(Reuters) - Weight-loss products company Herbalife Ltd (HLF.N) forecast fourth-quarter earnings above analysts’ estimates on Thursday but did not announce a bigger share buyback program as some analysts expected, and its shares were down in afternoon trading.
It also said it expects a temporary bump in expenses due to its fight with activist hedge fund manager William Ackman, who last month revealed a short position in the stock, calling the multi-level marketer a “pyramid scheme” because distributors earn more than 10 times as much from recruitment as from selling the company’s products.
Since then, the stock has become the site of a battle royale between some of the hedge fund industry’s biggest players.
Third Point LLC’s Daniel Loeb acquired a stake of more than 8 percent, and Carl Icahn was reported to have a stake in Herbalife, according to the Wall Street Journal. A person familiar with hedge fund Kynikos Associates told Reuters that short seller Jim Chanos is believed to have been shorting the stock for a while.
Herbalife shares lost more than a third of their value in the days following reports of Ackman’s short position, and then more than made up the loss.
Ackman, whose short position is valued at about $1 billion, was not immediately available to comment on Herbalife’s results on Thursday.
Earlier this week, Chanos told Reuters TV that a main question in assessing the company’s business model was whether customers actually use the product, or if they buy it for the opportunity to be a distributor.
“At the end of the day, the Herbalife bull-bear battle will result on who can prove in fact whether or not the business proposition is good,” Chanos said.
The stock had also taken a beating in May, when the company accelerated another share buyback program after influential short-seller David Einhorn questioned the composition of its distributor network.
Herbalife, which will report results on February 19, expects fourth-quarter earnings to rise to between $1.02 and $1.05 per share, from 86 cents per share a year earlier.
Analysts on average were expecting $1.01 per share, according to Thomson Reuters I/B/E/S.
Sales are expected to rise about 20 percent.
Standard & Poor’s analyst Tom Graves raised his price target on Herbalife shares to $45 from $40, expecting buybacks to bolster the stock. Still, he reiterated his “Hold” rating on Herbalife, saying “questions/doubts about the business will limit valuation”.
The company said on December 24 that it was yet to use $950 million of its authorized $1 billon share buyback program due to some trading restrictions.
Herbalife said on Thursday that it expects to begin buying back shares of its stock under an existing $950 million authorization but it gave no details on timing and did not announce an additional authorization.
The company hosted an analyst day earlier this month. Several analysts called the presentation positive and affirmed their “buy” ratings on the stock.
SunTrust Robinson Humphrey analyst Michael Swartz said at the time that certain points in the presentation gave him “greater comfort” in his “Buy” rating.
As for the strong results he expected, Swartz said it would “unlikely quell the controversy surrounding the company” but that “we do hope to hear more about the timing of potential share repurchases”.
Herbalife shares were down 2 percent at $44.20 in afternoon trade on the New York Stock Exchange.
Additional reporting by Juhi Arora in Bangalore and Svea Herbst-Bayliss in Boston; Editing by Don Sebastian, Bernard Orr