Why Were Herbalife Earnings Such a Disappointment?

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July 28 (Bloomberg) -- Herbalife, the nutrition company facing a U.S. regulatory probe, posted second-quarter profit that trailed analysts’ estimates as sales volumes declined in the Americas. Bloomberg's Duane Stanford takes a look at the numbers on "Taking Stock." (Source: Bloomberg)

Thanks for joining "taking stock ." what is the big take away from bees numbers?

Herbalife has had a long straight, 20 one quarters, a beating expectations, and people are looking for them to beat expectations quarter in and quarter out.

You see the result in the shares today.

People sharing the -- taking the shares down now.

Duane, i was on the buy side.

The analysts often get them wrong.

Not only were the analysts getting the numbers wrong -- perhaps with the help of the company -- but the number one trend i saw, and i spent most of the day working on these numbers, the decline in sales quarter after quarter after quarter.

The growth rate, yes it is growing, but it is the slowest growth rate in 14 quarters.

Yeah, that is right.

And you saw today sales missing at least expectations to read one of the areas is the u.s. right now -- volume is down in the u.s. latin america volume was down.

In the u.s., they have had changes lately to how sales leaders can qualify, and they say that slowed some of the volume down, although more people are involved.

They think that will translate later into more sustainable sales.

And of course in latin america, u.s. economic issues and they cited -- i just got off the phone with the cfo -- and he talks about the world cup distracting people in brazil, which could be depressing sales there.

So the world cup is not making people want to get as healthy?

I know they are selling the health claims in brazil.

I feel like the story is always told that it is bill ackman versus wall street or some -- like it is a wall street story and not a business story.

But indeed, they admit they are changing business right this is because of what they call -- they have a line item in their results called "the attack cost" of what they are spending to fend off attacks.

It is hard to imagine the business would need to spend to defend itself if they did not have something that they did not want people to look at.

They have spent the last two years changing various aspects of the business.

One of the classic examples is the refund policy.

A used to be you had to pay for a restocking fee.

You paid for the shipping to get the product and to pay for the shipping to return it later.

They change that so the only shipping you pay if the original shipping.

You do not pay that restocking fee.

They have made several changes like that the last two years.

What ever happens with bill ackman's eventual case, one thing you can't take away, he has pressed the company to make its business better.

Indeed those rules about returns are not a small thing.

1979, the federal trade commission decided if you did not accept returns, that was one of the things that went toward defining what a pyramid scheme is.

And it is very important when it cost you to return product will kind of risk there is there.

One of the cases bill ackman makes his people are coerced into buying a lot of product they cannot eventually sell.

Herbalife says the business is risk free for people now because they can return all of the products within a year, and so there should be no reason people are buying product they have to stuff in the closet in the basement.

That is the core of the debate right now.

This text has been automatically generated. It may not be 100% accurate.


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