For those of you that listened to Herbalife's (NYSE:HLF) conference call today, you may have been left with more questions than answers. And, if you're like me and Bill Ackman, the company doesn't seem to want to entertain your questions.
If you're Meredith Adler from Barclays, however, the company has allocated enough time at the end of their conference call to allow you to ask two questions.
Maybe it's because Barclays has a PT of $94 for Herbalife and I, well...don't. Remember this?
It was out and about in the news yesterday that Barclays issued a 22-page report, trying to figure out just what the possibilities were for Herbalife at the end of the FTC investigation. Barclays concluded the most likely path was a slap on the wrist and some business changes that would only affect sales in the U.S. Barclays kept its overweight rating on Herbalife, with a price target of $94.
I conclude that Barclays is likely dead wrong and keep my "pyramid scheme" rating on Herbalife, with a price target of $0.
I wonder if sentiment is going to change over at Barclays anytime soon.
Heck, who knows, maybe they'll come out and upgrade the stock now! P.S. I love that #1 reason on the analyst report: "the current law is vague." Again, this goes to the "avert your eyes, they're posting monster profits" argument that seems to be limp and invalid after Herbalife missed earnings even on their own wacky non-GAAP numbers with a reduced share count.
Read The Specialist's article out just moments ago to see the numbers behind the numbers. Volume points are saturating, net income was crushed. If this was a GAAP quarter using last Q's share count, it would have been a huge miss.
Here's a list of questions I compiled during the call, which I was hoping people might be able to chime in and help answer. I've omitted the first question, which is obviously, "what in God's name were you using to record the conference call?" The quality of the call was so poor that I was listening through my neighbor's stream and it was still horrendous. He confirmed with me when he was asking them to start the call over with a different set of microphones. Twitter also confirmed that the call quality was poor for everyone. It wasn't just us. Perhaps Mr. Johnson was calling in remote while the rest of the staff was in California? That's kind of what it sounded like.
But, I digress. After a long speech by Mr. Johnson regarding weight loss and obesity, the C-level suite touched on the numbers in this last report and basically had a non-eventful call - even through the Q&A. This call made Ackman's last presentation look like the masterpiece it was - professional, detailed, drawn out, thorough.
Regardless, even though the call was mundane, here are 8 questions I jotted down immediately:
1. I understand that Herbalife doesn't think their business model is illegal, but did Michael Johnson have to make the suggestion that Herbalife has a "socially beneficial business model"? Even longs agree that MLM isn't a socially beneficial business model. Remember this Tweet from October? I wonder if this guy is simply trying to get a workout in without being accosted would agree:
2. Why didn't the company attempt to address Mr. Ackman's charge in his last presentation that the retail sales going on at nutrition clubs are fake? They side-stepped the entire issue.
3. What did the company hope to achieve by repeating how many shares they've repurchased in the last year when all that matters, right now with the stock under $60, is how many more they can purchase going forward? Why didn't CEO Johnson talk about all the insider selling that was taking place into the company's buyback?
4. Where is the same media that was out after Mr. Ackman's head after his presentation? Where's the outrage on today's stock price action, this lackluster conference call, and the paper losses that Mr. Icahn is taking today? Why does the media, except a few bloggers and Herb Greenberg, insist on backing this company and ignoring the demonstrable evidence Mr. Ackman has supplied?
5. How is it possible that a company that employs Lionel Messi, Cristiano Ronaldo and David Beckham to promote it cites the World Cup and the massive influx of soccer-loving people to Brazil as a reason for stalled growth? Along those lines, did Des Walsh actually say that user engagement is directly tied to how many "extravaganzas" the company holds?
6. Why does Herbalife continue to use SICAD 1 for Venezuela when their own auditors (h/t @mattintoronto) at PwC seem to have a different policy for the country's currency?
7. Is it me, or did they just disclose - for the first time - that Venezuelan authorities seem to be clamping down on MLMs? I'll need to re-read the transcript, but with what I could gather, that's what I understood. At the least, there are Venezuelan pricing issues that had not been disclosed.
8. Why is Alan Hoffman putting his career on the line to defend this company? Did anyone else not understand anything Michael Johnson said relating to his title and use at Herbalife? Why not just come out and say, "look, we're using him to try and combat the FTC investigation."
It sure is looking like, according to the volume points, that markets like the U.S. are becoming saturated. Are people "catching on?" How quickly do pyramids collapse after they just start to reach saturation? And what in God's name are the regulators waiting for? This stock is no longer Wall Street's darling, as I'm guessing we're going to find out in a big way over the next 5-10 trading days.
This company is now, at best, a broken growth story and, at worst, there is a significant risk of total loss. What kind of mental gymnastics do bulls need to perform to keep Herbalife in their funds? Will those that bought in the $30s finally err on the side of caution and take profits?
"This is a criminal enterprise, and it's time to shut the company down."
- Bill Ackman
Disclosure: The author is short HLF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.