• Net Sales: $1.3 billion, down 2.5% on a reported basis, up slightly on a constant currency basis.
• FX Headwinds: 270 basis points impact on net sales.
• Adjusted EBITDA: $180 million, exceeding guidance, with a margin of 14.1%.
• Gross Profit Margin: 77.9%, up 90 basis points year-over-year.
• Adjusted EPS: $0.54, including a $0.07 FX headwind.
• Operating Cash Flow: $103 million for the quarter.
• Capex: $36 million in the second quarter.
• Leverage Ratio: Reduced to 3.5 times at the end of June.
• Regional Performance: Net sales growth in Latin America, EMEA, and Asia Pacific on a local currency basis.
• Recruiting Growth: Worldwide distributor recruiting up year-over-year, reversing 12 consecutive quarters of decline.

• Warning! GuruFocus has detected 4 Warning Signs with HLF.

Release Date: July 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Herbalife Ltd (NYSE:HLF) exceeded its adjusted EBITDA expectations for the second quarter, achieving $180 million, which was above the guidance range.
• The company reported a 14.1% adjusted EBITDA margin, marking the highest in seven quarters and a 120 basis point improvement year-over-year.
• Herbalife Ltd (NYSE:HLF) successfully reduced its total leverage ratio to 3.5 times and aims to further reduce it to three by the end of 2025.
• The company saw a reversal in distributor recruiting trends, with worldwide distributor recruiting up year-over-year, ending 12 consecutive quarters of decline.
• Herbalife Ltd (NYSE:HLF) is implementing innovative initiatives like the Herbalife Premier League and the Mastermind program to enhance distributor engagement and productivity.

Negative Points

• Herbalife Ltd (NYSE:HLF) missed its top-line guidance due to higher-than-anticipated foreign exchange headwinds, resulting in a 2.5% decline in reported net sales.
• The company faced a challenging market in China, with net sales declining by 7% year-over-year, partly due to a strategic shift towards preferred customers.
• Herbalife Ltd (NYSE:HLF) experienced a 7% year-over-year decline in North American net sales, primarily driven by the U.S. market.
• The company anticipates continued FX headwinds, with a projected 300 basis point negative impact on net sales for the third quarter.
• Herbalife Ltd (NYSE:HLF) adjusted its full-year net sales guidance downward, reflecting lower volume expectations and unfavorable currency movements.

Q & A Highlights

Q: Can you provide an update on the progress of turning around North American sales, and what needs to happen for it to come to fruition? A: Stephan Gratziani, President, explained that the focus is on leveraging the Nutrition Clubs model, which has over 10,000 locations in the U.S. The opportunity lies in converting transactional customers into transformational ones, who are more engaged with the multilevel marketing model. The Mastermind program is designed to support club owners in this transition by providing high-level coaching and accountability, which is expected to drive growth.

Q: Could you elaborate on the Q3 EBITDA guidance, considering the FX headwinds and other factors? A: John DeSimone, CFO, noted that the Q3 guidance reflects a $7.5 million impact from FX, higher bonus accruals, and timing of significant distributor events, such as the FCCC event in Italy and the Mastermind event. Additionally, some advertising and promotion expenses were shifted from Q2 to Q3, impacting the guidance.

Q: What is driving the change in full-year guidance, particularly the $75 million lower sales outlook for the second half? A: John DeSimone explained that the lower volume expectations are due to underperformance in countries like China, Indonesia, and Turkey. The transition in China, focusing on preferred customers, is taking longer than expected. Additionally, FX headwinds have worsened, contributing to the revised guidance.

Q: Can you discuss the pilot program in Latin America where you reduced net prices, and what benchmarks will determine its success? A: John DeSimone stated that the program aims to optimize pricing and compensation to reach more consumers and make the opportunity more attractive. Success will be measured by increased volume that offsets the price decrease, leading to higher overall earnings. The program's expansion will depend on its results and distributor feedback.

Q: How should we think about the impact of the new TAB sales leaders program on long-term growth? A: Stephan Gratziani highlighted that the program supports top-level leaders responsible for go-to-market strategies and new distributor recruitment. It aims to ensure these strategies are effective and relevant, leveraging successful models from different markets. The program is part of a holistic approach to support both top-down and bottom-up growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.