Herbalife Ltd. (NYSE:HLF) shares are down this morning after the nutrition products maker revised its expectations about the impact of new regulations on its business while its guiding earnings higher. HLF stock is off almost 5% in premarket activity.
HLF now expects adjusted earnings of 95 cents to $1.15 per share in the second quarter ending June 30, compared to the 88 cents to $1.08 per share expected previously. However,the Los Angeles-based company guided a revenue metric — volume points — about 3 percentage points lower. The company said the transition to the new Federal Trade Commission (FTC) regulations plus softness in Mexico was to blame for the lowered sales expectations.
“Whenever we introduce change in the marketplace there is typically a short-lived slowdown in sales followed by a return to growth,” Herbalife spokesman Alan Hoffman said in an email, first reported by CNBC. “We believe this is a short-term episode and that the second part of 2017 will pick up.”
Herbalife recently starting to follow new regulations required by the FTC as part of its settlement with the company in August. HLF agreed to pay a $200 million fine — the largest ever imposed by the commission — and stringent rules on how it accounts for nutritional product sales.
Under the settlement, Herbalife has to show a minimum of 80% of sales are booked outside the its distributor network; only a small share of that is allowed for personal consumption by HLF’s 300,000 U.S. distributors. In turn, those distributors must also provide receipts for their sales to show they have legitimate end customers. The company also agreed to an independent watchdog for seven years to ensure it complies with the new rules.
The shares have gained 54% this year, defying HLF stock bear and activist hedge fund investor Bill Ackman whose $1 billion bet against the company led to an investigation by the FTC which resulted in the record settlement.
