Whole Earth Brands: Reports Second Quarter 2023 Results

Chicago / IL. (web) Whole Earth Brands, a global food company enabling healthier lifestyles, announced its financial results for its third quarter ended September 30, 2023 and revised its outlook for FY-2023.

Third Quarter 2023 Highlights

  • Consolidated revenue of USD 134.4 million, a decrease of 0.6 percent on a reported basis and a decrease of 1.5 percent on a constant currency basis compared to the prior year period.
  • Branded CPG revenue declined 2.0 percent on a reported basis and 2.9 percent on a constant currency basis compared to 2022 as pricing growth was more than offset by volume declines; excluding the planned decrease in Wholesome bulk sugar sales, segment constant currency revenue was essentially flat.
  • Flavors + Ingredients revenue grew 4.2 percent on a reported basis and 3.6 percent on a constant currency basis compared to the prior year period, to a record USD 31.2 million, driven by strong pricing that contributed to improved profitability of the segment.
  • Operating income of USD 6.7 million and Adjusted Ebitda of USD 21.0 million.
Third Quarter Net Product Revenue Growth Overview
Reported Foreign Currency Exchange Constant Currency
Branded CPG (2.0) % 0.9 % (2.9) %
Flavors + Ingredients 4.2 % 0.6 % 3.6 %
Total (0.6) % 0.8 % (1.5) %

Executive Chairman Irwin D. Simon: «We are pleased to deliver a year-over-year increase in adjusted gross profit margin in the third quarter, which represents an improvement of 270 basis points over the prior three consecutive quarters this year. This performance reflects the focus of our entire organization on stabilizing, streamlining, and evolving our operations to drive enhanced productivity and sustainable margin improvement. The outcomes from those efforts are also key to driving improved cash flow to support our growth initiatives and reduce leverage. We remain active in our evaluation of potential strategic alternatives with a goal of maximizing value for all our shareholders.»

Co-CEO Jeff Robinson: «Our Flavors + Ingredients business continued to drive growth in the third quarter despite a strong double-digit increase in the prior year period. This resulted in another quarterly sales record for our business and demonstrates our ongoing efforts to identify and penetrate new markets for our products.»

Co-CEO Rajnish Ohri: «Within our Branded CPG business, our focus remains squarely on improving our cash generation through enhancing our margin profile. In the third quarter, we delivered strong results due in part to our strategy to optimize our supply chain and our ongoing efforts to streamline our organization.»

Third Quarter 2023 Results

  • Consolidated product revenues were USD 134.4 million, a decrease of 0.6 percent on a reported basis and a decrease of 1.5 percent on a constant currency basis due to a weaker US dollar, as compared to the prior year third quarter.
  • Reported gross profit was USD 37.5 million, compared to USD 35.0 million in the prior year third quarter. The increase was largely driven by an improved sales mix resulting from the strategic decision to reduce bulk sugar sales to avoid incremental tariffs, pricing, lower freight costs and a decline in costs associated with the supply chain reinvention project. Adjusted gross profit was USD 42.5 million, compared to USD 41.7 million in the prior year third quarter.
  • Reported gross profit margin increased to 27.9 percent in the third quarter of 2023, compared to 25.9 percent in the prior year period. Adjusted gross profit margin expanded to 31.6 percent, compared to 30.8 percent in the prior year third quarter. Adjusted gross profit margin has improved approximately 270 basis points year-to-date, as compared to the fourth quarter of 2022.
  • Consolidated operating income was USD 6.7 million compared to operating income of USD 6.8 million in the prior year third quarter primarily due to higher bonus expense and strategic review costs, largely offset by lower import duties, freight, and supply chain reinvention costs.
  • Consolidated net loss was USD 5.4 million in the third quarter of 2023 compared to a net loss of USD 2.5 million in the prior year period primarily as a result of higher interest expense due to higher interest rates.
  • Consolidated Adjusted Ebitda was USD 21.0 million compared to USD 21.5 million in the prior year quarter, declining 2.3 percent.

Segment Results

Branded CPG Segment

Branded CPG segment product revenues were USD 103.3 million for the third quarter of 2023, compared to USD 105.4 million for the same period in the prior year, a decrease of USD 2.1 million, or 2.0 percent. On a constant currency basis, segment product revenues were down 2.9 percent compared to the prior year as 4.7 percent growth from pricing actions was more than offset by a 7.6 percent decline due to lower volumes. The decline from volumes was driven in part by the decrease in Wholesome bulk sugar sales to avoid incremental tariffs. Excluding the decrease in Wholesome bulk sugar sales, volume declined 4.6 percent and segment constant currency revenue was essentially flat.

Operating income was USD 7.2 million in the third quarter of 2023 compared to operating income of USD 5.5 million for the same period in the prior year. The increase in operating income was primarily due to a decline in costs associated with the supply chain reinvention project and lower sugar import tariffs, partially offset by higher bonus expense and a right-of-use asset impairment associated with a leased Decatur, Alabama facility no longer in use.

Flavors + Ingredients Segment

Flavors + Ingredients segment product revenues increased 4.2 percent to USD 31.2 million for the third quarter of 2023, compared to USD 29.9 million for the same period in the prior year. On a constant currency basis, segment product revenues increased 3.6 percent.

Operating income was USD 8.4 million in the third quarter of 2023 compared to operating income of USD 7.3 million for the same period in the prior year.

Corporate

Corporate expenses for the third quarter of 2023 were USD 9.0 million, compared to USD 6.0 million of expenses in the prior year period. The increase is primarily attributed to higher bonus expense, costs associated with the Company’s strategic review and other professional fees.

Year-To-Date 2023 Highlights

  • Consolidated product revenues were USD 399.7 million, essentially flat on a reported basis, as compared to the nine months ended September 30, 2022. On a constant currency basis, product revenues increased 0.4 percent compared to the prior year period.
  • Consolidated operating income was USD 12.7 million compared to USD 21.6 million in the prior year period.
  • Consolidated Adjusted Ebitda decreased USD 3.2 million, or 5.4 percent, to USD 55.8 million.

Balance Sheet

As of September 30, 2023, the Company had cash and cash equivalents of USD 24.2 million and USD 424.5 million of long-term debt, net of unamortized debt issuance costs. There was USD 70 million drawn on its USD 125 million revolving credit facility.

Cash provided by operating activities was USD 10.6 million for the nine months ended September 30, 2023. Free cash flow, defined as operating cash flow minus capital expenditures, was USD 6.5 million for the first nine months of 2023.

Outlook

The Company has revised its outlook for the full year 2023 as follows:

  • Net Product Revenues: The Company now anticipates achieving revenues in the range of USD 540 million to USD 550 million (previously USD 550 million to USD 565 million)
  • Adjusted Ebitda: USD 77 million to USD 79 million (previously USD 76 million to USD 78 million)
  • Capital Expenditures: The Company now anticipates approximately USD 8 million (down from USD 9 million previously)

The outlook is provided in the context of greater than usual volatility as a result of current geo-political events, the current inflationary environment and foreign currency exchange rate fluctuations.

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