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 Herbalife, embroiled in a dispute with Ackman who over the past 14
months has accused the company of being a pyramid scheme, discussed
earnings projections and its response to a U.S. lawmaker's inquiry
into its business with analysts on a quarterly call.
Sales are expected to grow between 7.5 percent and 9.5 percent this
year, in part because of strong business in China. Those numbers are
lower than the company had forecast in October, when it reported
third quarter results, and said 2014 sales would grow between 9
percent and 11 percent.
Investors said that may have added to pressure on Herbalife's stock
price, which closed down nearly 4 percent on Wednesday at $66.18 per
share.
Overall the outlook remained robust, however, with the company
raising its earnings forecasts for the year to $5.85 to $6.05 a
share, from $5.45 to $5.65.
On the call, Herbalife chief executive Michael Johnson described
Ackman's short bet against Herbalife as "a reckless bet placed by a
Wall Street gambler." Ackman first accused Herbalife publicly of
running a pyramid scheme in December 2012. A pyramid scheme is an
unsustainable business that typically makes most of its money by
recruiting distributors rather than selling products to real
customers.
The company says it operates a legitimate multi level marketing
business and Johnson struck back both at Ackman on the call and in a
letter to Senator Edward Markey, a Massachusetts Democrat with an
interest in consumer protection. Markey started asking questions
about the business in January.
Ackman has lost hundreds of millions on his $1.16 billion bet
against Herbalife as the company's stock price has climbed 67
percent in the last 12 months.
Executives on the call told analysts that the company was obeying
all regulations in its business in China, and met with Markey's
staff late last month.
In the letter to Markey, dated February 18, Johnson said the
company's compensation is driven by product sales, not recruitment.
A copy of the letter was seen by Reuters.
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Johnson also wrote that he wants to "assure (Markey) in the
strongest possible terms, as we assured your staff, that Herbalife
does not 'target' members of minority or low income-communities."
Civil rights groups have said the company preys on minorities
with seductive advertising and promises to get rich by selling
Herbalife products.
Executives told analysts on the call that Herbalife was poised to
gain from a global obesity epidemic by offering products designed
for weight loss. They said the bulk of customers buy the product for
their own use and only a small number try to make a business out of
selling products to others.
In the letter, Johnson said Herbalife wants its members to live a
"healthier lifestyle" and give them a choice to "take advantage of
the business opportunity that a multilevel marketing business model,
like Amway, Avon or Tupperware, can offer."
When Markey made his questions public, the company's stock price
dropped 15 percent. Markey set a deadline of February 28 for the
company to respond to his questions.
News last month that Chinese officials were probing allegations that
NuSkin <NUS.N> another multi-level-marketing firm, has been
exaggerating its influence and creditworthiness in brochures, had
weighed on Herbalife shares earlier this year.
(Editing by Grant McCool)
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