Nutritional products giant Herbalife Limited (NYSE: HLF
) reported late on Tuesday that its fiscal fourth-quarter profit jumped 22% over the year earlier period as sales of its weight-loss and nutritional products leaped 20%.
However, shares fell nearly 1% in aftermarket hours as investors remain cautious, waiting for the Company to shed some more light over the allegations that its is running a pyramid scheme.
It is believed that Herbalife could spend anything between $10 million to $20 million this fiscal in legal and advisory services as it gears up to defend itself over accusations made by the Wall Street hedge fund manager, Bill Ackman that it is operating a pyramid scheme. Herbalife also reveled in its regulatory filing that the Securities and Exchange Commission is investigating its business practices.
On Wednesday, the Company’s executives will hold a conference call to discuss fiscal 2012 results and investors can expect to hear more on this issue along with their outlook on 2013.
According to Ackman most of the Company’s distributors are losing money or just breakeven while some of the distributors who started doing business with Herbalife much earlier are getting richer by receiving commissions for bringing others into the distribution business.
Herbalife refutes these accusations, saying that all of the commissions are paid according to sales.
When Ackman first disclosed these allegations in December shares had plummeted more than 40% in one week and although the stock rebounded after hedge funds managers capitalized on battered shares, they are still down 6.5% from its December levels.
For the quarter, Herbalife reported a profit of $117.9 million, or $1.05 a share, up from $105.4 million, or 86 cents a share, in the year earlier quarter. Net sales during the period climbed 20% to $1.06 billion.
Last month, the Company had forecasted earnings of $1.02 to $1.05 a share on 20% growth in sales.