Herbalife says it’s in advanced talks with FTC, shares soar

Herbalife Ltd., which has been accused by billionaire investor William Ackman of being a fraud, said it was in advanced talks with the U.S. Federal Trade Commission to settle a probe into whether it runs a pyramid scheme.

Shares in Herbalife jumped more than 13 percent in after-hours trading.

“We have updated our disclosures to report that while there are number of open issues, those discussions have progressed to an advanced stage, and the range of outcomes now include litigation or settlement”, said Johnson in the company’s quarterly earnings call. Revenue for the quarter was $1.11B while analysts had expected revenues to come in at $1.09B.

In terms of earnings per share, 3 analysts have a 1.16 EPS mean target for the quarter ending Jun-16, for the quarter ending Sep-16, 3 analysts have a 1.24 EPS mean target and for the quarter ending Sep-16 there are 3 estimates of 4.65 EPS.

On a reported basis, first quarter net income of $95.8 million or $1.12 per diluted share increased by 23% and 22% respectively, compared to $78.2 million or $0.92 per diluted share for the comparable quarter in 2015. He adds that Herbalife included an 80-cent per share headwind to earnings in its guidance, and he expects this headwind to be revised downward to 65 cents per share. Revenues were $50 million ahead of the analysts’ estimate of $1.07 billion.

Herbalife Ltd. (NYSE:HLF) last closed at $57.89, sending the company’s market cap around $5.53B. In the first quarter, sales were up 1 percent over a year ago at $1.1 billion. Back on February 25, 2016, it posted earnings per share at $1.19 which topped the consensus $0.94 projection (positive surprise of 26.6%). The company also boosted its net sales guidance, predicting 1.5% to 4.5% in growth for the year.

As part of Herbalife’s continued support of sports nutrition and performance in Vietnam, the agreement paves the way for Herbalife to provide its wide range of nutrition products, sports nutrition consulting and training to the athletes and coaches participating at the Rio 2016 Olympics and Paralympic games. For years, Ackman has been claiming that the company is operating as a pyramid scheme. Even though the timing of the potential resolution between Herbalife and FTC looks uncertain for now, there is still a high chance that the company might soon be vindicated.

On the other hand, Herbalife itself has been making aggressive changes to its business practices to convince regulators that it shouldn’t be charged for being a pyramid scheme.