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Herbalife (HLF) held their full year 2013 conference call this morning at 8AM PST.

The call was preceded by the weird, cultish Herbalife anthem "We are Here" by Ace Young, which showered callers with these lyrics, which sound like something you'd be more likely to hear on a Scientology conference call:

We are here. We are strong.
Finally found where we belong.
Herbalife
Round the world
Come together, we are one.
We are here. We are strong.
Finally found where we belong.
Herbalife
Round the world
Come together, we are one.

And we'll never give up
Knowing we can make a change.
Herbalife

You can listen to the song in its entirety by clicking here. I wonder why companies like Procter & Gamble, 3M, and Berkshire Hathaway don't have songs like this preceding their conference calls ... But, I digress.

Michael Johnson started the call going over the company's record performance in 2013 and reviewing the financials. He pointed out continued top-line momentum into 2014 and spoke about the great year the company had. Then, he launched on a tirade against Bill Ackman for a few minutes, sounding exasperated and beside himself.

He then went on to explain in detail the issue the company had with its auditors in the beginning of the year. He talked about bringing PwC in and completing a successful audit "despite interference from Bill Ackman."

He went on to call Formula 1 the company's "flagship" meal replacement shake, which continues to tug at these two questions for me:

1. Why hasn't anyone heard of it?

2. Why would Bill Stiritz ever buy out a company that's in the business of replacing meals when it's a direct conflict of interest with the breakfast meals that fuel Post's business?

Johnson also went on to claim that the global obesity epidemic around the world would continue to be a positive catalyst for Herbalife. The only issue? There isn't an obesity epidemic in some of the countries that Herbalife is expanding to, even though there certainly is one in the U.S., Mexico and China. Take Cambodia, for instance and this headline "Cambodians Ranked Healthiest Eaters in World".

He then stated that the company is taking advantage of economic downturns (read: taking advantage of people without jobs?) and was benefiting from unemployment. Almost blatantly contradictory to that, he then said that Herbalife's business opportunity is primarily for supplemental income. What happened to retiring early? Continued income for life? Photos of Doran Andry's million dollar checks? Hell, the "Millionaire's Club"? He claimed that only a "small few" are full-time Herbalife distributors.

That's got to feel good for those trying to make it full-time distributing for Herbalife. Wow.

Johnson claimed that only 4% of people that sign up to distribute sign up for full-time income. Ibid.

Then, he launched on a machine gun style haranguing of Bill Ackman, claiming:

  • "Constant and unrelenting attacks from Ackman"
  • "[He's] a Wall Street gambler"
  • "[He's] placed a reckless bet"
  • "He has a baseless and reckless argument"

Johnson was clearly angered. I wonder what would happen if someone like Tim Cook lost his mind like this on a company conference call, going after a short seller. This was one of the more pronounced acknowledgements of a short seller on a conference call that I can remember in a while.

He then said, yet again, "the vast majority do not join for the business opportunity." Is this me, or is Herbalife starting to sing a bit of a different tune?

Johnson concluded by saying that its retention numbers are "likely higher" than other MLM companies, but he offered no source.

Des Walsh then took over the call.

Mr. Walsh went into details about volume points and net sales - where the company posted growth in each of these metrics year over year.

He noted Korea and Mexico for nutrition club growth. He said 2013 highlighted the resolve of members to bring about nutrition to consumers to offset the global obesity epidemic. There's 78,000 nutrition clubs worldwide - and none of them can have an Herbalife logo on the front of them.

He mentioned China, but didn't make mention of recent scrutiny on multi-level marketers in the country.

After a full financial review and a reaffirming of guidance for the coming year, the call moved on to analyst questions. The first few analyst questions were dovish and handled well by company executives. They were regarding currency fluctuations and expansion into Venezuela and Mexico.

When asked about the Senator Markey letters, they claimed they were in frequent communication with the Senator's office. They met with his staff in person and they thought the meeting went well. Subsequent to that, they sent a letter to his office that responded to his inquiries. When asked if they thought it was resolved, they responded that it's now "in the hands of Senator Markey's office." No other color was offered.

When asked about scrutiny on MLM in China, Herbalife responded that there may be "more clarity" on regulations possibly coming from China. Herbalife claims they're fundamentally different than Nu Skin (NUS). Herbalife stated that they're confident they can be compliant wherever the regulations go. Company claims that they feel like growth isn't the problem, it's potential foundation of the growth - it needs to be "backed by genuine demand." Interesting.

The company said it isn't M&A oriented and said that they will use cash to return to shareholders as opposed to paying down debt for now. An analyst from Barclays asked a very cogent question in, "why borrow money for the buyback in this manner if you're bringing in so much cash?"

Michael Johnson wrapped up by saying it was another great quarter and another great full year. He spoke a bit about the products and the growing sales leader group - who, again, by his own words are all in for supplemental income. Then, he concluded the call.

The call wrapped up around 9:06am PST, with Herbalife trading down 4.61% to $65.80.

Source: Herbalife CEO Exasperated On Three-Ring Circus Conference Call