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This Is The Devastation That Follows When Stock Buybacks Grind To A Halt (Hint: Herbalife)
Moments ago Herbalife reported earnings that were abysmal. In a nutshell, the company not only missed the top and bottom line:
- HERBALIFE REPORTS 3Q ADJ. EPS $1.45, EST. $1.51
- HERBALIFE 3Q NET SALES $1.26B, EST. 1.31BN
But also slashed guidance:
- HERBALIFE SEES YR ADJ EPS $5.80- $5.90, EST. $6.26, SAW $6.17-$6.32
- HERBALIFE SEES 4Q SALES DOWN 5%-DOWN 8%, EST. UP 8%
- HERBALIFE SEES YR NET SALES UP 3.5%-4.3%, SAW UP 8.5%-10.5%
Why? Precisely the reason why we warned last quarter that Herbalife, which may or may not be a Ponzi, is now nothing but a "melting icecube":
... the real reason why the party may be ending is that HFL's net debt has exploded in the past year by over $1 billion. In other words, all the company's cash creation and all of its debt issuance in 2014 has gone exclusively toward buying back its stock.
At this rate quite soon HLF will have no additional debt capacity for futher buybacks. Worse, even if its were to use all its organic cash to repurchase stock it will be nowhere near enough to match what buybacks have been in the past year, which some may argue is the only reason why the stock has stay afloat at its current levels.
And sure enough, this is perhaps the most important chart explaining Herbalife's absolutely abysmal numbers. In Q3 of this year, Herbalife repurchased less than $1 million in stock after relentlessly loading up in the first two quarters thank to a massive debt-funded buyback spree, just as we warned would happen.
The reason: Herbalife's the net debt is, just as expected, suddenly too damn high, because even with zero buybacks, HLF net debt rose yet again to a new all time high.
Worst of all, this is happening just as Herbalife's cash from operations are also about to grind to a halt, and in Q3 were the lowest in years! In fact, should the decline continue at this pace, we assume HLF will file for bankruptcy within 12-18 months, regardless of whether it is found to be a pyramid scheme or not.
The conclusion? Same as last quarter:
So, is Ackman going to have the last laugh? Or will Ichan end up LBOing the company - even if at a huge ultimate loss - just to spite the fellow hedge fund manager with whom he has supposedly kissed and made up? We will find out soon, because if Herbalife is to be LBOed, Icahn knows that the window in which bond investors are willing to take a gamble on this melting icecube is closing fast.
And this is what just happened after hours as the endgame was finally revealed:
Upcoming bankruptcy (or LBO) of Herbalife aside, the bigger lesson here is that this company is merely a case study of what will soon happen to all those other thousands of companies which took the easy way out to satisfy activist shareholders, loaded up on debt, bought back a ton of stock, and suddenly find themselves hitting an iceberg, dragged down by a few thousand tons of debt steel, and without a single life boat in sight.
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One of the biggest Ponzi stocks out there - soon to be "pink sheeted."
Herbalife Pyramid Sellers to Friends & Family of the World Unite!
Isn't this a reality for most multi-nationals?
I hate to say I told you so, several times, but...
Reminds me of Amway in a bad sort of way
At least Amway detergent will actually clean your clothes.
Just like magic...
If you want to see someone have an embolism, then ask a cell biologist to respond to this claim.
Can't people just eat fruits and vegetables and meat and drink plenty of water to stay healthy.
Herbalife just like the myriad of new fitness devices that are hawked on TV satisfy our passion for shopping, not our passion for good health.
Booo-oooring. We want to eat pizza and drink soda, and lose weight by taking a pill.
Herbalife is covering the whole globe. Recently started operations in Greenland (population 56,483) - I kid you not! Next up - Antarctica. I heard a lot of Penguins live up there. Must be a great market.
Obese penguins need magical pill to slim them down so that even polar bears won't hunt them since they will be too skinny to eat!! This stock will go long for sure in Greenland.
""No one ever went broke underestimating the intelligence of the American people." - H. L. Mencken
These companies aren't targetting the cyncial ZH'er. They would go broke if they did.
Instead, they harp on the average low self-esteem American. Obese, angry and desperate to increase their status in life somehow. Its why QVC and HSN make billions.
I lost 30 pounds in 30 days by drinking a 16oz glass of fresh prune juice and taking two Herbalife Cell Activation pills four times a day!
You can too - learn more at explosiveshitz.com
EX LAX uber alles;)
someone can't read a URL,
I have a younger half-brother, that grew up apart from me. He and his wife sell Herbalife along with a group of their freinds. He tried the pitch on me once, and gave me a free shake. I asked him what a "micronutrient" was, then ended up laughing at him as he beat around the bush, desperately searching for am answer. I wasn't impressed with the shake either.
I'd like to see Herbalife get flushed. But like PL Barnum said, there's a sucker born every minute.
A way preyed on the gullible. My friend quit his job for that shit and ruined his life cuz he thought he was going to be a millionare
Is Billy A still short???
If so, bout to get payed...
...and this might have pushed it lower...an hour ago...
Herbalife Agrees to Settle “Pyramid Scheme” Class-Action Lawsuit for $15 Millionhttp://www.slate.com/blogs/the_slatest/2014/11/03/herbalife_pyramid_scheme_lawsuit_15_million_settlement_in_class_action.html
"We are fully confident that we would have prevailed,” Herbalife General Counsel Mark Friedman said in an e-mailed statement. “Settling this matter, however, is in the company’s best interest as it allows us to put it behind us and focus on the future growth of the company.”
--Mark Friedman, a good Irish name.
Too true my friend. How are IBM's consultants any different that HerbalLife independent distributors. Both of them sell bullshit. At least Uncle Sam and the En Ess Aye do not steal all your sensitive data when you buy some Herbalife vitamins.
F IBM and SiliCreep Valley who work for the spy police state. This includes Apple.
Herbalife director and member of audit committee calls it quits, which the company calls, "retired."
Herbalife seems to have taken on a new life in asia. I have seen stores in Japan and a big one in Saigon. Like Magyver, Air Supply and every other has been in the USA there is always the low end of asia market.
If nothing else you can get layed there. I'm sure Magyver has a few times.
I've been dying to be a herbalife distributor all my life, but couldn't afford the $125.
Maybe now I can get in this deal at the bottom and at a discount.
Herbalife is not your garden variety Ponzi. It' a pyramid scheme.
To participate and profit, you have to drag friends and family into to maul of the beast.
Anyone have a wooden stake for that damn thing?
"Hey uncle Pete and aunt Rose, want to get rich..."
An American, not US subject.
Best way to get rid of a pyramid scheme (MLM) pitcher is to enthusiastically say, "Sure! But spot me the cash to get started." Works every time.
You seem to be under the impression that the other "herbalifes" don't require you to recruit your friends and family.
There's where you're wrong.
He said no such thing.
Buybacks do not affect sales. Companies have hidden the real health of the economy by buying shares and artificially inflating earnings per share. Consequently, too many think things are getting better. They are not.
The downturn in sales is symbolic of the economy.
Accelerating/Cumulative share buybacks & dividend hikes (especially in a ZIRP environment) are the sure signs of an equity market bubble.
Many publicly traded companies now own the largest % of their own shares than at any time in history, and surprise! - corporate debt in the form of outstanding bonds, warrants, etc., is at an all time high.
Healthy "markets."
Channel Stuffing
Silly buggers "Radioshackled" themselves.
The only way to return to profitability now (with falling sales and all) is to load the balance sheet with Herbalife put options and clean up in the upcoming Herbadeath collapse...
Trading profits/losses in your own stock don't go on the income statement.
Well, they didn't back when there were laws and rules and the SEC paid attention...
Silly me. Never mind.
So you can save your company from bankruptcy by successfully betting in your bankruptcy?
I have a headache now. I think you broke something in there.
would've liked to be a fly on the wall for the icahn screamfest when these results hit
' If i had a company, this is probably what it would look like '
You can bet your granny's old wrinkled ARSE that HERPES LIFE is NOT ALONE IN THE GRANDER SCAM(SCHEME) OF THINGS
All the stocks are like this, there are for all intents and purposes no "real" buyers of stocks anymore, the phantom demand generated by buy-backs etc. can only be sustained for so long.
It's only a matter of time when tumbling stock prices force these corporations to SELL the stocks they bought back at a loss for liquidity when debt becomes too expensive for them to take on (or when everyone refuses to lend to them AKA credit crunch 2.0).
Thats pretty much your end-game for the stock bubble in a nut-shell.
Really these companies should start selling now , while they can still regain some of their capital before asset deflation kicks in.
BUT O/C this is all part of the show, how can we have QE4~QEI (infinity) without something to spook people with and use as an excuse/basis for the banks counterfeiting more money? . . . all part of the show.
Fear cannons primed and pumped.... just remember on the way down, when we apparently hit bottom, to buy the stock of the most corrupt/crony bank with the most ties to people in washington so that you can ride bailout QE-Inf. back to the new "market top" after the new "market bottom".
"first through inflation, then through deflation" rinse repeat.
Even solvent corporations like Apple might have problems, since the majority of their liquidity can't be re-patriated . . . into the markets, they will be forced to seek debt during credit crunch 2.0 and there wont be any, forcing corporations stuck in the same position as Apple to re-patriate or go bust (paying a nice TAX along the way), again all part of the plan.
A perfect storm is-a brewin.
Yes, the great ' independent non-executive directors' s/ bought into this buyback lark looking at the savings in tax alongside other measures of avoidance like more amenable jurisdictions to set up shop. The dash for the front door due to the overlapping complexity/ nature of the business will cause a pile-up at the start and those not escaping the melee will be toast.
Rather than put nails in your office fronts to prevent bums sleeping in the doorways best consider some protection for the public from the exponential increase in jumpers.
Apple can just move all of its operations overseas where it can access its stash witthout being robbed by the D.C. crime syndicate.
They won't have to start selling stock back again until rates start rising and it's time to roll over the bonds. Any big company with a CFO worth their salt would have made sure they mostly sold longer term bonds, knowing that these rates are unlikely to come again, so it could be years before the scenario you proposed plays out.
Don't worry though, there will likely be other events much sooner than that which start to tip the dominoes.
Hint - Buybacks are a gimmick that artificially inflates EPS by manipulating the denominator.
tick-tock, tick-tock, tick.....
whether they go the route of bankruptcy or LBO, Ichan looks like an idiot that's been fooled by the bullshit
Consumers don't have the money for over-priced herbal suple-doodles.
No doubt the Herbalife insiders sold many of their shares last Friday.
Snake Oil + bubble + Ponzi = Winning 2014.
Look, if they aren't able to competitively buy-back their stock then they don't deserve a leading role in the new economy and should give up their place to others who are better able to buy back their stock. I see today's market landscape as similar to the automobile manufacturing sector in the 20's. Early in the decade there were 100s of car manufacturers, but eventually the industry consolidated and the most productive and efficient prevailed and by the end of the 30's there were maybe half a dozen car manufacturers. So I think we'll see that, while right now there are hundreds of companies competing in the stock buyback sector, only those who are really good at it will ultimately survive and lead America into the future.
Is this sarcasim or humor? I'm conused.
It is neither sarcasim nor humor.
And not only are you conused but you are uneducated as well.
Actually, more in a hurry.
So, if serious, then it matters only that a company is good at financial manipulation? The fact that I provide a superior product and superior service, but don't have access to the "talents" of Fed-backed bakners and high-priced lawyers and accountants means that I should fail/surrender to manipulators who "really good at it will ultimately survive and lead America into the future."
Maybe I am uneducated. Guess I need to go back to grad school, and just forget all about the uneducation running my own business for the past 37 years provided.
Thanks for the tip.
Listen, its a thing called 'creative destruction' and its what makes America great. I can't believe I have to explain this, but - so you have a bunch of companies all competing to be better at buying back shares, and of course some of those companies are smarter or more innovative or they just manage their share buying back better, and of course those companies flourish and the buying back of shares advances, and those companies that can't keep up, can't do the innovations required to move the field of share buying back forward, they fall by the wayside. Its this competition that's at the heart of American capitalism, it's what's going to make sure NOBODY in the WORLD will compete with America in the share buyback business and its what makes America great, and the leader of the free world, it's what makes America EXCEPTIONAL.
With all due respect, Al, I really don't need a gratuitous, condescending expalantion of creative destruction, market forces, or supply/demand elasticity. I have been swimming in the river for many decades and personally involved in far more ceative destruction than most.
Perhaps your original example of companies excelling at buying back their stock and competing to be the best at that game, then somehow being the ones to lead us to that bright and shining city on the hill is where our commumnication faltered. Had you used the example of building Lawn Mowers, or laying pipe, I would totally agree. But you used an example of pure financial manipulation, so I agree only in the "destruction"part. Instead of "creative destruction", the example used would be better described as "wanton destruction". What is creatively produced with stock buy-backs that is healthy for the economy? Hence my question - sarcasm or humor?
11b40
Al is being sarcastic and very funny about it. He wrote something like this a few days ago and unfortunately it is spot on with all that is going on in the Wall Street public corporate financed world we are living in today.
Point is, things will not end well when this is how businesses are being run. They are no longer here to produce products of value and no longer are required to be run in a prudent, safe manner.
You are hereby warned if you believe their value of the stocks across the globe are justified. There is a long way to fall....at some point in the near future. And Herbalife's time is nearer than the rest.
This is Fight Club. Don't worry about it...
And actually you brought up a good point:
"The fact that I provide a superior product and superior service, but don't have access to the "talents" of Fed-backed bakners and high-priced lawyers and accountants means that I should fail/surrender to manipulators who "really good at it will ultimately survive and lead America into the future."
Let me use an example...
Back in the mid '90 when the Internet was fresh I signed up for several ISPs just to test drive a few. I had 4 of them at the same time. Prodigy, Global Network Navigator, AOL, and one more that escapes me.
The clear winner was GNN so I dropped the others. But guess what happened? AOL bought out GNN and POOF I lost the superior service to a company that was only good at financializing the new web.
Sucked...
Thanks, and I understand the creative destruction point. Big fish have been eating little fish forever.
My point is that this new economy Big Al is describing, where superior financial manipulators deserve to be at the top of the heap is wrong. It may be the reality we are living today, but this is not real capitalism, and it is not healthy for the economy in the long run. Unless the intent is to take the company private, this is better described as cannibalism, or "professional management" running amuck. Invest that money in future growth or diversification, or give it to the shareholders, and to to just pump up the stock price to enhance options and bonuses.
Its the new reality. Just BTFD.
I so wish, I could find a flaw in that.
Globalization is adversely affecting this "invisible hand on the market" scenario.
U.S. Corporations like Herbalife will spend all the time, effort, and money necessary to perfect the stock buyback process. Then the damned Asians will reverse-engineer what we've accomplished and introduce competing algorithms that buy back stocks cheaper and more efficiently, skirting environmental laws and the algo unions.
+1 Sadly there is an element of that. Those damned Asians, never innovate a fucking thing, just steal our best ideas and then do cheap knockoffs. Name one innovation they've come up with in the field of share buying-back. But I still think our ability to bring the full creative process to bear on this will mean that we can stay ahead of them and dominate the sector.
There is No.....Free......Lunch.
Green by lunch tomorrow. Election Day.
AAPL is the first to go!!!! Will enjoy watching this gadget company get lambasted!!!!!
Is this what Domino's (DPZ) is doing? It seems detached from the markets and just keeps elevating past overbought like it is lighter than air.
Google Herbalife founder Mark Hughes' death. Karma?
Top 58 Complaints and Reviews about HerbalifeWake me when the whole thing tips over...
Maybe this guy is MDB
"I joined Herbalife as a distributor in January 2010 and started using several products daily for several months. Initially I felt more energetic and was excited about using and selling their products. I had a physical the first week of May and I was healthy.
"Around the end of May I started feeling sluggish and was having a hard time getting up in the morning and feeling tired all day. I was getting very stressed out at work and figured this was causing my stomach cramps and fatigue. I had been working there for about four years getting up at 4:20 am to make it to work by 6:00 am. I was having a hard time even getting up by 6:00 am, even then I was so week and tired that I resigned my job effective June 4, 2010. I was planning on visiting my father in Washington state that was dying of cancer and spend some time with my son over summer for a month or so before going back to work.
"I started taking the Herbalife 21 day herbal cleanse the first week in June. On June 19, 2010 I got out of the shower and laid in bed fatigued. I woke up with severe cramps and fever of 104.8 but refused to let my wife take me to the hospital until Wednesday 6/23/2010. My wife took me to urgent care facility, and they referred my to the emergency room at the hospital with suspected appendicitis, and scheduled emergency surgery. When I awoke from surgery the surgeon said my colon was clogged and ruptured and he removed 90% of my colon and my appendix, attached colostomy bag that I would have for 3 months until my insides healed enough to try and reconnect the remaining 6 inch ends of my colon.
"When I got home from hospital, I tried Herbalife shakes a few times but it would bind me up and take up to two days enter my colostomy bag. I lost all my customers as they were afraid to use the products after what happened to me, so I tried to sell the thousands of dollars of products I have on eBay. Herbalife contacted me via email and said that violated company policy, so I emailed back and explained my experience with their products, and I DID not feel they were safe.
"After about the fourth request for response from my email, I received email reply and phone calls from product safety requesting which products I had taken and lot numbers off bottles. They sent me forms to return all unused product for partial refund. I mailed all forms to Herbalife for approval to return products and received call yesterday, 10/11/10 about when I was going to ship products back. I told them I had not received return material authorization number yet.
"I received email last night stating I have 10 days to return product. I just had my colon reconnected on 9/24/2010 and cannot even lift the boxes to ship back at this time as my staples were just removed last Tuesday. I find it very disconcerting that my colon ruptured as I had a colonoscopy October 2008 and my colon was fine. As I told Herbalife in the email I sent them, I don't feel their labels reflect that everybody's metabolism is different and products may not be safe for all individuals.
"I now have only 10% of my colon left which will impact the rest of my life. I am living off of my 401k and can't even look for work until I complete the healing process and regain some strength. Even then, I use the bathroom much more frequently which may impact my job as an engineer working at different properties and traveling to job sites."
Top 58 Complaints and Reviews about HerbalifeHerbalife just settled a class-action lawsuit a few hours ago for $15M...but that might have caused massive damage to their scheme.
Bill Ackman must be laughing now.
Herbalife Agrees to Settle “Pyramid Scheme” Class-Action Lawsuit for $15 MillionI'd like to be a fly on the wall at their next convention. LOL. I wonder if the spin will be, "We need to recruit some motivated self-starters! Six or seven sales teams should be able to pay our legal bills off of in 3 months top!"
Edit: Maybe they need to get ISIS/ISIL to sell their bullshit? "We are here to wage jihad with the Koran and micronutrients!"
I lost a friend to Herbalife. Every social gathering became an Herbalife sales pitch. As bad as that was, things took a turn for the worse when he started selling cemetery plots.
It doesn't matter whose right first, it only matters that Goldman get on first. FUCK Icahn!
Yes.
Herba life is not representative, maybe it is another trend indicator, but HL is nothing about products, or services, it is a PONZI^5
The real classic example of what happens to the value and future of a company when stock buybacks cease will be IBM. It's going to be a bloodbath.
Advanched ekinomiks for knew see-e-ohs
Follo thes simpel shteps for a richur carear:
1. Get jobb.
2. Git big celery
2.5. barrow monie
3. by back stoks (by hi)
4. hookers
5. blow
7. Get stok opshuns
6. cash in opshun.
8. wait
9. sleep
10. do someting
12. wach stoc drop
13. sell bak stoc (sel lo, rimes wit jell-o)
14. retyer rich.
15. blo yorself
16. nail gun.
As my dear old dad used to say, "it's just another freckle ointment" used to sell that shit door to door, now sell it on the NYSE. Gotta love it.