Herbalife shares rise on repurchase plan, increased earnings forecast
Herbalife Ltd. shares were up about 2% on news that the company intended to cancel its dividend and use the money on a major repurchase of its shares.
Michael O. Johnson, the company’s chief executive and chairman, told analysts in a conference call Tuesday that the company believes its stock price is undervalued on relentless allegations that it operates an illegal pyramid scheme.
He made the statements after announcing that the Los Angeles nutrition company had achieved double-digit sales growth for the 18th consecutive quarter. It also raised its earnings estimate for the year, saying it now expects adjusted profit to reach between $6.10 and $6.30 a share this year, up from a previous forecast of $5.85 to $6.05.
Herbalife said it will use the money from the discontinued dividend to buy back $216 million more of its shares than previously planned. The company said it expects to buy as much as $581 million worth of its stock in the current quarter.
“We have the opportunity to create long-term value for shareholders by repurchasing our stock now, while the overhang of the short selling campaign has contracted our multiple,” Johnson said.
Herbalife has been embroiled in controversy since December 2012, when activist investor Bill Ackman accused the company of operating a pyramid scheme that will ultimately be shut down by regulators.
The company’s stock has been highly volatile since then, as it announced it was under investigation by the Federal Trade Commission and Securities and Exchange Commission. Law enforcement sources also said the FBI was looking into the company’s business practices.
Johnson sought to reassure investors Tuesday that the company’s business is perfectly legal.
“Herbalife welcomes the inquiry given the tremendous amount of misinformation in the marketplace, and we are cooperating fully,” Johnson said of the FTC investigation. “We are confident that Herbalife is in compliance with all applicable laws and regulations.”
Ackman has accused the company of misleading the independent distributors who sell its products in more than 80 countries around the world. He said the independent sales people are fooled with promises of vast wealth, when most end up making little or no money selling its nutrition and weight- loss products.
Herbalife President Des Walsh said at the conference call that the company has improved the disclosures to new members and offers to refund them for any unsold product.
Herbalife shares were up $1.23, or 2%, to $60.08 at 10 a.m. PDT.
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