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Herbalife Ltd. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 1, 2011 05:06PM
Herbalife Ltd. (HLF) filed Quarterly Report for the period ended 2011-06-30.
Highlight of Business Operations:
Net sales for the three and six months ended June 30, 2011 were $879.7 million and $1,674.8 million, respectively. Net sales increased $190.8 million, or 27.7%, and $367.3 million, or 28.1%, for the three and six months ended June 30, 2011, respectively, as compared to the same periods in 2010. In local currency, net sales for the three and six months ended June 30, 2011 increased 19.9% and 22.1%, respectively, as compared to the same periods in 2010. The increase in net sales was primarily due to the continued successful adoption and operation of daily consumption DMOs; increased distributor engagement as reflected by record 2011 sales leader retention and an increase in average active sales leaders; branding activities and increased distributor recruiting.
Net income for the three and six months ended June 30, 2011 was $111.2 million, or $0.88 per diluted share, and $199.2 million, or $1.57 per diluted share, respectively. Net income increased $29.0 million, or 35.3%, and $65.2 million, or 48.6%, for the three and six months ended June 30, 2011, respectively, as compared to the same periods in 2010. The increase for the three months ended June 30, 2011 was primarily due to higher contribution margin driven by net sales growth discussed above, partially offset by higher salaries, bonuses and benefits, higher distributor promotion and event costs, higher professional fees, higher foreign exchange losses and higher non-income tax expense such as sales tax and value added tax. Net income for the three months ended June 30, 2010 was favorably impacted by foreign exchange gain related to Venezuela, as described below. The increase for the six months ended June 30, 2011 was due to the same factors mentioned above; and also partially offset by higher expenses related to China sales employees and licensed business providers. In addition, net income for the six months ended June 30, 2010 was also negatively impacted by matters related to Venezuela, as described below.
Net income for the six months ended June 30, 2011 included a $0.9 million pre-tax ($0.7 million post-tax) additional interest expense from the write-off of unamortized deferred financing costs resulting from the debt refinancing arrangement in March 2011. See Note 4, Long Term Debt, to the Notes to Condensed Consolidated Financial Statements for further information on our debt refinancing.
Net income for the three months ended June 30, 2010 included a $4.0 million pre-tax ($2.6 million post-tax) foreign exchange gain in our Venezuelan subsidiary, Herbalife Venezuela, as a result of remeasuring its Bolivar denominated monetary assets and liabilities as of June 30, 2010 at the SITME rate of 5.3 Bolivars per U.S. dollar as opposed to the last parallel market rate of 8.3 Bolivars per U.S. dollar. Net income for the six months ended June 30, 2010 also included a $15.1 million unfavorable impact related to remeasurement of monetary assets and liabilities resulting from Venezuela being designated as a highly inflationary economy beginning January 1, 2010; a $12.7 million unfavorable impact related to incremental U.S. dollar costs of 2009 imports into Venezuela which were recorded at the unfavorable parallel market exchange rate and were not devalued based on 2010 exchange rates but rather recorded to cost of sales at their historical dollar costs as products were sold in the first quarter of 2010; a $3.7 million favorable impact resulting from receipt of U.S. dollars approved by the Venezuelan governments Foreign Exchange Commission, or CADIVI, at the official exchange rate relating to 2009 product importations which were previously registered with CADIVI and a $14.5 million one-time favorable impact to income taxes related to Venezuela becoming a highly inflationary economy. See the discussion below under Liquidity and Capital Resources Venezuela for further information on Herbalife Venezuela and Venezuelas highly inflationary economy.