Herbalife (HLF) is getting hit after hours as the "you call it Ponzi scheme, we call it multi-level marketing" powerhouse issued lower-than-expected fourth-quarter and full-year 2009 guidance, which looks especially stinky considering that the company actually CUT its tax-rate outlook. The culprit? That lousy, stinking, cheating, rising dollar! Let's look at this excerpt from the press release:
The company’s initial diluted earnings per share guidance range for 2009 is $3.00 to $3.20 on volume point growth of four percent to five percent and net sales flat to up one percent compared to 2008, respectively, reflecting late October foreign exchange rates coupled with an effective tax rate range of 27.5 percent to 28.5 percent. In addition, currency movement of minus 10 percent to plus 10 percent on all of our currencies compared to the U.S. dollar, from late October levels, would have a negative seven percent to positive seven percent and negative 21 percent to positive 21 percent impact on net sales and earnings per share, respectively, compared to our full year 2009 ranges provided above.In other words, if you own Herbalife, you're making a pretty serious bet that not only will the company execute, but that the U.S. dollar will decline.
Assuming Herbalife opens tomorrow at $22, the stock is trading at about 7 times expected 2009 earnings with a 3.6% dividend yield. The balance sheet could be better, as Herbalife has about $177 million in net debt, but the company is a free-cash-flow machine. So I'm adding Herbalife to my watch list, but I'm going to see how the conference call goes before sticking my neck out.
P.S. The picture above is in fact a real Herbalife ad I found in a Brooklyn subway station.
*****************
Like What You're Reading? Click Here to Subcribe To Our RSS Feed!
2 comments:
Do you believe that as more people lose their jobs in this bad job environment they will turn to multilevel marketing companies like herbalife. As an anecdote, I have friends that were very involved in Quixtar for a while and were very passionate about. And since then, I have seen their products more and more around campus and in the gym.
I'm sure more people will consider MLM as a means to earn money. However, I believe any positive impact from that dynamic will be offset by the strong dollar and softer consumer spending. Nonetheless, I'm considering going long the stock - just watching the action for now.
Post a Comment