Chicago / IL. (web) Whole Earth Brands, a global food company enabling healthier lifestyles through premium plant-based sweeteners, flavor enhancers and other foods, today announced its financial results for its fourth quarter and full year ended December 31, 2022. The Company also provided 2023 guidance.
Full Year Highlights
- Reported consolidated revenue growth of 9.0 percent, including a full year of the Wholesome acquisition compared to approximately 11 months in the prior year. Constant currency consolidated revenue grew 11.6 percent
- Pro forma organic constant currency consolidated revenue grew 7.1 percent, driven by a 6.4 percent increase in price and a 0.7 percent increase in volume
- Branded CPG pro forma organic constant currency revenue growth of 5.8 percent compared to 2021, driven primarily by strong pricing growth
- Flavors + Ingredients constant currency revenue growth of 12.5 percent compared to 2021, driven by a combination of strong volume growth and increased pricing
- Operating loss of USD 24.6 million, due to a fourth quarter USD 46.5 million non-cash asset impairment charge
- Adjusted Ebitda of USD 79.2 million
Fourth Quarter Highlights
- Reported consolidated revenue growth of 4.7 percent. Constant currency consolidated revenue grew 7.0 percent, driven by a 7.8 percent increase in price
- Branded CPG constant currency revenue growth of 6.0 percent compared to 2021, driven primarily by strong pricing growth
- Flavors + Ingredients constant currency revenue growth of 11.0 percent compared to 2021, driven by a combination of strong volume growth and increased pricing
- Operating loss of USD 46.2 million, driven by a USD 46.5 million non-cash asset impairment charge
- Adjusted Ebitda of USD 20.2 million and free cash flow of USD 9.5 million (defined as cash provided by operating activities less capital expenditures)
«We are pleased to deliver double digit constant currency revenue growth and meet our initial revenue guidance for full year 2022, despite navigating temporary supply shortages,» stated Irwin D. Simon, Executive Chairman. «Looking ahead, we are excited about the leadership that our Interim CEO, Michael Franklin, is bringing to the organization and I look forward to working together to drive profitable growth and achieve our long-term objectives. We continue to feel great about the opportunities that lie ahead for Whole Earth with our leading portfolio of better-for-you brands and the innovation that we are bringing to the market.»
Michael Franklin, Interim Chief Executive Officer, commented, «I have great conviction in this Company – it is a business with great people, great brands and immense potential to create significant value for shareholders. My near-term priorities have been focused on putting a plan in place to improve our operations from which we can deliver sustained profitable growth. Looking ahead to the balance of 2023, we see this as a year of stability and evolution. We are working intensely to use the tools at our disposal and implement new capabilities to rebuild our margin through greater efficiency of our global operation. I am confident that our business strategy is on track, but I also believe that it is prudent to take the opportunity to make some select reinvestments in our organization, including our people and our brands. It is imperative that we repair our margin profile as it is the primary means by which we will generate higher growth of operating cash flows, which in turn will allow us to de-lever the business and position the business to take advantage of the multitude of consolidation opportunities that we see in the marketplace today.»
Fourth Quarter 2022 Results
- Consolidated product revenues were USD 138.9 million, an increase of 4.7 percent on a reported basis and 7.0 percent on a constant currency basis, as compared to the prior year fourth quarter. The increase was primarily driven by pricing actions. A stronger US dollar reduced reported consolidated product revenues by approximately USD 3.1 million, or 2.4 percent, versus the prior year quarter.
- Reported gross profit was USD 28.3 million, compared to USD 38.7 million in the prior year fourth quarter. The decrease was largely driven by cost inflation and costs associated with the supply chain reinvention project, as well as the prior year included USD 2.5 million of favorable non-cash purchase accounting adjustments related to inventory revaluations that did not re-occur, partially offset by pricing actions. Adjusted gross profit was USD 40.1 million, compared to USD 45.2 million in the prior year fourth quarter.
- Reported gross profit margin was 20.4 percent in the fourth quarter of 2022, compared to 29.2 percent in the prior year period. Adjusted gross profit margin was 28.9 percent, compared to 34.0 percent in the prior year fourth quarter. The decrease in adjusted gross profit margin is primarily the result of cost inflation in excess of realized price increases.
- Consolidated operating loss was USD 46.2 million compared to operating income of USD 6.4 million in the prior year fourth quarter primarily due to a USD 46.5 million non-cash asset impairment charge, cost inflation and increased costs associated with the supply chain reinvention project.
- Consolidated net loss was USD 60.3 million in the fourth quarter of 2022 compared to a net loss of USD 0.4 million in the prior year period due to the decline in operating profit as well as increased interest expense.
- Consolidated Adjusted Ebitda was USD 20.2 million compared to USD 20.6 million in the prior year quarter. The decrease was primarily due to an unfavorable foreign currency impact of USD 0.9 million due to the strengthening US dollar. Excluding the foreign currency impact, Consolidated Adjusted Ebitda increased 2.4 percent.
Branded CPG Segment: Branded CPG segment product revenues increased USD 3.8 million, or 3.6 percent, to USD 109.4 million for the fourth quarter of 2022, compared to USD 105.6 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 6.0 percent compared to the prior year driven primarily by pricing actions. Volume was down 2.4 percent primarily 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 was essentially flat versus the prior year quarter.
Operating loss was USD 47.7 million in the fourth quarter of 2022 compared to operating income of USD 4.4 million for the same period in the prior year. The decrease was primarily due to a USD 46.5 million non-cash goodwill impairment charge, 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 price increases.
The Company determined that the carrying values of the North America and LATAM reporting units within Branded CPG exceeded their respective fair values and as a result, the Company recognized non-cash goodwill impairment charges of USD 42.5 million related to the North America reporting unit and USD 4.0 million related to the LATAM reporting unit.
Flavors + Ingredients Segment: Flavors + Ingredients segment product revenues increased 8.6 percent to USD 29.5 million for the fourth quarter of 2022, compared to USD 27.1 million for the same period in the prior year. On a constant currency basis, segment product revenues increased 11.0 percent compared to the prior year primarily due to strong volume growth of 5.6 percent driven by growth in licorice extracts and pure derivatives resulting from the Company’s commercial expansion and innovation efforts and 5.4 percent growth from pricing actions.
Operating income was USD 8.4 million in the fourth quarter of 2022, compared to USD 7.6 million in the prior year period. The increase was primarily due to revenue gains, partially offset by USD 2.5 million of favorable non-cash purchase accounting adjustments related to inventory revaluations in the prior year period that did not re-occur in the current quarter.
Corporate: Corporate expenses for the fourth quarter of 2022 were USD 6.9 million, compared to USD 5.7 million of expenses in the prior year period.
Full Year 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 538.3 million, an increase of 9.0 percent on a reported basis, as compared to the full year 2021. On a proforma basis, organic constant currency product revenue increased 7.1 percent compared to the prior year period.
- Consolidated operating loss was USD 24.6 million compared to operating income of USD 22.8 million in the prior year period.
- Consolidated Adjusted Ebitda decreased USD 3.0 million, or 3.7 percent, to USD 79.2 million primarily due to USD 3.9 million of unfavorable foreign currency.
As of December 31, 2022, the Company had cash and cash equivalents of USD 28.7 million and USD 432.2 million of long-term debt, net of unamortized debt issuance costs. 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 of 2022. At December 31, 2022, there was USD 76 million drawn on its USD 125 million revolving credit facility.
Cash used in operating activities was USD 5.8 million for the year ended December 31, 2022. Cash used in operating activities is primarily due to increased investment in net working capital and higher interest payments. The increase in working capital included increased inventory balances influenced by cost inflation, higher levels of safety stock to enable improved customer service levels and timing.
The Company is providing its outlook for full year 2023. The Company’s 2023 outlook is as follows:
- Net Product Revenues: USD 550 million to USD 565 million representing reported growth of 2 percent to 5 percent
- Adjusted Ebitda: USD 76 million to USD 78 million
- Capital Expenditures: Approximately USD 9 million
The 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, the current inflationary environment and foreign currency exchange rate fluctuations.