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HLF – Q3 2011 HERBALIFE LTD
EARNINGS CONFERENCE CALL
EVENT DATE/TIME: NOVEMBER 01, 2011/3:00PM, GMT
OVERVIEW:
HLF reported 3Q11 EPS of $0.87. Expects full-year 2011 net sales growth to be 24.5-25.0%. Expects FY12 net sales growth to be 8-10% and EPS to be $3.25-3.45.
Expects 4Q11 net sales growth to be 13-15% and EPS to be $0.68-0.72.
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NOVEMBER 01, 2011/3:00PM GMT, HLF – Q3 2011 HERBALIFE LTD
EARNINGS CONFERENCE CALL
CORPORATE PARTICIPANTS
Brett Chapman Herbalife Ltd. – General Counsel
Michael Johnson Herbalife Ltd. – Chairman, CEO
Des Walsh Herbalife Ltd. – President
John DeSimone Herbalife Ltd. –CFO
CONFERENCE CALL PARTICIPANTS
Pierre Ostlund Jefferies & Co. – Analyst
John San Marco Janney Montgomery Scott – Analyst
Mike Schwartz SunTrust Robinson Humphrey –Analyst
Linda Bolton-Weiser Caris & Company – Analyst
Tim Ramey D.A. Davidson & CO. – Analyst
Scott Van Winkle Canaccord Genuity – Analyst
Anand Vankawala Avondale Partners – Analyst
Chris Ferrara BofA Merrill Lynch – Analyst
PRESENTATION
Operator
Good morning and thank you for joining the third quarter 2011 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 Company’s Safe Harbor language.
Brett Chapman – Herbalife Ltd.- Chairman, CEO
Before we begin, as a reminder, during this conference call comments may be made that include some forward-looking statements. The statements involve risks and uncertainties and, as you know, actual results may differ materially from those discussed or anticipated. We encourage you to refer to yesterday’s earning release and our SEC filing for a complete discussion of risks associated with these forward-looking statements and our business. In addition, during this call certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements, prepared in accordance with US generally accepted accounting principals 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 press release for this quarter which contain a reconciliation of these measures. Additionally, when management makes 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
Thanks Brett. Good morning everyone and welcome to our third-quarter earnings call. Today we are very pleased with the record results that were reported yesterday. Specifically, the sixth consecutive quarter of double-digit top line growth. We would like to take this moment to congratulate our distributors who are once again leading the way through increased engagement and approved activity. And of course, our employees who remain keenly focused on the servicing and the needs of our distributors. For the first time in our history, the Company exceeded 1 billion volume points in a single quarter.
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NOVEMBER 01, 2011/3:00PM GMT, HLF – Q3 2011 HERBALIFE LTD
EARNINGS CONFERENCE CALL
We continue to believe that our top line growth is a result of strategically pursuing three large global mega-trends. First, the global obesity epidemic which shows no sign of letting up. In fact, last month the Red Cross reported that more people die in the past year from complication of associated with obesity than those that died as a result of being malnourished. Secondly, anti-aging, people today are living longer and desire to take more control of their personal health regimen. And lastly, earning extra income. Whether it is here in the US or other developed markets were underemployment is a big an issue as unemployment, or in emerging markets where people want to improve their socioeconomic stature, the pursuit for supplemental income is seemingly universal.
Herbalife is uniquely positioned to capitalize on these three mega-trends through our products and our business opportunity. We believe it is the confluence of these mega-trends along with our products and our distribution and compensation plan that continue to positively differentiate our company. On a product front we continue to build our leading position in the global weight management category to provide solutions for healthy weight management. As a result, the Company’s global market share in the meal replacement and slimming category increased from 29% in 2009 to 33% last year. And we expect with double-digit growth in our weight management product category that our market share could easily increase for 2011.
We are building off this leadership position in the weight management category by introducing products that center around our core competencies such as a seasonal flavors of our Formula One shakes, our new Prolessa shake boost to help with both satiety and fat burning. As well as our new line of Herbalife 24 products. While it is very early, we continue to be very excited about the Herbalife 24 line. Which we officially launched at the recent US and EMEA Extravaganzas.
The Herbalife 24 product line is a sports performance line that will likely appeal to an expanded customer base adding to that of the traditional Herbalife products. Our strategy behind the introduction of Herbalife 24 includes the potential to attract a new category or demographic of distributor. To drive brand awareness and distributor confidence, to continue to leverage our team athletic and events sponsorship. One of the first things you learn at Herbalife is use, where, talk. That message is stressed in everything we do. You see the product, you were the brand and you talk to people. It is no different with me, or any distributor in our company. Our business is based on product results and person testimonials.
Ever since joining Herbalife I’ve had my own personal testimonial about our Formula One shake and other products. And in this quarter, I added another personal testimony of our new Herbalife 24 line. Recently I competed in the Leadville 100, a 100 hundred mile mountain bike race in the Colorado mountains. Herbalife had a team of 30 riders competing and this year with the help of our Herbalife 24 line, I was able to beat my 2010 time by almost 69 minutes. Now I have my own testimonial.
Turning to our business opportunity, Herbalife continues to provide a meaningful compensation opportunity for people in developed and emerging markets we offer individuals the opportunity to generate either supplemental or full-time income. Our income opportunity has proven itself successful for emerging markets such as Mexico, Brazil, Russia and India as well as in established markets like right here in the United States and in Korea. The business opportunity continues to be enhanced by the globalization of daily consumption. Distributor methods of operation, as evidenced by our broad-based growth and volume, increased level of distributor activity, and record retention rates.
During the third-quarter Average Active Sales Leaders were up 24% versus last year and for the second consecutive quarter this year it increased in all six regions. More people than ever before are attracted to our business opportunity as they witness Herbalife distributors successfully growing their businesses. Let’s take a minute for an update on one of our key strategic initiatives designed to enhance and support the business opportunity of our distributors, iChange. The iChange website that we introduced to distributors at the beginning or 2011 is beginning to gain traction. The site is another tool that allows distributors to maintain a consistent and frequent dialogue with their customers. A crucial foundation in our direct sales model. The herbalization of iChange website was completed late this quarter and distributors who are using iChange beta version are beginning to see meaningful improvements in their business. We are expected to release iChange to all distributors in our original eight beta markets and throughout the EMEA Region this quarter.
Another key strategic area of investment for us has been the area of brand and image. As many of you have seen recently, Herbalife was the title sponsor of the World Football Challenge, it was featured on ESPN, Univision and other networks around the world. Additionally, the strengthening of our brand will come through giving back to our communities and to the world at large both at the corporate level and through activities of our distributors.
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NOVEMBER 01, 2011/3:00PM GMT, HLF – Q3 2011 HERBALIFE LTD
EARNINGS CONFERENCE CALL
Last month as part of our commitment to improving nutrition around the world,
We announced at the Clinton Global Initiative a partnership with GAIN, the Global Alliance for Improved Nutrition and DSM, one of our key nutrient suppliers. With this agreement, we agreed to distribute 20 million micro nutrient sachets to those in need throughout the Horn of Africa. Working collectively with the DSM and with our distributors it is our intent to develop a sustainable solution for providing nutrition into these key future markets. Before passing the call over to Des, let me conclude my prepared remarks by providing you with a snapshot of our recent distributor events. As those of you who visited our Atlanta Extravaganza are aware, our extravaganzas are a great place for us to experience the engagement, and passion of our distributors firsthand. This past weekend in Las Vegas we wrapped up our annual extravaganza season. From July through September we have seen more than 80,000 distributors at events in Minsk, Mexico city, Barcelona, Seoul, Istanbul and in October in Atlanta, Rio de Janeiro, and Las Vegas. The enthusiasm of our distributors and their excitement at thee growth that they are experiencing in their businesses is tremendous. It is creating new success stories that we are sharing around the world.
You’ve heard me say this before and it deserves repeating, we are just getting started. Our aspirational goal is to achieve 10 billion volume points by 2020.
Our products and our business opportunity are more relevant for the global marketplace than at any time in our 31-year history. As is, the way we go to market, person-to-person, direct sales. We are the original social network with a highly entrepreneurial distribution base who are passionate about the results that they have achieved with our products and the business opportunity. The globalization of daily consumption business methods is enabling more distributors to be successful than ever before in our history. Our brand and image continue to gain recognition and strength worldwide and we’re just getting started. And lastly, our strategic initiative and investments continue to target top line growth opportunities.
We’re building a strong Global management team of a robust infrastructure that are capable of maintaining the positive momentum we are experiencing in a of our regions around the world we believe these investments, coupled with the strong engagement of our distributors should continue to allow us to report strong financial performance. Now let me turn it over to Des for specific market updates.
Des Walsh Herbalife Ltd. – President
Thank you Michael. The momentum we are seeing in our business is driven by two key forces, our distributors’ commitment to expanding daily consumption business methods around the world and the continuing commitment of our distributors to Herbalife’s mission for nutrition. The third quarter was tremendous. As Michael mentioned, this the first time that the Company has ever exceeded 1 billion volume points in a quarter and frankly, we believe that we are just getting started. It was our founder Mark Hughes’ aspirational goal that Herbalife would one day achieve $5 billion in retail sales and at the pace we are going that milestone may be just around the corner. When we look at the key metrics that we report to investors such as volume points. Local currency net sales, new distributors and Average Active Sales Leaders, every region posted increases in every metric.
We have often mentioned the transformation that is occurring in our business due to the expansion of daily consumption business methods and this quarter is a stellar example of the positive changes that we are seeing throughout the markets in which we operate. We believe the momentum behind this evolution will continue to accelerate as more distributors in more markets have success acculturating daily consumption business methods to their markets. Daily consumption business methods not only drive increased distributor engagement, they also drive increases in consumer engagement. One key characteristic of daily consumption business methods, whether nutrition clubs, weight loss challenges or distributor led fitness boot camps, is that the distributor and their consumers have much more frequent contact than is normal for traditional direct sellers. Based on the consumer research that we have conducted in the US, Mexico and Korea, Nutrition Club customers in each market indicate that approximately 80% of them visited the Club more than three times a week. In the US and Mexico, more than 50% of Club members stated that they visited the Cub every day that the club was oopen and between 30% and 40% of those people had been attending the club for more than one year.
As daily consumption takes root in various markets around the world, we see fascinating adaptations of the model through both the acculturation and refinement of the concepts that are driving growth. When we see successful and sustainable business methods we work with the distributors to help globalize these concepts. Right now, we are excited about systemized training methods that we are seeing driving growth and duplication and Mexico and new Club membership methods that are beginning to see success in the US, particularly among the general market and the Generation H groups.
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