(Reuters) - Herbalife Ltd (HLF.N) estimated fourth-quarter profit and sales above market forecasts, dealing a setback to investor William Ackman who has accused the nutrition and weight loss company of being a pyramid scheme and taken a big short position on the stock.
Herbalife shares rose as much as 6 percent in early trading on Monday after the company also said it had increased its share repurchase program by $500 million to $1.5 billion.
“ ... Ultimately it’s strong recruiting momentum around the world ... (that) is really driving the core results,” said Wedbush Securities analyst Rommel Dionisio, adding that the results showed the strength of Herbalife’s business model.
Monday’s upbeat announcement is bad news for Ackman, who said last week that he was sticking by his $1 billion bet against the company.
Ackman has said that he expects the stock price to drop to zero. But while the shares fell 18 percent this year up to Friday’s close, they have gained more than 80 percent in the past 12 months.
The activist investor said in November that his hedge fund, Pershing Square Capital Management, had lost between $400 million and $500 million on its bet against Herbalife.
Big-name investors including Carl Icahn and George Soros, who have lined up against Ackman, have done better. Icahn is up about $500 million since he first reported a stake in Herbalife last February, according to Reuters calculations.
Icahn controlled about 16.8 percent of Herbalife as of September 30, making him the company’s biggest shareholder.
Ackman is relying on regulators to help his crusade against Herbalife, and he got a boost last month when U.S. Senator Edward Markey called on the Securities and Exchange Commission and the Federal Trade Commision to investigate the company.
Herbalife has denied that it is operating a pyramid scheme - an unsustainable business that typically makes most of its money by recruiting distributors rather than selling products to real customers.
Herbalife, which sells products through a network of independent distributors, said on Monday it earned between $1.26 and $1.30 per share, before items, in the fourth quarter ended December 31.
Analysts on average had expected a profit of $1.17 per share, according to Thomson Reuters I/B/E/S.
The company said fourth-quarter sales rose about 19.8 percent, which works out to about $1.27 billion. Analysts on average had expected sales of $1.22 billion.
Herbalife forecast current-quarter profit of $1.24-$1.28 per share, saying that the weak Venezuelan bolivar had hurt earnings. Analysts were expecting a profit of $1.40 per share.
Herbalife reaffirmed its 2014 adjusted earnings forecast.
The company said it planned to raise about $1 billion through an issue of convertible senior notes due 2019 to fund the share buyback.
The initial purchasers of the notes will be Bank of America Merrill Lynch, Credit Suisse, HSBC and Morgan Stanley.
Herbalife shares were little changed at $64.00 in mid-morning trading.
Reporting by Maria Ajit Thomas and Siddharth Cavale in Bangalore; Editing by Savio D'Souza and Ted Kerr