The hedge fund manager William A. Ackman has taken a beating over his $1 billion bet that Herbalife, the nutritional supplements company, is a fraud. But Mr. Ackman is refusing to back down.
On Tuesday, his firm raised a series of pointed questions in response to Herbalife’s second-quarter earnings report, which exceeded analysts’ expectations. Herbalife disputes Mr. Ackman’s assertion that the company is an illegal pyramid scheme.
Investors, too, have brushed off Mr. Ackman’s concerns, pushing Herbalife’s stock price up more than 80 percent so far this year after Mr. Ackman announced his short-selling position in December.
That has meant more than $200 million in losses for Pershing Square Capital Management, Mr. Ackman’s firm, which is betting the stock price will fall.
“To date, we’ve lost hundreds of millions,†Mr. Ackman said in an interview. “Unfortunately, millions of low-income Herbalife distributors have lost billions,†he said, referring to the network of independent distributors who sell the company’s diet drinks, vitamins and other products.
“It’s time for the government to act,†Mr. Ackman added.
A spokeswoman for Herbalife declined to comment.
The company’s stock was down almost 1 percent in afternoon trading on Tuesday. The shares opened the day higher after Herbalife reported earnings per share of $1.41 for the second quarter, beating the $1.18 a share that was expected by analysts polled by Thomson Reuters.
In a five-page release on Tuesday, Mr. Ackman’s firm zeroed in on certain details of the quarterly report. One point of concern was Herbalife’s disclosure that it had identified “income tax errors†affecting previous earnings reports.
Herbalife said it had corrected the errors, which it said “were not material.â€
But the hedge fund questioned that characterization, arguing that the errors may have caused Herbalife’s earnings to be overstated in the fourth quarter of last year, a crucial period when the company was battling the initial salvo from Mr. Ackman.
In addition, Mr. Ackman’s firm raised questions about the disclosure that Herbalife’s results had not been reviewed by an accounting firm. Herbalife’s former auditor, KPMG, resigned in April after an employee of the accounting firm was snared in an insider trading scandal. Herbalife hired a new auditor, PricewaterhouseCoopers, in May.
“When will PwC begin reviewing and auditing the Company’s 10-Q and 10-K reports?†the hedge fund asked.
Mr. Ackman’s criticism of Herbalife has led to a clash among prominent Wall Street investors over the company. And it has thrust Herbalife under a harsh spotlight.
The company on Monday indicated the amount of money it has spent to counteract the negative attention stemming from Mr. Ackman’s campaign: For the six months ended June 30, Herbalife recorded expenses related to legal and advisory service fees of $15.5 million.
“We expect to continue to incur expenses related to this matter over the next several periods,†the company said.
