[Beginning of Cramer's verbatim comments for this segment...]

Jim:          Herbalife Ltd. (HLF), the nutritional supplements and personal care products company that sells its products via multilevel marketing and direct selling, think of Avon or Tupperware… for vitamins… is hitting a 52 week high today… and we need to know if it is still worth buying… now this is one of those stocks that has been dogged unfairly by rumors from the short sellers about how its business model works or does not work… and because it can be hard to get your hand and your head around the model… they sell supplements to sales people who sale to other sales people who finally sell them to you… there have been questions about whether it is doing its business right… some on Wall Street have always regarded Herbalife as a pyramid scheme… that has not been the case here on Mad Money… but such accusations have come back to bite the company in the past… in fact, they even got to me, frankly, back on June 17th when the stock was at $27.75, I even questioned Herbalife’s model…I could not recommend it… we missed out on 47% run… do you know what happened?… I am sure this has happened to you, I am just human… I got beleaguered by the cat calls and the negatives… I could not take it anymore… I figured that somebody knows something that I did not know.

Here is the thing… Herbalife under its current CEO has never really had a problem with its business model or its sales… but it is easy for unscrupulous hedge fund managers to spread rumors… and to spread gossip… that hurt the stock so that it is relentlessly pursued and banged down by the shorts to make it for a guy like me to say, look I probably do not know what is really happening here… maybe I am missing the real story… these guys can’t be that wrong, right?… this is despicable behavior… it is the kind of thing that nearly destroyed our financial system at the beginning of the year… but you do not see the government going after the false rumor mongers… I would like to know what shorts earned their false profits in Herbalife… eventually though, of course, as with any good company, the truth does come out… the stock does come back to life… but unless you are the kind of executive that is willing to give out illegal insider information to diffuse the shorts… you have to wait to disclose the numbers.. and cannot rebut in real time the rumors of the bear raiders in the short term.

For Herbalife the stock sprung back after being rumored down, when it reported a spectacular .16 cents earnings beat… remember, there were estimates and it beat those earnings estimates gigantically… that was November 2nd… it was done on higher than expected revenues…. you know how much we like that, the top line… better than expected guidance for the fourth quarter and for 2010 to boot.. I think that Herbalife is the best of the best of the direct sellers for this environment… more international exposure than Avon or Tupperware… and Nutrisystem which you might think to be the most similar, is actually more of a weight loss club with hardly any international exposure yet.

Herbalife has also put in the second best performance since its IPO at the end of 2004... it is up 178% in that period… behind NutriSystem Inc. (NTRI)… and to top it all off, Herbalife is the cheapest of the group trading at 12 times 2010 earnings… Avon 16... Tupperware is 14... 20 for Nutrisystem… so it has got the most consistent growth… and it also has the lowest multiple… seem strange to you?… do not take it from me…

Let’s hear from Michael Johnson the CEO of Herbalife Ltd. (HLF) for the full story…

Jim:       Michael, welcome back to the show.

Michael:     Hi Jim.

Jim:     Alright, Michael, you guys are expanding like mad… growing overseas… every day we hear about a weak dollar, a weak dollar, a weak dollar… could you please tell once and for all our viewers what it means to be selling in one currency, and then have it translate to a weaker currency, and how it benefit’s the shareholders of that company?

Michael:     Well, we do 80% of our business overseas. And so a weaker dollar actually benefits us. It does benefit our travel and entertainment but it certainly benefits our business overseas because we are buying, obviously, dollars at a different rate. And so, we are benefiting.

Jim:     When you hear, oh the dollar is so weak. Don’t you have to say, you know what that is really going to benefit anyone who owns Herbalife’s stock?

Michael:     Yeah, I do not want to sound anti-American or anything like that. We do not have a fan club for a weakening dollar but a weakening dollar does benefit our shareholders.

Jim:     Now, you guys continue to come into some exciting markets… each time I see you, a year ago… just tell me the markets that you have gone into in the last year or 18 months.

Michael:     We have just opened up Viet Nam this week, which is fantastic.

Jim:     Why does that matter? Do people in Viet Nam do they want supplements? What do they know?… I mean I am not denigrating Viet Nam, but I am saying how do you convince them that this is right for them?

Michael:     Well, the companies success recently has been built on daily consumption. This is a meal. That is a great meal right there. I tell my friends that is the best meal that you are going to get all day today. Vitamins, great nutrition, good minerals, carbohydrates, proteins, all that. Everybody needs a good meal in their life. Viet Nam is 87 million people. 40% of the population is under 25 years old. They are looking for jobs, they are looking for income. So we have this two way street, health and wealth. Great meal and a great business opportunity. And if they apply the same methods that have been applied in markets like Taiwan, Korea, Mexico and start these nutrition clubs. We have got a beautiful daily consumption model that builds an opportunity for income and an opportunity for better nutrition.

Jim:     Okay, so that is good in the emerging markets. One of the things that surprised me is, that the number of sales leaders declined in the quarter but volume still grew. I would think that with the unemployment level around the world, that the number of people who would want to take on another job like selling Herbalife would have gone up. Why is that now inconsistent with what is happening at your company?

Michael:     Let me give you two answers and not try to make it too windy here. One is that our model was probably not perfect for these times. But to become a 50% discount seller, so I get a 50% discount and I make money, 50% on retail. So I buy it at $25 and sell it at $50. That model was based on you doing $2500 a month for two months or doing $4000 one month. That is a big entry fee in these times. So we just changed the model and said look let’s take that over 12 months. And our distributors absolutely bought into this. They are supporting this. Actually a distributor had this idea. We tested it in Russia. Huge success and so now we are rolling it out globally. I think that you will see our supervisors, our distributor sellers, increase over the next year to year and a half. Now the other side you asked, why is the volume going up if you have not recruited more?

Jim:     Right, because remember, everyone… the bears say listen it is just a recruitment scheme… and as long as they keep recruiting their numbers go up… the minute they stop recruiting, their numbers go down… that is not what happened.

Michael:     Well, isn’t that interesting. That means that individual, and you would call it per distributor performance is going up. People are working harder. They are more productive. They are doing a better business individually. We are seeing those numbers going up which is a solid base for this company. It means that retailing is vigorous. It is taking place, it gets rid of all that.. you used the word before so I am not going to use it. All this stuff (made a pyramid with his hands) it goes away.

Jim:     Alright, so let’s talk about what… let’s speak future… many CEO’s have found their companies under attack… many CEO’s have found that there are short sellers who really need to have a stock go down… what is your advice to them about how to take on people who spread false rumors about a company that is literally just a profit, at shareholders expense, by lying?

Michael:     These are unique times. I do not know if I have sage advice for another CEO. I know what we did. We said we are going to beat this out with numbers. And we are going to continue to improve our company at all levels. From the product, to the business opportunity, the brand, the image of the company. We are just going to keep posting numbers. And we are going to let the numbers speak for us. Our distributors are a wonderful group of human beings. They have got a wonderful business opportunity. They know it. They know they do it with integrity and honesty, because we make sure that the golden goose, this great company Herbalife, continues to prosper and thrive. So we are just going to beat it out. You know we could not take on anybody who was putting these rumors because then it is like you said in you warm up, we are just out there fighting that pitched battle.

Jim:     One way to stop these people cold is to pay a higher dividend, because they have got to pay out the dividend. How about a dividend boost for Herbalife which has always returned good money to its shareholders?

Michael:     Well, I will bring you to our board meeting and you can work on that with our directors.

Jim:     I will. I am happy to. Look you have $250m in cash. You have almost no debt. You continue, you have an analyst day December 17th, what a great time to announce that you are going to return some of that cash to shareholders.

Michael:     We have given almost $500m back to shareholders. In share repurchase and dividends.

Jim:     Very few companies have been as shareholder friendly and I am hoping… well, I am sure that we will hear some good things at the December 17th meeting?

Michael:     You are going to hear a much more in depth view of the company and today and into the future.

Jim:     Well, I will tell people right now, listen to me… this guy is money in the bank… I bet you that if you own the stock ahead of the December 17th analyst meeting, you are going to feel richly rewarded… and the fact that I left the story because I was beleaguered… let that be a lesson to you… if you get beleaguered but the story is good, just stay the course… that is what matters… thank you so much for coming on the show, really appreciate it.

Michael:     Thank you.

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Jim's comments after the interview:     No specific comments after the interview.

 

 

[verbatim recap]

[end of segment]

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