Whole Earth Brands: Reports Q3-2021 Financial 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 third quarter ended September 30, 2021. The Company also reiterated fiscal year 2021 guidance.

Irwin D. Simon, Executive Chairman, stated, «I am enthusiastic about the opportunity that lies ahead for Whole Earth Brands as we continue to outperform our benchmark categories globally, and bring new innovation to underserved categories. Responding to strong demand, our team is energized going into 2022, as we drive gains across all sales channels, including retail, e-commerce and foodservice, and leverage our diversified brand portfolio to provide consumers with natural, better-for-you product choices. I look forward to working with the team towards building a large, organic, natural, plant-based food company as I have done in the past.»

Albert Manzone, Chief Executive Officer, commented, «Our Power of One strategy to enhance our shelf presence and drive greater visibility with retail customers is working. Our ability to bring new innovations to market across the sweetener and baking categories is central to our success in redefining the assortment with better-for-you alternatives. We are seeing the distribution gains that we have been building towards, and see this momentum continuing through the balance of 2021 and into next year. Further, we are also driving penetration and trial with consumers, which is visible in our third quarter results where we drove Branded CPG segment proforma organic constant currency revenue growth of 7.6 percent. While our sales performance is strong, the current disruptions across global supply chains has highlighted the importance of our previously announced supply chain reinvention project to help mitigate volatility, protect margin and create opportunities to drive greater efficiencies over the long-term.»

Third quarter 2021 highlights

The Company’s reported consolidated financials reflect the completed acquisitions of Swerve on November 10, 2020 and Wholesome on February 5, 2021 from those respective dates. Proforma comparisons include the impact of these acquisitions for both the current and prior year periods.

  • Consolidated product revenues were USD 128.9 million, an increase of 92.4 percent on a reported basis, as compared to the prior year third quarter. On a proforma basis, organic constant currency product revenues increased 6.1 percent compared to the prior year third quarter driven by Branded CPG growth of 7.6 percent.
  • Reported gross profit was USD 43.0 million, compared to USD 18.6 million in the prior year third quarter. The increase was largely driven by contributions from the Swerve and Wholesome acquisitions and an USD 11.5 million favorable change in non-cash purchase accounting adjustments related to inventory revaluations.
  • Gross profit margin was 33.4 percent in the third quarter of 2021, compared to 27.8 percent in the prior year period. The prior year margin was negatively impacted by purchase accounting adjustments. Adjusted gross profit margin was 33.6 percent, down from 42.2 percent in the prior year due primarily to the inclusion of Wholesome‘s private label business.
  • Consolidated operating income was USD 13.5 million compared to USD 1.1 million in the prior year and consolidated net income was USD 8.8 million in the third quarter of 2021 compared to a net loss of USD 2.8 million in the prior year period.
  • Consolidated Adjusted Ebitda of USD 22.1 million increased 34.1 percent driven by contributions from the Swerve and Wholesome acquisitions and revenue growth, partially offset by higher bonus expense compared to 2020.

Segment results

Branded CPG Segment
Branded CPG segment product revenues increased USD 61.7 million, or 150.4 percent, to USD 102.7 million for the third quarter of 2021, compared to USD 41.0 million for the same period in the prior year, driven primarily by the addition of Swerve and Wholesome and revenue growth. On a proforma basis, organic constant currency product revenue increased 7.6 percent compared to the prior year third quarter primarily due to strong volume growth in the Company’s natural products portfolio globally. On a two-year stacked basis, when comparing third quarter 2021 to third quarter 2019, Branded CPG segment proforma organic constant currency revenue increased 14.3 percent. Operating income was USD 10.1 million in the third quarter of 2021 compared to operating income of USD 7.1 million for the same period in the prior year. The increase was driven by contributions from the acquired Swerve and Wholesome businesses, revenue growth, and lower purchase accounting adjustments, partially offset by higher bonus expense, costs associated with our supply chain reinvention project and the inclusion of stock-based compensation expense in 2021.

Flavors + Ingredients Segment
Flavors + Ingredients segment product revenues increased 1.0 percent to USD 26.2 million for the third quarter of 2021, compared to USD 26.0 million for the same period in the prior year primarily due to increases in licorice extracts and the Magnasweet product lines, largely offset by declines in pure derivatives. Operating income was USD 9.5 million in the third quarter of 2021, compared to an operating loss of USD 0.4 million in the prior year period primarily due to an USD 8.0 million favorable change in purchase accounting adjustments related to inventory revaluations, revenue growth and lower operating costs.

Corporate
Corporate expenses for the third quarter of 2021 were USD 6.1 million, compared to USD 5.6 million of expenses in the prior year period primarily due to the addition of stock-based compensation in 2021.

Year-to-date 2021 highlights

The Company’s consolidated financial results reflect both predecessor and successor periods indicative of the June 25, 2020 business combination date. The year-to-date results discussed below compare the results for the nine months ended September 30, 2021 to the combined nine months ended September 30, 2020, which includes the successor period from June 26, 2020 through September 30, 2020 and the predecessor period from January 1, 2020 through June 25, 2020.
Additionally, the Company’s consolidated reported financial results reflect the completed acquisitions of Swerve on November 10, 2020 and Wholesome on February 5, 2021 from those respective dates onwards. Proforma comparisons include the impact of both acquisitions for both the current and prior year-to-date periods.

  • Consolidated product revenues were USD 361.3 million, an increase of 80.8 percent compared to the 2020 year-to-date period. On a proforma basis, organic constant currency product revenue increased 2.7 percent, compared to the prior year.
    • Branded CPG segment product revenues were USD 283.6 million, an increase of 128.1 percent, reflecting the acquisitions of Wholesome and Swerve. On a proforma basis, organic constant currency product revenues increased 2.6 percent compared to the prior year period and grew 12.8 percent on a two-year stacked basis as compared to the first nine months of 2019.
    • Flavors + Ingredients segment product revenues were USD 77.7 million, an increase of 2.9 percent as compared to the prior year period.
  • Reported gross profit was USD 120.0 million, an increase of USD 48.9 million from USD 71.1 million in the prior year period, and gross profit margin was 33.2 percent in the nine months ended September 30, 2021 as compared to 35.6 percent in the prior year period. Adjusted gross profit margin was 34.7 percent, down from 41.8 percent in the prior year period driven primarily by Wholesome’s private label business.
  • Consolidated operating income was USD 16.4 million compared to an operating loss of USD 37.4 million in the prior year and consolidated net income was USD 0.5 million for the nine months ended September 30, 2021 compared to a net loss of USD 37.5 million in the prior year period.
  • Consolidated Adjusted Ebitda increased 51.9 percent to USD 61.6 million driven by contributions from the acquired Swerve and Wholesome businesses, revenue growth and productivity gains, partially offset by higher bonus expense and public company costs.

Balance sheet

As of September 30, 2021 the Company had cash and cash equivalents of USD 33.6 million and USD 384.1 million of long-term debt, net of unamortized debt issuance costs.

Outlook

The Company is reiterating its outlook for full year 2021, which includes the impact of its recent acquisitions of Swerve and Wholesome. The outlook includes expectations for growth on a proforma organic basis and margins for the combined business. The Company defines proforma organic growth to be as if the Company owned both Swerve and Wholesome for the full years 2020 and 2021. The Company’s 2021 outlook is as follows:

  • Net Product Revenues: USD 493 million to USD 505 million (representing reported growth of greater than 78 percent, and proforma organic growth of 3 percent to 5 percent)
  • Adjusted Gross Profit Margin: 34 percent to 35 percent of product revenues
  • Adjusted Ebitda Margin: Approximately 17 percent of product revenues
  • Adjusted Ebitda: USD 82 million to USD 85 million (representing reported growth of greater than 50 percent, and proforma organic growth of 3 percent to 5 percent)
  • Capital Expenditures: USD 10 million to USD 12 million
  • Cash Taxes: USD 6 million to USD 8 million
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