Herbalife Ltd. (HLF): The Business Fundamentals

Herbalife Ltd. (NYSE:HLF)Next Monday, Herbalife Ltd. (NYSE:HLF) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you’ll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Herbalife Ltd. (NYSE:HLF) has been the subject of a huge debate among major investors over the past several months, some of whom think that the company is a pyramid scheme, while others believe that it’s a lucrative business with great growth opportunities. But, beneath all the hype, the company’s financials are an objective way to assess the business and its potential. Let’s take an early look at what’s been happening with Herbalife Ltd. (NYSE:HLF) over the past quarter, and what we’re likely to see in its quarterly report.

Stats on Herbalife

Analyst EPS Estimate $1.07
Change From Year-Ago EPS 22%
Revenue Estimate $1.12 billion
Change From Year-Ago Revenue 16%
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

Can Herbalife’s earnings live up to what bulls want to see?
Analysts have been guardedly optimistic in recent months about Herbalife’s earnings prospects, raising their estimates for the just-ended quarter by a penny per share, and adding $0.02 to their per-share earnings calls for the full 2013 year. The stock, though, hasn’t shared that enthusiasm, falling 14% since mid-January.

Herbalife Ltd. (NYSE:HLF) has had to deal with many outside distractions recently. The ongoing high-profile fight between Bill Ackman and Carl Icahn reached new heights during the quarter, as Icahn Enterprises LP (NASDAQ:IEP) named two new representatives to Herbalife’s 11-member board of directors. As if that weren’t enough, Herbalife found out earlier this month that auditing firm KPMG would have to resign from working for Herbalife after an insider-trading scandal inside KPMG called its audit reports for the past three years into question.

Yet fundamentally, Herbalife is a business that depends on nutrition and weight management for its profits. Recent trends favor that focus, as restaurant chains like Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera have captured substantial new business from the desire for healthier eating options, while much of the growth in organic grocery specialist Whole Foods Market, Inc. (NASDAQ:WFM) has come from greater health awareness. Herbalife Ltd. (NYSE:HLF) has tried to tap into healthier trends, as well with its products.