Herbalife says it plans to buy back shares, a sign that management thinks… (Patrick Fallon, Bloomberg )
Herbalife Ltd. forecast that fourth-quarter earnings will come in higher than expected but said expenses could rise as the nutritional supplement distributor ramps up its fight with activist hedge-fund manager William Ackman.
The Los Angeles company said Thursday it also plans to buy back shares, a sign that management believes the stock is undervalued. It's a much-needed boost for a company that's been mired in a battle with an investor who says the company is on its way downhill.
"Herbalife is a financially strong and successful company, having created significant opportunities for distributors and positively impact the lives and health of our consumers over our history," company Chief Executive Michael Johnson said in a statement.
Herbalife said it expected fourth-quarter earnings of $1.02 to $1.05 a share, higher than Wall Street's expectation of $1.01 a share. Sales for the fourth quarter are expected to rise 19.9%, the company said, and its taxes will be lower than projected. The company plans to begin repurchasing shares Tuesday.
The company also said it expected expenses to be temporarily higher "because of recent events."
Herbalife has been battling allegations by Ackman, who said in a December presentation that the company is a glorified pyramid scheme. He's sold short about 20 million shares of the stock, expecting the company to tank. Herbalife is also reportedly being investigated by the Securities and Exchange Commission.
A week ago in Manhattan, Johnson and other Herbalife executives rebutted Ackman's points one by one, proving, they said, that Herbalife has a stable business model and is not scamming anyone. Shares of the company, which had been slumping, began rising again after Johnson's presentation.
Ackman foe Carl Icahn stepped into the controversy this week, taking a stake in Herbalife, according to reports. Icahn could not be reached for comment.
Investors showed mixed reaction to Herbalife's preliminary earnings Thursday. The stock initially shot up in morning trading but leveled off in the afternoon and closed down $1.54, or 3.4%, at $43.52.
Herbalife will release its final fourth quarter results Feb. 19.
Analysts such as Timothy Ramey, of D.A. Davidson & Co., say they're optimistic about the company's future. Ramey also adjusted his expectations of the company's earnings.
In 2013, earnings will be $4.85 a share, up from his previous estimate of $4.55, he said in a note. He also adjusted his forecast for 2012 earnings to $4.05 a share from $4.03.
Ramey said he expects Herbalife stock to thrive once it emerges from the current controversy, which he expects will happen in 2013. In five years, the stock could hit $180, he said.
"There has never been a period of greater scrutiny for Herbalife," he wrote.