Herbalife upbeat on 4Q, but sees expenses rising
Herbalife 4Q outlook tops St. view, but sees higher expenses as investors criticize business
LOS ANGELES (AP) -- Herbalife on Thursday posted a fourth-quarter outlook that bested analyst predictions. But the nutritional supplements distributor, which has been defending against accusations that its business is a pyramid scheme, said it may have a "temporary increase in expenses" due to "recent events."
Last month hedge fund manager William Ackman alleged that Herbalife Ltd. was a pyramid scheme and that he was shorting the stock. Short-sellers make money when the shares they're betting against decline. The Wall Street Journal also reported in early January, citing unidentified sources, that the Securities and Exchange Commission had opened an inquiry into Herbalife.
But another prominent investor, Dan Loeb of Third Point LLC, disclosed an 8.2 percent stake in the company — a vote of confidence.
The company has struck back as well. A week ago Herbalife executives looked to refute Ackman's allegations during an analyst and investor meeting, laying out everything from how the business operates to who its customers are.
Ackman didn't back down, however, saying Herbalife "distorted, mischaracterized, and outright ignored large portions" of his December presentation.
Greenlight Capital's David Einhorn had also raised concerns about Herbalife's business in May.
Herbalife said Thursday that a temporary increase in expenses this year was more likely but did not say by how much expenses could rise.
"We are as confident as ever in the future of Herbalife and remain fully committed to complete transparency and defending our successful business model and track record for the benefit of all stakeholders," Chairman and CEO Michael Johnson said in a statement.
For the fourth quarter, which ended in December, Herbalife expects per-share earnings of $1.02 to $1.05, up from 86 cents in the same period the year before. Analysts surveyed by FactSet predict profit of $1.01 per share.
The company also said it expects revenue grew 20 percent, which equates to about $1.06 billion. Analysts expect $1.04 billion in revenue.
The company, which is incorporated in the Cayman Islands and based in Los Angeles, expects to report its full-year financial results on Feb. 19.
The company's shares declined $1.12, or 2.5 percent, to $43.94 in premarket trading. The stock has had big swings since Ackman disclosed his short position on Dec. 19, but is up 6 percent though Wednesday's close.
