Herbalife shows new vitality

first_img AD Quality Auto 360p 720p 1080p Top articles1/5READ MORECasino Insider: Here’s a look at San Manuel’s new high limit rooms, Asian restaurant Five years later, Herbalife is in the throes of a dramatic turnaround that has seen it post record sales, double its stock price and gear up to conquer what could be its largest market yet – China. “Management has turned this around in the last two years, but they really hit their stride in the last year,” said Scott Van Winkle, managing director of investment bank Canaccord Adams in Boston. In the third quarter of 2005, the most recent period for which Herbalife has reported financial results, the company generated $401 million in net sales, a record quarter. Net income was $27.1 million, compared with $11.5 million in the same quarter of 2004. Herbalife will release full 2005 financial results on Feb. 21. Analysts are expecting annual earnings per share of $1.52. In 2004, Herbalife posted full-year earnings per share of 27 cents. Excluding one-time items, the company had projected earnings of 87 cents per share. CEO Michael Johnson and Greg Probert, president and chief operating officer, beefed up research to update Herbalife’s product line from its staple of weight-management, nutrition and skin care offerings to include items for fitness, endurance and children. Herbalife has rolled out at least one new product every year. Last year, it began offering an effervescent drink called Liftoff aimed at the youth and energy drink market. They also launched a heart-health line called Niteworks and a vitamin-based skin care product called NouriFusion. To keep recruiting and retention of its distributors strong, the company plans to roll out a Web site later this year to let customers place orders directly, while still funneling the sales through distributors, who number 1 million in 60 nations. The number of distributors in the higher-selling supervisor tier, seen as a key barometer of Herbalife’s sales potential, has been on the rise. Johnson, who has run triathlons, has also been keen on burnishing Herbalife’s image by sponsoring athletic events such as the Michelob Ultra London Triathlon and the Nautica Malibu Triathlon. The company also sponsors the AVP Pro Volleyball Tournament in the United States. Johnson and Probert, former Walt Disney Co. executives, were brought in by venture capital firms J.H. Whitney & Co., of Stamford, Conn., and Golden Gate Capital Inc., of San Francisco, which bought Herbalife in 2002 for about $685 million. The company’s market capitalization is now $2.37 billion. An initial public stock offering in December 2004 raised more than $200 million. The two buyout firms took out $400 million in a secondary stock offering a year later. Herbalife shares have traded in a 52-week range of $14.52 to $35.55 and closed at $35 on Tuesday. Herbalife has had to fight some legal battles along the way, including claims that its products contained the stimulant ephedra, a shareholder lawsuit over Hughes’ attempt to buy back the company in 2000, and a class-action suit filed by low-level Herbalife distributors accusing the company and a group of high-ranking distributors of operating a pyramid scheme. Herbalife settled the suits. Johnson waves off the notion that he’s behind a sweeping change at Herbalife. “You call it a turnaround; we call it a fixer-upper,” said Johnson, 51, explaining that his management team has sought to build on the foundation left by Hughes. Hughes launched Herbalife International in 1980 when he was just 24, but soon found himself on the defensive. He tussled against the California attorney general, who sued Herbalife, alleging that the company used an illegal pyramid scheme and made false medical claims. The suit was settled in 1986. Nevertheless, the company’s business thrived as people became more concerned about eating healthily and losing weight. Hughes was found dead at 44 in his $25 million Malibu home. The coroner’s report said he died of an accidental overdose of alcohol and a prescription antidepressant – a blow to the image of healthy living Hughes had cultivated as head of Herbalife. Before Johnson, two other chief executives tried to lead Herbalife but the focus soon turned toward selling the company. Herbalife lost ground while other direct-sellers incorporated Internet technology and other advances. “No capital investment, no real active management, no new product innovation or development, really nothing was being done for a few years,” Van Winkle said. The leadership vacuum brought infighting between high-ranking distributors, prompting some to leave, recalled Gabriel Sandoval of El Dorado Hills, a 13-year veteran of Herbalife and one of its biggest U.S. distributors. “It was a really hard time for me, a really hard time for everybody,” said Sandoval, 58. “Now, everything is in place. We believe again.” Sandoval, who described Hughes as a father figure, said Johnson has tapped into that same style while giving distributors a greater say in how the company operates. Johnson and Probert sought to put more local control in their regional markets, which saw brisk growth last year. Net sales in the Americas in the third quarter of 2005 rose to $180.7 million from $116.1 million in the year-ago period. Sales in Mexico more than doubled, while sales in Brazil were up 71.2 percent. Net sales in the United States increased 15.1 percent while sales in Europe were basically flat with a 2.8 percent increase. Next up on Herbalife’s crosshairs is expansion in China. In December, that nation changed laws that had restricted all but a few direct-selling companies from doing business there. Herbalife has applied for a license and Probert expects it will be granted later this year. The company has lured Percy Chin, the architect of Amway’s $2 billion China operations, to lead its launch. “I believe Herbalife is going to have significant success in China; I think their product is very well suited,” analyst Van Winkle said. 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! Herbalife International thrived under founder Mark Hughes. Handsome, young and buoyed by his rags-to-riches story, Hughes built a billion-dollar business over two decades by inspiring legions of people around the world to buy and sell his nutritional supplements and other health products. But his death in 2000 from a drug and alcohol overdose sent the company reeling. Sales lagged in the U.S., Herbalife’s biggest market, as the company tried to manage without Hughes through a shuffle of top management that ultimately opted to sell the company. last_img

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