Hain Celestial: Reports H1-2022 Financial Results

Lake Success / NY. (hc) The Hain Celestial Group Inc., a leading organic and natural products company with operations in North America, Europe, Asia and the Middle East providing consumers with A Healthier Way of Life, reported financial results for the second quarter ended December 31, 2021. Mark L. Schiller, Hain Celestial’s President and Chief Executive Officer, commented, «Our second quarter results delivered adjusted net sales growth consistent with initial guidance, behind strong U.S. consumption growth, despite industry-wide labor and supply chain challenges. We have utilized aggressive pricing and productivity to offset most of the cost headwinds and have revised guidance to reflect the expectation of accelerating topline growth in the second half of the year and continued elevated supply chain costs and disruptions. We believe that many of these costs will abate over time and remain very focused on our Hain 3.0 strategy as we pivot toward becoming a high growth and highly profitable global health and wellness company.»

Financial Highlights

Summary of Second Quarter Results from Continuing Operations

  • Net sales decreased 10 percent to USD 476.9 million compared to the prior year period.
  • When adjusted for foreign exchange, acquisitions, divestitures and discontinued brands, net sales decreased 2 percent compared to the prior year period.
  • Gross margin of 24.6 percent was flat compared to the prior year period.
  • Adjusted gross margin of 24.6 percent, a 74 basis point decrease from the prior year period.
  • Operating income of USD 32.0 million compared to USD 13.0 million in the prior year period.
  • Adjusted operating income of USD 45.7 million compared to USD 48.1 million in the prior year period.
  • Net income of USD 30.9 million compared to USD 2.2 million in the prior year period.
  • Adjusted net income of USD 34.3 million compared to USD 34.7 million in prior year period.
  • Adjusted Ebitda of USD 59.3 million compared to USD 62.2 million in the prior year period.
  • Adjusted Ebitda margin of 12.4 percent, a 66 basis point increase compared to the prior year period.
  • Earnings per diluted share («EPS») of USD 0.33 compared to USD 0.02 in the prior year period.
  • Adjusted EPS of USD 0.36 compared to USD 0.34 in the prior year period.
  • Repurchased 2.0 million shares, or 2.1 percent of the outstanding common stock, at an average price of USD 44.31 per share.

Segment Highlights From Continuing Operations

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

North America
North America net sales in the second quarter were USD 275.0 million, a decrease of 3 percent compared to the prior year period. When adjusted for foreign exchange, acquisitions, divestitures and discontinued brands, net sales increased 1 percent from the prior year period mainly due to stronger sales in the snacks category.

Segment gross profit in the second quarter was USD 67.7 million, a 13 percent decrease from the prior year period. Adjusted gross profit was USD 67.9 million, a decrease of 16 percent from the prior year period. Gross margin was 24.6 percent, a 310 basis point decrease from the prior year period, and adjusted gross margin was 24.7 percent, a 380 basis point decrease from the prior year period. The decrease was mainly driven by higher cost of sales, including delivery and warehouse expenses in the United States operating segment.

Segment operating income in the second quarter was USD 27.2 million, a 16 percent decrease from the prior year period. Adjusted operating income was USD 29.0 million, an 18 percent decrease from the prior year period.

Adjusted Ebitda in the second quarter was USD 33.3 million, a 16 percent decrease from the prior year period. As a percentage of sales, North America adjusted Ebitda margin was 12.1 percent, a 190 basis point decrease from the prior year period.

International
International net sales in the second quarter were USD 201.9 million, a decrease of 18 percent compared to the prior year period. When adjusted for foreign exchange, divestitures and discontinued brands, net sales decreased 6 percent compared to the prior year period mainly due to a decline in the Europe operating segment, partially offset by an increase in sales in the Ella’s Kitchen UK operating segment.

Segment gross profit in the second quarter was USD 49.6 million, a 4 percent decrease from the prior year period. Adjusted gross profit was USD 49.4 million, a decrease of 7 percent from the prior year period. Gross margin was 24.6 percent, a 350 basis point increase from the prior year period, and adjusted gross margin was 24.5 percent, a 280 basis point increase from the prior year period. The decrease in gross profit was mainly due to the aforementioned decrease in sales compared to the prior year period. The improvement in gross margin was driven by the divestiture of the fruit business in the third quarter of fiscal year 2021 and the implementation of productivity initiatives, partially offset by inflationary pressures.

Segment operating income in the second quarter was USD 27.4 million, compared to a loss of USD 2.7 million in the prior year period. Adjusted operating income was USD 27.8 million, an increase of 11 percent from the prior year period. The increase in operating income reflects non-recurring impairment charges associated with the fruit business that were recognized in the prior year period. Additionally, there were lower selling, general and administrative expenses mainly driven by lower labor-related expenses compared to the prior year period.

Adjusted Ebitda in the second quarter was USD 34.3 million, a 7 percent increase from the prior year period. As a percentage of sales, International adjusted Ebitda margin was 17.0 percent, a 390 basis point increase from the prior year period.

Capital Management

The Company is announcing today that its Board of Directors has approved an additional USD 200 million share repurchase authorization. Share repurchases under this authorization will commence after the Company’s existing USD 300 million authorization is fully utilized. The extent to which the Company repurchases its shares and the timing of such repurchases will be at the Company’s discretion and will depend upon market conditions and other corporate considerations. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise.

During the second quarter of fiscal year 2022, the Company repurchased 2.0 million shares, or 2.1 percent of the outstanding common stock, at an average price of USD 44.31 per share for a total of USD 89.8 million, excluding commissions. As of December 31, 2021, the Company had USD 117.0 million remaining under its USD 300 million authorization, prior to the approval of the additional USD 200 million authorization.

Amended And Restated Credit Agreement

In the second quarter, the Company refinanced its revolving credit facility by entering into a Fourth Amended and Restated Credit Agreement, which provides for senior secured financing of USD 1.1 billion in the aggregate, consisting of (1) USD 300 million in aggregate principal amount of term loans maturing in five years and (2) an USD 800 million senior secured revolving credit facility which is comprised of a USD 440 million U.S. revolving credit facility and USD 360 million global revolving credit facility. Both the term loans and revolving credit facility mature on December 22, 2026.

Acquisition Of «Parmcrisps» And «Thinsters»

On December 28, 2021, the Company completed its acquisition of That’s How We Roll from Clearlake Capital Group. That’s How We Roll is the producer and marketer of «ParmCrisps» and «Thinsters», two fast-growing brands offering simple and delicious, better-for-you snacks. Consideration for the transaction consisted of cash, net of cash acquired, totaling USD 261 million, subject to an adjustment for working capital. Of the total consideration, USD 255 million was paid at closing, with the remaining USD 6 million payable during the third quarter of fiscal year 2022.

Fiscal Year 2022 Guidance

The Company updates its guidance for full fiscal year 2022 compared to fiscal year 2021 and now expects:

  • Low single digit adjusted net sales growth consistent with prior guidance,
  • Modest adjusted gross margin reduction, and
  • Adjusted Ebitda approximately flat versus prior year.

Notes: Adjusted net sales is defined as adjusted for the impact of foreign currency changes, acquisitions, divestitures and discontinued brands. All references in this «Fiscal Year 2022 Guidance» section to growth or declines in adjusted net sales or adjusted Ebitda compared to a prior period represent percentage growth or percentage decline.

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