nether 10 times earnings. The upside was enormous...
And together with so came the instant quarter. Herbalife trounce earnings (no surprise there) BUT THEY DID NOT RAISE EARNINGS GUIDANCE.
As a long I was disappointed.
Here are the volume dot numbers for the instant quarter of 2014.
five per centum volume increment is something that most companies would kill for - but for Herbalife - which has been a increment stock of the highest character - it was disappointing.
Worse - genuinely practiced markets similar South America had seemingly fallen off a cliff. The minus vii per centum inward South America was ugly - past times far the worst looking resultant recorded since the (seeming) miracle worker Michael Johnson became CEO.
North America also shrunk suggesting that the Ackman laid on was biting. And increment inward mainland People's Republic of China was simply rapid rather than blisteringly fast.
The stock has been weak always since.
It is this slowdown (or a possible reversal of it) which - exterior a resultant from the FTC - is what longs volition most live looking for.
And bluntly - if the increment charge per unit of measurement were to accelerate i time to a greater extent than (say to 8-9 percent) together with the FTC were to clear the society - the society should live valued equally a super-premium increment stock. [$6.70 earnings per part times thirty = $200 per part does non seem unreasonable.]
However if the increment charge per unit of measurement continues to decelerate (say to three per centum per share) together with so a xiv times earnings - say $6.30 times xiv = $88.20 - seems reasonable.
The make of "fair values"
The make of "fair values" for this stock is enormous.
If the FTC closes them the fair value is something closed to zero.
If the FTC clears them together with the increment charge per unit of measurement decelerates together with so the fair value is say $80 per share. This would live a prissy upswing on the stock - but it would exclusively take away hold us dorsum to the 52 calendar week high - together with that was afterward Ackman was shown to live wrong.
If the FTC clears them together with the increment accelerates together with so fair value is plausibly somewhere well-nigh $200 per share. Longs similar me would live cheering. Shorts would live brutalized. Pershing Square would move - but Bill Ackman would non aspect great.
To say this is an interesting earnings statement is understating it.
---
Good increment together with bad increment - Venezuela
Amid all this increment the short-sellers take away hold made a huge bargain well-nigh the sales inward a unmarried country: Venezuela.
The work is simple. If you lot ship production to Venezuela you lot can't teach paid. Its worse than that fifty-fifty - if you lot ship production to Venezuela you lot may take away hold to pay a non-Venezuelan upline U.S.A. of America dollars against Bolivar that you lot can't convert to U.S.A. of America dollars together with can't repatriate.
Sending production to Venezuela is bad news.
Now it is bad word that is grotesquely overstated. Herbalife has been growing similar a weed inward many countries where it tin give the sack repatriate money. However it is bad word nonetheless.
There are a few underlying issues:
(a). Venezuela - absent currency controls - would live an absolutely natural marketplace society for a society selling weight loss solutions. Venezuelans are beauty obsessed. It is a darn compassion for the society that i of their best markets has imploded through no error of their own. Because Herbalife is naturally potent inward Venezuela many of the top-level distributors throughout South America are of Venezuelan origin. I take away hold met a few.
(b). It is real difficult for a multi-level-marketing society to halt supplying people. There are tens of 1000 of people who take away hold built businesses roughly Herbalife inward Venezuela. If Herbalife were to halt supplying them their businesses would collapse. Herbalife has long viewed maintaining a practiced human relationship amongst their suppliers equally an ethical priority. This is a partnership. They believe that it is deeply unethical to destroy people's occupation concern together with closed off render if something similar currency command is temporary. [Incidentally I handgrip amongst the society here. Time together with i time to a greater extent than I take away hold flora this society to live highly ethical inward straight contradiction to the curt thesis together with inward contradiction to my original belief.]
(c). Against this equally Venezuela's currency controls made it profitable to purchase Herbalife inward Bolivar, collect the upline payments inward U.S.A. of America dollars together with truck the production to some other South American province to sell.
Until real late Herbalife shipped a lot of production to Venezuela together with bore the losses. Herbalife sales - according to the conference telephone phone - fell twoscore per centum inward Venezuela terminal quarter. This was the mass of but non the entire ground for the vii per centum negative impress inward Central together with South American volumes terminal quarter.
I promise that Herbalife publishes Central together with South America including together with non including Venezuela so nosotros tin give the sack run into the existent character sales increment separated from the Venezuelan disaster.
The other number inward South America is that Brazil is (I think) the biggest South American market. Trying to sell diet products during the World Cup looks rather tricky. That number should contrary this quarter. Net of Venezuela I aspect practiced South American increment this quarter.
Venezuela volition also campaign considerable dissonance inward the earnings because Herbalife has considerable currency stuck at that topographic point - unable to live repatriated - together with the Bolivar is collapsing. They volition likely take away hold to take away hold a charge.
If Venezuelan sales move along to autumn equally per higher upward this is non a major recurring issue.
--
Revenue
Volume increment is the genuinely of import issue. Volume increment volition interpret to revenue over fourth dimension - nevertheless this quarter it volition non live equally practiced equally usual. The U.S.A. of America dollar has been potent - together with prices conform amongst a trail.
As a resultant I hollo back that revenue increment volition live slightly weaker than volume growth. Dispassionately I hollo back you lot should aspect through this. Volume (and the FTC) is what volition decide value inward the end.
Still over the years the volume increment has resulted inward massive revenue growth. Here - so you lot tin give the sack appreciate it inward its glorious special - is the quarterly revenue increment since 2003. There are VERY few companies this good.
I aspect yet some other tape quarter. Herbalife is a increment stock of the highest character together with afterward the FTC matters settle should live repriced equally such.
----
Other one-off charges
Herbalife's results are going to live total of one-off charges. The lawyer bills for (and perhaps the small town of) the flat activity volition live expensed inward this quarter.
Considerable legal bills associated amongst the FTC enquiry volition also live at that topographic point - together with those volition also teach away.
Venezuela mightiness live a moderately large number - but equally long equally sales at that topographic point are sharply declining I suspect you lot should ignore that too.
Herbalife volition postal service "adjusted" earnings adding dorsum these charges. As these issues are temporary this is i society where I hollo back the non-GAAP number is the i you lot should hold your oculus on. [You tin give the sack take away how to caveat the Venezuela numbers...]
Share count
Herbalife is - on the accounts - a fantastic society - it has a WAY higher than marketplace increment rate, together with buys dorsum stock extremely aggressively. It has done so earlier Bill Ackman came along together with it accelerated the purchase dorsum afterward Bill Ackman.
Given the huge increment charge per unit of measurement together with how inexpensive the stock is if (when) the FTC number goes away every onf these buy-backs is massively value-adding. The part count has since Mr Ackman turned upward dropped from well-nigh 106 i 1000 one thousand to the mid 80s. The part count is something bulls volition live watching sharply.
Summary
The make of outcomes are equally large for this society equally whatsoever I take away hold always seen. Influenza A virus subtype H5N1 bad outcome at the FTC would homecoming the stock close worthless.
Influenza A virus subtype H5N1 re-acceleration of increment together with FTC clearance would homecoming fair value greater than $200.
I take away hold spent a lot of fourth dimension looking inward special at this society together with contrary to my prior expectations I take away hold flora the society to live consistently ethical - fifty-fifty to the detriment of short-term profits. I promise afterward examining the testify that the FTC comes to the same determination together with fines for (real) past times indiscretions are minor. Venezuela - which shorts take away hold turned into some monstrosity key to their thesis - is a practiced example. It is (a) nestling together with (b) a house where the society has been losing money past times behaving ethically.
The $200 a part fair value afterward a practiced FTC outcome together with re-acceleration of increment is earlier whatsoever short-squeeze. Short squeezes commonly take away hold stocks to values way higher than intrinsic value. I take away hold placed my bets - many take away hold placed their bets the opposite way.
It volition live fun to watch.
John
The FTC inquiry
The thing that matters for Herbalife stock (for both bulls together with bears) is non "earnings": it is the province of the Federal Trade Commission enquiry into the company.
There is no assurance that the results of an FTC enquiry volition come upward amongst earnings nevertheless the run a peril of an FTC resultant inward the medium term is high. [The society has indicated small town is close together with they late settled a real similar flat activity case.]
The FTC enquiry has a make of outcomes from ordering the society to close, to a fine addition imposed changes inward occupation concern practise to doing nothing.
Given marketplace expectations a a fine together with compliance changes consistent amongst the changes that the society has seat inward house (and agreed to equally role of the flat activity settlement) would live a substantial victory for Herbalife bulls.
Contra: a fine greater than $100 i 1000 one thousand together with highly restrictive occupation concern atmospheric condition would live a real large loss for the society together with shutting downwards the U.S.A. of America operations of the society would live catastrophic.
If the society were to live closed bespeak well-nigh earnings would live silly. "Apart from that Mrs Lincoln how did you lot bask the play?"
Herbalife is an event-driven stock.
The residuum of this postal service is based on the supposition that Herbalife eventually clears the FTC enquiry amongst minimal damage. It exclusively makes feel to verbalize well-nigh earnings on that basis. The shorts I verbalize to are convinced the FTC volition closed Herbalife.
Shorts hollo back at that topographic point is no dot inward this post. There ain't no dot talking well-nigh the company's earnings ability when the bullet has already passed through the brain.
Volume increment past times region
Herbalife has grown VOLUMES inward almost every part inward almost every quarter for a real long time. This volume increment slowed inward the terminal quarter. The slowing volume increment was a large disappointment to some longs (including me).
Most longs are far more interested inward volume increment than inward actual profits. It is the quondam saw: turn a profit increment is practiced volume increment is better. If volume is growing the considerable dissonance inward this quarter (Venezuela, legal costs associated amongst defending the flat action, small town provisions) volition teach away. And the turn a profit volition grow inward the future. If volume increment is higher than the discount charge per unit of measurement (say higher than 8 percent) it is almost impossible to model what Herbalife is genuinely worth inward a DCF model. With high volume increment you lot tin give the sack plausibly brand the instance that Herbalife is worth a real large cost to earnings multiple. You take away hold to value it equally a increment stock.
By contrast if volume is shrinking together with so it volition deserve a depression price-to-earnings multiple regardless of electrical flow earnings.
Fortunately for Herbalife volume increment has been practiced for many years (roughly coinciding amongst the arrival of Michael Johnson equally CEO). The increment was soundless practiced terminal quarter albeit markedly slower together with if the slow-down continues it isn't practiced for longs.
This is easily seen past times looking at the information on VOLUME POINTS past times quarter. Influenza A virus subtype H5N1 volume dot is a stair out of how much Herbalife production is sold. The volume points decide remuneration of the sales forcefulness together with their Definition has non changed. Volume points are thence a real practiced stair out of volume.
Below I am going to cutting together with glue volume points from the results for the terminal twelve quarters. This volition demo the nature of the slowdown inward the terminal quarter.
2011Q3
Here is the table from the report
Third Quarter 2011 Regional Key Metrics 2,3,4
| Volume Points (Mil) | Average Active Sales Leaders | |||||||||
| Region | 3Q'11 | Yr/Yr % Chg | 3Q'11 | Yr/Yr % Chg | ||||||
| 252.9 | 12.2 | % | 58,897 | 15.3 | % | |||||
| 261.2 | 36.2 | % | 51,644 | 38.5 | % | |||||
| EMEA | 132.4 | 15.8 | % | 39,227 | 16.7 | % | ||||
| 180.6 | 23.5 | % | 49,772 | 25.9 | % | |||||
| South & | 149.7 | 39.5 | % | 35,993 | 21.8 | % | ||||
| 40.3 | 2.3 | % | 9,533 | 26.3 | % | |||||
| Worldwide Total | 1017.1 | 23.4 | % | 236,191 | 23.6 | % | ||||
| Volume Points (Mil) | Average Active Sales Leaders | |||||||||
| 3Q'11 | Yr/Yr % Chg | 3Q'11 | Yr/Yr % Chg | |||||||
| Emerging Markets | 544.5 | 26.9 | % | 134,467 | 26.4 | % | ||||
| Established Markets | 472.6 | 19.5 | % | 109,339 | 19.3 | % | ||||
| Worldwide Total | 1017.1 | 23.4 | % | 236,191 | 23.6 | % | ||||
These rates are absurdly good. Volume increment is high inward every part except mainland People's Republic of China (where the base of operations was tiny). The increment charge per unit of measurement inward mature regions (North America, Mexico) grew at 12.2 together with 23.5 per centum respectively. Growth was faster inward emerging markets.
2011Q4
The society gave twelvemonth on twelvemonth together with quarter on quarter volume increment statistics inward the press release. Here is the quarter on quarter:
| Volume Points (Mil) | Average Active Sales Leaders | |||||||||
| Yr/Yr % | ||||||||||
| Region | 4Q'11 | Chg | 4Q'11 | Yr/Yr % Chg | ||||||
| 232.1 | 16 | % | 59,599 | 16 | % | |||||
| 257.9 | 37 | % | 55,124 | 39 | % | |||||
| EMEA | 137.7 | 10 | % | 41,618 | 17 | % | ||||
| 185.4 | 20 | % | 52,172 | 26 | % | |||||
| South & | 166.0 | 35 | % | 39,724 | 27 | % | ||||
| 43.1 | 13 | % | 10,077 | 28 | % | |||||
| Worldwide Total | 1,022.2 | 23 | % | 249,779 | 24 | % | ||||
| Volume Points (Mil) | Average Active Sales Leaders | |||||||||
| Yr/Yr % | ||||||||||
| 4Q'11 | Chg | 4Q'11 | Yr/Yr % Chg | |||||||
| Emerging Markets | 574.0 | 26 | % | 143,997 | 29 | % | ||||
| Established Markets | 448.2 | 20 | % | 112,792 | 20 | % | ||||
| Worldwide Total | 1,022.2 | 23 | % | 249,779 | 24 | % | ||||
2012Q1
Here are the quarterly numbers from the first quarter of 2012:
| Volume Points (Mil) | Average Active Sales Leaders | ||||||||
| Region | 1Q'12 | Yr/Yr % Chg | 1Q'12 | Yr/Yr % Chg | |||||
| 298.4 | 23 | % | 62,532 | 19 | % | ||||
| 273.8 | 38 | % | 55,706 | 38 | % | ||||
| EMEA | 145.9 | 6 | % | 41,332 | 15 | % | |||
| 191.4 | 16 | % | 52,674 | 24 | % | ||||
| South & | 164.7 | 32 | % | 40,614 | 31 | % | |||
| 40.9 | 25 | % | 9,531 | 31 | % | ||||
| Worldwide Total | 1,115.1 | 24 | % | 252,321 | 23 | % | |||
By this phase you lot should realize that increment rates inward private regions is volatile. Also the increment charge per unit of measurement (24 percent) defies conventional discounted cash catamenia analysis.
2012Q2
Here is 2012Q2 -
Second Quarter Regional Key Metrics1,2
| Volume Points (Mil) | Average Active Sales Leaders | ||||||||||||||||||||||
| Region | 2Q'12 | Yr/Yr % Chg | 2Q'12 | Yr/Yr % Chg | |||||||||||||||||||
| 305.0 | 18 | % | 65,828 | 18 | % | ||||||||||||||||||
| 313.8 | 29 | % | 61,329 | 35 | % | ||||||||||||||||||
| EMEA | 154.5 | 13 | % | 42,972 | 14 | % | |||||||||||||||||
| 203.9 | 17 | % | 55,969 | 21 | % | ||||||||||||||||||
| South & | 167.2 | 30 | % | 41,966 | 27 | % | |||||||||||||||||
| 57.7 | 54 | % | 11,949 | 43 | % | ||||||||||||||||||
| Worldwide Total | 1,202.1 | 23 | % | 269,974 | 24 | % | |||||||||||||||||
2012Q3
The third quarter of 2012 has the source meaningful slowdown inward growth.
Third Quarter Regional Key Metrics1,2
| Volume Points (Mil) | Average Active Sales Leaders | ||||||
| Region | 3Q'12 | Yr/Yr % Chg | 3Q'12 | Yr/Yr % Chg | |||
| 287.4 | 14 | % | 67,826 | 15 | % | ||
| 305.6 | 17 | % | 66,433 | 29 | % | ||
| EMEA | 145.5 | 10 | % | 44,861 | 14 | % | |
| 211.2 | 17 | % | 60,123 | 21 | % | ||
| South & | 186.0 | 24 | % | 46,466 | 29 | % | |
| 57.1 | 42 | % | 12,692 | 33 | % | ||
| Worldwide Total | 1,192.8 | 17 | % | 288,397 | 22 | % | |
Volume increment is only 17 percent. North America is dorsum at xiv per centum having been equally high equally 23 percent.
2012Q4
The Bill Ackman laid on on Herbalife was precisely earlier Christmas inward the dying days of this quarter. If Ackman was going to impact sales it was non probable to live meaningful this quarter.
| Volume Points (Mil) | Average Active Sales Leaders | ||||||
| Region | 4Q'12 | Yr/Yr % Chg | 4Q'12 | Yr/Yr % Chg | |||
| 267.0 | 15% | 68,029 | 14% | ||||
| 304.6 | 18% | 69,553 | 26% | ||||
| EMEA | 156.6 | 14% | 47,226 | 14% | |||
| 208.9 | 13% | 61,836 | 19% | ||||
| South & | 222.5 | 34% | 50,874 | 28% | |||
| 50.5 | 17% | 12,560 | 25% | ||||
| Worldwide Total | 1,210.1 | 18% | 300,521 | 20% | |||
The increment charge per unit of measurement globally pipped upward from 17 per centum to eighteen percent. Growth inward mainland People's Republic of China dropped from 42 per centum to 17 percent. South together with Central America went ballistic growing at 34 percent.
2013Q1
This was the source total quarter afterward Bill Ackman's attack. If at that topographic point was going to live a slowdown you lot would run into it here. Moreover you lot would likely run into it inward North America because Bill Ackman is far higher profile at that topographic point than elsewhere. I dubiety many Herbalife consumers inward Brazil take away hold heard of him.
First Quarter 2013 Key Metrics2,3
| Volume Points (Mil) | Average Active Sales Leaders | |||||||||||||
| Region | 1Q'13 | Yr/Yr % Chg | 1Q'13 | Yr/Yr % Chg | ||||||||||
| 309.0 | 4 | % | 68,352 | 9 | % | |||||||||
| 320.0 | 17 | % | 68,690 | 23 | % | |||||||||
| EMEA | 161.3 | 11 | % | 46,094 | 12 | % | ||||||||
| 206.3 | 8 | % | 60,216 | 14 | % | |||||||||
| South & | 219.8 | 33 | % | 52,049 | 28 | % | ||||||||
| 47.6 | 16 | % | 11,864 | 24 | % | |||||||||
| Worldwide Total | 1,264.0 | 13 | % | 296,916 | 18 | % | ||||||||
And yep - you lot tin give the sack run into it a little. The North American increment charge per unit of measurement had slowed to three per centum together with (at thirteen percent) this was genuinely the slowest increment globally recorded inward this sequence.
United Mexican States - which is the best marketplace of all for Herbalife - has slowed to a mere 8 per centum volume growth.
2013Q2
At the terminate of the source quarter Herbalife implemented several of import changes inward role inward answer to Bill Ackman. The most of import of these is that they banned Pb selling together with kicked the Pb sellers out of the organization. The Herbalife distributor who was the source of Bill Ackman's nastiest examples (Shawn Dahl) moved to some other distributor of diet shakes.
The society suggested that this would take away hold a depression single-digit negative number on sales. Essentially they argued Bill Ackman's examples came from a little minority tagged onto a gigantic together with effective selling machine.
Here are the results:
Second Quarter 2013 Key Metrics2,3
| Volume Points (Mil) | Average Active Sales Leaders | |||||||||
| Region | 2Q'13 | Yr/Yr % Chg | 2Q'13 | Yr/Yr % Chg | ||||||
| 339.9 | 11 | % | 72,282 | 10 | % | |||||
| 316.9 | 1 | % | 70,802 | 15 | % | |||||
| EMEA | 179.3 | 16 | % | 48,008 | 12 | % | ||||
| 219.9 | 8 | % | 62,940 | 13 | % | |||||
| South & | 222.6 | 33 | % | 54,614 | 30 | % | ||||
| 85.9 | 49 | % | 14,070 | 18 | % | |||||
| Worldwide Total | 1,364.5 | 14 | % | 311,503 | 15 | % | ||||
2013Q3
This quarter was interesting - but i time to a greater extent than the work was non North America.
| Volume Points (Mil) | Average Active Sales Leaders | ||||||||||
| Region | 3Q'13 | Yr/Yr % Chg | 3Q'13 | Yr/Yr % Chg | |||||||
| 314.0 | 9 | % | 74,085 | 9 | % | ||||||
| 296.2 | -3 | % | 72,886 | 10 | % | ||||||
| EMEA | 173.5 | 19 | % | 50,720 | 13 | % | |||||
| 219.4 | 4 | % | 64,633 | 8 | % | ||||||
| South & | 245.2 | 32 | % | 60,007 | 29 | % | |||||
| 97.4 | 71 | % | 15,882 | 25 | % | ||||||
| Worldwide Total | 1,345.7 | 13 | % | 326,797 | 13 | % | |||||
An Ackman number is non plainly present. The U.S.A. of America increment charge per unit of measurement is a real prissy ix per centum - slightly slower than the instant quarter.
mainland People's Republic of China took off producing a rip-snorting 71 per centum growth.
The Asia Pacific part printed a minus three per centum number. This is the source negative number reported - together with it took me some fourth dimension to operate out what went wrong. The master copy ground appeared to live the province caput inward Malaysia leaving for a competitor together with stealing the customer listing equally he went out the door.
Still the increment charge per unit of measurement for the society was soundless at thirteen per centum - a charge per unit of measurement most companies would envy - but clearly a slower increment charge per unit of measurement than inward 2011-12.
2013Q4
The quaternary quarter of 2014 was a continuation of the tertiary quarter but on steroids:
| Volume Points (Mil) | Average Active Sales Leaders | |||||||
| Region | 4Q'13 | Yr/Yr % Chg | 4Q'13 | Yr/Yr % Chg | ||||
| 287.0 | 7% | 73,511 | 8% | |||||
| 292.4 | -4% | 73,792 | 6% | |||||
| EMEA | 183.9 | 17% | 53,776 | 14% | ||||
| 218.7 | 5% | 66,535 | 8% | |||||
| South & | 278.6 | 25% | 65,690 | 29% | ||||
| 102.7 | 103% | 17,416 | 39% | |||||
| Worldwide Total | 1,363.3 | 13% | 339,744 | 13% | ||||
Global increment remained at thirteen per centum - but Asia Pacific was at i time minus 4 percent, North America slowed a petty together with mainland People's Republic of China was a rip-snorting 103 percent.
2014Q1
The source quarter of 2014 showed the slowest increment always - but soundless inside guidance. Here are the numbers:
| Volume Points (Mil) | Average Active Sales Leaders | ||||||||||
| Region | 1Q'14 | Yr/Yr % Chg | 1Q'14 | Yr/Yr % Chg | |||||||
| 336.5 | 9 | % | 74,241 | 9 | % | ||||||
| 302.1 | (6 | %) | 71,627 | 4 | % | ||||||
| EMEA | 202.2 | 25 | % | 54,113 | 17 | % | |||||
| 220.2 | 7 | % | 63,568 | 6 | % | ||||||
| South & | 227.7 | 4 | % | 61,862 | 19 | % | |||||
| 91.1 | 91 | % | 16,648 | 40 | % | ||||||
| Worldwide Total | 1,379.8 | 9 | % | 329,902 | 11 | % | |||||
But the global increment charge per unit of measurement at ix per centum represents a slowing. It didn't thrill the longs.
Herbalife equally a increment stock of the highest quality
Growth hither is lumpy but almost no companies curt of Facebook, Twitter etc grow similar this. This is a increment charge per unit of measurement associated amongst the highest value silicon value companies.
The disconnect betwixt longs together with shorts inward Herbalife was extreme. As a bull I regarded Herbalife equally i of the highest character increment stocks I had always seen - deserving of a premium multiple.
Shorts run into a criminal conspiracy.
For dozens of quarters inward a row Herbalife trounce its earnings guidance together with raised guidance again. They tended to low-ball guidance but amongst increment similar this it was possible to heighten guidance sharply almost every quarter.
Stocks amongst this variety of tape merchandise at twoscore addition times earnings non nether 10 times earnings. The upside was enormous...
And together with so came the instant quarter. Herbalife trounce earnings (no surprise there) BUT THEY DID NOT RAISE EARNINGS GUIDANCE.
As a long I was disappointed.
Here are the volume dot numbers for the instant quarter of 2014.
| Volume Points (Mil) | Average Active Sales Leaders | |||||||
| Region | 2Q'14 | Yr/Yr % Chg | 2Q'14 | Yr/Yr % Chg | ||||
| 335.8 | (1%) | 75,772 | 5% | |||||
| 320.2 | 1% | 74,916 | 6% | |||||
| EMEA | 218.8 | 22% | 56,692 | 18% | ||||
| 231.3 | 5% | 64,656 | 3% | |||||
| South & | 206.3 | (7%) | 62,172 | 14% | ||||
| 118.5 | 38% | 18,703 | 33% | |||||
| Worldwide Total | 1,430.9 | 5% | 340,644 | 9% | ||||
Worse - genuinely practiced markets similar South America had seemingly fallen off a cliff. The minus vii per centum inward South America was ugly - past times far the worst looking resultant recorded since the (seeming) miracle worker Michael Johnson became CEO.
North America also shrunk suggesting that the Ackman laid on was biting. And increment inward mainland People's Republic of China was simply rapid rather than blisteringly fast.
The stock has been weak always since.
It is this slowdown (or a possible reversal of it) which - exterior a resultant from the FTC - is what longs volition most live looking for.
And bluntly - if the increment charge per unit of measurement were to accelerate i time to a greater extent than (say to 8-9 percent) together with the FTC were to clear the society - the society should live valued equally a super-premium increment stock. [$6.70 earnings per part times thirty = $200 per part does non seem unreasonable.]
However if the increment charge per unit of measurement continues to decelerate (say to three per centum per share) together with so a xiv times earnings - say $6.30 times xiv = $88.20 - seems reasonable.
The make of "fair values"
The make of "fair values" for this stock is enormous.
If the FTC closes them the fair value is something closed to zero.
If the FTC clears them together with the increment charge per unit of measurement decelerates together with so the fair value is say $80 per share. This would live a prissy upswing on the stock - but it would exclusively take away hold us dorsum to the 52 calendar week high - together with that was afterward Ackman was shown to live wrong.
If the FTC clears them together with the increment accelerates together with so fair value is plausibly somewhere well-nigh $200 per share. Longs similar me would live cheering. Shorts would live brutalized. Pershing Square would move - but Bill Ackman would non aspect great.
To say this is an interesting earnings statement is understating it.
---
Good increment together with bad increment - Venezuela
Amid all this increment the short-sellers take away hold made a huge bargain well-nigh the sales inward a unmarried country: Venezuela.
The work is simple. If you lot ship production to Venezuela you lot can't teach paid. Its worse than that fifty-fifty - if you lot ship production to Venezuela you lot may take away hold to pay a non-Venezuelan upline U.S.A. of America dollars against Bolivar that you lot can't convert to U.S.A. of America dollars together with can't repatriate.
Sending production to Venezuela is bad news.
Now it is bad word that is grotesquely overstated. Herbalife has been growing similar a weed inward many countries where it tin give the sack repatriate money. However it is bad word nonetheless.
There are a few underlying issues:
(a). Venezuela - absent currency controls - would live an absolutely natural marketplace society for a society selling weight loss solutions. Venezuelans are beauty obsessed. It is a darn compassion for the society that i of their best markets has imploded through no error of their own. Because Herbalife is naturally potent inward Venezuela many of the top-level distributors throughout South America are of Venezuelan origin. I take away hold met a few.
(b). It is real difficult for a multi-level-marketing society to halt supplying people. There are tens of 1000 of people who take away hold built businesses roughly Herbalife inward Venezuela. If Herbalife were to halt supplying them their businesses would collapse. Herbalife has long viewed maintaining a practiced human relationship amongst their suppliers equally an ethical priority. This is a partnership. They believe that it is deeply unethical to destroy people's occupation concern together with closed off render if something similar currency command is temporary. [Incidentally I handgrip amongst the society here. Time together with i time to a greater extent than I take away hold flora this society to live highly ethical inward straight contradiction to the curt thesis together with inward contradiction to my original belief.]
(c). Against this equally Venezuela's currency controls made it profitable to purchase Herbalife inward Bolivar, collect the upline payments inward U.S.A. of America dollars together with truck the production to some other South American province to sell.
Until real late Herbalife shipped a lot of production to Venezuela together with bore the losses. Herbalife sales - according to the conference telephone phone - fell twoscore per centum inward Venezuela terminal quarter. This was the mass of but non the entire ground for the vii per centum negative impress inward Central together with South American volumes terminal quarter.
I promise that Herbalife publishes Central together with South America including together with non including Venezuela so nosotros tin give the sack run into the existent character sales increment separated from the Venezuelan disaster.
The other number inward South America is that Brazil is (I think) the biggest South American market. Trying to sell diet products during the World Cup looks rather tricky. That number should contrary this quarter. Net of Venezuela I aspect practiced South American increment this quarter.
Venezuela volition also campaign considerable dissonance inward the earnings because Herbalife has considerable currency stuck at that topographic point - unable to live repatriated - together with the Bolivar is collapsing. They volition likely take away hold to take away hold a charge.
If Venezuelan sales move along to autumn equally per higher upward this is non a major recurring issue.
--
Revenue
Volume increment is the genuinely of import issue. Volume increment volition interpret to revenue over fourth dimension - nevertheless this quarter it volition non live equally practiced equally usual. The U.S.A. of America dollar has been potent - together with prices conform amongst a trail.
As a resultant I hollo back that revenue increment volition live slightly weaker than volume growth. Dispassionately I hollo back you lot should aspect through this. Volume (and the FTC) is what volition decide value inward the end.
Still over the years the volume increment has resulted inward massive revenue growth. Here - so you lot tin give the sack appreciate it inward its glorious special - is the quarterly revenue increment since 2003. There are VERY few companies this good.
March 2003 | 280 |
June 2003 | 288.9 |
September 2003 | 290.4 |
December 2003 | 300.1 |
March 2004 | 324.1 |
June 2004 | 324.2 |
September 2004 | 319.8 |
December 2004 | 341.6 |
March 2005 | 372.1 |
June 2005 | 384.7 |
September 2005 | 401 |
December 2005 | 409 |
March 2006 | 455.8 |
June 2006 | 466 |
September 2006 | 476.4 |
December 2006 | 487.4 |
March 2007 | 508.1 |
June 2007 | 530.1 |
September 2007 | 529.5 |
December 2007 | 578.1 |
March 2008 | 604.4 |
June 2008 | 639.7 |
September 2008 | 602.2 |
December 2008 | 512.9 |
March 2009 | 521.7 |
June 2009 | 571.8 |
September 2009 | 600.2 |
December 2009 | 630.9 |
March 2010 | 618.6 |
June 2010 | 688.8 |
September 2010 | 688.4 |
December 2010 | 738.4 |
March 2011 | 795.1 |
June 2011 | 879.7 |
September 2011 | 895.2 |
December 2011 | 884.6 |
March 2012 | 964.2 |
June 2012 | 1,031.90 |
September 2012 | 1,016.90 |
December 2012 | 1,059.30 |
March 2013 | 1,123.60 |
June 2013 | 1,219.20 |
September 2013 | 1,213.50 |
December 2013 | 1,268.90 |
March 2014 | 1,262.60 |
June 2014 | 1,306.20 |
I aspect yet some other tape quarter. Herbalife is a increment stock of the highest character together with afterward the FTC matters settle should live repriced equally such.
----
Other one-off charges
Herbalife's results are going to live total of one-off charges. The lawyer bills for (and perhaps the small town of) the flat activity volition live expensed inward this quarter.
Considerable legal bills associated amongst the FTC enquiry volition also live at that topographic point - together with those volition also teach away.
Venezuela mightiness live a moderately large number - but equally long equally sales at that topographic point are sharply declining I suspect you lot should ignore that too.
Herbalife volition postal service "adjusted" earnings adding dorsum these charges. As these issues are temporary this is i society where I hollo back the non-GAAP number is the i you lot should hold your oculus on. [You tin give the sack take away how to caveat the Venezuela numbers...]
Share count
Herbalife is - on the accounts - a fantastic society - it has a WAY higher than marketplace increment rate, together with buys dorsum stock extremely aggressively. It has done so earlier Bill Ackman came along together with it accelerated the purchase dorsum afterward Bill Ackman.
Given the huge increment charge per unit of measurement together with how inexpensive the stock is if (when) the FTC number goes away every onf these buy-backs is massively value-adding. The part count has since Mr Ackman turned upward dropped from well-nigh 106 i 1000 one thousand to the mid 80s. The part count is something bulls volition live watching sharply.
Summary
The make of outcomes are equally large for this society equally whatsoever I take away hold always seen. Influenza A virus subtype H5N1 bad outcome at the FTC would homecoming the stock close worthless.
Influenza A virus subtype H5N1 re-acceleration of increment together with FTC clearance would homecoming fair value greater than $200.
I take away hold spent a lot of fourth dimension looking inward special at this society together with contrary to my prior expectations I take away hold flora the society to live consistently ethical - fifty-fifty to the detriment of short-term profits. I promise afterward examining the testify that the FTC comes to the same determination together with fines for (real) past times indiscretions are minor. Venezuela - which shorts take away hold turned into some monstrosity key to their thesis - is a practiced example. It is (a) nestling together with (b) a house where the society has been losing money past times behaving ethically.
The $200 a part fair value afterward a practiced FTC outcome together with re-acceleration of increment is earlier whatsoever short-squeeze. Short squeezes commonly take away hold stocks to values way higher than intrinsic value. I take away hold placed my bets - many take away hold placed their bets the opposite way.
It volition live fun to watch.
John
No comments