Hain Celestial: Reports Fiscal Q2-2024 Financial Results

Hoboken / NJ. (hc) The Hain Celestial Group Inc., a leading manufacturer of better-for-you brands to inspire healthier living, reported reported financial results for the fiscal second quarter ended December 31, 2023. «We are pleased with the continued progress we are making on key pillars of our «Hain Reimagined» strategy, generating fuel through working capital management and productivity savings, driving growth through channel expansion and building our organizational capabilities to scale our brands, expand our margins, and transform our business for sustained performance,» said Wendy Davidson, President and Chief Executive Officer. «This progress contributed to results in the second quarter which demonstrate sequential improvement in top- and bottom-line trends.

«We are positioned to return to overall growth in the back half of the year, despite the challenging macroeconomic environment. Our North America Snacks launch of Garden Veggie™ Flavor Burst™, supported by a robust omnichannel launch plan, is setting up to be the strongest new product launch in recent company history, gaining outstanding acceptance across national and regional retailers and pre-order availability with online partners. Furthermore, we continue to earn incremental distribution across retail, away-from-home and e-commerce channels in our core growth categories of Snacks, Baby + Kids and Beverages. We are making steady progress, advancing towards the re-imagination of our business and creation of a sustainable and profitable growth model.»

Financial Highlights

Summary of Fiscal Second Quarter Results Compared to the Prior Year Period

• Net sales were flat year-over year at USD 454.1 million, an improvement sequentially from the first quarter decrease of 3.3 percent
  • Organic net sales, defined as net sales adjusted to exclude the impact of acquisitions, divestitures and discontinued brands, increased 0.2 percent compared to the prior year period, an improvement sequentially from the first quarter decrease of 2.9 percent. The increase in organic net sales is inclusive of approximately 2.2 percentage points of benefit from foreign exchange.
• Gross profit margin was 22.5 percent, a 40-basis point decrease from the prior year period.
  • Adjusted gross profit margin was 23.5 percent, a 60-basis point increase from the prior year period.
• Net loss was USD 13.5 million compared to net income of USD 11.0 million in the prior year period.
  • Adjusted net income was USD 10.9 million compared to adjusted net income of USD 18.3 million in the prior year period.
• Net loss margin was (3.0 percent), as compared to net income margin of 2.4 percent in the prior year period.
  • Adjusted net income margin was 2.4 percent, as compared to 4.0 percent in the prior year period.
• Adjusted Ebitda was USD 47.1 million compared to USD 49.8 million in the prior year period; Adjusted Ebitda margin was 10.4 percent, a 60-basis point decrease compared to the prior year period.
• Loss per diluted share was USD 0.15 compared to earnings per diluted share (“EPS”) of USD 0.12 in the prior year period.
  • Adjusted EPS was USD 0.12 compared to adjusted EPS of USD 0.20 in the prior year period.

Cash Flow and Balance Sheet Highlights

• Net cash provided by operating activities in the second quarter was USD 20.7 million compared to USD 2.5 million in the prior year period.
• Free cash flow in the second quarter was USD 14.8 million compared to negative free cash flow of USD 4.4 million in the prior year period.
• Total debt at the end of the fiscal second quarter was USD 809.2 million down from USD 828.7 million at the beginning of the fiscal year.
• Net debt at the end of the fiscal second quarter was USD 755.6 million compared to USD 775.4 million at the beginning of the fiscal year.
• The company ended the fiscal second quarter with a net secured leverage ratio of 4.2x as calculated under our amended credit agreement as compared to 4.3x at the beginning of the fiscal year.

Segment Highlights

The company operates under two reportable segments: North America and International.

North America
North America net sales in the fiscal second quarter were USD 267.7 million. This represents a 5.2 percent decrease compared to the prior year period and a sequential improvement from the 9.8 percent decrease in the fiscal first quarter. Organic net sales decreased by 4.8 percent from the prior year period, representing a sequential improvement from the 9.3 percent decrease in the fiscal first quarter. As expected, the decrease was primarily due to lower sales in baby formula as a result of continued industry-wide challenges in organic formula supply, as well as in Snacks as we shifted our promotional strategy and optimized our channel mix for improved trade efficiency and profitability. This decrease was partially offset by growth in Beverages.

Segment gross profit in the fiscal second quarter was USD 62.0 million, a decrease of 12.9 percent from the prior year period. Adjusted gross profit was USD 66.4 million, a decrease of 6.7 percent from the prior year period. Gross margin was 23.2 percent, a 200-basis point decrease from the prior year period, and adjusted gross margin was 24.8 percent, a 40-basis point decrease from the prior year period. The decrease was driven by deleverage on lower sales volume as well as by inflation, partially offset by pricing and productivity.

Adjusted Ebitda in the fiscal second quarter was USD 31.2 million, a decrease of 18.9 percent from the prior year period. The decrease was driven primarily by lower volume, inflation and marketing investments, partially offset by productivity. Adjusted Ebitda margin was 11.7 percent, a 190-basis point decrease from the prior year period.

International
International net sales in the fiscal second quarter demonstrated continued strength, up 8.5 percent year-over-year to USD 186.4 million. This increase reflects 5.8 percentage points of growth from the favorable impact of foreign exchange. The increase was primarily driven by growth in Meal Prep as well as in Beverages.

Segment gross profit in the fiscal second quarter was USD 40.2 million, a 22.9 percent increase from the prior year period. Adjusted gross profit was USD 40.4 million, an increase of 23.3 percent from the prior year period. Each of gross margin and adjusted gross margin was 21.6 percent, representing a 250-basis point and 260-basis point increase from the prior year period, respectively. The increase in gross profit was mainly due to pricing partially offset by inflation.

Adjusted Ebitda in the fiscal second quarter was USD 26.0 million, a 35.0 percent increase from the prior year period. The increase was driven primarily by pricing, partially offset by lower volumes and inflation. Adjusted Ebitda margin was 13.9 percent, a 270-basis point improvement from the prior year period.

Fiscal 2024 Guidance

Lee Boyce, Executive Vice President and Chief Financial Officer, stated, «We are making early progress against Hain Reimagined, especially in the delivery of fuel as planned in this foundational year of the restructure program. We have accelerated some of the initiatives outlined in the Focus Pillar, primarily portfolio and channel mix improvements. This is expected to create near-term revenue headwind as we rationalize lower margin SKUs and sales. As a result, we believe it is prudent to take a more conservative view of the balance of fiscal 2024. In addition, we expect less of a tailwind from foreign exchange than when we initially provided guidance in August. Considering these factors as well as performance year-to-date, we are adjusting our guidance for the full year.»

The company is revising guidance for fiscal 2024 as follows:

• Organic net sales growth of approximately 1 percent or more, compared to previous guidance of 2 percent to 4 percent growth.
  • This reflects a reduction in the expected foreign exchange tailwind assumed in our fiscal year 2024 guidance provided in August from approximately 2 points to 1 point, assuming continuation of current rates.
• Adjusted Ebitda between USD 155 million and USD 160 million, compared to previous guidance of USD 155 million to USD 165 million, aligned to the associated revenue assumptions.
• Free cashflow of USD 40 to USD 45 million, compared to previous guidance of USD 50 to USD 55 million, reflecting costs associated with Hain Reimagined.