Herbalife Ltd. has reported first quarter net sales increased 18.6 percent to $618.6 million and local currency net sales increased 13.3 percent compared to the same period in 2009. The record revenue reflects volume point growth of 6.2 percent and an increase in Average Active Sales Leaders of 7.4 percent, both compared to the first quarter of 2009. First quarter adjusted net income was $61.5 million, or $0.98 in adjusted diluted earnings per share, reflecting an increase of 46.7 percent and 44.1 percent, respectively, compared to the same period in 2009. The 2010 first quarter adjusted results exclude a $9.7 million negative impact to net income, or $0.15 net charge to EPS due to the implementation of highly-inflationary accounting in Venezuela.
For the quarter ended March 31, 2010, the company reported net income of $51.9 million, or $0.83 per diluted share compared to $41.5 million or $0.67 per diluted share in the first quarter of 2009, primarily reflecting the contribution margin from higher volume combined with currency benefits and a lower effective tax rate partially offset by the impact of the implementation of highly-inflationary accounting in Venezuela noted above.
For the three months ended March 31, 2010, the company generated cash flow from operations of $87.4 million, paid dividends of $12.1 million, invested $11.6 million in capital expenditures and repurchased $28.0 million in common stock. The company's net debt balanceat the end of the first quarter was $82.1 million, reflecting an improvement of $17.4 million from December 31, 2009.
The first quarter operating margin of 10.3 percent was negatively impacted by 390 basis points from one-time items associated with the implementation of highly-inflationary accounting in Venezuela. Excluding this impact, adjusted operating income margin was 14.2 percent, a 210bps improvement from the prior year's adjusted operating margin.
"Our Distributors ongoing success using daily consumption business models is fueling the company's momentum and driving continued growth," said Chairman and Chief Executive Officer Michael O. Johnson. "They are in the early innings of the global expansion of these business models, which have the potential to reach dramatically deeper into the marketplace and attract more consumers."
For the quarter, volume points from emerging markets(1) represented 50% of total company Volume Points. In terms of local currency net sales, emerging market countries increased 13.9 percent compared to the prior year period. This growth was driven by increases in India, China, Mexico, Brazil and Venezuela which were partially offset by a decline in Taiwan resulting from the one-time benefit in the first quarter of 2009 driven by the government stimulus coupon program.
Established markets experienced 12.8 percent local currency net sales growth in the quarter compared to the prior year period. The growth in established markets was driven by continued strength in Korea and the U.S.
During the first quarter the company hosted its South American Extravaganza in Quito, Ecuador and celebrated its 30th anniversary at its Leadership Summit in Orlando, Florida where we collectively hosted approximately 16,000 distributors.
First Quarter 2010 Regional Key Metrics(2)
Volume 1Q'10 Average Active
R Points % Chg Average Active Sales Leaders
(Mil) (Y/Y) Sales Leaders % Chg (Y/Y)
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North America 220.1 18.0 % 45,831 13.8 %
Asia Pacific 152.2 5.0 % 31,903 18.9 %
EMEA 119.5 (3.7 %) 32,044 (0.2 %)
Mexico 124.2 3.2 % 34,481 3.9 %
South & Central America 101.1 (1.5 %) 27,217 2.0 %
China 25.6 22.8 % 5,318 5.7 %
----------------------- ------ ---- -- -------------- ------- -------
Worldwide 742.7 6.2 % 169,715 7.4 %
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The North America region reported volume points of 220.1 million in the first quarter of 2010, reflecting an increase of 18.0 percent versus the same period of 2009. Volume point growth in the U.S., the largest country in the region, increased 18.7 percent compared to 2009, reflecting an increase in both the Latin market and General market of 21.3 percent and 14.3 percent respectively compared to the first quarter of 2009. For the quarter, Average Active Sales Leaders in the region increased 13.8 percent compared to the prior year period.
The Asia Pacific region reported volume points of 152.2 million in the first quarter of 2010, reflecting an increase of 5.0 percent over the same period of 2009 despite the negative impact of Taiwan, where volume points declined 28.2 percent as that country anniversaried the one-time favorable benefit of the government stimulus coupon program in the first quarter of 2009. Top countries in the region include Korea, with volume point growth of 70.1 percent and India where volume point growth was 51.9 percent, both compared to the same period in 2009. Average Active Sales Leaders in the quarter improved 18.9 percent compared to the same period in 2009.
The Europe, Middle East and Africa (EMEA) region reported volume points of 119.5 million in the first quarter of 2010, reflecting a decrease of 3.7 percent versus the same period in 2009. The top market in this region was Italy where volume points declined 2.7 percent compared to the same period in 2009. Average Active Sales Leaders in EMEA were essentially flat, declining 0.2 percent for the quarter compared to the prior year period.
The Mexico region reported volume points of 124.2 million in the first quarter of 2010, reflecting an increase of 3.2 percent versus the same period of 2009. Average Active Sales Leaders in Mexico increased 3.9 percent for the quarter. During the quarter the company expanded its fixed distribution locations by more than 300 through its ongoing distribution agreement with a Mexican store chain which we believe will improve distributor access to our products.
The South and Central America region reported volume points of 101.1 million in the first quarter of 2010, reflecting a decrease of 1.5 percent versus the same period of 2009. During the first quarter, the top markets in this region were Brazil, with volume point growth of 1.3 percent and Venezuela, with a volume point increase of 2.0 percent, both compared to the same period in 2009. Average Active Sales Leaders improved 2.0 percent for the quarter compared to 2009.
The China region reported volume points of 25.6 million in the first quarter of 2010, reflecting an increase of 22.8 percent over the same period of 2009. The company currently operates through 75 retail store locations in 30 provinces and is licensed for direct sales in 11 provinces. Average Active Sales Leaders increased 5.7 percent for the quarter compared to the same period in 2009.
Share Repurchase Program Update
The company's Board of Directors today authorized a $700 million expansion to the existing $300 million share repurchase authorization program bringing the total amount of Herbalife stock which the company may repurchase up to $1 billion over a five year period expiring on December 31, 2014. The company has utilized approximately $100 million already, bringing the total remaining under the combined authorization to approximately $900 million.
John DeSimone, the company's Chief Financial Officer, said, "We have a unique business model which continues to generate significant and consistent free cash flow. This additional authorization speaks to our Board's belief that Herbalife shares remain under-appreciated and under-valued in the marketplace and the company's commitment to utilize a meaningful portion of our excess free cash flow to return value to investors." Since 2007, the company has returned $600 million to shareholders through the repurchase of 16 million shares.
Herbalife's share repurchases, if any, may take place from time to time at management's discretion based on market conditions, and shares may be purchased in open-market, privately negotiated or other transactions.
Updated 2010 Guidance
Based on current business trends, the company's second quarter 2010 and fiscal 2010 guidance is provided below.
Effective January 1, 2010, Venezuela was designated as a highly inflationary economy. Our 2010 guidance excludes the impact of one-time items related to implementation of highly inflationary accounting for Venezuela which were recorded in the first quarter.
Second Quarter - The company's second quarter 2010 diluted earnings per share guidance range is $0.89 to $0.92 on volume point growth of 8.0 percent to 9.0 percent and net sales growth of 12.0 percent to 13.0 percent compared to the same period in 2009, respectively, and an effective tax rate range of 30.5 percent to 31.5 percent. The company's second quarter 2010 capital expenditures are expected to be in the range of $20 million to $25 million.
Fiscal 2010 - The company's new full-year diluted earnings per share guidance is $3.80 to $3.90(3) on volume point growth of 6.5 percent to 7.5 percent and a net sales increase of 11.0 percent to 12.0 percent compared to 2009, respectively, along with an effective tax rate range of 30.0 to 31.0 percent(3). Full-year 2010 capital expenditures are expected to be in the range of $65 million to $75 million.
First Quarter Earnings Conference Call
Herbalife's senior-management team will host an investor conference call to discuss the company's first quarter 2010 financial results and provide an update on current business trends on Tuesday, May 4 at 8 a.m. PST (11 a.m. EST).
The dial-in number for this conference call for domestic callers is (877) 758-1051 and (706) 634-5671 for international callers (conference ID 51796805). Live audio of the conference call will be simultaneously webcast in the investor relations section of the company's Web site at http://ir.herbalife.com.
An audio replay will be available following the completion of the conference call in MP3 format or by dialing (800) 642-1687 for domestic callers or (706) 645-9291 for international callers (conference ID 51796805). The webcast of the teleconference will be archived and available on Herbalife's Web site.
About Herbalife Ltd.
Herbalife Ltd. is a global network marketing company that sells weight-management, nutrition, and personal care products intended to support a healthy lifestyle. Herbalife products are sold in 73 countries through a network of approximately 2.1 million independent distributors. The company supports the Herbalife Family Foundation and its Casa Herbalife program to help bring good nutrition to children. Herbalife's Web site contains a significant amount of information about Herbalife, including financial and other information for investors at http://ir.Herbalife.com. The company encourages investors to visit its Web site from time to time, as information is updated and new information is posted.
(1) Emerging markets are being defined as those countries which the World Bank categorizes as having "low" or "medium" GDP per capita.
(2) Supplemental tables which may include additional business metrics can be found at http://www.ir.Herbalife.com.
(3) FY'10 EPS guidance excludes the impact from the implementation of highly inflationary accounting in Venezuela.