Herbalife (HLF) Shares Spike After Hours on Earnings Beat

Earnings

Herbalife beat their Q1 profit and sales forecast and consequently their 2015 guidance has been raised. They closed on Tuesday, May 5 at $40.09 and quickly soared to a high of $46.88 (+$6.79) up nearly 17%.  A large part of HLF exceeding expectations was due to lower expenses and growing sales in China. This surge in share price is a knock for long time short position holder and activist investor, Bill Ackman.

Outlook

The past two years have been a struggle for Herbalife with both regulatory claims and slow growth. Hedge fund manager Bill Ackman had accused Herbalife of running a pyramid scheme. Since the claims, HLF has reportedly had to adjust their business model. Although Ackman has been betting against HLF stock with a $1 billion short position in 2012, Herbalife has the backing of both Carl Icahn and George Soros.  Bill Ackman has recently spoken about his short position on Herbalife.  When he initiated his short position over 2 years ago many believed regulators would step in and possibly shut the company down.  Instead, Herbalife has continued to do business around the world.  Ackman now believes without regulators stepping in to shut down the company, the company will eventually collapse on it’s own.  He has accused Herbalife as operating a pyramid scheme.  In March of 2015, U.S. District Judge Dale Fischer dismissed a lawsuit against Herbalife claiming shareholders lost money because the company is a pyramid scheme.

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Analyst Comments

While revenue did decline by 12 percent to $1.11 billion in the quarter, Herbalife’s results exceeded analyst projections. Sales in China, rose 21 percent and China sales helped offset a drop in South America, Central America and North America. Net income in the first quarter rose 4.8 percent to $78.2 million, or 92 cents a share, from $74.6 million, or 74 cents, a year earlier. Profit was $1.29 a share, exceeding the $1.01 estimates average.  The company hasn’t had any new ratings from analysts in 2015.

Technical Analysis

The chart below shows Herbalife’s trading for the past year. Their 52 week low was just under $30 and their high for the year is $69.69.

Company Description

Herbalife is a global nutritional company started in 1980. They sell health supplement products including–weight management, snacks, energy, sports and fitness and nutritional products. Their corporate office is in Los Angeles, California.