7 Reasons Herbalife’s Earnings Are Much Worse Than They Look

Herbalife reported earnings on Monday and they were atrocious. A couple weeks ago Michael Johnson, in an interview with LA Magazine insulted “knuckleheads in bathrobes that blog” like me. Today, Mr. Johnson posted a horrendous quarter that is likely the beginning of the end for his company. Maybe if he spent a little more time passing out Herbalife flyers on PCH and a little less time reading my articles, the quarter would have been slightly better.

Back to earnings. I’m not going to get into the details, but nearly every metric they could have missed, they missed. Here’s a CNBC video that explains how the company missed on revenue, EPS, and guidance. And here’s a couple shots of the income statement, balance sheet, and cash flow from the company’s PR. I’ve made some casual notes in red (I just randomly picked a color):

The cash flow:


The income statement:oops

And all you need to know about the balance sheet:oops2

Now, for the real report – here’s 7 reasons why this report was much worse than people think.


1. Put frankly, this EPS was on a juiced amount of shares. Herbalife has been buying back shares since 2012 when a $1 billion + share buyback was approved. Although the company disclosed that they didn’t buy any shares back this quarter, this bullshit $1.45 “adjusted” EPS number would have been just $1.14 two years ago before Herbalife bought back a ton of stock. And the fully diluted GAAP EPS of $0.13 (ew), would have been $0.10. Yuck.


2. The guidance is horrendous. Herbalife lowered both its Q4 guidance, and it’s full year 2015 guidance. 

It also disappointed with its fourth-quarter earnings guidance, which it now pegs at $1.30 to $1.40 per share, shy of analysts’ expected $1.69 per share.

For 2015 the company forecast sales would be in a range from up 2 percent to down 1 percent. Analysts had expected sales to rise 7 percent. The low end of its earnings guidance for 2015 was also more than $1 below Wall Street expectations.

I have no idea how the market is going to place a value on next year’s guidance, seeing as how management should have lost all credibility from this last “guide down and miss low” event. John DeSimone is going to be on CNBC tomorrow around lunch time to plead his case, but with “adjusted” numbers like these and questionable guidance, I’m not sure how anyone can trust this management team.

3. The sell-side is going to have to weigh in on this. There’s no way the bulls can keep defending this company, right? The bulls and the sell side analysts always use growth as the reason to back this stock. This has now been two quarters that show that growth, for this company, appears to be slowing down. When the sell-side turns on the company, so will the novice investors with their e*Trade accounts that are inexperienced enough to follow sell side analysts. When the public turns on the company and the stock, both are going to feel the effects. What is senior analyst at Pivotal and well known wine advocate Tim Ramey going to say about his $110 price target?


4. The chair of the company’s audit committee “retired” from the Board of Directors. Read it again, it really is just as horrendous as you think. I guarantee you he didn’t pick now simply as a coincidence, and I’d bet Icahn’s guys are next.This PR was buried by earnings, as it was put out just seconds before the earnings PR was put out. It looks like this:

ooooooops5. Distributor confidence is clearly shaken – when confidence shakes, Herbalife begins to be its own worst enemy. This report finalizes one thing for me: people around the globe are starting to understand that you can’t get rich selling Herbalife products. The pyramid was going to saturate at some point – may not have been now, per se – but Mr. Ackman has catalyzed a “squeeze” of his own. By informing the world about the predatory nature of the company, Mr. Ackman forced a “pyramid squeeze,” where saturation sits in much quicker than if Herbalife had went along on its own.This is the proof we’ve been waiting for, this is pyramid scheme saturation.

Maybe that’s why it’s been reported that Herbalife is moving into Greenland! (population 56,989, or 1.47% of the population of Los Angeles).

6. All the exoneration talk and the class action settlements in the world can’t stop the fact that the FTC is still investigating the company. Charlie Gasparino and Tim Ramey can say they “expect the company to be exonerated” as much as they want, it’s not going to change the fact that we do not have an outcome yet. Yes, I know it’s hard to believe when a hard hitting source like Fox News reports that the company’s executives “expect to be exonerated,” but it’s become clear they don’t know whether or shit or wind their collective wristwatches at this point. It was quite a last few weeks of huffy puffy PR from the executives, now we know it was perhaps to give the stock a prop before this turdburger they fed us today.

7. You think it’s tough making your numbers as you’re operating now? Wait until the company gets the “disciplinary action” it expects from the FTC. Then, try and make that $5.90 guidance for next year.


This quarter should sum up the argument for a lot of bulls that were on the fence from last quarter’s miss. What we see here is bona fide saturation and I’m hoping these headlines catalyze the FTC to move in quicker on this company. An injunction now would at least preserve some of the assets that Herbalife has for potential payback for those that have been harmed. I continue to contest that this company is a worldwide confidence game that needs to be shut down by regulators – the sooner, the better.

If the FTC steps in soon, this could be the very last earnings report we ever see from Herbalife.

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