Herbalife Sinks as FTC Regulation Stands to Thwart Growth

Photo

Herbalife Sinks as FTC Regulation Stands to Thwart Growth

By Shoshanna Delventhal | August 2, 2017 — 4:35 PM EDT

Shares of multilevel marketing giant Herbalife Ltd. (HLF) started the day off on Wednesday down over 5% despite the firm posting better-than-expected second-quarter earnings results and lifting its full-year guidance after the closing bell on Tuesday.

The decline represents a win for the hedge fund Pershing Square Capital Management and a growing number of HLF short sellers as the company’s guidance renews concerns that a settlement with federal regulators will hamper future growth. (See also: Herbalife Scrambles, Hires New Lawyer as Short Interest Booms.)

Forecast: Revenue to Decline as Much as 5%

Herbalife’s Q2 earnings of $1.51 per share well surpassed the Street’s $1.12 consensus estimate and the company’s guidance of $1.05 at the midpoint. Yet since the Federal Trade Commission (FTC) forced the company to revamp its U.S. operations and cough up $200 million to refund its distributors, investors have been keeping a close eye on indicators that new regulations could present a roadblock for the Los Angeles-based firm. As part of the ruling, Herbalife must prove that a majority of its U.S. revenue comes from consumers instead of its distributors, who are trying to reach income payouts.

Investors were disappointed with weak current-quarter guidance, in which sales are expected to come in flat, or down as much as 5%. The Q3 earnings forecast for $0.75 per share at the midpoint also fell short of the $1.20 consensus estimate by a wide margin.

Herbalife’s latest Q2 report and subsequent sell-off provides some relief to Pershing Square’s billionaire hedge fund manager William Ackman, who has been waging a war against the nutritional supplement and weight loss company since 2012. Ackman has bet $1 billion on short selling HLF, indicating that the global corporation is an illegal pyramid scheme that wrongfully takes advantage of lower socioeconomic groups and minorities. Trading down 1.3% on Wednesday afternoon at $65.59 per share, HLF reflects an approximate 1.7% decline over the most recent 12-month-period and a 36.5% return year-to-date (YTD). (See also: William Ackman’s Crusade to Take Down Herbalife.)

 

Published at Wed, 02 Aug 2017 20:35:00 +0000

About the author

TheWire

Online resource for daily updates and information relating to investing stocks, bonds, forex, real estate and much more.