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Earnings Results: Herbalife executives cut forecast, point fingers at newest ‘distributors’ as stock heads for 2-year low

Herbalife Nutrition Ltd. shares headed toward their lowest price in more than two years Tuesday afternoon, following a forecast reduction that executives blamed on newer “distributors.”

Herbalife
HLF,
+3.07%
,
a multilevel marketing company focused on nutrition that relies on individual promoters it calls distributors, now expects sales to decrease 4% to 10% this year after predicting flat to 6% growth just three months ago. Executives’ expectations for adjusted earnings now call for $3.50 to $4 a share, after previously stating $4.25 to $4.75 a share.

The move came as Herbalife announced an unexpected 11% fall in quarterly sales and an earnings decline. Herbalife recorded earnings of $98.2 million, or 96 cents a share, on net revenue of $1.34 billion, down from $1.5 billion a year ago. After adjusting for COVID-19 costs and other effects, the company reported earnings of 99 cents a share, down from $1.42 a share a year ago.

Analysts on average expected adjusted earnings of 90 cents a share on revenue of $1.38 billion, according to FactSet. Herbalife shares fell roughly 10% in after-hours trading immediately following the release of the report, after closing with a 3.1% increase at $27.57. Shares were trading for less than $25 in the after-hours period, a level they have not reached in a regular session since March 2020.

Herbalife executives pointed their fingers at distributors who have joined the company during the pandemic. They said that live events are expected to return soon, which could help the newer distributors’ performance.

“The company has identified that, as a group, the behavior of distributors that joined the business during the pandemic has departed from historical trends and is below the company’s expectations,” the new release states. “This slowdown is primarily isolated to the collective performance of that group, while distributors that joined the business pre-pandemic, and the entirety of the company’s preferred customer base continue to order at historical levels.”

Executives also pointed to inflation as a cause, saying they expect to raise prices and will look to cut costs.

“While organic sales growth remains our top priority, we are working on multiple fronts to improve our margin profile that supports our strong operating model, which has delivered powerful cash flow over the years,” Chief Financial Officer Alex Amezquita said in a statement.

Herbalife stock has declined 32.6% so far this year, as the S&P 500 index
SPX,
+0.48%

has fallen 12.4%.

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