- By Holly LaFon
In spite of a spirited performance in almost all of his holdings, Bill Ackman (Trades, Portfolio)'s Pershing Square portfolio missed a gain year to date mainly on the rally of his short position in Herbalife Ltd. (HLF), according to his June report.
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Ackman's fund edge down 1.5% in gross performance and 2.3% in net of fees, as returns for June slid 6.2% gross and 6.3% net. With his exit from the battered Valeant Pharmaceuticals in the first quarter, all but one of his stocks rose year to date. The best performers were Nomad Foods Ltd. (NOMD), Restaurant Brands International (QSR) and Platform Specialty Products Corp. (PAH). His only stock to end the quarter down, Mondelez International Inc. (MDLZ), declined 1.71%.
His single short bet Herbalife jumped 49% since the start of the year, reaching $71.73 per share at close of trading on July 3. The company, which sells nutritional shakes through multi-level marketing, this year continued its defense against Ackman's takedown four and a half years ago when he accused it of being a pyramid scheme.
In June Herbalife announced after a 10-month study that 90% of its sales in the U.S. were documented purchases by consumers, exceeding the 80% threshold demanded by the Federal Trade Commission after an investigation into its sales and accounting practices. As part of his short campaign, Ackman had also suggested the company pushed many sales recruits into buying their own products to meet their sales goals, resulting in stores of plastic tubs full of shake mix.
"These figures should put an end to any questions regarding demand for our nutrition products and the strength of our go-to-market business model," Richard P. Goudis, CEO of Herbalife Nutrition said.
The company will also have to meet the requirement every year.
The company changed its guidance for full-year 2017, however, saying it would be "the most challenging quarter of the year" after the second quarter quarter last year was the largest in its history.
From 2016, Herbalife reduced its volume point change guidance from a decline of 1% to growth of 2.0%, from its previously expected 2.0% to 5.0%. It reduced its net sales growth to a range of 0.5% to 3.5% from a previously expected 3.0% to 6.0%.
But the company also increased its diluted earnings per share to a range of $4.10 to $4.50 from a previously expected range of $3.25 to $3.65.
In May, Ackman said he expected the company to have an earnings decline on an operational basis in 2017.
"While bullish investors in Herbalife have suggested that the company's recent results show that it can manage effectively through the requirements of the FTC settlement, North American performance in the quarter, which declined 7%, does not yet reflect the impact of the FTC permanent injunction," Ackman said in his first-quarter shareholder letter.
"Nearly all of the business model changes required by the FTC do not take effect until May 25th. The company's Q2 results will include five weeks of operations subject to these structural changes, but the run-rate impact of the FTC injunction will not be fully reflected in operating performance until Q3 results are released in the fall."
This article first appeared on GuruFocus.