Herbalife withdraws fiscal 2022 guidance, appoints interim CEO

Citing global economic uncertainty, Herbalife Nutrition will not deliver fiscal 2022 guidance to Wall Street.

“[W]hile we anticipate trends that emerge in the third quarter to persist into the fourth quarter, we are not able to forecast in an environment with such rapidly shifting consumer behaviors and volatility in the world at large,” Alex Amezquita, chief financial officer at Herbalife, told analysts on Oct. 31, according to a written transcript from The Motley Fool. “As such, the company is withdrawing fiscal year '22 guidance. We will revisit our ability to provide 2023 guidance at our next earnings call in February.”

That news came on Monday as Herbalife reported its third-quarter earnings, and as the 42-year-old multilevel marketing company underwent an executive shakeup. Former CEO Michael Johnson has returned to the role after the abrupt departure of John Agwunobi. Herbalife has given no explanation for Agwunobi’s exit, although the change appears to coincide with disappointing financials.

“We decided to make the change in order to provide a spark,” Johnson told analysts.

Herbalife did, however, offer a number of reasons for its most recent earnings results. First, the MLM experienced less demand and distributor productivity, which meant fewer sales. Second, the company implemented price increases in June amid supply chain shortages. Third, Herbalife faced the same challenges as most organizations: ongoing inflation (the highest since 1981), peak gas prices, war in Ukraine and other macroeconomic headwinds.

Related:Herbalife Nutrition raising prices in response to inflation

All of that affected Herbalife’s net sales, which dropped 9.5%, from $1.43 billion in the third quarter of 2021 to $1.3 billion. Net income fell, too, plummeting 30% to $82 million, down from $117.4 million.

Worldwide, purchases of the supplements and personal care items Herbalife sells are down, Amezquita said.

“[W]hether that's a swapping out for other goods, whether that's just simply supply, saving dollars for energy purchases and other critical non-discretionary purchases is unclear at this moment as we're looking through the data,” Amezquita told analysts. “But clearly, there has been a shift through the quarter and our inability to really forecast these shifts just leads to our inability to forecast how Herbalife Nutrition is going to behave in that environment.”

Herbalife aiming for ‘resilience’

Despite those uncertainties, newly installed CEO Johnson expressed optimism.

“This company's resilience is not only founded in the global megatrends that demand better nutrition around the world, but also in the economic opportunity that affords individuals the potential to supplement their income,” Johnson said.

Johnson will once again serve as head of Herbalife until a successor is named, a move Herbalife expects to make some time next year. Johnson led the company from 2003 to 2017, and again from 2019 to early 2020.

That’s when Herbalife appointed John Agwunobi, who, until yesterday, had worked for Herbalife for seven years. Agwunobi replaced Richard Goudis. For now, analysts at financial advisory firm B. Riley see Johnson’s leadership as crucial to Herbalife’s next steps.

“Although we credit the outgoing CEO with progress on Herbalife One (an integrated digital solutions platform, through an initial ~$400M investment followed by net incremental expenditures of $200M-$250M over the next three years—the single most significant investment in HLF’s history), we believe that interim CEO Johnson’s (in his nearly 20 years previously at the HLF helm, he nearly quadrupled the business) passionate re-focus on marketing and sales growth will be a key driver of future metric inflection,” Jeff Van Sinderen and Richard Magnusen of B. Riley wrote in a Nov. 1 memo to clients.

B. Riley analysts also predict—and Herbalife leaders seem to agree—that despite the looming recession stemming from the Covid-19 pandemic, Herbalife can and will improve its earnings.

More people are prioritizing health, Herbalife executives noted, and more people are seeking extra sources of income, a trend on which the company hopes to capitalize.

“Recessionary times do not necessarily mean that there isn't an opportunity for us to grow,” Amezquita said in the call with analysts. “We could potentially grow in those environments, provided we get the right strategies, and we get the right motivations out there in the field.”

To those points, Herbalife is crafting new promotions to entice more distributors. India and Vietnam stood out as the company’s most successful markets in the third quarter; Herbalife wants to fuel that progress in those and other regions. It also plans to keep cutting debt, which should give it more solid footing during a recession. The company did pay down $50 million in debt during the third quarter and intends to reduce the load even more in the fourth quarter.

“[W]hile we are not satisfied with this quarter's results, we do remain confident that the resilience of our business and the strategic actions we are taking will help us significantly emerge from the current macroeconomic environment,” CFO Amezquita said.

Investors seemed somewhat leery. Trading fluctuated on Nov. 1, the day after Herbalife’s latest earnings call. Stocks opened at $20.91, shifting up and down between $21.45 and $20.74 by midday.