Herbalife: All Is Well Despite Short-Seller-Led Dive
By GILLIAN RICH, INVESTOR'S BUSINESS DAILY Posted 05/01/2012
Update: Herbalife (HLF) said after the market close that David "Einhorn's questions raised no new subjects or concerns," saying that "these are issues that have been thoroughly addressed before." It said that "business fundamentals are very strong and we are confident in our financials. The company noted that it has $428 million in a repurchase program and said Tuesday's stock plunge represents "a buying opportunity."
Herbalife shares edged lower in initial after-hours trading, but turned modestly higher as of 4:26 p.m. ET. But the stock crashed 19.9% to 56.30 during the regular session following David Einhorn's questions on its post-earnings conference call Tuesday morning.
Nu Skin (NUS), another global direct-selling firm, sold off 8.3% during the regular session, extending heavy losses since last week's earnings report. Avon Products (AVP) skidded 7.9% after releasing weak quarterly results. Herbalife fell as much as 26.1% intraday.
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Some analysts noted that David Einhorn, a noted short-seller, asked fairly standard questions that would not have raised any alarms if they had been made by anyone else. But the selling was immediate and intense, with volume far above normal.
(Posted 01:27 PM ET)
Herbalife (HLF) shares tumbled 20.2% after a known short-seller from Greenlight Capital (GLRE) questioned the company during its Q1 conference call Tuesday.
David Einhorn asked about changes to Herbalife's 10-K SEC filings and for more information on the breakdown of sales outside its network base vs. sales within the base.
The marketer of nutritional supplements and weight-loss products said it removed information from its filings, saying its new CFO in 2010 decided the information wasn't of value to the business or investors.
But investors rushed to sell Herbalife, trying to follow — or get ahead of — any Einhorn short-selling. Herbalife shares dived 20.2% to 56.13 in afternoon trading.
Herbalife reported first-quarter profit and revenue above Wall Street estimates after the market closed on Monday. Earnings per share rose 22% to 88 cents, topping estimates by 7 cents. Sales grew 21% to $964.2 million, above forecasts of $892.9 million. Volume rose in each regional segment. But Herbalife sees second-quarter EPS of 91-95 cents vs. analyst estimates of 96 cents.
Herbalife's woes also may be affecting other direct-selling firms.
Avon Products (AVP) said EPS fell 73% to 10 cents, falling short of expectations of 28 cents. Sales dropped 2% to $2.58 billion, slightly above estimates of $2.52 billion. Total products sold declined 1% and the number of sale representatives fell 2%. Gross margins fell 3.1 basis points on high labor costs in South America. Avon shares tumbled 7.8% to 19.90.
Nu Skin (NUS), an anti-aging product maker, said EPS rose 32% to 71 cents and revenue grew 17% to $462 million when it reported first-quarter earnings on April 26. Shares fell 8% to 49.05.