Whole Earth Brands: announces Q2-2022 results

Chicago / IL. (web) Whole Earth Brands, a global food company enabling healthier lifestyles by providing access to premium plant-based sweeteners, flavor enhancers and other foods through a diverse portfolio of trusted brands and delicious products, announced its financial results for its second quarter ended June 30, 2022. The Company also reaffirmed fiscal year 2022 guidance. Second quarter highlights:

  • Reported consolidated revenue growth of 5.5 percent, or 8.5 percent on a constant currency basis
  • Branded CPG constant currency revenue growth of 8.1 percent compared to 2021
  • Flavors + Ingredients constant currency revenue growth of 9.9 percent compared to 2021
  • Operating income of USD 7.7 million and adjusted Ebitda of USD 19.7 million

Albert Manzone, Chief Executive Officer, commented, «I’m pleased to report that our North American Supply Chain Reinvention Project allowed us to improve customer service levels and meet demand, which supported 8.1 percent constant currency revenue growth for the Branded CPG segment during the second quarter. Our Wholesome Sweetener business continues to perform strongly, which helped drive an approximate two percent increase in volumes at our Branded CPG segment excluding the impact of our SKU rationalization initiative. Additionally, segment revenue growth was further supported by price actions that were instituted in response to inflationary forces. Our Flavors + Ingredients segment continues to carry strong momentum, generating nearly 10 percent constant currency revenue growth during the second quarter. This growth was driven by both volume and price as our concerted efforts to drive use in new markets and categories continues to drive results. Together, the business generated adjusted Ebitda that was consistent with our plan and made possible by our team’s hard work amid this challenging operating environment. As we look ahead to the second half of the year, we are excited about our planned innovations in baking, monk fruit and allulose that are coming to market which will be supported by distribution gains.»

Irwin D. Simon, Executive Chairman, stated, «Our organization is doing a terrific job navigating this dynamic macroeconomic environment. We have taken price measures, as well as focused inward on productivity opportunities and cost control to ensure our business remains nimble. We continue to have great conviction on the quality of our portfolio and the exciting opportunity that lies ahead to create category leadership and drive growth.»

Second Quarter 2022 Results

  • Consolidated product revenues were USD 133.5 million, an increase of 5.5 percent on a reported basis and 8.5 percent on a constant currency basis, as compared to the prior year second quarter. The increase was driven by a combination of increased volume and pricing actions. A stronger US dollar reduced reported consolidated product revenues by approximately USD 3.7 million, or 2.9 percent, versus the prior year quarter.
  • Reported gross profit was USD 37.3 million, compared to USD 41.4 million in the prior year second quarter. The decrease was largely driven by cost inflation and costs associated with the supply chain reinvention project, partially offset by pricing actions and a USD 1.0 million favorable change in non-cash purchase accounting adjustments related to inventory revaluations. Adjusted gross profit of USD 42.6 million was essentially flat with the prior year period.
  • Gross profit margin was 27.9 percent in the second quarter of 2022, compared to 32.7 percent in the prior year period. Adjusted gross profit margin was 31.9 percent, down from 34.0 percent. The decrease in adjusted gross profit margin is primarily the result of price increases being essentially offset by cost inflation.
  • Consolidated operating income was USD 7.7 million compared to operating income of USD 6.0 million in the prior year second quarter and consolidated net income was USD 1.3 million in the second quarter of 2022 compared to USD 3.7 million in the prior year period.
  • Consolidated Adjusted Ebitda was USD 19.7 million compared to USD 22.0 million in the prior year quarter. The decrease was primarily due to an unfavorable foreign currency impact of USD 1.2 million due to the strengthening US dollar and USD 0.5 million of higher bonus expense as a portion of the prior year bonus program was settled in stock compared to an all cash bonus program in the current year.

Segment Results

Branded CPG Segment: Branded CPG segment product revenues increased USD 5.0 million, or 5.0 percent, to USD 104.1 million for the second quarter of 2022, compared to USD 99.1 million for the same period in the prior year, primarily due to higher pricing, partially offset by the impact of unfavorable foreign currency exchange rates. On a constant currency basis, segment product revenues increased 8.1 percent compared to the prior year driven primarily by pricing actions implemented during the quarter. Overall, volume was flat due to the discontinuance of certain private label SKUs at the beginning of the year. Excluding the impact of this SKU rationalization, Branded CPG volume increased 1.6 percent versus the prior year quarter.

Operating income was USD 5.6 million in the second quarter of 2022 compared to USD 10.3 million for the same period in the prior year. The decrease was driven by costs associated with the Company’s supply chain reinvention project, the impact of cost inflation, and an unfavorable impact from a stronger US dollar, partially offset by revenue growth. The Company’s supply chain reinvention project is expected to improve efficiencies, help offset inflationary pressures and improve competitiveness in the marketplace over the longer term.

Flavors + Ingredients Segment: Flavors + Ingredients segment product revenues increased 7.4 percent to USD 29.4 million for the second quarter of 2022, compared to USD 27.4 million for the same period in the prior year. On a constant currency basis, segment product revenues increased 9.9 percent compared to the prior year primarily due to strong volume growth of 5.8 percent driven by growth in licorice extracts and pure derivatives resulting from the Company’s commercial expansion and innovation efforts and 4.1 percent growth from pricing actions.

Operating income was USD 9.0 million in the second quarter of 2022, compared to USD 3.7 million in the prior year period primarily due to revenue growth, improved efficiencies following the footprint optimization initiative completed in the first half of 2021, and a USD 2.8 million decrease in restructuring and other expenses included in the prior year results that did not re-occur in 2022.

Corporate: Corporate expenses for the second quarter of 2022 were USD 6.9 million, compared to USD 8.0 million of expenses in the prior year period. The decrease is primarily due to lower M+A transaction and public company readiness costs.

Year-To-Date 2022 Highlights

The Company’s reported consolidated financials reflect the completed acquisition of Wholesome on February 5, 2021 from that date. Proforma comparisons include the impact of this acquisition for both the current and prior year periods.

  • Consolidated product revenues were USD 264.1 million, an increase of 13.7 percent on a reported basis, as compared to the six months ended June 30, 2021. On a proforma basis, organic constant currency product revenue increased 6.7 percent compared to the prior year period.
  • Consolidated operating income was USD 14.8 million compared to USD 2.9 million in the prior year period.
  • Consolidated Adjusted Ebitda decreased USD 2.0 million, or 5.1 percent, to USD 37.5 million primarily due to USD 1.7 million of unfavorable foreign currency.

Balance Sheet

As of June 30, 2022, the Company had cash and cash equivalents of USD 27.6 million and USD 432.3 million of long-term debt, net of unamortized debt issuance costs. During the quarter, the Company amended its credit agreement to increase the revolving credit facility from USD 75 million to USD 125 million providing additional liquidity.

The Company increased its borrowings under the revolving credit facility in 2022 to fund a portion of the Wholesome earnout payment in the first quarter and increased inventory levels in the second quarter associated with the seasonal nature of the Wholesome business, a portion of which is expected to reverse in the second half of the year. Inventory balances were also influenced by strategic timing, to protect against price increases and shortages. At June 30, 2022, there was USD 75 million drawn on the revolving credit facility.

Outlook

The Company is reiterating its outlook for full year 2022, which includes Wholesome for the full year. The outlook includes expectations for growth on a proforma organic basis. The Company defines proforma organic growth to be as if the Company owned Wholesome for the full year 2021. The Company’s 2022 outlook is as follows:

  • Net Product Revenues: USD 530 million to USD 545 million (representing reported growth of 7 percent to 10 percent, and proforma organic growth of 3 percent to 6 percent)
  • Adjusted Ebitda: USD 84 million to USD 87 million
  • Capital Expenditures: Approximately USD 10 million

Outlook is provided in the context of greater than usual volatility as a result of current geo-political events, the on-going Covid-19 pandemic, inflationary environment and the strengthening U.S. dollar.

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