Photo: Yahoo Finance
Herbalife, a marketer of fitness and nutrition products, was a little more than 36 minutes into its conference call when the operator turned the call’s second question over to David Einhorn of Greenlight Capital.Seconds later the stock would collapse nearly 20 per cent, erasing about $2 billion in market cap.
Einhorn is famous for calling the fall of Lehman Brothers and for raising questions of fraud at Green Mountain Coffee Roasters late last year.
Einhorn asked three main questions to Herbalife executives, focusing on the lack of previously disclosed information on its annual reports as well as the workings of sales outside of its network.
Below, the full questions that triggered the sell-off.
- “First is, how much of the sales that you’d make in terms of final sales are sold outside the network and how much are consumed within the distributor base?”
- “What is the incentive for supervisor to sign somebody up to become a distributor as opposed to – if they’re just going to consume for themselves as opposed to just selling them the product for the markup. How does the distributor – how does the supervisor come out better?”
- “When you had your previous 10-K, you disclosed three groups of distributors at the low-end. You called 29% self consumers, 57% small retailers, and 14% potential sales leaders and then that disclosure did not repeat in the subsequent 10-K. So, I got two questions, first of all how do you track that and how do you characterise and know which ones are which? And second, why did you stop disclosing that in the last 10-K? Is that something that you stopped tracking or just stopped disclosing?”
Einhorn finished off thanking the executives for actually offering to follow up with data to investors when they couldn’t answer the question on the call.
Listen to Einhorn’s questions from the call below: