The Hain Celestial Group, Inc. (HAIN) , a leading natural and organic food and personal care products company, today reported record results for the fourth quarter and fiscal year ended June 30, 2007.
The Company reported net sales of $222.3 million, a 14.1% increase, compared with $194.8 million in the prior year fourth quarter. Net income reached $12.3 million, an increase of 40.2% over the prior year fourth quarter of $8.8 million. Diluted earnings per share for the quarter totaled $0.30 per share compared to $0.22 per share in the prior year fourth quarter, a 36.4% increase. Full fiscal year sales reached a record $900.4 million, a 21.9% increase over prior year sales of $738.6 million. Diluted earnings per share for the full year was a record $1.17 compared with $0.95 per share, a 23.2% increase.
"The fundamentals of our business remain strong, as the execution of our strategy is driving the growth of our natural and organic products through a variety of distribution channels. We are particularly pleased with the contribution in North America from many of our leading brands including Rice Dream(R), Terra(R), Earth's Best(R), Arrowhead Mills(R), Health Valley(R), Avalon(R) and Jason(R) as well as Hain Pure Protein. As we had expected, Celestial Seasonings(R) remained challenged during the fourth quarter in a very competitive category. We are doing the right things for the long-term health of the brand, with a restaging that includes new packaging, which is now entering distribution. The steps we have taken impacted the brand's performance and our overall results in the fourth quarter. Internationally, our European operations, including the United Kingdom, also had a positive fourth quarter," said Irwin D. Simon, President and Chief Executive Officer of Hain Celestial.
"During fiscal year 2008, we intend to maintain our focus on margin enhancement and operating efficiencies to strengthen our business and offset higher input costs. We believe this is the most effective way to drive sustainable growth and shareholder value. Specifically, we expect to achieve greater economies as we further consolidate our recently acquired operations in the United Kingdom and in Personal Care. At the same time, we will continue to provide high quality brands and products to leverage the ongoing growth in consumer demand for 'better-for-you' foods and personal care items," continued Irwin Simon.
The Company reported gross margin of 27.9% in the fourth quarter, compared to 26.5% in the prior year fourth quarter. For the full year, gross margin was 29.0% compared to 28.9% for the prior year. Margin improvements achieved through productivity gains and price increases were offset by the challenges at Celestial Seasonings, in addition to that unit continuing to contribute a lower percentage of the Company's sales.
Selling, general and administrative expense for the fourth quarter was 19.4% of net sales compared to 18.2% in the prior year, the increase coming from increased amortization of acquired intangibles resulting from numerous recent acquisitions and increased professional fees. For the full year, selling, general and administrative expense was 19.7% versus 20.0% in the prior year.
Interest expense, net, in the fourth quarter was $2.8 million versus $1.8 million in the prior year quarter. The higher interest cost this year was the result of higher borrowings for the January acquisition of Avalon Natural Products and a full quarter of interest this year on $150 million in senior debt versus the prior year quarter.
The Company's effective tax rate for the full year was 38.2% versus 37.8% in the prior year.
Average diluted shares outstanding for the quarter were 41.7 million, an increase of 1.6 million shares or 4% over the prior year quarter and 41.1 million for the full year. The increase resulted from additional shares issued for the exercise of employee stock options, shares issued to Yeo Hiap Seng Limited and higher equivalent shares included in the earnings per diluted share calculation as a result of the Company's higher share price.
The Company's balance sheet remains strong, with $200.5 million in working capital and a current ratio of 2.7 at June 30, 2007. Debt as a percentage of equity was 31% with equity at $696.9 million. The number of days in the Company's cash conversion cycle was 77 compared to 72 days in the prior year period, due to higher levels of inventory at Celestial Seasonings and the recently acquired Avalon Natural Products. Additionally, the Company's recently acquired Haldane unit had an inventory build-up in anticipation of the planned consolidation of one of the facilities acquired into our existing Fakenham facility. Operating free cash flow was $55.0 million for the fiscal year versus $38.1 million in the comparable period of the prior year, an increase of 44%.
In the fourth quarter of this year, the Company succeeded in efforts to collect back from wholesale customers valued added tax ("VAT") that had not been previously charged to them, resulting in the reversal of the first quarter charge after an unfavorable decision in a court appeals process in Germany. As a result, other income in the fourth quarter this year includes the reversal of $2.2 million, pre-tax, or $0.03 per share. This VAT reversal offset the lower sales and higher marketing costs at Celestial Seasonings in the fourth quarter.
The Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin (SAB) No. 108 in September 2006, which we adopted in fiscal 2007. We adjusted our beginning retained earnings for fiscal 2007 to recognize a reserve for expected trade promotional expenses for certain reporting units on a basis consistent with all other reporting units. The adoption resulted in adjusting our results for the nine months ended March 31, 2007, decreasing net sales and pretax income by $0.9 million or $0.6 million ($0.02 per share) after tax.
"We're excited about our business prospects in fiscal year 2008 with our existing business and opportunities to expand our brands into new categories. The pending acquisition of TenderCare International later this year positions Earth's Best to roll-out diapers and wipes. Our alliance with Yeo Hiap Seng Limited expands our product offerings in the Asian markets with the soon to be introduced Yeo's Soy Dream(R). And we are excited about the restaging of Celestial Seasonings specialty teas and the introduction of Saphara(TM), our new premium organic tea in a pyramid bag and Celestial Seasonings organic, fair-trade certified coffees. And these are just a few of the exciting brand innovations planned this fiscal year," added Irwin Simon.
"We are focused on driving further profitable growth and international expansion opportunities. With a plan that is already being implemented to reinvigorate Celestial Seasonings, our business is on the right track, with solid execution in Grocery and strong fundamentals in Personal Care. Our talented people and management team all over the world are enabling the Company to meet the strong general interest and consumer demand for innovative and healthy natural and organic products and to promote A Healthy Way of Life(TM). The Company is positioned to capitalize on these opportunities through our superior brands and with effective marketing and sales to benefit our shareholders, customers, consumers and employees," said Irwin Simon.
Acquisition of Plainville Turkey Farm, Inc.
The Company announced the acquisition of Plainville Turkey Farm, Inc. through its Hain Pure Protein Corporation joint venture, of which the Company controls 50.1% with the remaining minority interest of 49.9% owned by Pegasus Capital Advisors, LP. Located near Syracuse, New York, Plainville has been growing and processing turkey since 1923 and today is a leading supplier of natural and antibiotic-free whole turkeys and deli turkey products primarily serving the natural and grocery channels in the Northeast and Mid-Atlantic regions. Plainville Turkey Farm generated approximately $30 million in sales in its last fiscal year. The Company expects the transaction to be slightly accretive to earnings in fiscal year 2008.
"We're excited to expand our specialty poultry business with a well- recognized industry leader in Plainville Turkey Farm. Mark Bitz, a sixth generation member of the family, will be joined by James Reed, an industry veteran from ConAgra Foods, Inc., Empire Kosher Inc. and most recently Cameco Inc. in the day-to-day operations of the business. As a company with headquarters in New York, we also look forward to adding to our operations in the state," concluded Irwin Simon.