Herbalife: The Global Nutrition Giant Is About to Reporthttp://www.fool.com/investing/general/2014/01/21/herbalife-the-global-nutrition-giant-is-about-to-r.aspx Joseph Solitro
January 21, 2014
One of the hottest and most talked about stocks in 2013 was Herbalife (NYSE: HLF). This chatter included some negatives like Bill Ackman's public beat-down of the company and his announcement of a $1 billion short position, but Carl Icahn, George Soros, and other hedge fund leaders took Herbalife's side and caused its stock to rally over 135%. Herbalife did its part too with three record-setting quarters and it hopes to do the same in its upcoming fourth-quarter report. Let's take a deeper look into the company and determine if we should buy now or wait until after the release.
The nutrition supplier
A record-setting kind of year
In the latest report on Oct. 28, Herbalife reported that earnings per share increased 43.9% and revenue rose 19.34% year-over-year, driven by worldwide volume growth of 13%. Also, Herbalife generated $225.5 million in operating cash flow for a 58% year-over-year increase, repurchased $110 million of its common stock, paid dividends of $30.8 million, and invested $31.8 million in capital expenditures; this is just about everything a company can do to grow its business while returning large amounts of capital to shareholders.
These strong results allowed the company to raise its outlook for fiscal 2013 once again, as it had already done this in the previous two reports. Management also provided better-than-expected guidance for fiscal 2014 with a call for earnings per share to be in the range of $5.45-$5.65, which would be a healthy increase from 2013's full-year earnings per share of $5.19-$5.23. Overall, it has been a great year for Herbalife and I expect this momentum to carry over into the fourth quarter.
Expectations & what to watch for
These expectations call for earnings per share to increase by 10.5% and revenue to increase by 15.2% year-over-year, which would result in another record quarter. Other than the key metrics, I would also like to see the company show margin expansion and increase its dividend by at least 10%; Herbalife always speaks about its large operating cash flows and how it uses them, but I think a raise in the dividend would cause an extra pop in the stock. If Herbalife can deliver on all of this, the stock would likely see a large move to the upside and perhaps fill the gap caused by Nu Skin...
A speed bump in Herbalife's rise
This caused a 15.56% decline in Nu Skin stock, but Nu Skin responded by saying that the allegations were inaccurate. However, the following day news came out that the company was under investigation by the Chinese government for illegal business practices. Chinese authorities believe Nu Skin is not acting as a multi-level marketer, but as an illegal pyramid scheme, making false promises to draw new clients in as distributors. This caused the stock to fall another 31% for a total three-day decline of 41.77%.
In the midst of this negativity, Herbalife was hit because its business model and products are very similar to those of Nu Skin. In the same three-day span, Herbalife declined 13.11%, which was not nearly as bad as the drop for Nu Skin but still a significant decline. Bill Ackman tried taking another shot by saying that Herbalife was operating illegally in China too.