Shares in Herbalife Ltd. (HLF—NYSE) surged Friday after the company reported better-than-expected earnings and progress in its talks with the Federal Trade Commission.
In February, management disclosed that the nutrition company was in talks with federal authorities to resolve an investigation of Herbalife’s business practices. The probe resulted from fraud accusations leveled by hedge-fund manager Bill Ackman, who launched a campaign against the supplement seller in December 2012, backing his claims with a $1 billion short position in Herbalife stock.
“While there are a number of open issues, those discussions have progressed to an advanced stage and the range of outcomes now includes litigation or settlement,” Michael Johnson, Herbalife CEO and Chairman, said of an impending resolution during a call with analysts. “If a settlement is reached with the FTC, it would likely include injunctive and other relief as well as a monetary payment with our best estimate of a payment being $200 million.”
The news follows a strong first quarter at Herbalife, wherein net income rose 22.5 percent to $95.8 million, or $1.12 a share. On an adjusted basis, the company earned $1.36 a share, beating the average analyst estimate of $1.09 a share, according to Thomson Reuters.
Net sales edged up 1 percent to $1.12 billion, topping the average estimate of $1.07 billion. The company is seeing momentum in China, where revenue was up 32 percent in the quarter, alongside gains of 9 percent in North America and 6 percent in EMEA (Europe, the Middle East and Africa).
“We’ve started the year by exceeding EPS guidance on both the top and bottom line and by returning to reported net sales growth, year over year, for the first time in five quarters,” said Johnson.
Following the company’s announcement on Thursday, shares in Herbalife jumped 10 percent in after-hours trading. The stock sustained its momentum on Friday to close at $63.60. When Ackman entered his short position in December 2012, Herbalife’s shares traded around $47.