Jul. 22, 2014, 1:05 PM
- Shares of Herbalife (HLF +14.8%) pop on a 5x surge in volume after investors regain confidence that the company "ain't done yet." In this morning's webcast, Mr. Ackman presented the findings of the investigation into the firm's Nutrition Clubs (NC) that Pershing Square sponsored. Unfortunately for shorts, there was little new information that would portend a collapse of the company. The investigative team looked into > 240 Nutrition Clubs in the U.S., Mexico and six other countries. There are > 37,000 NCs in Mexico that account for 75% of HLF's business in that country. Latinos figure prominently in Herbalife's growth.
- Investigative reporter-cum-analyst Christine Richard was the person who gave Mr. Ackman the idea of shorting Herbalife. She led the investigative effort into the NCs. She says that the clubs make money via the "certification" process for aspiring NC owners. They work for free, must consume and pay for product each time they report to a club and must deliver at least 10 repeat customers to the teaching club before they are allowed to open their own. The total investment is ~$3,000 which is similar to the initial investment in inventory for Supervisor status, it's just spread out over time. Mr. Ackman asserts that the NCs use deceptive tactics and violate labor laws by forcing people to work for free.
- According to the company, 33 - 41% of its earnings are derived from NCs. If they were to be shut down (by government action) the company would face a catastrophic collapse. Mr. Ackman believes the proportion is as high as 50% of earnings. He admitted that Canada is the only government that has looked into the situation thus far.
- As a crowning touch at the end of presentation and prior to the Q&A, Mr. Ackman called Herbalife CEO Michael Johnson a predator and a criminal. He then got emotional as he described his immigrant ancestors' pursuit of the American Dream. Regrettably, the camera didn't pan the audience to see how many members were teary-eyed as well.
Jul. 22, 2014, 12:47 PM
Jul. 22, 2014, 7:02 AM
- In an interview on "Bottom Line" yesterday, Bill Ackman declared he will show how Herblife's (NYSE:HLF) Nutrition Clubs are frauds similar to Enron's fake trading rooms reports Bloomberg. He confirmed that Pershing Square Capital Management has spent $50M of investors' money to prove the company is a pyramid scheme. He confidently stated, "Trust me, when you see the stuff we have you will conclude the money was well spent."
- Herbalife plunged 11% yesterday. Shares are down another 4% premarket on light volume.
- The webcast is scheduled for this morning at 10:00 EDT via www.HerbalifePyramidScheme.com.
Jul. 21, 2014, 3:46 PM
- The softness of Herbalife (HLF -11.3%) shares continues as the end of the trading day approaches. Shares are down on a 4x surge in volume.
- In an attempt to set the tone for tomorrow's webcast by Pershing Square, the company issues a press release about its Nutrition Clubs. The bullets address the qualitative advantages/benefits for members but do not address the financial details, an area that was most certainly the focus in Mr. Ackman's investigation.
Jul. 21, 2014, 1:49 PM
- Shares of Herbalife (HLF -6.2%) tank on a 2x surge in volume ahead of tomorrow's webcast at 10:00 am EDT by Bill Ackman's Pershing Square Capital Management. Mr. Ackman et al. will be presenting their findings from their investigation into the company's Nutrition Clubs.
- Interested persons may access the presentation via www.HerbalifePyramidScheme.com.
Jul. 18, 2014, 12:24 PM
- At Herbalife's (HLF +0.7%) Extravaganza in Chicago, members hold a press conference to convey their displeasure over what they perceive as misstatements by Pershing Square Capital Management.
- Pershing has scheduled another webcast for July 22 at 10:00 am EDT to discuss its investigation into Herbalife's Nutrition Clubs. Interested persons may access the event via www.HerbalifePyramidScheme.com.
Jul. 17, 2014, 2:12 PM
- Herbalife (HLF -1.2%) publishes an updated refutation of Pershing Square's statements questioning its business model and the satisfaction of its many distributors.
- The company has created a website, iamherbalife.com, where Herbalife customers and distributors share their positive experiences.
- The last statement in the main body of the press release concisely sums up its opinion of the affair: "Ultimately, Pershing Square's campaign is based on propaganda, and we look forward to demonstrating that its assumptions will crumble under serious and independent scrutiny."
Jun. 2, 2014, 8:15 PM
- The U.S. Court of Appeals in San Francisco rules that digital music seller BurnLounge is an illegal pyramid scheme because its distributors pay for the right to sell products and are motivated primarily by payments by the company for recruiting new members. The income from merchandise sales is incidental to the income from recruiting. The court did not state that commissions paid to the sales force, rather than customers outside of the firm's distributor network, are illegal.
- Observers of Herbalife (HLF -0.1%) have been closely watching this case. Many believe the court's ruling is a positive for the company because it clarifies the issue of paying commissions to distributors purchasing products. Multilevel marketing attorney Kevin Thompson says, "As long as the products have legitimate value the company will be in a good position to thwart off pyramid arguments."
May 15, 2014, 4:53 AM
- Perry Capital has increased its holding in Herbalife (HLF) to 4.8M shares at the end of March from 3M in December, giving the New York hedge fund a 4.9% stake.
- The move comes despite Herbalife being under investigation in the U.S. over whether it's a pyramid scheme.
- Perry also raised its stake in eBay (EBAY) to almost 2M shares from 500,00, and it upped the amount of call options it holds in the auctions Web site.
May 12, 2014, 9:22 AM
May 2, 2014, 1:34 PM
- Joel Greenblatt's screen looks to find stocks with high "earnings yield" - a high ratio of profits to enterprise value. Companies are further screened for a strong return on capital. When a stock scores well with both criteria, it's usually a good company being undervalued by investors.
- For picking individual stocks, there are probably better methods, but as a group, Magic Formula names have vastly outperformed the broad market.
- Although defense names have done well over the past couple of years, the Magic Formula continues to identify Northrop Grumman (NOC +0.2%), General Dynamics (GD +1.4%), and Raytheon (RTN +0.6%) as attractive. Firearm names Smith & Wesson (SWHC +0.8%) and Sturm Ruger (RGR +0.3%) also make the cut.
- A number of videogame makers show up as well: Take-Two (TTWO +0.3%), Activision Blizzard (ATVI +0.2%), GameStop (GME +2.8%), and the struggling recent IPO King Digital (KING -0.3%).
- Not too surprisingly, the Magic Formula also continues to like plenty of big-cap tech names: Cisco (CSCO -0.2%), CA, Inc. (CA -0.5%), Microsoft (MSFT -0.5%), Hewlett-Packard (HPQ -0.5%), and Apple (AAPL +0.1%).
- Hardly market laggards, media names like Time Warner (TWX -0.8%), Viacom (VIA +1.4%), Omnicom Group (OMC), and Starz (STRZA +2.3%) also show up on the list, as do struggling multi-level marketers and for-profit education stocks: HLF, NUS, APOL, ESI, CPLA.
- Punished by investors for not being as hot as they once were, Coach (COH +0.2%), Francesca' Holdings (FRAN +0.1%), and Gap (GPS -1.3%) are Magic Formula picks today.
Apr. 28, 2014, 4:45 PM
- Global volume growth: 9%. EPS: $0.74 (-32.7%).
- CF Ops: $190.6M (+39%).
- Q2 guidance:
- Net sales growth: 10% - 12%, volume growth: 7% - 9%.
- EPS: $1.51 - $1.55.
- Common shares to be repurchased: $581M.
- 2014 guidance:
- Net sales growth: 10% - 12%, volume growth: 8% - 10%.
- EPS: $6.10 - $6.30.
- Quarterly cash dividend terminated. Cash will be used to buy back shares.
- (HLF +1.8%)
Apr. 28, 2014, 4:31 PM
Apr. 27, 2014, 5:35 PM
Apr. 24, 2014, 7:44 AM
- Citing short seller Bill Ackman's undisclosed $20M campaign to discredit the company, Herbalife (HLF) says his efforts are losing credibility. It emphasizes a purported 10-year $3.6M contract to a former HLF executive to act as a whistleblower. $80K has been paid so far.
- The company says Mr. Ackman's PR team set up the ABC News interview.
- Herbalife insists that its sales practices meet or exceed the standards established by the Direct Selling Association. It maintains that it makes clear, accurate and timely disclosures to prospective members regarding potential income via its Statement of Average Gross Compensation.
Apr. 24, 2014, 4:57 AM
- Herbalife (HLF) disciplined almost 600 distributors last year for making false medical claims about the company's nutrition products. The company even stripped 12 people of their distributorships.
- Herbalife disclosed the figures to ABC News following an undercover investigation in which the channel found distributors saying that the products could help treat illnesses such as diabetes, heart disease and even a brain tumor.
- The investigation comes as Herbalife faces probes by several authorities into whether it is a pyramid scheme.
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