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 second quarter ended June 30 (Q2-2023).

Second Quarter 2023 Highlights

  • Reported consolidated revenue of USD 132.9 million, a decrease of 0.5 percent on a reported basis and essentially flat compared to the prior year period on a constant currency basis.
  • Branded CPG revenue declined 1.7 percent on a reported basis and 1.2 percent on a constant currency basis as compared to 2022 as strong pricing growth was more than offset by volume declines; excluding the planned strategic decrease in Wholesome bulk sugar sales, which accounted for a 4.0 percent revenue decline, segment constant currency revenue increased 2.8 percent.
  • Flavors + Ingredients revenue grew 4.0 percent compared to the prior year period, to a record USD 30.6 million, driven by strong pricing contributing to increased profitability of this segment.
  • Operating income of USD 3.0 million and Adjusted Ebitda of USD 18.2 million.

«We continued to demonstrate meaningful progress with our margin improvement initiatives in the second quarter along with a top-line performance that was consistent with the prior year on a constant currency basis and ahead of the prior year when taking into account our strategic decision to decrease Wholesome bulk sugar sales,» stated Irwin D. Simon, Executive Chairman. «The entire global team remains laser focused on stabilizing, streamlining, and evolving our operations to drive enhanced productivity and sustainable margin improvement. Our supply chain reinvention is on track and will play a critical role in rightsizing our cost base, freeing up additional dollars for growth investments in support of our diverse portfolio of global brands.»

Simon continued, «We are pleased with the recent organizational changes implemented in April within our Branded CPG business. Both Rajnish and Nigel have already made an impact and have carried forward our efforts to streamline our operations as a means to reinvigorate global growth and enhance our margin profile. We are fortunate to have an excellent group of leaders across both our operating segments and I look forward to working alongside Rajnish Ohri and Jeff Robinson, who were appointed Interim co-CEOs in mid-July. Both are highly capable executives and will be invaluable to ensuring continuity in the near-term as the Special Committee of the Board evaluates the non-binding proposal from Sababa Holdings FREE, LLC and other potential strategic alternatives that are focused on delivering value to shareholders.»

Jeff Robinson, Interim Co-CEO, commented, «Our Flavors + Ingredients business is a strong free cash flow generator with high barriers to entry and a global leadership position. The business continues to perform well and in the second quarter we achieved our highest quarterly sales since becoming a public company. Our commercial initiatives are generating strong growth and coupled with our improved cost structure, we are delivering consistently high operating margins and resultant cash flow.»

Rajnish Ohri, Interim Co-CEO, stated, «Our Branded CPG portfolio is well-positioned in the current environment with a diverse assortment of strong brands and complementary private label offerings. Additionally, our brands are performing well internationally, gaining market share across all key international regions. In North America, we have made important progress on streamlining our organization and manufacturing footprint. We are working relentlessly towards developing new opportunities to support the momentum of our brands and drive long-term profitable growth.»

Second Quarter 2023 Results

  • Consolidated product revenues were USD 132.9 million, a decrease of 0.5 percent on a reported basis and essentially flat on a constant currency basis, as compared to the prior year second quarter. A stronger US dollar reduced reported consolidated product revenues by approximately USD 0.5 million, or 0.4 percent, versus the prior year quarter.
  • Reported gross profit was USD 33.4 million, compared to USD 37.3 million in the prior year second quarter. The decrease was largely driven by cost inflation, partially offset by pricing actions. Additionally, the prior year period included USD 0.9 million of favorable non-cash purchase accounting adjustments related to inventory revaluations that did not re-occur. Adjusted gross profit was USD 40.4 million, compared to USD 42.6 million in the prior year second quarter.
  • Reported gross profit margin was 25.1 percent in the second quarter of 2023, compared to 27.9 percent in the prior year period. Adjusted gross profit margin was 30.4 percent, compared to 31.9 percent in the prior year second quarter. Adjusted gross profit margin has improved approximately 150 basis points as compared to the fourth quarter of 2022.
  • Consolidated operating income was USD 3.0 million compared to operating income of USD 7.7 million in the prior year second quarter primarily due to cost inflation and increased severance costs.
  • Consolidated net loss was USD 5.5 million in the second quarter of 2023 compared to net income of USD 1.3 million in the prior year period due to the decline in operating income as well as increased interest expense.
  • Consolidated Adjusted Ebitda was USD 18.2 million compared to USD 19.7 million in the prior year quarter, declining 7.6 percent driven by cost inflation exceeding pricing gains.

Segment Results

Branded CPG Segment: Branded CPG segment product revenues were USD 102.3 million for the second quarter of 2023, compared to USD 104.1 million for the same period in the prior year, a decrease of USD 1.8 million, or 1.7 percent. On a constant currency basis, segment product revenues were down 1.2 percent compared to the prior year as 4.8 percent growth from pricing actions was more than offset by a 6 percent decline due to lower volumes. The decline from volumes was largely driven by the planned strategic decision to manage Wholesome bulk sugar sales to avoid incremental tariffs. Excluding the decrease in Wholesome bulk sugar sales, segment constant currency revenue increased 2.8 percent.

Operating income was USD 1.5 million in the second quarter of 2023 compared to operating income of USD 5.6 million for the same period in the prior year. The decrease in operating income was primarily due to cost inflation, as well as other discrete costs such as higher severance expense and an impairment of fixed assets of USD 0.8 million related to idled production lines at our Decatur, Alabama facility.

Flavors + Ingredients Segment: Flavors + Ingredients segment product revenues increased 4.0 percent to USD 30.6 million for the second quarter of 2023, compared to USD 29.4 million for the same period in the prior year. The impact of foreign currency exchange was insignificant.

Operating income of USD 9.0 million in the second quarter of 2023 was essentially flat with that of the prior year period.

Corporate: Corporate expenses for the second quarter of 2023 were USD 7.4 million, compared to USD 6.9 million of expenses in the prior year period. The increase is primarily attributed to severance related costs.

Year-To-Date 2023 Highlights

  • Consolidated product revenues were USD 265.3 million, an increase of 0.5 percent on a reported basis, as compared to the six months ended June 30, 2022. On a constant currency basis, product revenues increased 1.4 percent compared to the prior year period.
  • Consolidated operating income was USD 6.1 million compared to USD 14.8 million in the prior year period.
  • Consolidated Adjusted Ebitda decreased USD 2.7 million, or 7.2 percent, to USD 34.8 million.

Balance Sheet

As of June 30, 2023, the Company had cash and cash equivalents of USD 24.1 million and USD 427.0 million of long-term debt, net of unamortized debt issuance costs. At June 30, 2023, there was USD 72 million drawn on its USD 125 million revolving credit facility.

Cash provided by operating activities was USD 4.9 million for the six months ended June 30, 2023. Free cash flow, defined as operating cash flow minus capital expenditures, was USD 2.2 million for the first half of 2023.

During the second quarter of 2023, the Company entered into an interest rate swap agreement to manage exposure to interest rate risk related to the variable portion of its term loan facility. The agreement converts the variable interest rate on USD 183.3 million of the term loan (approximately 50 percent of the notional amount of the facility) to a rate of 4.265 percent through February 2026. The Company expects to realize approximately USD 1 million of interest savings in the second half of 2023.

Outlook

The Company is reaffirming its outlook for the 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 current inflationary environment and foreign currency exchange rate fluctuations.