Herbalife Hurdles Expenses from Pyramid Scheme Controversey to Beat on Earnings

Michael Teague  |

According to Herbalife’s (HLF) earnings statement released late on Monday, the company had a much better than expected first quarter of 2013.

The controversial nutritional supplement and healthy-lifestyle company made $118.9 million or $1.10 per share on a 17 percent increase in revenue to $1.12 billion, against the prior year period during which Herbalife netted $108.2 million, or $0.88 per share.

Furthermore, the company indicated that it would have made $1.27 per share were it not for Venezuela’s recent currency devaluation, and, more significantly, the added expense from having to defend itself against a slew of accusations throughout Q1 that the company is a pyramid scheme. Estimates had Herbalife at $1.07 per share for Q1.

The company’s shares spent most of the first quarter at the mercy of the controversy that resulted from a presentation by billionaire investor Bill Ackman, during which he made his original allegations about the pyramid scheme, revealed a huge short position on the stock, and urged investors to do the same.

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The accusations led to a high-profile confrontation between Ackman and Carl Icahn, who owns a significant stake in Herbalife that was televised and widely viewed.

The good news prompted the company to raise its guidance for 2013, predicting earnings per share to be in the range of $4.60 and $4.80, up from the previous $4.45 to $4.65, and expects earnings for the current quarter to be between $1.14 and $1.18 per share.

The numbers are the result of better sales in South America and Asia, and were framed by the company as a vindication of their business model. Company president Des Walsh was unequivocal during an interview in which he rejected Ackman’s short position as a “reckless bet,” based on an “unfounded hypothesis.”

Still, the company was forced to admit in February that it was being looked in to by the Securities and Exchange Commission. Herbalife once again became the subject of controversy earlier in the month when one of the company’s auditors was caught selling insider information.

Shares were up 1.25 percent by the close to $38.75, and were nudged up slightly in late trading by 0.13 percent after the report was released.

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