Herbalife third-quarter results disappoint Wall Street

Nutrition company Herbalife Ltd., which has battled allegations that its business model amounts to an illegal pyramid scheme, reported disappointing third-quarter earnings that missed analysts’ expectations as well as its own forecast.

The Los Angeles company posted a profit of $11.2 million, or 13 cents a share, a huge drop from $142 million, or $1.32 a share, for last year’s third quarter. Net income was affected by currency revaluation in Venezuela. Sales rose 4% to $1.26 billion from $1.21 billion.

Before those pretax charges, Herbalife had adjusted earnings of $1.45 a share. Analysts surveyed by Factset had estimated the company would report earnings of $1.51 a share. The company previously said it expected earnings of $1.49 to $1.53 a share.

Quarterly results were released after the close of trading. Herbalife shares had gained $3.44, or 6.6%, to close at $55.90. In after-hours trading, however, the stock fell more than 12%.

The company also lowered its projection for fourth-quarter earnings to $1.30 to $1.40 a share, far below expectations of $1.69 a share.

Herbalife has faced a bruising attack from activist investor Bill Ackman, who has argued for nearly two years that it operates an illegal pyramid scheme and should be closed by regulators. The company has denied those allegations, saying its business model is legal and used by many other multi-level marketing companies.

Analysts and investors were watching Herbalife’s third-quarter results closely because the company had missed earnings estimates for the second quarter -- the first time it had failed to hit its numbers since 2008.

Despite the second consecutive miss, Herbalife executives said there’s reason for optimism.

“There are ebbs and flows in every business,” Herbalife Chief Financial Officer John DeSimone said in an interview Monday. “A lot of the changes we are implementing and working through right now are going to make us a better business and build us a solid foundation for sustainable growth.”

He said the currency issues in Venezuela that dragged down third-quarter results also will continue to have an effect in the fourth quarter.

“We saw volume increases in two-thirds of our 91 countries, especially Russia and China,” Herbalife Chief Executive Michael O. Johnson said. “Excluding the impact of currency translation in Venezuela, the company had solid increases in both volume and net sales.”

Herbalife’s earnings release came three days after the company reported that it had agreed to pay $15 million to resolve a class-action lawsuit filed by a former Los Angeles distributor who accused the company of operating a pyramid scheme that violated federal and state laws.

Herbalife did not admit wrongdoing, but said in a statement it agreed to the settlement to avoid the costs and distraction of a complex legal challenge and instead “focus on the future growth of the company.”

Herbalife has denied Ackman’s allegations that its business model is an illegal scheme in which its independent distributors make more money recruiting than they do selling the product.

However, the Federal Trade Commission, the Securities and Exchange Commission, the FBI and several state attorneys general have opened investigations. None of them has taken action against the company.

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