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Herbalife Limited (HLF)

Q2 2012 Earnings Call

July 31, 2012 11:00 AM ET


Brett Chapman – General Counsel

Michael Johnson – Chairman and CEO

Des Walsh – President

John DeSimone – CFO


Tim Ramey – DA Davidson

John San Marco – Janney

Linda Weiser – Caris & Company

Scott Van Winkle – Canaccord



Good morning and thank you for joining the Second Quarter 2012 Earnings Conference Call for Herbalife Ltd.

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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

Before we begin, 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 performance measures may be discussed that differ from comparable measures contained in our financial statements, prepared in accordance with U.S. generally accepted accounting principles, 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,, to find our press release for this quarter, which contains 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

Thanks, Brett. Good morning everyone, and welcome to our second quarter 2012 earnings conference call. As you know, it’s been a unique quarter, but the results that we are going to discuss today demonstrate that the noise of the past few months has been outside, not inside Herbalife. As a testament to the strength of our distributors and our business, we are happy to report another record quarter.

We continued to demonstrate financial performance with another record quarter and for the first time in our 32-year history our net sales topped $1 billion in a quarter; that’s up 17%. Volume points of 1.2 billion increased by 23% over the prior year second quarter, and EPS is $1.10, a 25% increase. Our growth continues to be very broad-based.

Each of our six regions experienced strong double-digit volume point growth in the quarter. Five of our regions – Asia, North America, Mexico, China, South and Central America – exceeded 15% volume growth. EMEA had a 13% increase in volume point. Average active sales leaders increased 24% in the quarter and Des will provide more color around these regional results in just a minute.

Our financial performance has never been stronger. The consistency of our growth in financial results is due to the dedication and hard work of everyone at team Herbalife. So I want to say thank you to our independent distributors and to our employees around the world for another record performance.

For more than 32 years, Herbalife independent distributors and employees have been helping millions of people achieve their weight management and nutrition goals. This has always been the culture at Herbalife and good nutrition has never been more relevant or important than now.

Obesity continues to be a major health issue around the world, and 64% of our sales are in the weight management category. A new Cornell University study has found that in the U.S. alone obesity now accounts for almost 21%, more than $190 billion of all of our healthcare costs, which is more than two times larger than prior estimates. At Herbalife fighting obesity is job one. Our Formula One shake is the number meal replacement shake in the world, with more than 30% market share according to Euromonitor data. And in 32 years, we have and are continuing to help millions of people reach and maintain a healthy weight.

Over the past several years, a growing portion of our business has been driven by our distributors around the world moving to daily consumption business methods with long-term sustainable customers. We believe that daily consumption business methods now generate approximately 40% of our volume. With more than 36,000 non-residential nutrition clubs operated by our distributors around the world, Herbalife products and distributors are more accessible to more customers than ever before.

Many investors on this call and all of our Wall Street analysts have been into clubs throughout the U.S. and in some cases Mexico, Brazil or even Russia, and they can attest to the fact that there are more customers enjoying Herbalife products on a more frequent basis than ever before. The success our distributors are having continues to be driven by our high-touch, frequent contact business methods. This has changed how we go to market as well as how we look at the business.

We believe that direct selling is the best model for our product portfolio. You’ve heard Des discuss the circle of success in the past. Our weight management, nutritional supplements and sports performance products are best sold, we believe, person-to-person, where a distributor’s testimonial about his or her personal use can speak to the benefits of consuming our product. It all starts with products which drives the results and creates the passion that our distributors convey to their customers.

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