Business

Herbalife stock plunges after earnings miss estimates

Herbalife has been closely watched since Bill Ackman accused it of operating an illegal pyramid scheme
Herbalife has denied Bill Ackman's allegations, saying he is distorting the facts to depress its stock price

Los Angeles nutritional products company Herbalife reported a lower-than-expected profit for the second quarter and investors hammered its stock in after-hours trading.

Excluding one-time expenses, such as the cost of its aggressive defense against critics who say it operates an illegal pyramid scheme, Herbalife posted earnings of $1.55 a share. Analysts had expected earnings of $1.57 a share, according to a survey by Zacks Investment Research.

It marked the first time since 2008 that the seller of protein powders, supplements, teas and juices had missed earnings estimates.

Herbalife reported the bad news after markets closed Monday. Its shares had gained $1.42, or 2.1%, to close at $67.48, but fell more than 11% in after-hours trading.

The company reported record revenue of $1.3 billion for the quarter.

Herbalife has been one of the most closely watched stocks on Wall Street since December 2012, when hedge fund manager Bill Ackman accused the company of operating an illegal pyramid scheme that victimizes its mostly poor and Latino network of independent salespeople.

Ackman maintains that the vast majority of Herbalife distributors make little or no money while a fortunate few at the top of the pyramid earn six- and seven-figure incomes as a reward for recruiting so many people into the business. He said he shorted the company's stock by more than $1 billion, a move that would allow him to profit if its shares fell.

Herbalife has repeatedly denied the allegations, saying Ackman is distorting facts to depress the stock price and thus strengthen his holdings.

The Federal Trade Commission, Securities and Exchange Commission, FBI and two state attorneys general have opened investigations into Ackman's claims, but none of them have taken action against the company.

Still, it's been an expensive battle for Herbalife. The company said it spent $8 million on legal, advisory and other expenses in the second quarter to defend itself against Ackman's allegations. It spent an additional $5.1 million related to the FTC inquiry.

Last week, Herbalife's stock plummeted 11% after Ackman said he intended to release new, explosive allegations about the company. But it soared 25% the following day as investors shrugged at Ackman's allegations.

Herbalife Chief Executive Michael O. Johnson was upbeat in a news release.

"Herbalife has once again delivered strong results in sales and profitability while demonstrating our continued ability to enhance our earnings per share," Johnson said. "Our performance is a testament to the enthusiasm our millions of consumers and members have for our products."

stuart.pfeifer@latimes.com

Twitter: @spfeifer22

Copyright © 2015, Los Angeles Times
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