NEW YORK (TheStreet) - Herbalife (HLF - Get Report), on Monday evening, reported disappointing second quarter earnings that were below Wall Street consensus. The multi-level supplements seller also lowered its revenue guidance for the third quarter and full-year, causing shares to tumble over 10%.
Los Angeles-based Herbalife has been waging a multi-year battle against hedge fund billionaire William Ackman of Pershing Square Capital Management, who bet $1 billion against the company's shares and called it a pyramid scheme. Herbalife has strongly denied Ackman's claims and spent tens of millions of dollars on advisors and public relations campaigns to rebut the hedge funder's assertions.
Last Tuesday, Ackman caused quite the roller-coaster in Herbalife shares when he took to CNBC and Bloomberg to pitch a three-hour presentation that would show the company to be a fraud. On Wednesday, his presentation disclosed new information on the way Herbalife's network of Nutrition Clubs work. He alleged that most of Herbalife's apparent Nutrition Club customers are actually part of the company's recruitment chain. Herbalife, however, stood by its business and said Ackman had over-promised and under-delivered with his presentation.
While Ackman's presentation was revealing, it did not contain the smoking gun he'd promised. Herbalife shares surged 26%, their most on record. Shares are now giving back gains in the wake of Herbalife's disappointing earnings and guidance. Those who remain believers in Herbalife are likely going to tune into the company's earnings call to get a better understanding of why earnings fell short and guidance is falling.
On Monday, Herbalife left language about regulatory probes into its business unchanged:
Given the nature of recent allegations made by certain short sellers and related market events, the Company has received and believes it may receive additional state and federal governmental and similar inquiries (such as the previously disclosed inquiries from the FTC and SEC). To the extent any of these inquiries are or become material they will be disclosed individually. Consistent with its policies, the Company is and will fully cooperate with any inquiries and looks forward to resolving them in a timely manner.
Herbalife did disclose that regulatory probes are costing its business far more than in previous quarters. Expenses tied to the FTC's probe more than quadrupled in the second quarter to $5.1 million.
The company reported revenue of $1.3 billion and adjusted earnings per share of $1.55, both slightly missing estimates compiled by Bloomberg. The company also generated cash flow of $156.9 million and repurchased $581 million of stock, or 9.8 million shares.
For the third quarter, Herbalife now expects between 9% and 11% net sales growth and diluted earnings per share of between $1.49 and $1.53 a share. For the full-year, the company now expects between 8.5%-to-10.5% net sales growth and diluted EPS of up to $6.32 a share. Those estimates reflect a fall in Herbalife's guidance on revenue, but a rise in EPS.
TheStreet will be live-blogging Herbalife's conference call on Tuesday, starting at 10:45 a.m..
-- Written by Antoine Gara in New York