Herbalife Ltd. (HLF) Q3 2025 Earnings Call Transcript

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Overview

The company has shown positive financial performance with debt reduction, regional sales growth, and promising product launches. The Q&A session highlighted strong engagement and feedback for new products, with no anticipated increase in SG&A costs. The raised guidance and strategic focus on subscription revenue and new product lines further support a positive outlook. Despite some lack of detail on profitability differences, overall market sentiment appears optimistic, suggesting a positive stock price movement.

Key Financial Performance

Net Sales $1.3 billion, up 2.7% year-over-year. On a constant currency basis, net sales were up 3.2%. The increase is attributed to disciplined execution, foundational work, and favorable pricing.

Adjusted EBITDA $163 million, exceeding guidance. Adjusted EBITDA margin of 12.8% declined 60 basis points year-over-year due to non-repeating China government grant income and FX-related headwinds.

Gross Profit Margin 77.7%, down 60 basis points year-over-year. Pricing benefits contributed approximately 80 basis points, offset by foreign currency headwinds of 90 basis points and input costs of 30 basis points.

Net Income $43 million, with adjusted net income of $52 million. Adjusted diluted EPS was $0.50, including an $0.08 FX headwind. The higher effective tax rate in 2025 also impacted EPS.

Operating Cash Flow $139 million, up 40% from Q3 of 2024. This increase reflects strong cash generation and disciplined financial execution.

Leverage Ratio 2.8x, reduced beyond the 3x commitment. This was achieved through debt repayment, including the full repayment of 2025 notes.

Regional Net Sales Latin America: Up 11% year-over-year due to pricing and improved sales mix. North America: Up 1% year-over-year, marking the first growth since Q2 2021. EMEA: Up 4% reported, 2% local currency. Asia-Pacific: Flat reported, up 3% local currency. China: Down 5% year-over-year due to a 12% decline in volumes.

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Operating Highlights

Pro2col Digital Personalized Health Operating System: Beta group formed in July with 7,900 distributors. Features include Pro2scores, AI-driven health guide, and AI food scanner. Beta 2.0 to be released in the U.S. and Puerto Rico by year-end 2025, with additional markets in 2026.

HL/Skin K-beauty Line: Launched in EMEA with AI-powered skin assessment tool. Immediate distributor engagement and plans for expansion into additional markets.

Baseline Healthy Lifespan Supplement: Formulated with Niagen, to be launched commercially in the U.S. and Puerto Rico by the end of 2025.

New Sleep Support Product: Launched in Mexico, formulated with chelated magnesium Bisglycinate, glycine, and Affron.

North America Sales Growth: First quarterly increase since Q2 2021, reflecting two years of foundational work.

Worldwide Sales Growth: First quarter of net sales growth since Q1 2024, with Q3 net sales at $1.3 billion, up 2.7% year-over-year.

Regional Growth: Latin America, EMEA, and Asia-Pacific showed year-over-year net sales growth. North America returned to growth with a 1% increase.

Debt Reduction: Fully repaid 2025 notes in September, leaving no significant debt maturities until 2028. Total leverage ratio reduced to 2.8x.

New R&D Facility: Opened in Torrance, California, supporting over 300,000 tests annually and accelerating product innovation.

Link BioScience Acquisition: Acquisition to deliver precision-made supplements tailored to individual needs, with U.S. beta group access in 2026.

Distributor Engagement Programs: Programs like Flex45 Challenge and Diamond Development Mastermind expanded, with strong participation and leadership development.

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Risk or Challenges

Market Conditions: The company faces foreign currency headwinds, which negatively impacted adjusted EBITDA by approximately $12 million in Q3. Additionally, FX rates moved unfavorably during the quarter, creating a 50 basis point year-over-year headwind.

Regulatory Hurdles: The company mentioned tariffs enacted through yesterday, which are currently immaterial but could pose risks if they escalate in the future.

Strategic Execution Risks: The company is heavily reliant on the successful rollout of its Pro2col and Link BioScience initiatives. Delays or failures in these initiatives could impact growth and innovation goals. Additionally, the company is investing heavily in technology and innovation, which could strain resources if not managed effectively.

Supply Chain Disruptions: No explicit mention of current supply chain disruptions, but the company’s reliance on global operations and raw materials could pose risks in the event of disruptions.

Economic Uncertainties: The company is exposed to economic uncertainties, particularly in regions like China, where net sales were down 5% year-over-year due to a 12% decline in volumes.

Competitive Pressures: The company operates in a highly competitive health and wellness market. Its reliance on distributors for sales and engagement could be a vulnerability if competitors offer more attractive alternatives.

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Guidance & Outlook

Revenue and Sales Growth: The company expects net sales growth in Q4 2025 to range from 1.5% to 5.5% year-over-year on a reported basis, with a constant currency growth of 0.5% to 4.5%. For the full year 2025, net sales are projected to range from a slight decline of 0.3% to growth of 0.7% year-over-year, or 1.2% to 2.2% on a constant currency basis.

Adjusted EBITDA: For Q4 2025, adjusted EBITDA is expected to range from $144 million to $154 million, or $154 million to $164 million on a constant currency basis. For the full year 2025, adjusted EBITDA is projected to be between $645 million and $655 million, or $700 million to $710 million on a constant currency basis.

Capital Expenditures: Planned capital expenditures for Q4 2025 are expected to range from $18 million to $28 million. For the full year 2025, capital expenditures are projected to be between $80 million and $90 million, with additional SaaS implementation costs of $25 million to $30 million.

Debt Reduction: The company aims to reduce gross debt to $1.4 billion by the end of 2028, with $343 million already repaid over the last five quarters.

Product and Technology Initiatives: The commercial release of Pro2col Beta 2.0 is planned for the U.S. and Puerto Rico by year-end 2025, with additional markets beginning in 2026. Personalized nutritional supplements through Link BioScience are expected to be available in the first half of 2026. At-home health tests will be introduced in Q1 2026 for U.S. distributors in the beta group.

Market Trends and Regional Performance: North America has returned to growth, with net sales up 1% year-over-year in Q3 2025. Latin America, EMEA, and Asia-Pacific regions also showed year-over-year net sales growth in Q3 2025. China experienced a 5% decline in net sales year-over-year.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:How is the company thinking about capital allocation given their debt reduction targets?

A:The company has two debt goals: a short-term goal to reduce the leverage ratio below 3x by the end of the year, which has already been achieved at 2.8x, and a long-term goal to pay down $1 billion in debt by the end of 2028. They are tracking ahead of both goals and will use additional cash to drive business value and make circumstantial decisions.

Q:Will the new product introductions lead to elevated SG&A costs next year?

A:No, the company does not anticipate any increase in SG&A costs outside the normal scope of distributor education and events.

Q:What are the early responses from the Pro2col beta group?

A:The beta group, consisting of distributors, has been highly engaged, providing valuable feedback and suggestions. The company has aggregated insights from approximately 8,000 distributors and is now expanding the beta to include customers to gather further data.

Q:Are there early signs of progress in new distributor growth in North America?

A:Yes, the growth is attributed to excitement about future developments, product launches like Multiburn, and initiatives such as the Diamond Development Mastermind and Herbalife Premier League. Multiburn has refocused attention on weight loss, contributing to the growth.

Q:How was the AI for the new skin care product developed, and will it expand across other product lines?

A:The AI was developed in partnership and customized for the company's needs. It has been well-received, with over 100,000 scans in the first few weeks. The company plans to leverage this technology across other product lines.

Q:What product categories are driving volume growth, and how does it compare to the traditional mix?

A:Globally, there is a trend towards healthy active lifestyle products and targeted nutrition, with less focus on weight loss. However, in the U.S., the launch of Multiburn has brought some focus back to weight loss.

Q:Are some product categories more profitable than others?

A:Yes, profitability varies by product line and country, but there is no specific differential to highlight.

Q:What is the company's approach to GLP-1 in the marketplace?

A:The company offers natural alternatives like Multiburn for those not pursuing GLP-1. For those on GLP-1, they provide support for protein intake, muscle mass, and bone density. They also assist individuals transitioning off GLP-1 to maintain sustainable results.

Q:What are the expectations for the Mastermind rollout in India?

A:The program has been well-received in India, with leaders finding it impactful for sustaining growth. The company plans to evolve and expand the program to additional markets.

Q:Is the company planning to expand the beauty product line to more countries?

A:Yes, the company plans to expand the beauty product line globally, driven by demand from distributors and successful launches in markets like EMEA and South Korea.

Q:Will the beauty product line distract from the Pro2col launch?

A:No, the company believes the beauty product line complements their offerings and will not distract from the Pro2col launch. Certain distributors and markets naturally gravitate towards specific product lines.

Q:What drove the significant improvement in North American sales?

A:The improvement was driven by a strong July event, new product launches, and increased distributor engagement. While Q4 may not exceed Q3 levels, the company believes they have established a new baseline for growth.

Q:Is there room to accelerate stock buybacks given the company's cash generation?

A:No, stock buybacks are not a priority. The company is focused on supporting its new strategy and reducing debt, with a goal to reduce net debt to under $1 billion by 2028.

Q:How is the move towards building a subscription revenue base progressing?

A:The company is actively working towards building a subscription revenue base, with products like Multiburn and offerings within the Pro2col app available for subscription. This is a key part of their future strategy.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the profitability differences between product categories and countries, stating only that there are variations without elaborating further.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call reveals mixed signals: while financial metrics and guidance are stable, regional performance shows declines, and management's clarity on future strategies, particularly regarding Pro2col, is lacking. The Q&A highlights uncertainties about monetization and global rollout, which might concern investors. The market's response is likely neutral due to these offsetting factors.

HLF Slides

Herbalife Q3 2025 slides show revenue growth, debt reduction progress continues

2025-11-05

HLF Report

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