May 5, 2016 / 10:17 PM / a year ago

Herbalife in advanced talks to settle FTC probe, issues remain

An Herbalife logo is shown on a poster at a clinic in the Mission District in San Francisco, California April 29, 2013. REUTERS/Robert Galbraith

(Reuters) - 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.

But the company said that “a number of material open issues” could still prevent a settlement.

The health supplements maker also reported its first sales rise in six quarters.

The company estimated that a fine could be $200 million, which helped the company's shares rise 14.5 percent in extended trading on Thursday. (bit.ly/1TLHfvr)

In its quarterly regulatory filing, the company said there could be a range of outcomes including “the filing by the FTC of a contested civil complaint and further discussions leading to a settlement which would likely include a monetary payment and injunctive and other relief.”

The FTC said a possible settlement could also require Herbalife to change certain business practices. Injunctive relief, a spokesman said, could be “just as significant as the money obtained for consumers and even more influential on a company’s future operations.”

Ackman unveiled a $1 billion short bet against Herbalife in 2012 accusing the company of running a pyramid scheme which pays members more for recruiting new members than for selling its products. The company has repeatedly denied the allegations and Ackman has so far lost money on his position.

In March the company said a database error caused it to overstate new member growth. Active new members worldwide, excluding China, grew 3.4 percent during 2015, not 8.3 percent as it said originally.

In the first quarter of 2016, active new members, excluding China, grew 5.4 compared to the first quarter of 2015.

SALES RECOVER

Demand for Herbalife products climbed in North America, its biggest market, with sales rising 8.5 percent in the quarter.

Sales in China, which has been the only bright spot for the company in the past few quarters, increased by nearly a third.

Herbalife also raised its adjusted profit forecast for 2016 to $5.10-$5.45 per share from $4.85-$5.30.

Its net income rose 22.5 percent to $95.8 million, or $1.12 per share, in the quarter ended March 31.

Excluding items, the company earned $1.36 per share, beating the average analyst estimate of $1.09, according to Thomson Reuters I/B/E/S.

Reporting by Subrat Patnaik in Bengaluru and Diane Bartz in Washington and Svea Herbst-Bayliss in New York; Editing by Kirti Pandey and Cynthia Osterman

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