Tags: Ackman | Herbalife | Icahn | Earnings

Ackman Raises New Questions Over Herbalife

Tuesday, 30 Jul 2013 03:03 PM

Activist investor Bill Ackman has resumed his criticism of Herbalife, one day after the nutrition supplement company reported better-than-expected earnings and raised its outlook.

Ackman, who heads Pershing Square Capital Management, has publicly attacked Herbalife, saying its business model amounts to a pyramid scheme that generates money by recruiting new salespeople, rather than selling products. Rival billionaire investor Carl Icahn disagrees and has increased his stake in the company.

The debate became very public in February when Ackman and Icahn got into a shouting match on live television.

Herbalife has vehemently fought the negative accusations, saying they are inaccurate and misleading.

Herbalife Ltd. reported Monday that its second-quarter net income climbed 8 percent on stronger sales volume. Company shares rose 1 percent to $61.21 Tuesday afternoon.

But Ackman blasted the company in a letter, questioning the company's results and the activity of its new auditor, PricewaterhouseCoopers.

He noted that the company's operating income grew by 3 percent, because of a 31 percent increase in selling and general expenses.

"Why is the Company's operating earnings growth so weak? Is the Company "buying" revenue growth at the expense of operating income?" Ackman asks.

Ackman also questions why Herbalife's most recent quarter was not reviewed by its auditor, PricewaterhouseCoopers.

In May, Herbalife's prior auditor, KPMG, resigned following after insider trading allegations against a rogue executive of the accounting firm. The former KPMG partner, Scott London, has been charged with conspiracy to commit securities fraud.

The new auditor, PricewaterhouseCoopers, is supposed to re-audit Herbalife's financial records for fiscal years 2010, 2011 and 2012 and review the company's results for the first quarter of 2013.

Ackman asks why the new auditor didn't review the company's second-quarter earnings form, "in light of the fact that PwC was retained by Herbalife in May."

Herbalife executives told analysts on a call Tuesday that the re-audit of the company's financials would be completed by the end of the year. A spokesman for the company declined to respond directly to Ackman's letter.

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