Herbalife Ltd. boosted its share buyback 50% to $1.5 billion and announced a $1-billion sale of convertible bonds.
Fourth-quarter earnings were probably $1.26 to $1.30 a share based on preliminary results, excluding some items, the Los Angeles company also said Monday. Analysts on average predicted $1.16, according to estimates compiled by Bloomberg. Sales rose about 20%.
Herbalife is rewarding shareholders after new auditor PricewaterhouseCoopers gave the nutrition company a clean bill of health, clearing the way for additional loans to fund stock repurchasing. The buyback comes on the same day that hedge fund manager Bill Ackman’s Pershing Square Management repeated allegations about unethical practices among Herbalife’s distributors.
“They certainly have plenty of cash flow to fund a buyback effort, but by taking on debt that gives them the ability to accelerate the effort,” said Rommel Dionisio, a New York-based analyst for Wedbush Securities. “This gives them another tool for taking advantage of a stock price below where they believe it should be trading. This is a company putting its money where its mouth is, and it should be viewed as a positive move.”
Herbalife shares climbed $4.65, or 7.2% to $69.02. They more than doubled last year.
For the current quarter, the company predicted earnings per share of $1.24 to $1.28. Dionisio lowered his estimate to $1.31 from $1.42. Fourth-quarter results will be released Feb. 18.
Herbalife, which makes vitamins, skin creams and meal-replacement shakes and operates in more than 80 countries, has denied Ackman’s claim. Ackman’s New York company Pershing Square initially sold short at least 20 million Herbalife shares and had lost money on the bet as the stock more than doubled in 2013 and investors, including billionaire Carl Icahn, backed the Cayman Islands company.
Barb Henderson, an Herbalife spokeswoman, declined to comment.
The League of United Latin American Citizens will meet with Federal Trade Commission Chairwoman Edith Ramirez on Wednesday “to ask them to intervene and help us defend our community against pyramid schemes in general and Herbalife in particular,” LULAC National Executive Director Brent Wilkes said.