News Column

Herbalife Hits New High

December 17, 2013

Associated Press

NEW YORK (AP) — Shares of Herbalife rose to an all-time high Tuesday after the nutritional supplement company announced that a re-audit of more than three years of its financial results found no material changes to its prior financial statements.

Herbalife Ltd. has faced intense criticism over the past year for its business structure and leadership.

The company sells energy drinks and stress-management pills and recruits people to work as independent sales representatives. On its website, it promises to "change people's lives" either by the chance to sell Herbalife products, or the chance to take them.

Its prior auditor, KPMG, resigned in May following insider trading allegations against an executive of the accounting firm.

Herbalife's new auditor, PricewaterhouseCoopers, re-audited Herbalife's financial records for fiscal years 2010, 2011 and 2012 as well as part of 2013.

John San Marco of Janney Capital Markets lifted Herbalife's price target to $85 from $79, saying in a client note that the re-audit removed uncertainty that had been hanging over the company.

"The re-audited financials revealed the same, previously disclosed prior-period errors already disclosed in the 10Q's filed in July and October - in other words, no new news," he wrote in a client note.

San Marco maintained a "Neutral" rating.

Among Herbalife's critics have been Belgian consumer organization Test-Aankoop and hedge fund manager William Ackman.

Ackman has questioned Herbalife's business model, which uses a network of distributors to sell its nutritional supplements and weight-loss products globally. Ackman, who is betting against the company, has accused Herbalife of operating a pyramid scheme, in which a company makes most of its money by recruiting new salespeople, rather than on the products that they sell.

Ackman's Pershing Square Capital Management LP said in a statement on Monday that "it is not the role of Herbalife's auditor to determine if the company is a pyramid scheme. Rather, that determination depends on whether distributors earn more from recruiting new distributors than from retail sales to consumers who are not distributors. The few Herbalife distributors that make money earn the vast majority of their profits from recruiting. Herbalife is a pyramid scheme that will be shut down by regulators."

Shares of Herbalife rose 96 cents, or 1.2 percent, to $75.79 in morning trading Tuesday. Earlier in the session, the stock hit what FactSet said was an all-time high of $78.50.

Herbalife sells energy drinks and stress-management pills and recruits people to work as independent sales representatives. On its website, it promises to "change people's lives" either by the chance to sell Herbalife products, or the chance to take them.

Herbalife's business has become a point of contention between several prominent Wall Street figures. Activist investor Bill Ackman has publicly attacked Herbalife for months, saying it distorts the financial information it gives to investors. Rival investor Carl Icahn has vehemently disagreed and has increased his stake in the company

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Original headline: Herbalife hits new high on re-audit's findings


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Source: Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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