FINAL TRANSCRIPT
Thomson StreetEvents
HLF – Q2 2010 Herbalife Ltd. Earnings Conference Call
Event Date/Time: Aug. 03. 2010/ 3:00PM GMT
CORPORATE PARTICIPANTS
Brett Chapman
Herbalife Ltd. – General Counsel
Michael Johnson
Herbalife Ltd. – Chairman & CEO
John DeSimone
Herbalife Ltd. – CFO
Des Walsch
Herbalife Ltd. – President
CONFERENCE CALL PARTICIPANTS
Tim Ramey
D.A. Davidson & Co. – Analyst
John San Marco
Joanney Montgomery Scott- Analyst
Bret Jordan
Avondale Partners – Analyst
Scott Van Winkle – Analyst
Chris Ferrara – Analyst
PRESENTATION
Operator
Good morning and thank you for joining the second quarter 2010 earnings conference call for Herbalife Ltd. On the call today is Michael Johnson, the Company’s Chairman and CEO; the Company’s President, Des Walsh; John DeSimone, the Company’s CFO; and Brett Chapman, the Company’s General Counsel.
I would now like to turn the call over to Brett Chapman to read the companies Safe Harbor language.
Brett Chapman – Herbalife Ltd. – General Counsel
Before we begin, and as a reminder, during this conference call comments may be made that include some forward-looking statements.
These statements involve risks and uncertainty and, as you know, actual results may differ materially from those discussed or anticipated. We encourage you to refer to yesterday’s earnings release and our SEC filings for a complete discussion of risks associated with these forward-looking statements and our business In addition, during this call, certain financial information performance measures may be discussed that differ from comparable measures that are contained in our financial statements which were prepared in accordance with US generally accepted accounting principals. These are referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe these non-GAAP financial measures assist management and investors in evaluating and comparing period to period results of operations in a more meaningful and consistent manner.
Please refer to the Investor Relations section of our website, Herbalife.com, to find our second quarter 2010 press release containing a reconciliation of these measures. Additionally, when management make reference to volume during this conference call they are referring to volume points.
I’ll now turn the call over to Michael.
Michael Johnson – Herbalife Ltd. – Chairman & CEO
Good morning and welcome to our second quarter 2010 earnings call.
I think you know this already, we had a terrific first half of the year. A great way to celebrate our 30th anniversary. In the first quarter we set both to top and bottom line records and we followed that performance with even stronger results at both the top and bottom line in the second quarter. To our distributors and employees, we’d like to say congratulations, as each month in the quarter we set new volume point records. April, May and June are now the three highest volume point months in our history.
Equally impressive is that some of the markets Herbalife has been in for the longest are experiencing double-digit volume point growth. The United States, our founding market, which opened 30 years ago, increased 22% compared to the second quarter last year. Mexico, a 20 year old market, grew by 11% and Korea, open almost 15 years, was up an amazing 92%. The continued growth we’re experiencing in these markets, where our penetration rates are the highest, is what gets us excited about the opportunity in front of us for all 73 of our countries. We believe there are three primary reasons why our results continue to outperform our peers in the industry.
First, the consumer awareness of the obesity epidemic coupled with the importance for good nutrition not only here in the United States but round the world has never been greater, and that awareness is accelerating. With almost 63% of our products in the weight-management category, our products are more relevant than they ever have been before. Second, our distributors are working harder than ever as they continue to build stainable business models with the long-term customers who are consuming our products on a daily basis. This focus on daily consumption, combined with recent changes in our marketing plan, allows more distributor to say access the business opportunity than ever before. It’s attracting more consumers and distributors to Herbalife than at any time in our history. And it’s enabling distributors to be successful with Herbalife. We have more distributors moving up the marketing plan, committed to growing successful businesses, and we are retaining them for longer periods of time. Third, the brand and the image of Herbalife are continuing to strengthen. Herbalife is more visible and better recognized than ever before.
Together with our distributors, we sponsor over 150 teams, athletes and events worldwide, including the LA Galaxy, Puma, Santos, Valencia, FC [Chakra], RC Strasbourg, and the AYSO. Our June sponsorship announcement of FC Barcelona and personal sponsorship of soccer phenomenon, Lio Messi, brought us global press coverage, worldwide recognition and most importantly tremendous confidence and pride among our distributors. At the World cup, there were a total of nine players from our sponsored teams on the winning Spanish team. It’s the competitive advantage Herbalife has in these areas, relevant products, the potential for individuals to build a successful business and a strengthening brand and image that provide the confidence for to us believe we will continue to report strong results throughout the year. Accordingly, we are raising our full year 2010 earnings per share estimates to a range of $4.30 to $4.40 on a 12% to 14% volume growth, and a 15% to 7% net sales growth. This new full year 2010 guidance range represents a $0.50 increase from the guidance provided a quarter ago and would have been $0.17 higher if not for the impact of currency fluctuations over the past four months.
Turning to the report reported results, yesterday we reported record second quarter earnings per share of $1.32, which was $0.55, or 62% above our second quarter 2009 performance. Importantly the improvement of earnings was driven primarily by revenue growth. As was the case with our first quarter results. Our reported net sales in the quarter increased almost 21% compared to the same period in 2009. Our growth was very broad, with all of our regions in each of our top ten markets achieving local currency sales growth during the quarter. Des will provide an additional detail regarding the topline results in just a few minutes.
Another indicator of the broad health of our business is that we are experiencing new distributor growth in each of our regions during the second quarter. In total, we had approximately 20% growth in new distributors worldwide. Distributor growth by region in available for you all to see on our website.
Returning to the financials, reflecting one of the strongest aspects of our business model is that we generated $83 million in cash flow from operations in the quarter. During the quarter we repurchased $51.2 million in stock and paid $12 million in dividends. As you read in yesterday’s press release, our Board of Directors approved an increase in our quarterly dividends from $0.20 to $0.25. This dividend increase reflects the Company’s positive outlook for continued growth. Let me add that our first priority for uses of cash has always been and will be remain to make investment and initiatives to support distributor growth and distributor productivity. Herbalife is fortunate that we have the ability to continue to increase our investments in these growth oriented initiatives while also maintaining a healthy return for our investors through both dividend and share repurchase programs.
Before I pass it over to Des, I’d like to recap some of the key events of the past few months. We kicked off the quarter with an amazing events in the Asia Pacific region. Our Singapore Extravaganza was the largest event Herbalife has ever hosted in Asia with almost 18,000 distributor in attendance. We were recently in Europe for Extravaganza’s in Kiev, Turin, and Stockholm where we had approximately 17,000 very enthusiastic distributors in attendance. At these events we had the opportunity to speak with distributors who’s are moving up the marketing plan and it was extremely gratifying to hear how they are building sustainable business models with long-term customers. Our distributors are also building our brand, wearing Herbalife gear, sponsoring sports and fitness activities in their communities, and getting involved in making their communities better places to live and work. We are celebrating our 30th year in business and meeting with these up and coming distributors and it demonstrates to us why we believe that we are truly just getting started.
So, now let me conclude by turning it over to Des Walsh for specific market updates.