Herbalife Ltd. has been bulking up its financial reports for several years, yet the nutritional supplement company surpassed expectations last week.
On Feb. 22, the company reported double-digit revenue and earnings growth, beating forecasts. It raised its guidance for the current year.
After that report, the downtown L.A. company was one of the biggest gainers on the LABJ Stock Index, with shares closing at $66.81 on Feb. 22, up 12 percent from the previous week. (See page 16.)
In a conference call, Chief Executive Michael Johnson noted that the company’s strategies are proving successful.
Herbalife raised retention of distributors by about 50 percent. And there was strong growth in the number of sales leaders for its weight-loss shakes, supplements and a growing line of other fitness nutrition products.
“More people are using our nutrition products every day, more people are coming into the business, staying in the business and moving up the marketing plan,” Johnson said.
The company now derives 78 percent of its sales from outside the United States. However, that could be a concern due to fluctuating exchange rates and potential political unrest.
Although the company traditionally sold in bulk to individual customers each month, it has seen success abroad thanks to a sales model it pioneered in Mexico, where the focus is selling one drink at a time in storefronts. That makes the product more affordable, or at least seems so, and adds a social element to the experience. The model has even come to ethnic communities in the United States, as the Business Journal has reported.
Analysts have said the company is making other good moves. Its Herbalife 24 line of sports nutrition shakes and workout supplements aimed at fitness enthusiasts was bringing more people under 35 into distributorships.
In addition, the company’s significant investment in more than 150 sports sponsorships has helped to broaden its appeal beyond overweight and middle-age customers. The company sponsors professional and amateur teams in the United States and abroad. One of its highest-profile sponsorships is of the Los Angeles Galaxy pro soccer team.
“Herbalife is seeing strong consumer and distributor engagement with its successful tie-in with soccer,” said analyst Tim Ramey at D.A. Davidson & Co., which has a “buy” recommendation on shares and a $90-a-share price target over the next 12 months. “Soccer fits many of (Herbalife’s) characteristics and demographics while fostering the healthy lifestyle attitude. Soccer has global reach.”
Herbalife. which was Los Angeles County’s most profitable public company in 2010 according to Business Journal’s estimates, may well be on track for a repeat performance based on the financials the company released last week.
The company reported record net income for 2011of $3.31 a share, up 37 percent from 2010. Net sales jumped 26 percent to more than $3.45 billion, also a company record.
All of its markets reported double-digit growth in the fourth quarter, with sales in the Asia Pacific region up 31 percent to $247 million. Even in North America – its most mature market – sales rose 18 percent to nearly $166 million.
The company raised its guidance for the current year, and now expects to report net income of $3.40 to $3.60 a share on revenue growth of 9 percent to 11 percent. It earlier forecast net income of $3.25 to $3.45 a share on revenue growth of 8 percent to 10 percent.
Only one of the 10 analysts following the company does not have a “buy” or “outperform” rating on shares. Gary Albanese, an analyst at Auriga USA LLC, has a “hold” recommendation and a $66-a-share price target. But he’s still complimentary of Herbalife’s performance.
“What the market seems to be doing is pricing Herbalife at a 20 percent growth rate when the company itself is only estimating 10 percent,” Albanese explained. “The company gives prudent estimates, and if they later come out with numbers that exceed their guidance, my numbers will go up. I have to go with what management says.”
