Herbalife's EPS Surge: A Beacon of Growth in 2024

Herbalife Ltd. (HLF) has emerged as a standout performer in the direct selling industry, with its earnings per share (EPS) surging in 2024. The company's strong financial performance can be attributed to several key factors, including net sales growth, improved gross profit margin, and robust adjusted EBITDA results. This article will delve into the factors contributing to Herbalife's EPS beat and explore the sustainability of its growth prospects.



Net Sales Growth and Improved Gross Profit Margin

Herbalife reported net sales growth on a constant currency basis for both the fourth quarter and the full year 2024. In the fourth quarter, net sales were $1.2 billion, slightly below the fourth quarter of 2023 due to foreign exchange headwinds. However, on a constant currency basis, net sales increased by 2.7% year-over-year. For the full year, net sales were $5.0 billion, down 1.4% year-over-year, including 260 basis points of foreign currency headwinds. On a constant currency basis, net sales increased by 1.2% year-over-year.

Herbalife's gross profit margin improved to 77.8% in the fourth quarter of 2024 compared to 76.3% in the fourth quarter of 2023. This improvement was driven by pricing, favorable input costs, lower inventory write-downs, and favorable foreign currency, partially offset by unfavorable sales mix.



Strong Adjusted EBITDA Results and Debt Reduction

Herbalife delivered strong adjusted EBITDA results, significantly exceeding guidance and prior year figures. Adjusted EBITDA for the fourth quarter was $150.0 million, with an adjusted EBITDA margin of 12.4%, up 340 basis points versus the fourth quarter of 2023. For the full year, adjusted EBITDA was $634.8 million, with an adjusted EBITDA margin of 12.7%, up 140 basis points versus 2023.

Herbalife successfully paid down $250 million in debt in 2024, reducing its total leverage ratio from 3.9 times to 3.2 times. This debt reduction contributed to the company's improved financial performance and increased investor confidence.

New Distributor Growth and Strategic Initiatives

Herbalife experienced a 22% year-over-year increase in new distributor growth in Q4 2024, marking the third consecutive quarter of growth. This growth contributed to increased sales and improved earnings. Additionally, the company is implementing a robust transformative digital strategy to enhance distributor engagement and business operations.



Challenges and Risks

While Herbalife's financial performance has been impressive, the company faces several challenges and risks. North American net sales were down 3% year-over-year, with continued challenges in volume trends. China's net sales decreased by 20% year-over-year, driven by volume declines and strategic shifts in business focus. Herbalife is expected to face a significant currency headwind in 2025, with an estimated $200 million negative impact on net sales and $70 million on adjusted EBITDA. The company also faces potential exposure to retaliatory tariffs from Mexico, which could impact its financial results later in the year.

Conclusion

Herbalife's EPS beat in 2024 can be attributed to its net sales growth, improved gross profit margin, strong adjusted EBITDA results, and debt reduction. The company's growth prospects appear sustainable, driven by constant currency growth, new distributor growth, and strategic initiatives. However, Herbalife must address market-specific challenges and manage potential risks, such as currency headwinds and retaliatory tariffs, to maintain its long-term growth trajectory. Investors should closely monitor Herbalife's progress and evaluate its ability to navigate these challenges as the company continues to execute on its strategic initiatives.