康寶萊 (HLF) 2018 Q3 法說會逐字稿

Good afternoon and thank you for joining the third quarter 2018 earning conference call for Herbalife Nutrition Ltd. On the call today is Rich Goudis, the company's CEO; John DeSimone, the company's Co-President and Chief Strategic Officer; Dr. John Agwunobi, the company's Co-President and Chief Health & Nutrition Officer; and Eric Monroe, the company's Director, Investor Relations.

I would now like to turn the call over to Eric Monroe to read the company's safe harbor language.

Before we begin, as a reminder, during this conference call, comments may be made that include some forward-looking statements. These statements involve risk and uncertainty, and as you know, actual results may differ materially from those discussed or anticipated. We encourage you to refer to today's earnings release and our SEC filings for a complete discussion of risks associated with these forward-looking statements in our business. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any future events or circumstances or to reflect the occurrence of unanticipated events, except as required by law.

In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U.S. generally accepted accounting principles, referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and preparing period-to-period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release. Please refer to the Investor Relations section of our website, herbalife.com, for additional supplemental information and to find our press release for this quarter, which contains a reconciliation of these measures. Additionally, when management makes reference to volumes during this conference call, they are referring to volume points.

I will now turn the call over to our CEO, Rich Goudis.

Good afternoon, everyone. Thank you for joining our call today. I believe there's never been a better time to be part of Herbalife Nutrition. Our company's leadership, distributors and employees are all working together to execute against our core growth strategies, and as a result, as you read in our press release today, our strong positive momentum continued in the third quarter. We're looking forward to our Investor Day tomorrow, where we will share with you some of our key growth strategies that we believe will continue to create shareholder value. But for now let's get right into our third quarter results.

This quarter, in terms of volume points, it was our largest third quarter in the company's history, with 15% year-over-year growth and the second largest quarter overall, following the record that was set in the second quarter this year. This is evidence that our strategies for growth, cultivating an innovation culture, accelerating product launches, leveraging technology and strengthening our distributor difference are delivering results.

In addition, to our strong operating results in the quarter, we also continue to focus on our capital structure as a means to increase value to shareholders. For example, in August, we closed 2 debt deals totaling $1.65 billion, consisting of a $1.25 billion credit facility and a $400 million senior note. And today, we announced a new $1.5 billion buyback authorization to be completed over the next 5 years, providing us the opportunity to continue our buyback program, which has, so far, resulted in over $4.5 billion of capital being returned to shareholders since 2007. John will review financials in more detail along with our updated guidance, which now includes the full year 2019 in just a few minutes.

At our Investor Day tomorrow, we'll share several of our growth strategies with you. One key area is our product strategy and how we're helping our distributors provide personalized experiences for their customers, giving them more product choices than ever before and leveraging trends in food and nutrition to help them attract new customers. These strategies are coming to life through exciting, innovative products like those we've recently launched. All in all, this quarter, we launched a total of 58 products in 51 countries as well as a few in the past couple of weeks that I want to share with you now.

Just a few weeks ago, in the U.S., we entered the $38 billion U.S. coffee category with our differentiated high-protein iced coffee, which we believe is a healthier option than what's currently in the market. This innovative coffee drink contains 15 grams of protein, only 2 grams of sugar and 80 milligrams of caffeine. It's made from real coffee and contains no artificial flavors or added colors, and best of all, it's only 100 calories, providing nutrition and energy so many consumers are looking for as a snack or on the go. This is a great example of our strategy to help our distributors attract new customers to Herbalife Nutrition by expanding into new categories and by meeting the nutrition needs of a broad range of consumers throughout the day.

Also in the U.S., we're taking advantage of the fall and holiday seasons with the launch of a limited-edition caramel apple flavor Formula 1. Additionally, we reintroduced our popular seasonal 10 serving size holiday trial pack. This year, it includes pumpkin spice, pralines and cream and banana caramel flavors. This offering gives our distributors increased flexibility to sell the products individually to those consumers who are price sensitive or to sell them together, offering more flavor variety at a comparable price to our normal 30 serving size individual flavors.

Globally, we continue to offer our most popular products in more flavors that appeal to customers in local markets, a strategy that has proven to be successful. This quarter, we launched the first flavor expansion of our top-selling personalized protein powder in a flavor called mixed fruit in Mexico. It was developed to provide a healthier alternative to the sugary yogurts that some of our distributors and their customers currently use in the market with the goal to drive incremental sales for our distributors and provide a healthier option for their customers.

And in Brazil, we introduced a red fruits flavor of our collagen beauty booster, and it was met with a lot of excitement when we announced it at our sales event in September. For example, the Formula 1 red bean and coy seed flavor launched in China was the #1 item during this past year's Lunar New Year; and the kulfi flavor we launched in India last quarter was also tremendously successful, selling out even sooner than we expected. These new product launches advanced our strategy of creating local flavors, providing our distributors the ability to offer more choice to their customers.

To expand our product offering to the larger wellness consumer category, we continued the expansion of our premium Select line during the quarter. In Australia and New Zealand, we introduced our first ever Formula 1 Select product. Our Select line features alternative proteins, has no artificial flavors, colors, sweeteners, soy or dairy and is lower in overall grams of sugar. This higher end line is part of our strategy to appeal to the more discerning wellness consumer. Our research suggests that this consumer group is growing, spends more on nutrition product and wants ingredients that are natural and easy to recognize. We're excited about our premium Select line of products and our expansion plans in 2019.

Most of these new products were launched at our regional sales events, which wrapped up this quarter with large events in Houston, São Paulo, Guadalajara, Mexico City, Paris and 4 cities in China with a total attendance of more than 100,000 enthusiastic Herbalife Nutrition independent distributors. I know I say it on each call, but the excitement, the pride and the confidence we feel growing at these events get stronger each time, which leads me to believe that our future is brighter than ever. And while these events are incredibly motivating as a whole, it's the individual stories we hear that inspire us and confirm we're living our purpose to make this world healthier and happier.

Tomorrow, you'll have the opportunity to hear more about our plans to grow the company, including management presentations, panel discussions featuring some of our distributors and executives and an opportunity for Q&A, focusing on 3 growth strategies: products; technology; and of course, our distributor difference. We believe our growth strategies along with an effective capital allocation policy will allow us to create incremental long-term value for our shareholders. We're looking forward to seeing many of you tomorrow.

Now I'll turn it over to John.

Thank you, Rich. Let me start by discussing the company's third quarter 2018 reported and adjusted results, which will also include key market highlights. I will then review our fourth quarter and full year 2018 guidance as well as our initial full year 2019 guidance and conclude by providing a brief update on our capital structure and the recently approved buyback authorization.

Third quarter reported net sales of $1.2 billion represented an increase of 15% compared to the prior year. Q3 volume points of 1.5 billion grew 15% and benefited by approximately 70 basis points from a number of tests we've been implementing this year related to product volume point values. The net growth in volume points in Q3 was the largest in a single quarter since 2012 and the second highest volume point quarter in total in the company's history. The volume point growth was again very broad based, including double-digit growth in 4 of our top 5 markets for the second quarter in a row.

We reported net income of $71.2 million or $0.49 per diluted share for the third quarter of 2018 compared to a reported net income of $54.5 million or $0.33 per diluted share for the third quarter 2017.

Adjusted earnings per adjusted diluted share was $0.74 compared to $0.41 per share for the third quarter last year. Note that our results include expenses related to the China Growth and Impact Investment Program of $4.4 million or $0.02 per share. These expenses were not included in our guidance for the quarter and are not included in our future guidance. However, we will continue to identify them so that you can model them appropriately.

As a reminder, these costs are being funded by our China Growth and Impact Investment Program, which was built by grants from the Chinese government. These grants were excluded from our adjusted results, and we expect that the funds expensed are not expected to be part of our run rate of our China business when the funds are exhausted. The adjusted diluted EPS figures continue to exclude items we consider to be outside of normal company operations or that we believe will be useful to investors when analyzing period-over-period comparisons of our results. Please refer to our third quarter 2018 press release for additional details on these adjustments.

Our Q3 adjusted diluted EPS of $0.74 was above the high end of our guidance range of $0.58 to $0.68. This EPS beat was primarily driven by higher-than-expected sales in the quarter. Reported gross margin for the third quarter of 82.5% increased by approximately 230 basis points compared to the prior year period. The increase was primarily driven by the favorable impact of retail price increases and favorable cost changes related to self-manufacturing and strategic sourcing, partially offset by the negative impact of foreign currency fluctuations.

Third quarter 2018 reported and adjusted SG&A as a percentage of net sales were 40.2% and 40.0%, respectively. Excluding China member payments, adjusted SG&A as a percentage of net sales was 29.1%, approximately 200 basis points lower than the third quarter of 2017. This decrease was primarily driven by the timing of event spending, where a large distributor event, which was held in Q3 of 2017, will be held in the fourth quarter of 2018 as well as lower advertising and promotional expenses.

Our third quarter reported and adjusted effective tax rate were 38.9% and 32.2%, respectively. This was in line with our expectations for the quarter.

Now let me shift to a review of our regional and market highlights. The strength in the U.S. business continued in the third quarter with volume increasing 19% compared to the third quarter of 2017, building on the positive trends we experienced during the first half of the year. This quarter, we started testing a small volume point value change in a few products, some of our bars that benefited the comparison in the quarter by approximately 120 basis points.

In China, we had volume point growth of 20% with positive results in the quarter from the future star promotion, which, as we discussed last quarter, provides more economic opportunity to new service providers. We also continued to execute on the now approximately $110 million China Growth and Impact Investment Program. As part of the spending against this fund, this quarter, we launched a nationwide pop-up experience center in 10 Chinese cities covering over 330,000 visitors amongst other initiatives. As a reminder, our current guidance excludes any future spending from this program.

Turning to Mexico. Volume points grew 9%. The volume point value changes we discussed last quarter benefited the comparison in the quarter by approximately 190 basis points.

The Asia-Pacific region reported a 24% year-over-year increase, which was an all-time record-high volume performance in the quarter. 12 of 15 countries grew in the quarter, led by India, which also had a record high quarter for the market. The record high was fueled by performance at product line extensions introduced earlier in the year as well as expanded product access points. Regional growth in the quarter was also driven in part by certain factors not expected to continue in Vietnam and Malaysia.

The EMEA region grew 17% with volume point growth in 10 of the top 12 countries, taking the number of consecutive quarters of growth in EMEA to 34. The volume point growth was led by Russia, Spain and Turkey.

Now let me move ahead to guidance. Worldwide volume point guidance for the full year 2018 has been increased to a range of 8.6% to 9.6%, reflecting the performance in the third quarter of the year plus an increase in the expectations for the fourth quarter. For the fourth quarter 2018, we estimate volume points to grow in a range of 8% to 12%. We expect full year 2018 net sales to grow between 9.9% and 10.9% over 2017, which includes a currency headwind of approximately 70 basis points compared to the approximately 0 currency impact that was included in our previous guidance estimate.

For the fourth quarter 2018, we estimate net sales to be within the range of 6.5% to 10.5% growth, which includes approximately 500 basis points currency headwind versus the prior year. Our currency impact for full year and fourth quarter both exclude Venezuela due to the hyperinflationary impact of currency rate changes and associated price increases.

Full year reported diluted EPS is estimated to be in a range of $1.99 to $2.09 and adjusted diluted EPS guidance to be in the range of $2.74 to $2.84, updated from the previous ranges of $1.95 to $2.15 and $2.60 to $2.80, respectively. Currency headwinds have worsened since the guidance provided a quarter ago and are projected to negatively impact our full year adjusted EPS guidance by approximately $0.07 versus 2017.

Fourth quarter reported diluted EPS is estimated to be in a range of $0.35 to $0.45 and adjusted diluted EPS guidance to be in a range of $0.50 to $0.60. Fourth quarter reported and adjusted diluted EPS include a projected currency headwind of $0.08 compared to the fourth quarter of 2017. We're also lowering our capital expenditure expectations for the full year to a range of $85 million to $95 million, primarily a result of timing changes, pushing spend previously planned for 2018 into 2019. Fourth quarter capital expenditures are expected to be in a range of $30 million to $40 million.

Moving ahead to guidance for the full year 2019. Worldwide volume points are estimated to grow between 4% and 8% with worldwide net sales growth of 2.8% to 6.8% on a reported basis, which includes an approximate 220 basis point headwind due to currency. Constant currency net sales are expected to be in a range of 5% to 9% growth. Full year 2019 guidance for reported diluted EPS is in a range of $2.34 to $2.74 with adjusted diluted EPS guidance in a range of $2.70 to $3.10. Reported and adjusted diluted EPS include a projected currency headwind of $0.25 compared to 2018.

Our adjusted EPS guidance on a constant currency basis would be in a range of $2.95 to $3.35. Adjusted diluted EPS guidance excludes the impact of any future share repurchases. Our 2019 guidance also excludes any excess tax benefit from equity exercises, which contributed approximately $0.10 to adjusted EPS in 2018.

Lastly, I'd like to make a few comments in regard to cash, debt and our share repurchase activity. Earlier this quarter, we announced the closing of a new $1.25 billion senior secured credit facility and $400 million of senior notes. This facility consists of a $250 million revolving credit facility maturing August 2023, a $250 million Term Loan A maturing August of 2023 and a $750 million Term Loan B maturing August 2025. Our $400 million senior notes are due in 2026. The net proceeds from the offerings were used to refinance our prior senior secured credit facilities at more favorable rates and more favorable terms. This refinancing allowed us to take an incremental debt of approximately $250 million while still delivering a net interest rate savings.

At the end of the quarter, we had approximately $1.1 billion in cash, $2.4 billion in total debt and approximately $1.3 billion in net debt. We have sufficient cash on the balance sheet to address the $675 million of 2019 converts that are due in August of next year.

Earlier today, we also announced that the board has approved a new 5-year $1.5 billion share repurchase program. Lastly, we look forward to hosting many of you tomorrow at our Investor Day in New York and sharing our strategy to create long-term shareholder value.

This concludes our prepared remarks. Operator, please open the line for questions.

(Operator Instructions) Our first question comes from the line of Doug Lane with Lane Research.

Starting with the fourth quarter outlook -- or the full year outlook. The increase in volume points, is that just basically flowing through the third quarter upside and your fourth quarter outlook of 8% to 12% is largely unchanged?

Yes, it's slightly up from what was implied in the prior quarter guidance. So you do the math. I don't if you've had time yet, but you'll see it's up a little bit.

Okay, good. And then the EPS number, yes, I've done some quick math. Obviously, there's a lot of numbers here. But it looks like the $0.50 to $0.60 adjusted EPS isn't too far off what was implied before. Is that about right, even with the more currency headwind?

Yes, that's correct. We've got slightly higher volume rolled in, but we also have more currency headwind than what was expected last time we spoke. Obviously, the dollar has strengthened. We have -- we talked a lot historically about our -- the impact the dollar can have on our results both from a translation and transaction standpoint. So we have a headwind from currency and slight headwinds from our tax rate.

Right. Right, I was going to ask about that because your tax rate went up a little bit from the previous outlook. What changed there?

It was country mix.

Okay. One thing that stuck out in the numbers was the gross margins. You mentioned that you're up 82.5%. That's really looking at the last few years, the biggest quarter that I can see from a gross margin standpoint. And again, China gross margins continue to be improving and the highest I've seen there for a while. Is this a new sustainable level? Or is there just something going on near term that had popped and we should really look for them go back to kind of an 80% range going forward?

Well, I think there's an opportunity above the 80%, but I do think there are some unusual things this quarter. And this quarter's unusually high, and we talked a little bit about this on the last quarter's earnings call that the gross margin is a timing difference between currency. When currency strengthens, the net sales gets translated to current month exchange rate, which we know is worse than the exchange rate 6 months ago. But inventory gets translated at the rate the month the inventory was made, and think of 5 months ago maybe as when the inventory was translated. So you get actually a benefit sequentially from -- in the short term from a strengthening dollar.

Right. But in your prepared remarks, I think you cited retail price increases and the benefit of self-manufacturing that there's actually a slight negative impact from currency. So I'm just wondering that with currency again moving against you and with the anniversarying of the retail price increase coming up, is that going to drive any kind of meaningful change in gross margins back the other way.

I said there'd be a little bit the other way. So the comment on the call was ex Venezuela, right, so from currency standpoint. So -- but as I said, I think there's some opportunity above the historical rate of 80%. One of the things -- if you go back over time, we have had meaningful strengthening of the dollar. And I'm not just talking at 6 months. You can go back 6 years. And during that time frame, we did not take as much price increase to compensate for the lost value to the company from the currency because we take price increases with inflation. But over time, inflation in local market, many times, lags the local currency relationship to the dollar. It's not 1 to 1. But that'll allow future price increases and a catch-up in margin. So we do anticipate higher than 80%. Given country mix issues, there's always a risk but higher than 80% margins going forward. A little below the 82.5% we have this quarter.

Right, you're pointing, you still have room for additional price increases to catch up with...

Correct.

Okay, I got it. And last, I don't want to overlook the fact that the top line numbers were very impressive. And I'm sure you'll talk about that a lot, and we'll talk about a lot -- your business a lot tomorrow. The only other thing I saw that I had a question about was in your adjusted EPS numbers, you included the antidilution from the capped calls, and I just wanted to know what the rationale was there because, obviously, that's going to increase the comparison for next year if that's the new way you're going to look at adjusted EPS.

So when you say we include -- so from a reported standpoint, we are forced to include the antidilution from the converts, okay? So what we do is give you an adjusted number that also has an adjusted share base, and you can assume what happens next year when those capped calls actually deliver the shares to us. So you got to use the adjusted number because I think it's like 3.5 million shares -- 3.4 million shares have built into the share base that you need to exclude for adjusted purposes because they actually will be dilutive to next year. But the accounting actually looks to them as 2 different transactions. There's the dilutive and anti-dilutive. The dilutive, we have to include. The anti-dilutive, we can't. So we give it to you on an adjusted basis.

Your next question comes from the line of Tim Ramey with Pivotal Research Group.

Couple of clarifications please. There was -- I think you mentioned something like 70 basis points of volume growth coming from test markets, and you kind of went through that quickly. I wasn't sure that I really understood what that related to.

Yes, sure, Tim. I think we've talked in the past about the relationship of volume point to net sales, and in certain markets, we are testing changing the volume point value for different reasons. At the end of the day, we use volume points for qualification levels. And in different markets for different products, we want to test the ability to change those qualification levels to ultimately make it easier for certain distributors to qualify to kind of match the socioeconomic climate in various markets. Or in the U.S., for example, we launched the new bar, and the relationship in that new bar volume points to net sales was different than the older bar, so we adjusted the older bar. So the key point is there is no relationship -- there's no financial relationship -- direct financial relationship for volume points, but because we report volume points, whenever we make a test change, we will be transparent with you so that you can understand what it is and normalize for it. But we are running different tests in different markets globally.

Got it. I'm sorry, I was thinking test products and this is your different approach to volume points. I understand.

Yes, yes, these are not test products, right. These are testing different -- some changes with volume points obviously.

Understood. In the future star program in China, can you talk at all about what that looks like on the ground. How -- I mean, obviously, the growth is terrific in China. But what are the things we should be looking for there?

Well, I mean, the future star promotion is intended to give some economics to newer distributors in China. I think it's something that the model was likely missing earlier. We hope that it can be permanent. We don't know. There's always unintended consequences. So we're testing on a promotional basis. Does the future star promotion drive engagement? And not just engagement in markets we're in but other Tier 2 and Tier 3 markets where we're not that strong today. And so we're looking at it. We'll follow it. Hopefully, at some point in time, we make the future stars promotion either permanent or some version of it permanent.

And relative to CapEx, I know your cash flow and EBITDA margins were incredible this quarter. It looks like you're pushing some CapEx out, lower this year, higher next year. Is there anything in particular you would point to in terms of why the change in timing?

Just one of the key areas of investments for us in the capital side is front-end distributor-oriented technology. And it wasn't a planned timing difference. It just turned out to be a resource timing difference, not capital resource but human resource. And so some of that got moved into next year. And we'll talk a little bit about what that technology is. Actually, we'll talk in depth about what that technology is tomorrow.

I assume this is the HN-connect program.

Yes. HN-connect is a big component of it, which we will demo tomorrow, so you can see how it works. But it's not the only part of our distributor facing technology investment. But it is -- and some POS -- we are also investing in the POS, too, for Nutrition Clubs. We had version 1 launched in the U.S. And now we're going to upgrade it to version 2, and so that's part of the technology investment. Again, you'll hear more about that tomorrow.

Our next question comes from the line of Akshay Jagdale with Jefferies.

I wanted to ask about China first -- China and India, actually. So those are 2 geographies where you have some really solid [growth] right now but the economy there is sputtering in many different ways. So can you talk about the momentum there and sort of why you think it's sustainable even in light of all the economics, the headlines that you hear from there?

Sure. So let me address the sustainability part first. So growth, in our industry can be spiky, especially in some of the emerging markets. And so India had growth of 42% this quarter. That's not the sustainable rate. We think there's lots of opportunity in India. This quarter, we launched some new local flavors. We'll launch a new -- a bunch of new access points that helped drive engagement that really spiked things up this quarter. So I don't want you to think third quarter is the sustainable rate, but we think there's tons of opportunity in India. And then with China, we've got lots of momentum and good engagement in China. I think future stars is one of the reasons for it. I don't expect that 20% is also sustainable, but I think long term, this big opportunity is in China. Again, just the -- based on the way direct selling works and if you follow direct selling, it has some peaks and valleys and spikes in this. But the trend over the long term, we expect to be really positive in both of those big emerging markets for us.

Got it. And then just one housekeeping item on interest expense. What are you assuming specifically in your guidance for interest expense next year? I'm trying to get a sense for what kind of EBIT you're expecting in your guidance next year. So just wondering what the interest expense number is.

Yes. So let me just kind of give you some of the core assumptions for debt next year. So we have $675 million convert that's due in August. Our forecast -- our guidance, I should say, assumes that we just pay that off. At the same time, we -- our board authorized a $1.5 billion buyback. If we decide to buy back stock and refinance the $675 million, that should be upside, assuming that we buy back stock and it's accretive. But right now you can just take the $675 million and assume it gets paid out in August. And that interest will go away in August, and that's the way the model works. So it'll be a little less interest next year than this year, I think. It's the way it's been profiled out at this point.

Got it. And then just related to that somewhat, so the FX impact, obviously, is pretty significant next year. I'm just trying to get a sense for, one, the visibility that you have into that number; and two, if any offsets that you have modeled in that regard, so I mean, are you assuming some price actions? Are there any other cost savings actions that you're taking that might offset that are already included in your guidance on FX? Or are you just simply flowing it through right now and you're going to work to offset some of it and if you do, that would be the upside?

So just by way of history, for your benefit, the way that we forecast FX is we use the average rate for the 2 weeks post quarter-end. So that'll be the first 2 weeks of September, and we -- obviously, mid of October. And we roll that into our system for next year. So we -- from a visibility standpoint, we're not making any prediction on currency, right? We're using the average rate for the 2 weeks after the quarter ended. If those 2 -- if those rates are accurate, we've got great visibility, right? The system calculates it pretty accurately, and so that $0.25 is -- impact year-over-year is real based on the rates as of a couple of weeks ago. As far as anything that we do to offset it, we have not implemented any particular strategy. We have not changed our pricing approach next year. Also, by way of history, we don't price based off currency. We price based off inflation and what the consumer is seeing locally on similar products. I think pricing off of currency is a long-term mistake and creates a lot of volatility with our consumer.

Got it. I wanted just one last one. Maybe I won't steal any thunder from tomorrow, but you've been -- I think you're one of the few consumer companies that actually has access to direct consumer-level data and a significant amount of it. What are some of the high-level learnings? I mean, when I thought about it, I felt like the biggest impact on your model would be sort of efficiency for a sales leader, right? So the number of, I guess, volume points that go through a particular sales leader over time is where I think you could leverage technology the best, right? But is that a good way to think about it longer term? Or, I mean, what are some of the high-level learnings from the technology and the data that you're gathering?

Yes. So I think you're pretty close to on track as to what the goal is. It's productivity. It's productivity, scalability and a lot of other different elements that we'll talk about tomorrow at Investor Day. But that productivity ends up being productivity per customer. That's a real way to look at it. Now we don't have visibility on the customers globally. We've got much more visibility into the U.S., and we're working on the technology to improve that productivity. It's something -- we call it HN-connect. You know it as sales force. In its beta form, I think, I want to say probably 7,000 users. We haven't launched it formally to everybody in the U.S., but it's been scaling up with the objective of when we launch to everybody, we know it works well, right? We don't want to -- I think the worst thing we can do with the new tool is drive trial to that tool until we know it functions the way it needs to function. So with scaling up, it's got over 200 distributors. Now we went to, I think, 1,000 or 2,000. Now we're 7,000. And then early next year or late this year, we'll go to the whole market. And that'll give us a lot more information, but that is a huge opportunity for the future for which we will discuss tomorrow.

And one last one. As it relates to FX more strategically, given the volatility and sort of the strengthening of the dollar over a long period of time that we've seen, have you thought about changing the way you think about pricing? Is that something that you might change going forward where you'll be pricing more in line with FX moves as opposed to waiting for sort of the inflation to catch up?

So I think that would be a big mistake for a lot of reasons, okay? First of all, currency can be volatile, right? So the last thing we want to do is have pricing that's volatile and have currency move meaningfully in one way, take a price increase and then move meaningfully the other way and take a decrease. Second is what we don't want is for the consumer to see something happening different with the Herbalife product pricing than what he's seeing in his local marketplace. And I think that's just going to drive bad behavior and be really volatile for the consumer, and that's not something we want to do. So we're going to draw -- our strategy has been and right now will continue to be based on inflation. And the only way to handle currency is either moving costs around, create more natural hedges, and we have some opportunity there. We've created some shared service centers in some of the markets where we have high sales that create some natural hedges. Manufacturing is mostly in the U.S. There's limited opportunity to move that so -- and we create some hedges to kind of smooth out over time.

Our next question comes from the line of Mike Swartz with SunTrust.

John, just wanted to touch on Asia Pacific in the quarter. That was the one region that really stood out from a volume perspective. And I think in your prepared remarks, you mentioned, obviously, India had nice growth this quarter, but I think you also, as an aside, mentioned I think it was Thailand and Malaysia where you had some maybe near-term items that were impacting that. Could you just go through what exactly that was and maybe how much of an impact that had?

Yes. I can tell you what the issues are. On how much of an impact, I don't know off top of my head. But I was talking about Vietnam and Malaysia. Vietnam has a new set of regulations going in there for direct sellers that require -- I want to say like a whole day of in-person training for people who sign up and that goes into effect, I think, early next year. And so in advance of that, a lot of people are signing up now. So they're signing up in advance of that change. That's an industry change in Vietnam. And then in Malaysia, it's a tax change. So basically, it's economics that are driving some advanced purchasing in Malaysia.

Okay. And then also on the -- I think you mentioned a shift in timing of a distributor event from the third quarter to the fourth quarter. I guess, one, was that embedded when you gave third quarter guidance in July? And then, two, how much of a shift was that?

So it was embedded in guidance. That shift is a shift comparing 2017 to 2018. So we have a very large event that last year was in August. This year, it's in -- it's actually next week. And so it's in Q4, and it's a meaningful number. I don't know the exact number, but it's in the millions.

And then just finally, on the input costs raw material front, anything to think about there? I know there's been some talk that soybean prices are going higher and you obviously have exposure to that. I mean, any way to look at what that could mean as we think about 2019 and beyond?

No, we haven't seen that. At least with the soy that we buy, we have not seen any meaningful movement in price.

Our next question comes from the line of Beth Kite with Citi.

If I may, I'm just going to stick on Asia Pacific just with one more quick question, and it's around Indonesia, which also is another country that had great performance in the quarter. Given some of the weather events of sort of the end of the third quarter and start of the fourth, what kind of level of growth are you looking for? Are you concerned about that country kind of like Mexico a year ago when it sustained earthquakes?

Yes. So definitely, we're looking for less growth in Indonesia this quarter than last quarter. So yes, it'll have an impact. It's not uncommon when a major natural disaster happens in a country that can impact us in the short term. I think it doesn't change our long-term perspective on the business. But certainly, it will have an impact on Q4.

Okay, very good. And then switching over to other segments. I noticed that the -- separate from the geographic but the energy, sports and fitness had pretty strong year-over-year growth, stronger than the company. So I was wondering if there was particular innovation. Was it the Achieve bar we saw in the U.S. for instance that launched here on the third quarter? Were there just sort of organic underlying drivers from existing products? And/or was it the bar issue that you talked about in your prepared remarks? Not issue, but I think you said something about like a shift in the way the bars were calculated.

Well, the bars that were calculated were not sports bars that were calculated. It was sports bars launched and that relationship between volume points and net sales, therefore we changed to the non-sports bars also to match that relationship. So it wasn't sports. But we did launch some bars, and that helped. But I think most importantly is the sports nutrition category offers us a lot of opportunity. I think it's something where our brand plays well. We built a lot of credibility. And that's a portfolio gap for which we can expand, and we're going to talk about that tomorrow.

Okay, perfect. We'll wait for tomorrow. My next one might be one for tomorrow as well. I was wondering if you could give us any more context around the iced coffee launch in the U.S. just in terms of how -- I know it's just 1 month in and not even a full month probably in certain markets here in the U.S. But how did it perform versus expectations? Are you marketing that product differently than other launches? Are you spending different investment dollars to support that launch?

So we're not spending anything incremental above any other launch that we do. We're launching it the same way. I do think it's outperforming our expectations, but it's early. Look, I don't want to set expectations based on how things sell in Week 1 or Month 1. It's -- anytime you launch a new product, especially something like coffee that's a new category, it's easy to drive trial. I think what's important is the repeat business, so I don't want to -- by the way, we're super confident in the product. I'm not trying to set lower expectations. I'm just saying it's too early for us to judge or too early certainly for you to judge on what that can drive.

Okay, got it. Fair enough. And then lastly on the preferred member concept, that having been deployed here in the U.S. now over a year ago, are you, at this point, able to share any other markets here in the fourth quarter or in 2019? I think when I was with you in Paris, you spoke about Italy adopting preferred members. Can you just talk to us about if it's that market, it's any other markets in the kind of 6- to next 12-month time frame are going to adopt preferred members?

So Brazil -- and based on demand from our distributors in Brazil, they want to launch it. So we're doing the programming now. It will be early next year. And as you know, Brazil has been one of the weaker points for us as a company, and I think it can be a catalyst. I think it's -- and most importantly is they came in as a request from our distributors to launch this. So I think we're excited about -- I don't know exactly. It might March or April next year to launch, there is lots of programming to be done, but we're excited about it.

We have a follow-up from Tim Ramey with Pivotal Research Group.

Just wanted to go a little bit deeper on the Formula 1 Select. I think I heard you say that was just launched in Australia. Is that right? And if so, how quickly can that roll to rest of the world? Do you have the capability to manufacture it here in the U.S.? I assume that's not particularly a limiting factor but love to hear a little more.

Yes. Tim, this is Rich. So actually, the select line is our premium line really going after the wellness consumer, a more discerning consumer as we talked about in the prepared remarks. We started with the launch actually earlier this year with a version of the select line. It was called PRO 20 that launched in EMEA, and it has been received really well. The markets that just launched recently was both Australia and New Zealand, that launched this quarter, and again, it's allowing our distributors to talk to a broader range of customers. Our plans are to bring it to other markets next year. I think North America is scheduled to bring out a version maybe even in the first or second quarter next year. We'll talk more about it tomorrow and give you a little bit more visibility, but clearly, we believe that there's consumer demand for this kind of products. And our research suggests that these people in this category, because they're living the lifestyle, they're -- they stay with us longer and they spend more money. So it's very attractive opportunity.

There are no more questions. We will go back to Rich Goudis for closing remarks.

Okay, thank you. Listen, we're thrilled to report the third quarter results with you today, but we're really excited to host you tomorrow at our Investor Day, our first in over 5 years. In addition to a lot of prepared comments that we have, what's most exciting is that you're going to have the opportunity to interact with almost 20 different executives and distributors on panel discussions that are interactive with Q&A, giving the opportunity to get a little bit deeper to some of our strategies but more importantly, to actually hear first-hand from our distributors and some of our regional executives how they do what they do and how we make this world healthier and happier. So we look forward to seeing you all tomorrow. Have a good evening.

This concludes today's conference call. You may now disconnect. Thank you for your participation.