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Downward sales, adjusted earnings guidance leads to sharp decline in Herbalife share price

Downward sales, adjusted earnings guidance leads to sharp decline in Herbalife share price

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A third-quarter revenue warning from Herbalife Nutrition Ltd. spooked investors, sending the share price down as much as 20.4% during trading Tuesday.

The company has its East Coast production facility in Winston-Salem, where it has at least 750 employees.

The manufacturer disclosed after the market closed Monday that it had revised modestly downward its third-quarter and full-year financial guidance.

Herbalife’s share price finished down 21.11% Tuesday or by $11.45, to $42.79.

The downward guidance was promoted by what Herbalife forecasts to be “lower-than-expected levels of activity amongst its independent distributors.”

Herbalife said it made the disclosure before Tuesday’s virtual Investor Day presentation “to ensure investors have the most up-to-date financial information.”

“Uncertainty in global markets, fueled by the extended period of the pandemic, has brought about unique challenges in predicting behavior in the channel,” John Agwunobi, Herbalife’s chief executive, said in a statement.

It represents the fourth updating of fiscal 2021 guidance. Herbalife raised its sales and earnings guidance in each of the three previous updates.

From the initial guidance to the third update guidance issued on Aug. 3, the sales growth forecast jumped from a range of 3% to 11% to a range of 9% to 15%.

On Monday, Herbalife lowered the sales growth guidance to a range of 4.5% to 8.5%.

The adjusted earnings guidance from initial to third update rose from a range of $3.65 to $4.15 a share, to $4.65 to $5.05 a share.

On Monday, Herbalife lowered the adjusted guidance to a range of $4.55 to $4.95.

Agwunobi emphasized that Herbalife remains “on track for another record sales year with a sustained growth trajectory and significant cash generation.”

“It is positioning us to continue to benefit from the fundamental tailwinds driving the nutrition industry globally and the strong demand for our science-based products, as consumers continue to appreciate the value of good nutrition.”

For the third quarter, Herbalife projects a sales decline of between 3.5% and 6.5%, and adjusted diluted earnings of $1 to $1.20.

The overall share-price decline may have been tempered in part by the board of directors announcing plans to repurchase up to $200 million in shares during the third and fourth quarters.

The company did not conduct share repurchases during the second quarter after spending $621 million during the first quarter.

CFRA analyst Arun Sundaram maintained his "strong buy" rating on Herbalife even with the earnings warning, though he called it "worrisome."

"While this news took us and investors by surprise, the positives were: no remarks were made to indicate anything structurally wrong with Herbalife's business or business model; and third-quarter sales are still tracking double-digit growth versus pre-pandemic levels, indicating long-term upward momentum.

However, Sundaram lowered his 12-month share-price target by $8 to $60, as well as his fiscal 2021 guidance from $5.22 to $4.83, and his fiscal 2022 guidance from $5.37 to $4.93.




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