What happened
Shares of Herbalife (HLF 1.51%), a maker and marketer of nutrition products, fell sharply on May 4, dropping just shy of 14% at one point during the day. The big news was the company's first-quarter 2022 earnings update, which hit the street after the close on May 3. Investors were clearly unhappy, and the biggest negative was the company's revised outlook for 2022.
So what
Herbalife reported first-quarter 2022 revenues of $1.34 billion, an 11% decrease from the same quarter in 2021. The company tried to put a positive spin on that figure, however, by highlighting that sales were up 5.8%, compared to the first quarter of 2020. The upshot was that 2021 was an unusual year, with sales likely buoyed by events surrounding the coronavirus pandemic.
Notably, though, in the 2022 first-quarter update, management pointed out that, "as a group, the behavior of distributors that joined the business during the pandemic has departed from historical trends and is below the Company's expectations." That's not good.
Image source: Getty Images.
On the bottom line, Herbalife reported adjusted earnings per share of $0.99 in the first quarter of 2022, down from $1.42 in the same period of 2021. That was a sizable drop, but better than the $0.87 per share that analysts had been expecting.
A big headwind, as with most companies, has been inflationary pressures. All in all, it wasn't a great quarter, but perhaps not as bad as it could have been. Looking forward, Herbalife is working to contain costs, push through price increases, and work on sales initiatives to help spur its lagging sales representatives.
Now what
The really big drag on the stock, however, was likely the change in the company's full-year 2022 outlook. At the start of the year, management was projecting sales growth to come in as high as 6%, but after just one quarter, it's now projecting sales to fall between 4% and 10%. The company's earnings-per-share guidance was lowered from a range of $4.25 to $4.75 to a range of just $3.50 to $4.00.
While management expects the company's results to strengthen toward the end of 2022, investors appear to be taking a show-me attitude, given the notable drop in guidance.
