Barbara Henderson SVP, Worldwide Corp. Comm. (310) 410-9600 ext. 32736
Erin Gehan Sr. Director Investor Relations (310) 410-9600 ext. 32862
HERBALIFE LTD. ANNOUNCES RECORD SECOND-QUARTER REVENUE OF $530 MILLION
Company Repurchased 3.5 Million Shares During Quarter
LOS ANGELES, August 6, 2007 — Herbalife Ltd. (NYSE: HLF) today reported second-quarter net sales of $530.1 million, an increase of 13.8 percent compared to the same period of 2006. This record performance was largely attributable to continued growth in the company’s top countries, with the U.S. up 30.7 percent and Mexico up 1.7 percent, versus the second quarter of 2006. The company’s Chairman and Chief Executive Officer Michael O. Johnson, said, “We are pleased to report our 14th consecutive quarter of double-digit year-over-year revenue growth and another record quarter for revenue and earnings. All seven of our regions realized net sales growth for the quarter. This performance was driven by the strength of our independent distributors, the success of their daily methods of operations and our products that support them.”
During the second quarter 2007, 56,112 distributors qualified as new supervisors, an increase of 4.9 percent versus the second quarter of 2006. Total supervisors of 368,062 increased 18.5 percent versus second quarter 2006 and the company’s President’s Team membership increased 11.6 percent to 1,031 members. One distributorship attained the prestigious level of Chairman’s Club, bringing the total to 31 members.
Financial Performance
For the quarter ended June 30, 2007, the company reported net income of $48.1 million, or $0.65 per diluted share, compared to $36.3 million, or $0.49 per diluted share in the second quarter of 2006. The increase in net income was primarily attributable to strong net sales growth, expansion in operating profit margins and a lower effective tax rate during the period. Excluding the impact of a favorable tax settlement in one of our international markets1, second quarter 2007 net income was $47.5 million, or $0.64 per diluted share, compared to $0.49 per diluted share in the second quarter of 2006.
1See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for more detail.
The company invested $13.5 million in capital expenditures during the second quarter, primarily related to enhancements to its management information systems and additional infrastructure investments to improve distributor productivity and service levels. Additionally, the company repurchased 3.5 million shares of its common stock at an average price of $39.65 under the recently approved $300 million share repurchase program. The company used excess cash along with debt to fund the repurchase.
For year to date June 30, 2007, the company reported net income of $89.3 million, or $1.20 per diluted share, compared to $75.0 million, or $1.01 per diluted share in the comparable 2006 period. Excluding the impact of favorable tax settlements in international markets in 2006 and 20071 as well as 2007 expenses related to the 2006 realignment for growth initiative, year to date 2007 net income increased 30.7 percent to $93.2 million, or $1.25 per diluted share, compared to $0.96 per diluted share in the year to date 2006.
1See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for more detail.
Second Quarter 2007 Business Highlights
Consistent with its distributor strategy, the company continued to support the development and training of its distributors during the second quarter by hosting more than 45,000 distributors globally at numerous local and regional events. Highlights included Active Supervisor School in Mexico, Leadership Development meeting in South America, Spring Spectaculars in the EMEA region and Nutrition Club training in numerous markets.
The company also continued to support distributor business methods by expanding its distribution reach in key markets and expanding the global distribution of its leading products. “We continue to focus our company resources on increasing product availability and services to better support our distributors’ daily methods of operations,” said Greg Probert, the company’s president and chief operating officer.
In June, the company received notification from China’s Ministry of Commerce that its direct-selling license was expanded to permit the company to conduct its direct-selling business in the entire Jiangsu province. Located in China’s east coast, the Jiangsu province, consisting of 13 cities and 61 counties, has a permanent and transient population of approximately 85 to 90 million people.
The company was also added to the Russell 1000, in June 2007, which tracks the performance of the 1000 U.S. companies with the largest market capitalization. The Russell 1000 accounts for approximately 92 percent of total equities traded on U.S. exchanges.
Regional Performance
The EMEA region reported net sales of $146.0 million in the second quarter, up 0.6 percent versus the same period of 2006. However, excluding currency fluctuations, net sales decreased 5.6 percent. EMEA performance was primarily attributable to net sales growth in several of the region’s top markets, including Spain which was up 24.6 percent; Portugal, up 16.0 percent; Italy, up 14.9 percent; and France, up 6.3 percent, in each case compared to the second quarter of 2006. These net sales gains were partially offset by declines in other core markets including Germany and the Netherlands, which were down 29.1 percent and 19.4 percent, respectively, versus the comparable period of 2006. Total supervisors in the region, as of June 30, 2007, decreased 5.3 percent versus the same period in 2006.
The North America region reported net sales of $113.9 million in the second quarter, up 30.3 percent versus the same period of 2006. Excluding currency fluctuations, net sales increased 30.3 percent. Total supervisors in the region, as of June 30, 2007, increased 20.2 percent versus the same period in 2006.
The Mexico and Central America region reported net sales of $97.9 million in the second quarter, up 4.1 percent versus the same period of 2006. Excluding currency fluctuations, net sales increased 1.4 percent. Total supervisors in the region, as of June 30, 2007, increased 41.8 percent as compared to the same period in 2006.
The SAM/SEA region reported net sales of $59.0 million in the second quarter, up 24.2 percent versus the same period of 2006. Excluding currency fluctuations, net sales increased 18.5 percent. The growth in the region was primarily attributable to double and triple digit growth in the region’s top three markets – Venezuela 320.1 percent, Thailand 38.1 percent and Argentina 20.9 percent. Total supervisors in the region, as of June 30, 2007, increased 42.9 percent versus the same period in 2006.
The Greater China region reported net sales of $47.0 million in the second quarter, up 69.7 percent versus the same period of 2006. Excluding currency fluctuations, net sales increased 70.3 percent. The increase was primarily attributable to sales growth in China and Taiwan, up 187.9 percent, and 43.1 percent, respectively. Total supervisors in the region, as of June 30, 2007, increased 41.1 percent versus the same period in 2006. Herbalife currently operates 47 stores and 37 service centers in 28 provinces in China.
The North Asia region reported net sales of $34.0 million in the second quarter, up 2.4 percent versus the same period of 2006. Excluding currency fluctuations, net sales increased 4.2 percent. This performance reflects an 18.8 percent net sales increase in South Korea, partially offset by a 10.1 percent decline in net sales in Japan. Total supervisors in the region, as of June 30, 2007, decreased 0.4 percent versus the same period in 2006.
The Brazil region reported net sales of $32.3 million in the second quarter, up 4.2 percent versus the same period of 2006. Excluding currency fluctuations, net sales decreased 5.2 percent. Total supervisors, as of June 30, 2007, decreased 0.6 percent versus the same period in 2006.
Third Quarter and Full Year 2007 Guidance
Based on its current business trends, the company is raising its full year 2007 diluted earnings per share guidance to a range of $2.56 to $2.61. Additionally, the company is providing guidance for the third quarter of 2007 in the range of $0.59 to $0.64 for diluted earnings per share. The full year 2007 diluted earnings per share estimates exclude severance expenses associated with the company’s realignment for growth initiative along with the increase in tax reserves reported in the first quarter 2007 financial results and the favorable international tax settlement reported this quarter.
Quarterly Dividend
The Board of Directors approved a quarterly cash dividend of $0.20 payable to shareholders of record effective August 31, 2007, payable September 14, 2007.
Second Quarter Earnings Conference Call
Herbalife’s second quarter earnings conference call will be conducted on Tuesday, August 7, 2007 at 8 a.m. PDT (11 a.m. EDT). The conference call numbers are (866) 219-5268 for domestic calls and (703) 639-1120 for calls made from outside the United States. Additionally, the conference call will be webcasted. The link to the webcast is on the Investor Relations section of the company’s Web site athttp://ir.herbalife.com/. An audio replay will be available following the completion of the conference call in MP3 format or by dialing (866) 837-8032 (domestic callers) and (703) 925-2474 (international callers) and entering access code 1109438. The webcast of the teleconference will be archived and available on Herbalife’s Web site.
About Herbalife Ltd.
Herbalife Ltd. (www.herbalife.com) is a global network marketing company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle. Herbalife products are sold in 65 countries through a network of more than 1.6 million independent distributors. The company supports the Herbalife Family Foundation <http://www.herbalifefamily.org/> and its Casa Herbalife program to bring good nutrition to children. Please visit Herbalife Investor Relations athttp://ir.herbalife.com for additional financial information.
Disclosure Regarding Forward-Looking Statements
Except for historical information contained herein, the matters set forth in this press release are “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words, “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate” and any other similar words.
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 Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:
• our relationship with, and our ability to influence the actions of, our distributors; • adverse publicity associated with our products or network marketing organization; • uncertainties relating to interpretation and enforcement of recently enacted legislation in China governing direct selling; • risk of our inability to obtain the necessary licenses to expand our direct selling business in China; • adverse changes in the Chinese economy, Chinese legal system or Chinese governmental policies; • risk of improper action by our employees or international distributors in violation of applicable law; • changing consumer preferences and demands; • loss or departure of any member of our senior management team which could negatively impact our distributor relations and operating results; • 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; • risks associated with operating internationally, including foreign exchange risks; • 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 on our management team; • uncertainties relating to the application of transfer pricing, duties and similar tax regulations; • taxation relating to our distributors, • product liability claims; and • there can be no assurance that we will purchase any of our shares in the open market or otherwise.
*******************
RESULTS OF OPERATIONS:
Herbalife Ltd. Consolidated Statements of Income (In thousands, except per share data)
Quarter Ended
Six Months Ended
6/30/2006
6/30/2007
6/30/2006
6/30/2007
North America
$
87,360
$
113,885
174,489
218,437
Mexico & Central America
93,983
97,858
178,023
193,754
Brazil
31,028
32,263
66,500
65,557
SAMSEA
47,480
59,012
90,900
114,775
EMEA
145,224
146,038
286,688
289,236
Greater China
27,706
47,058
56,275
87,742
North Asia
33,206
33,986
68,900
68,698
Worldwide net sales
465,987
530,100
921,775
1,038,199
Cost of Sales
92,640
111,361
184,006
218,644
Gross Profit
373,347
418,739
737,769
819,555
Royalty Overrides
167,351
188,509
332,649
368,769
SGA
140,881
152,157
275,925
301,585
Operating Income
65,115
78,073
129,195
149,201
Interest Expense - net
4,955
2,274
10,970
4,478
Income before income taxes
60,160
75,799
118,225
144,723
Income Taxes
23,834
27,690
43,203
55,434
Net Income
36,326
48,109
75,022
89,289
Basic Shares
70,647
70,616
70,297
71,180
Diluted Shares
74,220
73,990
73,954
74,491
Basic EPS
$
0.51
$
0.68
$
1.07
$
1.25
Diluted EPS
$
0.49
$
0.65
$
1.01
$
1.20
1
Herbalife Ltd. Consolidated Balance Sheets (In thousands)
Dec. 31,
June 30,
2006
2007
ASSETS
Current Assets:
Cash & cash equivalents
$
154,323
$
147,044
Inventory, net
146,036
125,450
Other current assets
155,348
179,906
Total Current Assets
455,707
452,400
Property and equipment, net
105,266
112,773
Other Assets
30,931
31,952
Goodwill
113,221
110,866
Intangible assets, net
311,808
310,259
Total Assets
$
1,016,933
$
1,018,250
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
39,990
35,494
Royalty Overrides
116,896
112,166
Accrued expenses
149,575
173,274
Current portion of long term debt
5,599
65,018
Other current liabilities
11,432
11,182
Total Current Liabilities
323,492
397,134
Long-term debt, net of current portion
179,839
150,808
Other long-term liabilities
159,712
164,011
Total Liabilities
663,043
711,953
Shareholders’ equity:
Common shares
143
137
Additional paid in capital
132,755
144,447
Accumulated other comprehensive loss
(782
)
(117
)
Retained earnings
221,774
161,830
Total Shareholders’ Equity
353,890
306,297
Total Liabilities and Shareholders’ Equity
$
1,016,933
$
1,018,250
Herbalife Ltd. Total Supervisors by Region
Region
2Q/2006
2Q/2007
% Chg
EMEA
80,157
75,884
-5
%
Mexico and Central America
53,107
75,302
42
%
North America
57,545
69,195
20
%
SAM/SEA
42,340
60,507
43
%
Greater China
24,349
34,358
41
%
Brazil
34,266
34,066
-1
%
North Asia
18,819
18,750
0
%
Worldwide
310,583
368,062
19
%
Herbalife Ltd. Volume Points by Region (in thousands)
Region
2Q/2006
2Q/2007
% Chg
EMEA
148,104
136,451
-7.8
%
Mexico and Central
160,767
155,143
-3.5
%
America
North America
133,178
175,216
31.5
%
SAM/SEA
60,815
83,091
36.7
%
Greater China
33,633
53,906
60.4
%
Brazil
40,578
37,353
-7.9
%
North Asia
29,145
29,857
2.4
%
Worldwide
606,220
671,017
10.7
%
SUPPLEMENTAL INFORMATION
SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
NORMALIZED 2Q 2006 vs. 2Q 2007
The following is a reconciliation of net income, presented and reported in accordance with U.S.
generally accepted accounting principles, to net income adjusted for certain items:
Three Months Ended
6/30/2006
6/30/2007
Net income, as reported
$
36,326
$
48,109
Tax benefit resulting from an international
income tax audit settlement
-
(609
)
Net income, as adjusted
$
36,326
$
47,500
The following is a reconciliation of diluted earnings per share, presented and reported in
accordance with U.S. generally accepted accounting principles, to diluted earnings per share adjusted for certain items:
Three Months Ended
6/30/2006
6/30/2007
Diluted earnings per share, as reported
$
0.49
$
0.65
Tax benefit resulting from an international
income tax audit settlement
-
(0.01
)
Diluted earnings per share, as adjusted
$
0.49
$
0.64
Note: Amounts may not total due to rounding.
SUPPLEMENTAL INFORMATION
SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
NORMALIZED YTD 2006 vs. YTD 2007
The following is a reconciliation of net income, presented and reported in accordance with U.S.
generally accepted accounting principles, to net income adjusted for certain items:
YTD
6/30/2006
6/30/2007
Net income, as reported
$
75,022
$
89,289
Tax benefit resulting from an international
income tax audit settlement
(3,693
)
(609
)
Expenses associated with the realignment
for growth initiative
-
989
Increase in tax reserves
—
3,565
Net income, as adjusted
$
71,329
$
93,234
The following is a reconciliation of diluted earnings per share, presented and reported in
accordance with U.S. generally accepted accounting principles, to diluted earnings per share adjusted for certain items:
YTD
6/30/2006
6/30/2007
Diluted earnings per share, as reported
$
1.01
$
1.20
Tax benefit resulting from an international
income tax audit settlement
(0.05
)
(0.01
)
Expenses associated with the realignment
for growth initiative
-
0.01
Increase in tax reserves
—
0.05
Diluted earnings per share, as adjusted
$
0.96
$
1.25
Note: Amounts may not total due to rounding.
SCHEDULE B: FINANCIAL GUIDANCE
2007 Guidance
For the Three Months ending September 30, 2007 and Twelve Months Ending December 31, 2007
Three Months Ending
Twelve Months Ending
September 30, 2007
December 31, 2007
Low
High
Low
High
Net sales growth vs. 2006
8.0
%
10.0
%
9.0
%
11.0
%
Effective tax rate (1)
36.0
%
36.5
%
36.0
%
36.5
%
EPS (2)
$
0.59
$
0.64
$
2.56
$
2.61
Cap Ex ($ mm’s)
$
10.0
$
12.0
$
43.0
$
45.0
(1) Excludes the increase in tax reserves which was reported in the
first quarter 2007 financial results and tax benefit resulting from an international
income tax audit settlement.
(2) Excludes the impact of expenses expected to be incurred in 2007
relating to the company’s alignment for growth initiative and the increase in tax
reserves, which was reported in the first quarter 2007 financial result as well as
the increase in tax reserves which was reported in the second quarter 2007 financial
result. Includes accretion related to the company’s recent repurchase of 3.5
million shares in our repurchase program.
2
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