Hain Celestial: Reports Q4 and Fiscal Year 2023 Financial Results

Boulder / CO. (hc) The Hain Celestial Group Inc., a leading manufacturer of better-for-you brands to inspire healthier living, reported financial results for the fourth quarter and fiscal year ended June 30, 2023.

«I am pleased to report that our fourth quarter and full-year results were near the high end of our expectations. We made significant progress during the quarter in key areas including a return to growth for both Sensible Portions and Celestial Seasonings bagged tea and an increase in net sales for our international business, despite a slight decline in overall net sales compared to the prior year,» said Wendy P. Davidson, President and Chief Executive Officer.

Davidson continued, «The actions we have taken to enhance our capabilities, organizational design, end-to-end supply chain, and brand building are beginning to drive positive momentum and set a solid foundation as we shape our future for sustainable growth. We are thinking differently about nearly every aspect of our business and are redefining what is possible as a global enterprise and as a leader in the better-for-you space. We are encouraged by these positive indicators as a precursor to our Hain Reimagined Strategy, which we will unveil at our Investor Day on September 13th. It is an exciting time to be at Hain.» Financial Highlights:

Summary of Fourth Quarter Results Compared to the Prior Year Period

• Net sales decreased 2.0 percent compared to the prior year period to USD 447.8 million.
  • When adjusted for foreign exchange, divestitures and discontinued brands, adjusted net sales decreased 1.5 percent compared to the prior year period.
• Gross profit margin was 22.5 percent, a 300-basis point increase from the prior year period.
  • Adjusted gross profit margin was 22.7 percent, a 325-basis point increase from the prior year period.
• Net loss was USD 18.7 million compared to net income of USD 3.0 million in the prior year period.
  • Adjusted net income was USD 10.0 million compared to USD 7.6 million in the prior year period.
• Net loss margin was (4.2 percent), a 490-basis point decrease compared to the prior year period.
  • Adjusted net income margin was 2.2 percent, a 60-basis point increase compared to the prior year period.
• Adjusted Ebitda on a constant currency basis was USD 43.5 million compared to USD 35.4 million in the prior year period; Adjusted Ebitda margin on a constant currency basis was 9.7 percent, a 200-basis point increase compared to the prior year period.
• Loss per diluted share was USD 0.21 compared to earnings per diluted share («EPS») of USD 0.03 in the prior year period.
  • Adjusted EPS was USD 0.11 compared to USD 0.08 in the prior year period.

Summary of Fiscal Full Year 2023 Results Compared to the Prior Year

• Net sales decreased 5.0 percent compared to the prior year to USD 1,796.6 million.
  • When adjusted for foreign exchange, acquisitions, divestitures and discontinued brands, adjusted net sales decreased 2.7 percent compared to the prior year.
• Gross profit margin was 22.1 percent, a 50-basis point decrease from the prior year.
  • Adjusted gross profit margin was 22.1 percent, a 75-basis point decrease from the prior year.
• Net loss was USD 116.5 million compared to net income of USD 77.9 million in the prior year.
  • Net loss for fiscal 2023 included pre-tax non-cash impairment charges of USD 175.5 million (USD 131.9 million after-taxes) related to »ParmCrisps«, »Thinsters« and other intangible assets.
  • Adjusted net income was USD 44.9 million compared to USD 95.5 million in the prior year.
• Net loss margin was (6.5 percent), a 1060-basis point decrease compared to the prior year.
  • Adjusted net income margin was 2.5 percent, a 255-basis point increase compared to the prior year.
• Adjusted Ebitda on a constant currency basis was USD 174.2 million compared to USD 200.6 million in the prior year; Adjusted Ebitda margin on a constant currency basis was 9.3 percent, a 130-basis point decrease compared to the prior year.
• Loss per diluted share was USD 1.30 compared to EPS of USD 0.83 in the prior year.
  • Adjusted EPS was USD 0.50 compared to USD 1.02 in the prior year.

Cash Flow And Balance Sheet Highlights

• Net cash provided by operating activities in the fourth quarter was USD 40.5 million
• Free cash flow in the fourth quarter was USD 34.1 million
• Total debt at the end of the fourth quarter was USD 828.7 million compared to USD 856.6 million at the end of the third quarter
• Net debt was USD 775.4 million at the end of the fourth quarter compared to USD 812.9 million at the end of the third quarter
• The Company ended the quarter with a net secured leverage ratio of 4.3x as calculated under our amended credit agreement as compared to 4.6x at the end of the third quarter

Segment Highlights

The Company operates under two reportable segments: North America and International.

North America: North America net sales in the fourth quarter were USD 281.8 million, a 5.1 percent decrease compared to the prior year period. When adjusted for foreign exchange, divestitures and discontinued brands, adjusted net sales decreased by 4.3 percent from the prior year period. The decrease was mainly due to lower sales in personal care and ParmCrisps® as a result of reduced customer distribution and promotion, partially offset by higher sales in yogurt, baby and tea.

Segment gross profit in the fourth quarter was USD 63.1 million, an increase of 5.5 percent from the prior year period. Adjusted gross profit was USD 64.1 million, an increase of 7.7 percent from the prior year period. Gross margin was 22.4 percent, a 225-basis point improvement from the prior year period, and adjusted gross margin was 22.7 percent, a 270-basis point improvement from the prior year period. The increase was driven by greater pricing and productivity, partially offset by higher inflation.

Adjusted Ebitda in the fourth quarter was USD 27.0 million, a decrease of 2.0 percent from the prior year period. Adjusted Ebitda in the fourth quarter on a constant currency basis was USD 27.0 million, a 1.8 percent decrease from the prior year period. The decrease was driven by lower sales and increased marketing spend. Adjusted Ebitda margin was 9.6 percent, a 30-basis point improvement from the prior year period. Adjusted Ebitda margin on a constant currency basis was 9.5 percent, a 30-basis point improvement from the prior year period. The increase in Adjusted Ebitda margin was driven by reduced selling, general and administrative expenses as a percentage of sales as compared to the prior year period.

North America net sales in fiscal 2023 were USD 1,139.2 million, a 2.1 percent decrease compared to the prior year. When adjusted for foreign exchange, acquisitions, divestitures and discontinued brands, adjusted net sales decreased by 3.8 percent from the prior year period. The decrease was mainly due to lower sales in personal care and tea.

Segment gross profit in fiscal 2023 was USD 262.5 million, an increase of 1.1 percent from USD 259.5 million in the prior year. Adjusted gross profit was USD 263.6 million, as compared to USD 263.7 in the prior year. Gross margin was 23.0 percent, a 75-basis point improvement from the prior year, and adjusted gross margin was 23.1 percent, a 45-basis point improvement from the prior year. The margin improvement was mainly driven by greater pricing and productivity, partially offset by higher cost of goods.

Adjusted Ebitda in fiscal 2023 was USD 123.4 million, a 1.0 percent increase from the prior year. Adjusted Ebitda in fiscal 2023 on a constant currency basis was USD 124.1 million, a 1.5 percent increase from the prior year. The increase was driven by pricing and productivity more than offsetting inflation and volume loss. Adjusted Ebitda margin was 10.8 percent, a 35-basis point improvement from the prior year. Adjusted Ebitda margin on a constant currency basis was 10.8 percent, a 30-basis point improvement from the prior year.

International: International net sales in the fourth quarter were USD 166.1 million, a 3.7 percent increase compared to the prior year period. When adjusted for foreign exchange, adjusted net sales increased 3.6 percent compared to the prior year period. The increase was mainly due to growth in the United Kingdom, partially offset by continued softness, though moderating, in plant-based categories in the rest of Europe.

Segment gross profit in the fourth quarter was USD 37.7 million, a 28.8 percent increase from the prior year period. Adjusted gross profit was USD 37.7 million, an increase of 28.4 percent from the prior year period. Gross margin and adjusted gross margin were both 22.7 percent, representing a 445-basis point and a 440-basis point increase from the prior year period, respectively. The increase in gross profit was mainly due to pricing and productivity, partially offset by inflation.

Adjusted Ebitda in the fourth quarter was USD 27.5 million, a 62.9 percent increase from the prior year period. Adjusted Ebitda in the fourth quarter on a constant currency basis was USD 27.5 million, a 62.8 percent increase from the prior year period. The increase was driven by pricing and productivity more than offsetting inflation and volume loss. Adjusted Ebitda margin was 16.6 percent, a 600-basis point improvement from the prior year period. Adjusted Ebitda margin on a constant currency basis was 16.6 percent, a 600-basis point increase from the prior year period.

International net sales in fiscal 2023 were USD 657.5 million, a 9.8 percent decrease compared to the prior year. When adjusted for foreign exchange, adjusted net sales decreased 1.0 percent compared to the prior year. The decrease was driven by softness in plant-based categories in Europe which were partially offset by growth in the United Kingdom.

Segment gross profit in fiscal 2023 was USD 134.0 million, a 20.2 percent decrease from the prior year. Adjusted gross profit was USD 134.0 million, a decrease of 20.6 percent from the prior year. Gross margin and adjusted gross margin were both 20.4 percent, representing a 270-basis point and a 280-basis point decrease from the prior year, respectively. The decrease in gross profit was mainly due to inflation and volume loss, partially offset by pricing and productivity.

Adjusted Ebitda in fiscal 2023 was USD 82.9 million, a 24.6 percent decrease to the prior year. Adjusted Ebitda in fiscal 2023 on a constant currency basis was USD 90.0 million, an 18.3 percent decrease from the prior year. The decrease was driven by higher inflation and volume loss, partially offset by pricing and productivity. Adjusted Ebitda margin was 12.6 percent, a 250-basis point decline from the prior year. Adjusted Ebitda margin on a constant currency basis was 12.5 percent, a 265-basis point decrease from the prior year.

Subsequent Events

On August 22, 2023, the Company amended its Credit Agreement to provide for, among other things, (a) a maximum net secured leverage ratio of 5.00x until September 30, 2023, 5.25x until December 31, 2023, 5.00x until December 31, 2024 and 4.25x thereafter and (b) a minimum interest coverage ratio of 2.50x.

On August 24, 2023, in a separate press release, the Company announced that Lee Boyce, Chief Financial Officer of Hearthside Food Solutions, will succeed Chris Bellairs as Chief Financial Officer effective September 5, 2023.

Fiscal 2024 Guidance

«We view fiscal 2024 as an inflection point, where we expect to strengthen our foundation and return to top line growth,» said Chris Bellairs, Chief Financial Officer. «We anticipate balanced growth across the portfolio with both our North America and International segments achieving low single digit organic net sales growth. We will make brand building investments in key brands to drive growth, and modest investments in our away from home and ecommerce capabilities. We expect these investments along with the refunding of our incentive plan to create an adjusted Ebtida drag year-over-year of approximately USD 20 million as we invest for the future.»

The Company is offering the following guidance for fiscal 2024:

• Adjusted net sales up 2 percent to 4 percent versus the prior year, and
• Adjusted Ebitda to be between USD 155 million and USD 165 million