Herbalife’s New Marketing Approach Could Impact Q4 Sales

Herbalife Ltd (HLF) is a multi-level marketing company specializing in the nutrition and fitness segments. The company is expected to post their results after market close. Unfortunately, Herbalife’s results from the past two quarters have missed market and Wall Street expectations.

Herbalife is currently being investigated by the Federal Trade Commission. In the middle of this investigation, the company has decided to institute new limits on the volume of products a new salesperson can purchase from the company.

Michael O. Johnson, the Chief Executive Officer of the company stated in November, 2014 that the company’s new marketing approach could continue to have a slightly negative impact on growth and volumes of sales over the near term. However, he continued to explain that the new limitations will improve customers’ and members’ experiences and put Herbalife in a position that will generate even more success in the future.

The company stated their expectations of sales in the fourth quarter is that they will exhibit a decline between 0 and 3 percent compared to the same quarter of the previous year. Herbalife’s shares haven’t seen much change as they were trading at $33.84. However, since November, the company’s share price has declined by 23 percent.
The Federal Trade Commission started investigating the company in March, 2014, requiring the company to hand over all documentation regarding their marketing and advertising from 2009 until the investigation started.
Other federal and state regulatory agencies are believed to be investigating the company after Bill Ackman, a genius hedge fund manager, accused the company of being nothing more than a pyramid scheme and has been engaged in shorting the stock for quite a long time.

Herbalife stated that they were cooperating fully with the FTC but that it could take a number of years to sort everything out. Even with the uncertain future, four of the six analysts covering the stock have maintained their rating of buy for the company, with the other two issuing ratings of hold.

Timothy S. Ramy from Pivitol Research has long been bullish on Herbalife. Last week, he came out and said that the stock was really cheap and that it’s unlikely the FTC investigation will find anything wrong.

Wall Street is expecting the company to post adjusted EPS of $1.22 for the fourth quarter, with revenues expected to hit the $1.16 billion mark. Last year, for the same quarter, Herbalife generated adjusted EPS of $1.16 per share with revenues hitting the $1.27 billion mark.