The long-running Wall Street soap opera known as Herbalife (HLF) reported earnings for its fiscal 4th quarter after the bell Tuesday. Both earnings and revenues came in-line with Zacks Consensus Estimates, but what's driving HLF shares higher in the after market is its fiscal year earnings guidance, which has been raised to $5.85 - $6.05 per share -- well above our consensus of $5.37.
Revenues of $1.27 billion in the quarter matched the Zacks estimate exactly, as did earnings per share of $1.28. These numbers had been bumped northward following Herbalife's preliminary guidance a couple weeks ago, which did not at the time see much love from investors upon the update. Some observers found this a bit strange, however, especially seeing Herbalife increased its share buyback program to $1.5 billion, which was 50% higher than was expected.
Herbalife is, however, seeing some love now: HLF was up 3.8% prior to the earnings announcement in regular-day trading, and it's up another 2.4% as of this moment.
Shares of HLF fell three weeks ago amid the continued controversy regarding its business model as an unsafe investment by Senator Ed Markey (D-MA), following the insistent table-pounding from activist investor Bill Ackman that Herbalife is a "pyramid scheme." Herbalife endured an audit in mid-December 2013 and came out with a clean bill of health. This didn't stop Ackman from writing as letter to Herbalife investors about the company's "improper" sales recruiting methods inflating sales figures.
For an excellent and comprehensive -- if completely pro-biased -- account of this and many other aspects of the story surrounding this Zacks Rank #2 (Buy) company, please read Zacks Aggressive Growth Strategist Brian Bolan's Bull of the Day article from January 24, 2014 -- one day after shares fell 10% on Sen. Markey's actions inquiring to the SEC and FTC regarding Herbalife's operations.
Herbalife's business model is not as straightforward as some, but it isn't one-of-a-kind, either. Multi-level marketing companies like Herbalife, NuSkin (NU) and Avon (AVP) all rely or had previously relied on recruitment of sales reps to sell their products. Herbalife, which specializes in nutritional supplies, seems to have precedent on its side... at least for the moment. Stay tuned!