Hain Celestial: Reports Q3-2020 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 third quarter ended March 31, 2020. The results contained herein are presented with the Hain Pure Protein and Tilda operating segments being treated as discontinued operations.

Mark L. Schiller, Hain Celestial’s President and Chief Executive Officer, commented, «I am pleased to be raising our full year guidance for 2020 as third quarter financial performance exceeded our previous guidance and is expected to show continuing strength in the current quarter. With our transformation plan taking hold and food-at-home consumption accelerating, Hain Celestial’s natural and organic product offerings resonated with consumers, resulting in year-over-year growth in third quarter net sales, the first such increase since fiscal 2018.»

Schiller continued, «Across our organization, we are taking necessary safety measures to best manage our business in the current operating environment as we continue to deliver against our transformational strategic plan. I am proud of how Hain associates across the globe rose to the occasion to partner with our valued customers and suppliers to deliver for our consumers and local communities in the face of unprecedented global challenges. As a result of the actions we have taken, we are well positioned to manage through this unprecedented crisis and emerge an even stronger company.»

Financial highlights

Summary of Third Quarter Results from Continuing Operations

  • Net sales increased 1 percent to USD 553.3 million or 2 percent on a constant currency basis compared to the prior year period.
  • When adjusted for Foreign Exchange, Divestitures and Stock Keeping Unit (SKU) rationalization, net sales increased 6 percent compared to the prior year period.
  • Gross margin of 23.9 percent, a 324 basis point increase from the prior year period.
  • Adjusted gross margin of 24.3 percent, a 282 basis point increase from the prior year period.
  • Operating income of USD 19.1 million compared to USD 19.0 million in the prior year period.
  • Adjusted operating income of USD 45.7 million compared to USD 34.0 million in the prior year period.
  • Net income of USD 25.0 million compared to USD 8.8 million in the prior year period.
  • Adjusted net income of USD 28.8 million compared to USD 20.2 million in prior year period.
  • Adjusted Ebitda of USD 60.7 million compared to USD 49.1 million in the prior year period.
  • Adjusted Ebitda margin of 11.0 percent, a 199 basis point increase compared to the prior year period.
  • Earnings per diluted share (EPS) of USD 0.24 compared to USD 0.08 in the prior year period.
  • Adjusted EPS of USD 0.28 compared to USD 0.19 in the prior year period.
  • Repurchased 2.4 million shares, or 2.3 percent of the outstanding common stock, at an average price of USD 23.52 per share.

Segment ighlights from continuing operations

Historically, the Company had three reportable segments: United States, United Kingdom and Rest of World. Effective July 1, 2019, the Company reassessed its segment reporting structure, pursuant to which the Company’s Canada and Hain Ventures operating segments, which were included within the Rest of World reportable segment, were moved to the United States reportable segment and renamed the North America segment. Additionally, the Europe operating segment, which was included in the Rest of World reportable segment, was combined with the United Kingdom reportable segment and renamed the International reportable segment. Accordingly, the Company now operates under two reportable segments: North America and International. Prior period segment information included herein has been adjusted to reflect the Company’s new reporting structure.

North America

North America net sales in the third quarter were USD 320.4 million, an increase of 2 percent compared to the prior year period. When adjusted for Divestitures and SKU rationalization, net sales increased 9 percent from the prior year period.

Segment gross profit in the third quarter was USD 82.6 million, a 21 percent increase from the prior year period. Adjusted gross profit was USD 84.5 million, an increase of 18 percent from the prior year period. Gross margin was 25.8 percent, a 415 basis point increase from the prior year period and adjusted gross margin was 26.4 percent, a 351 basis point increase from the prior year.

Segment operating income in the third quarter was USD 28.9 million, a 35 percent increase from the prior year period. Adjusted operating income was USD 38.1 million, a 44 percent increase from the prior year period.

Adjusted Ebitda was USD 42.9 million, a 36 percent increase from the prior year period. As a percentage of sales on a constant currency basis, North America adjusted Ebitda margin was 13.4 percent, a 338 basis point increase from the prior year period.

International

International net sales in the third quarter were USD 232.9 million, flat when compared to the prior year period. When adjusted for Foreign Exchange, Divestitures and SKU rationalization, net sales increased 2 percent compared to the prior year period.

Segment gross profit in the third quarter was USD 49.8 million, a 10 percent increase from the prior year period. Adjusted gross profit was USD 49.8 million, an increase of 9 percent from the prior year period. Gross margin was 21.4 percent, a 197 basis point increase from the prior year period and adjusted gross margin was 21.4 percent, a 184 basis point increase from the prior year period.

Segment operating income in the third quarter was USD 18.7 million, a 6 percent decrease from the prior year period. Adjusted operating income was USD 23.2 million, an increase of 11 percent from the prior year period.

Adjusted Ebitda was USD 30.9 million, a 7 percent increase from the prior year period. As a percentage of sales on a constant currency basis, International adjusted Ebitda margin was 13.3 percent, an 89 basis point increase from the prior year period.

Capital management

During the month of March, the Company repurchased 2.4 million shares, or 2.3 percent of the outstanding common stock, at an average price of USD 23.52 per share for a total of USD 57.4 million, excluding commissions. As of March 31, 2020, the Company had USD 192.6 million remaining authorization under the share repurchase program.

Sale of Rudi’s Bakery

Effective May 1, 2020, the Company has completed the divestiture of the Rudi’s Gluten Free Bakery and Rudi’s Organic Bakery brands to an affiliate of Promise Gluten Free. Details of the transaction were not disclosed.

Fiscal year 2020 guidance

The Company now expects all profit metrics for the full year ending June 30, 2020 to be higher than their previously provided ranges as a result of the ongoing execution of our transformation plan and higher food-at-home consumption related to the Covid-19 pandemic. The Company acknowledges that the magnitude and duration of increased demand remains uncertain and a challenge it faces as a result of the pandemic is its ability to maintain the level of supply needed to keep up with the increased demand. Hain Celestial’s outlook assumes its supply chain continues to operate with minimal disruption for the remainder of fiscal 2020. The Company is raising its annual guidance for continuing operations for fiscal year 2020 as follows:

Fiscal Year 2020 Reported Constant Currency
Adjusted Ebitda USD 190 Million to USD 200 Million USD 195 Million to USD 205 Million
percent Growth +15 percent to +21 percent +18 percent to +24 percent
Adjusted EPS USD 0.75 to USD 0.82 USD 0.78 to USD 0.85
percent Growth +25 percent to +37 percent +30 percent to +42 percent

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Guidance, where adjusted, is provided on a non-GAAP basis and excludes: acquisition and divestiture related expenses; integration charges; restructuring charges, start-up costs, consulting fees and other costs associated with the Company’s productivity and transformation initiatives; unrealized net foreign currency gains or losses; and other non-recurring items that may be incurred during the Company’s fiscal year 2020, which the Company will continue to identify as it reports its future financial results. Guidance also excludes the impact of any future acquisitions, divestitures, or share repurchases.

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 2020 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.