Chicago / IL. (web) Whole Earth Brands reported financial results for its Q2-2020 ended June 30:
Second Quarter 2020 Highlights
- Business combination completed on June 25, 2020 with Flavors Holdings Inc. subsidiaries Merisant Company, one of the world’s leading manufacturers of calorie-FREE and low-calorie sugar substitutes, and MAFCO Worldwide LLC, the world’s leading manufacturer of natural licorice products.
- Consolidated product revenues of USD 66.8 million.
- Branded CPG segment product revenues of USD 43.1 million, an increase of 4.3 percent; an increase of 6.6 percent on a constant currency basis.
- In the Branded CPG segment, North America e-commerce product revenues grew USD 2.0 million or 249 percent within the quarter. This growth, together with retail growth, more than offset the decline in the North America food service product revenues within the quarter.
- Flavors + Ingredients segment product revenues of USD 23.8 million, a decrease of 14.2 percent, driven by a USD 3.8 million decline in the international tobacco market, as previously disclosed.
- Consolidated operating income decreased by USD 11.1 million to a loss of USD 5.2 million primarily attributable to transaction bonuses related to the business combination.
- Consolidated net loss of USD 6.0 million.
- Consolidated Adjusted Ebitda decreased 8.8 percent to USD 11.3 million primarily driven by the international tobacco product decline as previously disclosed.
- Cash balance of USD 61.6 million and total liquidity of USD 110.9 million as of June 30, 2020.
Albert Manzone, Chief Executive Officer of Whole Earth Brands, commented, «I am extremely proud of the perseverance of our global organization as we met the Covid-19 related challenges head-on while delivering excellent customer service during these exceptional times. With the completion of the business combination on June 25, 2020, this transaction marks an exciting milestone in our combined corporate history as we take an important step forward in growing our platform of branded products and ingredients focused on the consumer transition towards natural alternatives and clean label products.»
«The impact of Covid-19 on our business is a tale of two halves. While our Branded CPG business is experiencing tailwinds due to shifting consumer demand and consumption, our Flavors + Ingredients business is experiencing some headwinds in international tobacco, as well as manufacturing inefficiencies at our customers’ facilities. Importantly, I reiterate the strong and stable financial foundation that we have in place to execute our growth strategy for Whole Earth Brands. Our leadership position in the markets we serve enables our high-margin, structurally advantaged profile and our asset-light infrastructure requires minimal capital requirements to support the growth of the existing businesses. The cash flow generation this combination creates, coupled with our low leverage and high liquidity levels, is expected to immediately help us drive organic growth and pursue acquisitions to achieve our mission.»
Manzone continued, «I believe we have the foundations to build a major force in what we like to call the ‘free-from’ marketplace. This is a rapidly growing, not to mention massive, segment of the marketplace that is on-trend and has extremely powerful secular forces supporting it.»
Irwin Simon, Executive Chairman, concluded, «Bringing Whole Earth Brands to the public market has been an exciting journey. In the past month and a half since closing the transaction, we have been meeting with the leadership team and refining our strategies. We are thrilled by the opportunities that our team is driving to support our growth initiatives.»
Second Quarter 2020 Review + Segment Results
Our consolidated financials reflect both predecessor and successor periods indicative of the June 25 business combination date. The second quarter results disclosed in this release combine the successor period from June 26, 2020 through June 30, 2020 with the predecessor period from April 1, 2020 through June 25, 2020. The combined second quarter results are compared to the predecessor’s second quarter 2019.
Consolidated product revenues decreased 3.1 percent to USD 66.8 million for the second quarter of 2020, compared to USD 69.0 million for the same period in the prior year. On a constant currency basis, product revenues decreased 1.7 percent. Growth in the Company’s Branded CPG segment was offset by headwinds in international tobacco from the Flavors + Ingredients segment, as previously disclosed. The decline in international tobacco revenues in the second quarter of 2020 was USD 3.8 million.
Gross profit was USD 26.6 million, a decrease of USD 1.1 million compared to the same period in 2019. Gross profit margin was 39.8 percent in the second quarter 2020, down 30 basis points from the prior year period, driven primarily by transaction bonuses related to the business combination.
Operating loss was USD 5.2 million, compared to operating income of USD 5.9 million in the prior year period. The decrease was driven primarily by the transaction bonuses.
Net loss was USD 6.0 million, compared to net income of USD 3.5 million in the prior year period. The decrease was also driven primarily by the transaction bonuses.
Adjusted Ebitda decreased by USD 1.1 million to USD 11.3 million, compared to USD 12.4 million for the same period in the prior year. The decrease was driven primarily by the decline in product revenues from international tobacco in the Flavors + Ingredients segment.
Branded CPG Segment
Branded CPG segment product revenues increased 4.3 percent to USD 43.1 million for the second quarter of 2020, compared to USD 41.3 million for the same period in the prior year. On a constant currency basis, product revenues increased 6.6 percent driven by Whole Earth Sweetener gains in North America, improved overall category performance of sugar-free substitutes, share gains in Western Europe, and double-digit growth in the Asia Pacific region.
Operating loss was USD 5.3 million in the second quarter of 2020, compared to operating income of USD 0.7 million in the prior year. The decrease was driven primarily by transaction bonuses related to the business combination.
Flavors + Ingredients Segment
Flavors + Ingredients segment product revenues decreased 14.2 percent to USD 23.8 million for the second quarter of 2020, compared to USD 27.7 million for the same period in the prior year. The quarterly decrease was primarily driven by headwinds in international tobacco. The decline in international tobacco product revenues was USD 3.8 million. Furthermore, the team is working closely with its diversified customer base to navigate Covid-19 related manufacturing challenges and production constraints. As a result, the segment was negatively impacted given its position as a supplier.
Operating income was USD 0.1 million in the second quarter of 2020, compared to operating income of USD 5.2 million in the prior year. The decrease was primarily driven by the transaction bonuses and the product revenue decline mentioned above.
Year-To-Date Highlights
Our consolidated financials reflect both predecessor and successor periods indicative of the June 25 business combination date. The year-to-date results disclosed below combine the successor period from June 26, 2020 through June 30, 2020 with the predecessor period from January 1, 2020 through June 25, 2020. The combined year-to-date results are compared to the predecessor’s 2019 year-to-date results.
As compared to the first six months in 2019
- Consolidated product revenues decreased 4.7 percent, or USD 6.5 million, to USD 132.8 million.
- Branded CPG segment product revenues increased 0.6 percent, or 2.6 percent on a constant currency basis, to USD 83.3 million.
- Flavors + Ingredients segment product revenues declined 12.4 percent, to USD 49.5 million driven by international tobacco.
- Consolidated gross profit margin of 39.5 percent, represents a decrease of 100 basis points, driven primarily by transaction bonuses related to the business combination and lower volume absorption at the Company’s Flavors + Ingredient factories.
- Consolidated operating income decreased USD 54.8 million, to a USD 38.5 million loss. The decrease was driven primarily by non-cash asset impairment charges of USD 40.6 million recorded in the first quarter of 2020 and transaction bonuses related to the business combination.
- Consolidated Adjusted Ebitda decreased 15.2 percent, to USD 23.9 million.
Year-To-Date 2020 Segment Results
Branded CPG
Product revenues increased 0.6 percent to USD 83.3 million for the six months ended June 30, 2020, compared to USD 82.8 million for the same period in the prior year. On a constant currency basis, the increase was 2.6 percent driven primarily by Whole Earth Sweetener gains in North America and share gains in Western Europe.
Operating loss was USD 14.6 million for the six months ended June 30, 2020, compared to operating income of USD 4.5 million in the prior year. The decrease was driven by non-cash asset impairment charges of USD 11.1 million recorded in the first quarter of 2020 and the transaction bonuses related to the business combination.
Flavors + Ingredients
Product revenues decreased 12.4 percent to USD 49.5 million for the six months ended June 30, 2020, compared to USD 56.5 million for the same period in the prior year. The decrease was primarily driven by the decline in international tobacco, as previously disclosed, and Covid-19 related manufacturing challenges and production constraints at customers. The decline in international tobacco product revenues was USD 7.4 million.
Operating loss was USD 23.9 million the first half of 2020, compared to operating income of USD 11.8 million in the prior year period. The decrease was driven by non-cash asset impairment charges of USD 29.5 million recorded in the first quarter of 2020 and the transaction bonuses related to the business combination.
Balance Sheet, Cash Flow And Liquidity
The Company generated consolidated cash from operating activities of USD 15.9 million in the first half of 2020. As of June 30, 2020, the Company had cash and cash equivalents of USD 61.6 million and USD 134.8 million of debt, net of debt issuance costs. Total liquidity, defined as cash and cash equivalents plus undrawn revolver facility, was USD 110.9 million.
2020 Full Year Outlook
The Company is maintaining its previously issued full year 2020 financial outlook despite Covid-19 headwinds within its Flavors + Ingredients segment, as well as the realization of higher public company operating costs. Guidance excludes the impact of any future acquisitions.
- Consolidated product revenues in the range of USD 270 million to USD 290 million
- Consolidated proforma Adjusted Ebitda of USD 63 million to USD 67 million which equates to consolidated Adjusted Ebitda in the range of USD 54 million to USD 58 million. The difference in these two figures, or the proforma adjustments, is related to the expectation of USD 9 million of future benefits related to Flavors + Ingredients segment manufacturing footprint optimization project, synergies related to combining the two companies and supply chain transformation within Branded CPG. The Company does not anticipate realizing these benefits in 2020, but will reflect these benefits in future periods as realized.
- Total expected capital expenditures in the range of USD 12 million to USD 14 million. The increase versus prior guidance is due to the expected acceleration of the manufacturing footprint optimization project. The Company continues to expect that its normalized capital expenditures will approximate 1.5 percent of product revenues to maintain its asset base and support its growth strategies.
The Company cannot reconcile its expected Adjusted Ebitda to net income under «2020 Full Year Outlook» 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.
About Whole Earth Brands
Whole Earth Brands is a global platform of branded products and ingredients focused on the consumer transition towards healthier lifestyles, such as free from sugar, natural solutions, plant-based and clean label. Whole Earth Brands Inc. is one of the world’s leading manufacturers of zero/low sugar and calorie sweeteners as well as reduced sugar products with brands.
