If hedge-fund billionaire Bill Ackman can’t destroy Herbalife (HLF), maybe Venezuela will.
Herbalife stock tanked Tuesday morning after the company reported earnings that included a charge related to a revaluation of its South American business that caused HLF’s income to drop more than 90%. The stock plunged nearly 15% at the open to trade at $48 a share, down from Monday’s closing price of $55.90 a share.
The latest pounding is a continuation of what has been a miserable year for the multi-level marketing company. Shares have been volatile ever since activist investor Bill Ackman disclosed his billion-dollar short of Herbalife stock back in 2012. But, prior to this year, they often broke out to the upside, against the billionaire’s bet.
This year, Herbalife stock hasn’t been in the black at any point for the year-to-date. It’s suffered from the absence of any of Ackman’s rivals taking a highly publicized long position. Before Tuesday’s steep sell-off, Herbalife stock was down 29% so far this year. As recently as mid-September, Herbalife stock was off nearly 50% for the year-to-date.
Ackman’s charges that HLF is a pyramid scheme have so far failed to stick, but that can’t be said for global macroeconomic woes. Herbalife used to be a profit machine, but now all it can offer up are earnings misses and reduced guidance — a double-whammy for any stock.
For the most recent quarter, HLF said net income fell to $11.2 million, or 13 cents a share, from $142 million, or $1.32 a share, a year earlier.
The biggest damage was done by Venezuela, where changes in the country’s currency caused HLF to take a charge of $139.5 million, or 97 cents a share. A $15 million settlement of a lawsuit with a former distributor also took a bite.
Herbalife Stock Slammed on Earnings, Outlook
But even after excluding those charges, earnings came to just $1.45 a share to miss Wall Street’s target. Analyst polled by FactSet were looking for earnings of $1.51 a share. And although sales rose 4% to $1.26 billion from $1.21 billion, but the Street was looking for revenue of $1.32 billion.
As bad as it was for HLF to miss estimates for a second straight quarter after beating them in every quarter from 2008 to the second quarter of this year, it was the outlook that really sunk Herbalife stock.
Herbalife said it expects net sales to drop between 5% and 8% in the fourth quarter on a year-over-year basis. Uglier still, earnings are projected at $1.30 to $1.40 a share, a total gutting of the company’s prior outlook for $1.69 a share.
HLF expects its ongoing issues in Venezuela to weigh on results in the current quarter as well, so there’s little chance of a turnaround in volume and sales growth until next year.
There was really no reason to get involved in Herbalife stock before the earnings disaster. It traded on a clash of billionaire egos for too long and still faces the uncertainty of federal investigations into its practices.
With Venezuela torpedoing HLF better than Ackman ever could, Herbalife is an enjoy-the-show stock and nothing more.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
