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Hain Celestial: Q2 Fiscal Year 2019 Financial Results

Lake Success / NY. (hc) The Hain Celestial Group Inc., a leading organic and natural products company with operations in North America, Europe and India providing consumers with A Healthier Way of Life, reported financial results for the second quarter ended December 31, 2018. The results contained herein are presented with the Hain Pure Protein operating segment being treated as a discontinued operation given the Company’s previously announced decision to divest the business.

«We are creating a new strategic direction to take Hain Celestial to the next level of performance,» commented Mark L. Schiller, Hain Celestial’s President and Chief Executive Officer.  «Although we are not satisfied with our near-term performance, we are starting to see sequential improvement in our numbers and are working diligently to restore profitable growth in the United States, while continuing our profit momentum in the United Kingdom and Europe.  My team and I have been in similar situations during our previous roles, which gives us confidence in our abilities to execute Hain Celestial’s business transformation. We believe we have a core set of high margin brands, with mainstream potential, competing in fast-growing categories, and we plan to simplify our business in order to focus more resources towards these high potential opportunities to seek to deliver attractive returns to stockholders.»

Financial Highlights

Summary of Second Quarter Results from Continuing Operations.

  • Net sales decreased 5 percent to USD 584.2 million compared to the prior year period, or a 4 percent decrease on a constant currency basis. When adjusted for Foreign Exchange and Acquisitions, Divestitures and certain other items, including the Project Terra Stock Keeping Unit (SKU) rationalization3, net sales would have decreased 1 percent compared to the prior year period.
  • Gross margin of 19.6 percent, a 210 basis point decrease over the prior year period; adjusted gross margin of 20.3 percent, a 240 basis point decrease over the prior year period as a result of planned higher trade and promotional investments and increased freight and commodity costs in the United States.
  • Operating loss of USD 15.4 million compared to operating income of USD 31.0 million in the prior year period; adjusted operating income of USD 29.9 million compared to USD 49.5 million in the prior year period.
  • Net loss of USD 29.3 million compared to net income of USD 43.1 million in the prior year period; adjusted net income of USD 15.0 million compared to USD 33.6 million in prior year period.
  • Ebitda of USD 19.2 million compared to USD 53.3 million in the prior year period; Adjusted Ebitda of USD 44.9 million compared to USD 67.7 million in the prior year period.
  • Loss per diluted share of USD 0.28 compared to earnings per diluted share (EPS) of USD 0.41 in the prior year period; adjusted EPS of USD 0.14 compared to USD 0.32 in the prior year period.

Segment Highlights from Continuing Operations

Hain Celestial United States

Hain Celestial United States net sales in the second quarter decreased 4 percent over the prior year period to USD 259.2 million; when adjusted for Acquisitions, Divestitures and certain other items including the Project Terra SKU rationalization3, net sales would have decreased 1 percent. The decline in the United States segment was primarily driven by declines in the Pantry and Better-For-You Baby platforms, partially offset by an increase in the Better-For-You Snack platform. United Statesnet sales were also impacted by the previously disclosed strategic decision to no longer support certain lower margin SKUs. Segment operating income in the second quarter was USD 7.2 million, a 67 percent decrease from the prior year period, and adjusted operating income was USD 13.4 million, a 57 percent decrease over the prior year period, driven primarily by higher planned trade investments to drive future period growth and increased freight and commodity costs.

Hain Celestial United Kingdom

Hain Celestial United Kingdom net sales in the second quarter decreased 5 percent to USD 225.3 million over the prior year period, or 1 percent after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items3. The results for the United Kingdom segment reflect an 8 percent decline in Hain Daniels, or a decline of 4 percent after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items.  The net sales decrease in the United Kingdom segment was partially offset by 2 percent growth was relatively flat, or increased 6 percent and 3 percent, respectively, after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items3. Segment operating income was USD 14.7 million, an 8 percent increase over the prior year period, and adjusted operating income was USD 18.1 million, an increase of 11 percent over the prior year period.

Rest of World

Rest of World net sales in the second quarter decreased 8 percent to USD 99.7 million over the prior year period, or 3 percent after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items3. Net sales for Hain Celestial Canada decreased 12 percent, or 7 percent after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items. Net sales for Hain Celestial Europe were relatively flat, or increased 3 percent on a constant currency basis. Net sales for Hain Ventures, formerly known as Cultivate Ventures, decreased 17 percent, or 14 percent after adjusting for Foreign Exchange, Acquisitions and Divestitures and certain other items, Segment operating income in the second quarter was USD 8.4 million, a USD 2.2 million decrease over the prior year period. Adjusted operating income was USD 9.3 million, an 18 percent decrease over the prior year period.

Hain Pure Protein Discontinued Operations

As previously disclosed on May 5, 2018, the results of operations, financial position and cash flows related to the operations of the Hain Pure Protein business segment have been moved to discontinued operations in the current and prior periods. The Company continues to make substantial progress and expect to complete the divestiture of the Hain Pure Protein operating segment in the coming months. Net sales for Hain Pure Protein in the second quarter were USD 147.2 million, a decrease of 7 percent compared to the prior year period. Segment operating loss in the second quarter was USD 59.6 million and included a USD 54.9 million pre-tax non-cash impairment charge.

Fiscal Year 2019 Guidance

The Company updated its annual guidance for continuing operations for fiscal year 2019:

  • Total net sales of USD 2.320 billion to USD 2.350 billion, a decrease of approximately 4 percent to 6 percent as compared to fiscal year 2018.
  • Adjusted Ebitda of USD 185 million to USD 200 million, a decrease of approximately 22 percent to 28 percent as compared to fiscal year 2018.
  • Adjusted EPS of USD 0.60 to USD 0.70, a decrease of approximately 40 percent to 48 percent as compared to fiscal year 2018.

Guidance, where adjusted, is provided on a non-GAAP basis and excludes acquisition-related expenses; integration charges; restructuring charges, start-up costs, consulting fees and other costs associated with Project Terra; costs associated with the CEO Succession Agreement; unrealized net foreign currency gains or losses, accounting review and remediation costs and other non-recurring items that may be incurred during the Company’s fiscal year 2019, which the Company will continue to identify as it reports its future financial results. Guidance also excludes the impact of any future acquisitions and divestitures.

The Company cannot reconcile its expected Adjusted Ebitda to net income or adjusted earnings per diluted share to earnings per diluted share under «Fiscal Year 2019 Guidance» without unreasonable effort because certain items that impact net income and other reconciling metrics are out of the Company’s control and/or cannot be reasonably predicted at this time.