HERBALIFE LTD. (HLF)·Q4 2024 Earnings Summary

Executive Summary

• Q4 net sales were $1.21B, down 0.6% YoY, at the high end of guidance; on a constant-currency basis, net sales grew 2.7% YoY as FX was a 330 bps headwind . Adjusted EBITDA was $150.0M with a 12.4% margin, and exceeded guidance; gross margin expanded to 77.8% (+150 bps YoY) driven by pricing, manufacturing efficiencies, lower write-downs, and modest FX tailwind .
• Reported diluted EPS was $1.74, including a $1.44 non-cash deferred tax benefit; adjusted diluted EPS was $0.36 and included a $0.07 YoY FX headwind .
• 2025 outlook introduced: FY net sales (3)% to +3% reported, +1% to +7% constant-currency; adjusted EBITDA $600–$640M ($670–$710M constant-currency); FX is expected to be a ~$200M net sales and ~$70M EBITDA headwind in 2025, and outlook excludes potential tariff impacts .
• Leadership transition: Stephan Gratziani appointed CEO effective May 1, 2025; Michael Johnson to become Executive Chairman—management frames HLF’s distributor-led transformation (training, localized incentives) as a core growth catalyst into 2025 .

What Went Well and What Went Wrong

• What Went Well

  • Adjusted EBITDA beat and margin expansion: $150.0M (+38% YoY) and 12.4% (+340 bps YoY), helped by pricing, factory efficiencies, and lower write-downs; gross margin 77.8% vs 76.3% YoY .
  • Constant-currency sales growth: Q4 net sales +2.7% cc despite FX headwinds, with LATAM, EMEA, and APAC growing; distributor KPIs improved (new distributors +22% YoY; sales leader retention 70.3% ex-China) .
  • Capital structure progress: leverage reduced to 3.2x at year-end; redeemed $65M of 2025 notes in Feb-2025, leaving $197.3M outstanding, expected to be repaid by/at maturity .

• What Went Wrong

  • FX continued to pressure results: ~330 bps sales headwind in Q4; guidance embeds ~$200M sales and ~$70M EBITDA FX headwinds for 2025 .
  • China remains weak: Q4 net sales down 20% (reported and cc) on volume declines, amid a strategic pivot to a customer loyalty program; management still expects benefits over time .
  • North America still declining mid-single digits YoY despite improving trends; volume point adjustments and a slower pivot from transactional clubs to transformational models weigh on the pace of recovery .

Financial Results

• Commentary: Q4 adjusted EBITDA beat guidance; net sales reached the high end of the range; reported EPS benefited from non-cash deferred tax effects . On a constant-currency basis, Q4 sales grew 2.7% YoY; FX headwind was ~330 bps .

Regional net sales (Q4):

KPIs and activity metrics:

Note: Management may discontinue public reporting of volume points due to market-specific adjustments, focusing investor communications on net sales while disclosing volume impacts (directionally) in comps .

Guidance Changes

Additional context: Management cited FX headwinds of ~$200M to net sales and ~$70M to adjusted EBITDA embedded in FY25 guidance .

Earnings Call Themes & Trends

Management Commentary

• “With three consecutive quarters of new distributor growth, a new incoming CEO and significantly improved Adjusted EBITDA margins, we enter 2025 with strong momentum.” – Michael Johnson .
• “Q4 adjusted EBITDA was $150 million and above our guidance… Adjusted EBITDA margin was 12.4%, up 340 basis points vs Q4 2023… had FX rates in Nov/Dec remained consistent with guidance, net sales would have been ~1% YoY and at the very high end.” – John DeSimone .
• “We further reduced our total leverage ratio to 3.2x as of December 31… redeemed $65M of the 2025 notes last week… plan to repay the remainder by/at September 2025 maturity.” – John DeSimone .
• “In future periods, it is likely we will stop reporting volume points and focus primarily on net sales.” – John DeSimone .
• “China… we launched a customer loyalty program… transition is a big transition… we’re not satisfied… we see potential and are rolling out further leader training.” – Stephan Gratziani .
• “Herbalife is destined to become one of the world’s most important health and wellness platforms… expressed through our digital tech stack, products and services.” – Stephan Gratziani .

Q&A Highlights

• North America path-to-recovery: sequential improvement with YoY declines narrowing (from down ~10–11% in Q1 to down ~3% in Q4); leadership emphasizes rebuilding the distributor base and transforming Nutrition Club models to improve conversion from transactional to transformational customer relationships .
• 2025 debt and leverage: company intends to repay the remaining ~$197M of 2025 notes by/at maturity, potentially using the revolver temporarily; goal remains ≤3.0x by YE25, with longer-term intent to reduce total debt by $1B by 2028 .
• Guidance mechanics: FY25 EBITDA margin roughly flat to 2024 due to ~80 bps FX margin headwind; absent FX, margins would be higher; Q1 and full-year guidance provided on both reported and constant-currency bases .
• China weakness and strategy: shift to customer-first model initially depressed volume; loyalty program launched; focus to balance customer acquisition with sales rep recruiting going forward .
• FX, tariffs, and supply chain: bulk of FX impact is translation; limited ability to fully natural hedge via local manufacturing (e.g., USD-priced inputs); tariff exposure seen as manageable except potential Mexico retaliation later in 2025 (excluded from guidance) .
• Tax and IP: intra-entity IP transfers to Europe created a non-cash deferred tax benefit in Q4; ongoing non-cash tax effects will be excluded from adjusted results; move improves internal cash mobility .

Estimates Context

• Wall Street consensus (S&P Global) for Q4 2024 and Q1 2025 was not available at the time of this analysis due to data access limits. As a result, we cannot quantify beats/misses versus consensus for revenue or EPS. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

• Near-term: Q4 showed underlying health—constant-currency growth, gross margin expansion, and an adjusted EBITDA beat; FX remains the swing factor, and management provided constant-currency guidance to clarify trend lines .
• Watch North America inflection: improving trends continue, but the pace hinges on Nutrition Club model evolution and conversion uplift; Mastermind and KAM frameworks are designed to accelerate productivity .
• China is the biggest rebuilding project: the customer-centric pivot may suppress near-term sales but aims to strengthen the base for more durable growth and higher conversion over time .
• Deleveraging supports equity case: leverage at 3.2x with a credible plan to repay 2025 notes and a long-term target to cut $1B of debt by 2028—reducing financial risk and interest burden .
• FY25 risk-reward: reported guidance is muted by substantial FX drag; constant-currency outlook implies positive growth and margin resilience, with additional upside if FX and Mexico tariff risk abate .
• Structural margin tailwinds: pricing discipline, manufacturing efficiencies, and cost programs lifted EBITDA margins in 2024; management signals continuity of these levers into 2025 .
• Leadership transition as a catalyst: incoming CEO’s field expertise and focus on modernizing the platform may accelerate distributor engagement and execution across regions .

Appendix: Additional Press Releases (Q4 2024-related)

• Herbalife appoints Stephan Gratziani as CEO, Michael Johnson to Executive Chairman (effective May 1, 2025) .
• Q4 press release: Net sales at high end of guidance; adjusted EBITDA exceeds guidance; constant-currency growth QoQ/YoY; 2025 outlook introduced .

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