Herbalife Ltd. Announces Record Second Quarter 2016 Volume Results
Michael O. Johnson, chairman and CEO of
Johnson continued, "This momentum reflects the strength of our
distributors' businesses and with the
Second Quarter and 2016 Key Metrics3,4
Volume Points (Mil) | Average Active Sales Leaders | ||||||
Region | 2Q '16 | Yr/Yr % Chg | 2Q '16 | Yr/Yr % Chg | |||
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347.0 | 14% | 77,596 | 2% | |||
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277.8 | 2% | 73,206 | -3% | |||
EMEA | 276.9 | 21% | 80,268 | 13% | |||
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242.6 | 10% | 65,073 | 1% | |||
South & |
160.3 | -7% | 54,510 | -6% | |||
|
179.7 | 10% | 31,391 | 31% | |||
Worldwide Total | 1,484.3 | 9% | 367,891 | 3% | |||
Regional
Net Sales and Foreign Exchange ("FX") Impact
Region |
Reported Net Sales 2Q '16 (mil) |
Growth/Decline
including FX |
Growth/Decline
excluding FX |
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\\$ | 266.5 | 16 | % | 16 | % | ||
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\\$ | 234.6 | -2 | % | 2 | % | ||
EMEA | \\$ | 219.0 | 13 | % | 20 | % | ||
|
\\$ | 119.3 | -8 | % | 9 | % | ||
South & |
\\$ | 119.9 | -10 | % | 3 | % | ||
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\\$ | 242.5 | 2 | % | 8 | % | ||
Worldwide Total | \\$ | 1,201.8 | 3 | % | 10 | % | ||
Outlook
Based on current business trends the company's third quarter 2016 and full year 2016 guidance is as follows:
Three Months Ending | Twelve Months Ending | ||||
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Low | High | Low | High | ||
Volume Point Growth vs 2015 | 5.0% | 8.0% | 4.5% | 7.5% | |
Net Sales Growth vs 2015 | 2.0% | 5.0% | 1.5% | 4.5% | |
Diluted EPS |
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Adjusted(a) Diluted EPS |
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Cap Ex (\\$ millions) |
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Effective Tax Rate | 28.0% | 30.0% | 27.5% | 29.5% | |
Currency Adjusted(b) Net Sales Growth vs 2015 | 5.5% | 8.5% | 7.0% | 10.0% | |
Currency Adjusted(b) EPS |
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(a) Adjusted diluted EPS is a non-GAAP measure and
excludes the impact of charges related to |
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(b) Excludes the impact of |
Forward guidance is based on the average daily exchange rates of the first two weeks of July.
Adjusted diluted EPS guidance for the third quarter 2016 includes a
projected unfavorable impact from currency exchange rates of
approximately
Full year 2016 adjusted diluted EPS guidance includes a projected
currency headwind of approximately
Second Quarter 2016 Earnings Conference Call
The dial-in number for this conference call for domestic callers is (877) 317-1296, and (706) 634-5671 for international callers (conference ID 38673773). Live audio of the conference call will be simultaneously webcast in the investor relations section of the company's website at http://ir.herbalife.com.
An audio replay will be available following the completion of the
conference call in MP3 format or by dialing (855) 859-2056 for domestic
callers or (404) 537-3406 for international callers (conference ID
38673773). The webcast of the teleconference will be archived and
available on
About
We support the Herbalife Family Foundation (HFF) and its Casa Herbalife programs to help bring good nutrition to children in need. We also sponsor more than 190 world-class athletes, teams and events around the globe, including Cristiano Ronaldo, the LA Galaxy and champions in many other sports.
The company has over 8,000 employees worldwide, and its shares are
traded on the New York Stock Exchange (
FORWARD-LOOKING STATEMENTS
This earnings release contains "forward-looking statements" within
the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Although we believe that the
expectations reflected in any of our forward-looking statements are
reasonable, actual results could differ materially from those projected
or assumed in any of our forward-looking statements. Our future
financial condition and results of operations, as well as any
forward-looking statements, are subject to change and to inherent risks
and uncertainties, such as those disclosed or incorporated by reference
in our filings with the
- our relationship with, and our ability to influence the actions of, our Members;
- improper action by our employees or Members in violation of applicable law;
- adverse publicity associated with our products or network marketing organization, including our ability to comfort the marketplace and regulators regarding our compliance with applicable laws;
- changing consumer preferences and demands;
- the competitive nature of our business;
- regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products and network marketing program, including the direct selling market in which we operate;
- legal challenges to our network marketing program;
-
the consent order entered into with the
FTC , the effects thereof and any failure to comply therewith; -
risks associated with operating internationally and the effect of
economic factors, including foreign exchange, inflation, disruptions
or conflicts with our third party importers, pricing and currency
devaluation risks, especially in countries such as
Venezuela ; -
uncertainties relating to interpretation and enforcement of
legislation in
China governing direct selling; -
our inability to obtain the necessary licenses to expand our direct
selling business in
China ; - adverse changes in the Chinese economy;
- our dependence on increased penetration of existing markets;
- contractual limitations on our ability to expand our business;
- our reliance on our information technology infrastructure and outside manufacturers;
- the sufficiency of trademarks and other intellectual property rights;
- product concentration;
- our reliance upon, or the loss or departure of any member of, our senior management team which could negatively impact our Member relations and operating results;
-
U.S. and foreign laws and regulations applicable to our international operations; - restrictions imposed by covenants in our credit facility;
- uncertainties relating to the application of transfer pricing, duties, value added taxes, and other tax regulations, and changes thereto;
- changes in tax laws, treaties or regulations, or their interpretation;
- taxation relating to our Members;
- product liability claims;
-
our incorporation under the laws of the
Cayman Islands ; - whether we will purchase any of our shares in the open markets or otherwise; and
- share price volatility related to, among other things, speculative trading and certain traders shorting our common shares.
We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.
1 Adjusted diluted EPS is a non-GAAP measure and excludes the
impact of charges related to
2 See Schedule A - "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of adjusted diluted share count to reported diluted share count and a discussion of why the share count has been adjusted for purposes of calculating adjusted diluted EPS for the second quarter of 2016.
3 Supplemental tables that include additional business metrics can be found at http://www.ir.herbalife.com.
4 Worldwide Average Active Sales Leaders may not equal the sum of the Average Active Sales Leaders in each region due to the calculation being an average of Sales Leaders active in a period, not a summation, and the fact that some are active in more than one region but are counted only once in the worldwide amount.
RESULTS OF OPERATIONS:
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Condensed Consolidated Statements of (Loss) Income | |||||||||||||
(In millions, except per share amounts) | |||||||||||||
(Unaudited) | |||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||
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\\$ | 266.5 | \\$ | 230.0 | \\$ | 512.5 | \\$ | 456.7 | |||||
|
119.3 | 129.2 | 229.0 | 252.8 | |||||||||
South and |
119.9 | 133.5 | 246.9 | 295.2 | |||||||||
EMEA | 219.0 | 193.8 | 417.4 | 380.2 | |||||||||
|
234.6 | 239.1 | 455.7 | 481.9 | |||||||||
|
242.5 | 236.7 | 459.9 | 400.9 | |||||||||
Worldwide Net Sales |
1,201.8 | 1,162.3 | 2,321.4 | 2,267.7 | |||||||||
Cost of Sales (1) | 236.3 | 229.3 | 449.4 | 444.7 | |||||||||
Gross Profit | 965.5 | 933.0 | 1,872.0 | 1,823.0 | |||||||||
Royalty Overrides | 336.7 | 318.7 | 648.6 | 641.7 | |||||||||
Selling, General and Administrative Expenses (2) | 676.8 | 470.5 | 1,103.9 | 901.9 | |||||||||
Other Operating Income (3) | (28.1 | ) | - | (28.9 | ) | - | |||||||
Operating (Loss) Income | (19.9 | ) | 143.8 | 148.4 | 279.4 | ||||||||
Interest Expense, net | 23.1 | 23.7 | 48.0 | 45.2 | |||||||||
Other Expense, net (4) | - | - | - | 2.3 | |||||||||
(Loss) Income Before Income Taxes | (43.0 | ) | 120.1 | 100.4 | 231.9 | ||||||||
Income Taxes | (20.1 | ) | 37.3 | 27.5 | 70.9 | ||||||||
Net (Loss) Income | \\$ | (22.9 | ) | \\$ | 82.8 | \\$ | 72.9 | \\$ | 161.0 | ||||
Weighted Average Shares Outstanding: | |||||||||||||
Basic | 83.0 | 82.6 | 82.9 | 82.5 | |||||||||
Diluted | 83.0 | 85.2 | 85.9 | 84.8 | |||||||||
(Loss) Earnings Per Share: | |||||||||||||
Basic | \\$ | (0.28 | ) | \\$ | 1.00 | \\$ | 0.88 | \\$ | 1.95 | ||||
Diluted | \\$ | (0.28 | ) | \\$ | 0.97 | \\$ | 0.85 | \\$ | 1.90 | ||||
(1) Cost of Sales includes |
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(2) Selling, General and Administrative Expenses includes
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(3) Other Operating Income relates to |
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(4) Other Expense, net relates to the impairment of
investments in Bolivar-denominated bonds for the six months ended
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Condensed Consolidated Balance Sheets | |||||||
(In millions) | |||||||
(Unaudited) | |||||||
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2016 | 2015 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash & cash equivalents | \\$ | 936.7 | \\$ | 889.8 | |||
Receivables, net | 94.1 | 69.9 | |||||
Inventories | 322.5 | 332.0 | |||||
Prepaid expenses and other current assets | 193.2 | 161.1 | |||||
Deferred income tax assets | 114.8 | 113.5 | |||||
Total Current Assets | 1,661.3 | 1,566.3 | |||||
Property, net | 371.5 | 339.2 | |||||
Deferred compensation plan assets | 29.5 | 29.3 | |||||
Other assets | 148.1 | 141.1 | |||||
Marketing related intangibles and other intangible assets, net | 310.1 | 310.2 | |||||
|
93.4 | 91.8 | |||||
Total Assets | \\$ | 2,613.9 | \\$ | 2,477.9 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | |||||||
Current Liabilities: | |||||||
Accounts payable | \\$ | 85.4 | \\$ | 71.1 | |||
Royalty overrides | 247.1 | 249.9 | |||||
Accrued compensation | 115.3 | 128.8 | |||||
Accrued expenses | 455.8 | 228.7 | |||||
Current portion of long-term debt | 423.3 | 229.5 | |||||
Advance sales deposits | 101.4 | 63.8 | |||||
Income taxes payable | 29.4 | 52.6 | |||||
Total Current Liabilities | 1,457.7 | 1,024.4 | |||||
Non-current liabilities | |||||||
Long-term debt, net of current portion | 1,003.3 | 1,392.5 | |||||
Deferred compensation plan liability | 46.9 | 43.6 | |||||
Deferred income tax liabilities | 0.4 | 0.4 | |||||
Other non-current liabilities | 70.1 | 70.5 | |||||
Total Liabilities | 2,578.4 | 2,531.4 | |||||
Contingencies | |||||||
Shareholders' equity (deficit): | |||||||
Common shares | 0.1 | 0.1 | |||||
Paid-in capital in excess of par value | 457.3 | 438.2 | |||||
Accumulated other comprehensive loss | (168.5 | ) | (165.5 | ) | |||
Accumulated deficit | (253.4 | ) | (326.3 | ) | |||
Total Shareholders' Equity (Deficit) | 35.5 | (53.5 | ) | ||||
Total Liabilities and Shareholders' Equity (Deficit) | \\$ | 2,613.9 | \\$ | 2,477.9 | |||
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Condensed Consolidated Statements of Cash Flows | |||||||
(In millions) | |||||||
(Unaudited) | |||||||
Six Months Ended | |||||||
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CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | \\$ | 72.9 | \\$ |
161.0 |
|||
Adjustments to reconcile net income to net cash provided by | |||||||
operating activities: | |||||||
Depreciation and amortization | 47.9 | 48.0 | |||||
Excess tax benefits from share-based payment arrangements | (2.1 | ) | (1.5 | ) | |||
Share-based compensation expenses | 20.5 | 23.9 | |||||
Non-cash interest expense | 28.7 | 25.5 | |||||
Deferred income taxes | (21.2 | ) | (2.5 | ) | |||
Inventory write-downs | 11.2 | 17.7 | |||||
Foreign exchange transaction gain | (2.9 | ) | (12.3 | ) | |||
Foreign exchange loss and other charges relating to |
4.8 | 36.9 | |||||
Other | (5.9 | ) | 9.3 | ||||
Changes in operating assets and liabilities: | |||||||
Receivables | (20.4 | ) | (24.4 | ) | |||
Inventories | (0.2 | ) | 16.5 | ||||
Prepaid expenses and other current assets | 5.7 | 6.4 | |||||
Other assets | (5.2 | ) | (10.1 | ) | |||
Accounts payable | 17.4 | 16.8 | |||||
Royalty overrides | (1.4 | ) | (9.3 | ) | |||
Accrued expenses and accrued compensation | 219.3 | 50.1 | |||||
Advance sales deposits | 37.3 | 31.8 | |||||
Income taxes | (40.8 | ) | (26.6 | ) | |||
Deferred compensation plan liability | 2.4 | 1.5 | |||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 368.0 | 358.7 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Purchases of property, plant and equipment | (86.9 | ) | (39.9 | ) | |||
Other | 4.5 | 5.6 | |||||
NET CASH (USED IN) INVESTING ACTIVITIES |
(82.4 | ) | (34.3 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Principal payments on senior secured credit facility and other debt | (229.7 | ) | (163.8 | ) | |||
Issuance costs relating to long-term debt | - | (6.2 | ) | ||||
Share repurchases | (4.5 | ) | (9.1 | ) | |||
Excess tax benefits from share-based payment arrangements | 2.1 | 1.5 | |||||
Other | (1.4 | ) | 0.9 | ||||
NET CASH (USED IN) FINANCING ACTIVITIES |
(233.5 | ) | (176.7 | ) | |||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (5.2 | ) | (43.5 | ) | |||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 46.9 | 104.2 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 889.8 | 645.4 | |||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | \\$ | 936.7 | \\$ | 749.6 | |||
SUPPLEMENTAL INFORMATION
SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited and unreviewed), (All tables provide Dollars in millions, Except per Share Data)
In addition to its reported results and guidance calculated in
accordance with GAAP, the company has included in this release adjusted
net income and adjusted diluted EPS, performance measures that the
The following is a reconciliation of net income, presented and
reported in accordance with |
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Three Months Ended | Six Months Ended | ||||||||||||||
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(in millions) | |||||||||||||||
Net (loss) income, as reported | \\$ | (22.9 | ) | \\$ | 82.8 | \\$ | 72.9 | \\$ | 161.0 | ||||||
Remeasurement, impairment losses and other charges relating to
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- | 0.6 | - | 36.9 | |||||||||||
Expenses incurred responding to attacks on the company's business model (1) (3) | 4.6 | 7.1 | 7.5 | 11.4 | |||||||||||
Expenses related to Regulatory inquiries (1) (4) | 2.5 | 5.8 | 10.1 | 9.2 | |||||||||||
Expenses incurred for the recovery of re-audit expenses (1) (5) | 1.9 | 0.4 | 3.3 | 0.6 | |||||||||||
Foreign exchange loss (gain) from Euro/USD exposure on intercompany balances (1) (6) | - | 5.4 | - | (7.4 | ) | ||||||||||
Non-cash interest expense and amortization of non-cash issuance costs (1) (7) | 11.2 | 10.6 | 22.2 | 21.0 | |||||||||||
Regulatory settlements (1) (8) | 203.0 | - | 203.0 | - | |||||||||||
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(28.1 | ) | - | (28.9 | ) | - | |||||||||
Income tax adjustments for above items (1) (10) | (60.9 | ) | (7.1 | ) | (63.4 | ) | (18.3 | ) | |||||||
Net income, as adjusted (11) | \\$ | 111.2 | \\$ | 105.6 | \\$ | 226.8 | \\$ | 214.4 | |||||||
The following table is a reconciliation of diluted shares outstanding, presented and reported in accordance with GAAP, to diluted shares outstanding, adjusted for the impact of outstanding equity awards. Outstanding equity awards were excluded from the number of reported diluted outstanding shares for the second quarter of 2016 because the Company reported a net loss for the second quarter of 2016 and their inclusion would be anti-dilutive. However, because the company's adjusted net income for the second quarter of 2016, as calculated in the table above, was positive, inclusion of outstanding equity awards would not be anti-dilutive. Therefore, the company has adjusted the diluted shares outstanding for the second quarter of 2016 to include equity awards as set forth below so the calculation of adjusted diluted EPS is not overstated for the second quarter of 2016 and such number is comparable to adjusted diluted EPS for the prior year period. | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
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(in millions) | |||||||||||||||
Diluted shares outstanding, as reported | 83.0 | 85.2 | 85.9 | 84.8 | |||||||||||
Potential dilutive effect of outstanding equity grants | 3.2 | - | - | - | |||||||||||
Diluted shares outstanding, as adjusted | 86.2 | 85.2 | 85.9 | 84.8 | |||||||||||
The following is a reconciliation of diluted earnings per share,
presented and reported in accordance with |
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Three Months Ended | Six Months Ended | ||||||||||||||
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Diluted (loss) earnings per share, as reported | \\$ | (0.28 | ) | \\$ | 0.97 | \\$ | 0.85 | \\$ | 1.90 | ||||||
Remeasurement, impairment losses and other charges relating to
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- | 0.01 | - | 0.44 | |||||||||||
Expenses incurred responding to attacks on the company's business model (1) (3) | 0.05 | 0.08 | 0.09 | 0.13 | |||||||||||
Expenses related to Regulatory inquiries (1) (4) | 0.03 | 0.07 | 0.12 | 0.11 | |||||||||||
Expenses incurred for the recovery of re-audit expenses (1) (5) | 0.02 | - | 0.04 | 0.01 | |||||||||||
Foreign exchange loss (gain) from Euro/USD exposure on intercompany balances (1) (6) | - | 0.06 | - | (0.09 | ) | ||||||||||
Non-cash interest expense and amortization of non-cash issuance costs (1) (7) | 0.13 | 0.12 | 0.26 | 0.25 | |||||||||||
Regulatory settlements (1) (8) | 2.36 | - | 2.36 | - | |||||||||||
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(0.33 | ) | - | (0.34 | ) | - | |||||||||
Income tax adjustments for above items (1) (10) | (0.71 | ) | (0.08 | ) | (0.74 | ) | (0.22 | ) | |||||||
Diluted earnings per share, as adjusted (11) | \\$ | 1.29 | \\$ | 1.24 | \\$ | 2.64 | \\$ | 2.53 | |||||||
(1) Based on interim income tax reporting rules, these expenses are not considered discrete items. As a result, the company's full year effective tax rate is impacted by these items. When applying the full year effective tax rate to year-to-date income, the company's year-to-date tax provision recorded with respect to these non-GAAP adjustments is different from the forecasted full-year tax provision impact of these items. As a consequence, adjustments to the year-to-date and quarterly tax impacts will be recorded as the adjusted full year effective tax rate is applied to income in subsequent periods. Additionally, adjustments to items unrelated to these non-GAAP adjustments may have an effect on the income tax impact of these non-GAAP adjustments in subsequent periods. The company plans to update the income tax impact of these items in subsequent interim reporting periods. | |||||||||||||||
(2) Excludes tax impact of |
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(3) Excludes tax impact of |
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(4) Excludes tax impact of |
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(5) Excludes tax impact of |
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(6) Excludes tax impact of |
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(7) Relates to non-cash expense on our convertible notes
and prepaid forward share repurchase contract. Excludes tax impact
of |
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(8) Excludes tax impact of |
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(9) Excludes tax impact of |
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(10) Aggregates the individual tax impacts of each item as described in greater detail in footnotes 2-9 above. | |||||||||||||||
(11) Amounts may not total due to rounding. |
The following is a reconciliation of diluted earnings per share
guidance, presented in accordance with |
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Three Months Ending | Twelve Months Ending | |||
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Diluted EPS Guidance |
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Expenses incurred responding to attacks on the company's business model (1) |
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Expenses related to Regulatory inquiries and implementation (2) |
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Expenses incurred for the recovery of re-audit fees (3) |
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Non-cash interest expense and amortization of non-cash issuance costs (4) |
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Regulatory settlements (5) | - |
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China Grant Income (6) | - |
( |
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Income tax adjustments for above items (7) |
( |
( |
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Adjusted Diluted EPS Guidance (8) |
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(1) Excludes tax impact of |
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(2) Excludes tax impact of |
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(3) Excludes tax impact of |
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(4) Excludes tax impact of |
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(5) Excludes tax impact of |
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(6) Excludes tax impact of |
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(7) Aggregates the individual tax impacts of each item as described in greater detail in footnotes 1-6 above. | ||||
(8) Amounts may not total due to rounding. |
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