Shares of Herbalife plunged by nearly 11% on Friday as investors digested the company’s dimmer outlook for 2015.
The company released its fourth quarter earnings after markets closed on Thursday. Going into the earnings announcement, investors appeared focused on whether the company could meet its own earnings projections. It did, posting adjusted earnings of $1.41 per share.
But in addition to disclosing its fourth quarter earnings, Herblife updated its projections for 2015 and they did not look too good. Herbalife said it expects net sales to fall between 6% and 9% in 2015. The diet shake seller said its volume point growth would fall by as much as 4.5%. It said diluted earnings per share in 2015 would come in at between $4.10 per share and $4.50 per share. Herbalife had previously indicated that its 2015 diluted earnings per share would be between $5.45 and $5.75.
Billionaire hedge fund manager Bill Ackman has called Herbalife a pyramid scheme that will collapse. His Pershing Square hedge fund’s short campaign against the company has sparked federal regulators to launch an investigation and Herbalife has changed its business practices as a result. Herblife has adopted a new “Gold Standard” sales initiative and new compensation plans that appear to have impacted new distributor sales. The company’s foreign operations have also been hit by currency headwinds.
“While 2014 was a record year in many respects we certainly face unique challenges,” Herbalife CEO Michael Johnson said on the company’s conference call on Thursday, adding that he expects volumes to be hit hardest in the first quarter. “We expect 2015 to improve sequentially throughout the year as we continue on our journey to the ideal combination of growth and sustainability.”
Herbalife stock drop was more bad news for the company's biggest shareholder, Carl Icahn, who disclosed on Friday that his investment fund suffered losses of 7.4% in 2014 due to its exposure to energy sector companies that got hit hard by the drop in crude prices.
