MELVILLE, N.Y., Sept 05, 2006 /PRNewswire-FirstCall via COMTEX/ -- 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, 2006. The Company reported fourth quarter net sales of $195 million, a 29% increase compared with $151 million in the prior year period. GAAP net income for the fourth quarter, including special charges of $0.02 per share, was $0.22 per share compared to ($0.07) per share in the prior year quarter. Adjusted net income in the 2006 quarter was $0.24 per share versus an adjusted $0.20 per share in the prior year period.
Full fiscal year net sales reached a record $739 million, a 19% increase over prior year sales of $620 million. GAAP net income for the year, including special charges of $0.07 per share, reached $0.95 per share versus the prior fiscal year GAAP net income of $0.59 per share. Adjusted net income for fiscal year 2006 was a record $1.02 per share compared with an adjusted $0.89 per share in the prior year.
The Company reported that GAAP earnings in the 2006 periods were reduced by $0.01 in the fourth quarter and $0.05 for the full year by charges arising from recently adopted provisions of Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" and by $0.01 in the quarter and $0.02 for the full year for the completion of its 2005 stock keeping unit ("SKU") rationalization program. Excluding these charges, the Company reported adjusted earnings of $0.24 per share in the fourth quarter this year as compared to $0.20 in the prior year period, and $1.02 per share for the full year compared to $0.89 in the prior year. In the prior year's quarter and full year, the Company incurred charges for its 2005 SKU rationalization program and the acceleration of the vesting of stock options.
"During fiscal year 2006 we capitalized on growth opportunities with our superior brands, effective marketing and sales programs, greater distribution and operating efficiencies, while meeting the increased demand for natural and organic products throughout our operations in the United States, Canada, continental Europe and, as of May, the United Kingdom," said Irwin D. Simon, President and Chief Executive Officer of Hain Celestial. "We started the year with an adjusted sales base of $590 million due to our divestitures, SKU rationalization program and other initiatives implemented to streamline our business. In spite of a difficult economy with rising input costs, our approach is working and it has allowed us to accelerate our growth, increase our margins and introduce new, innovative products while raising our service levels to achieve some of the highest sales in the history of the Company."
The Company reported adjusted gross margin of 28.4% in the fourth quarter versus adjusted gross margin of 27.2% in the prior year quarter. Hain Pure Protein, the Company's antibiotic-free chicken joint venture, continued to reduce consolidated margins by 0.8% in the quarter. Also in the fourth quarter, gross margin was reduced by another 0.6% from the lower yield in the Company's recently acquired lower margin fresh prepared foods operations in the United Kingdom. These units are expected to continue to reduce gross margins by similar amounts in the future. For the full year after adjusting for Hain Pure Protein and the United Kingdom operation, adjusted gross margin was 30.2% versus 29% for the prior year. Gross margin improvements came from the successful SKU rationalization program with its cost savings and acceleration of sales of better performing SKUs, operating efficiencies, and from the Company's successful implementation of price increases when necessary. These improvements were made despite the increasing costs for ingredients, petroleum, and health care.
"As we continue to be a leading innovator in the natural and organic market, we have entered into strategic alliances that we call incubator opportunities, where we can participate in a growing segment without too much investment. This strategy allows us to determine if the category and the expansion opportunity deserve more investment where we can work synergistically with our existing operations to enhance our overall business. During fiscal year 2006 we entered into several such alliances including Hain Pure Protein, Yeo Hiap Sing and now Paws for a Cause, LLC, an organic pet food products company," said Irwin Simon.
Selling, general and administrative expense for the fourth quarter was 17.8% versus an adjusted 18.9% in the prior year quarter. For the full year selling, general and administrative expense was 19.6% versus an adjusted 20.2% in the prior year.
Interest and other expense in the quarter totaled $2.2 million versus $1.3 million in the prior year due to increased market rates and higher borrowings for acquisitions. In May 2006, the Company completed the private placement of $150 million 10-year fixed rate senior notes at 5.98%.
Average diluted shares outstanding increased by 2.9 million shares for the fourth quarter over the prior year quarter, an increase of 7.7% over the prior year. The increase in shares was caused by the issuance of shares in acquisitions completed during fiscal year 2006 and incremental shares included in the computation due to the higher market price of the Company's stock. The higher share count reduced earnings per share in the current year quarter by $0.02 when compared to the prior year quarter.
The Company's balance sheet remains strong with $174 million in working capital and a current ratio of 3:1 at June 30, 2006. Debt as a percentage of equity was 24.7% with total equity at $616 million. The number of days in the Company's cash conversion cycle was 71. Operating free cash flow for the year increased $10 million to $38 million.
Fiscal Year 2006 Accomplishments
The Company cited several accomplishments during fiscal year 2006:
* Solid sales and earnings growth with increased consumption driven by
margin enhancement and continued focus on cash conversion cycle and
other financial metrics
* Benefited from SKU rationalization program with multiple new products
and expanded distribution
* Implemented price increase effective October 2005
* Secured new, enhanced credit facility and long-term, fixed rate private
* New Alliances included Hain Pure Protein featuring FreeBird(TM)
antibiotic-free and organic chicken; Yeo Hiap Seng for sourcing and
product development in Asia and the United States; Heritage Foods
license agreement on refrigerated non-dairy beverages and Paws for a
Cause organic pet food products
* Acquired Spectrum Organic Products and Para Labs
* Established Hain Holdings UK Ltd. for the acquisition of a fresh
prepared foods business and the Linda McCartney(R) brand (under license)
* New sponsorships included Earth's Best(R) with PBS Kids and Sesame
Street, Terra Chips(R) as The Official Chip of Madison Square Garden,
Jason Natural Products(R) Pink Hope Lip Temptations in support of the
Susan G. Komen Breast Cancer Foundation and Celestial Seasonings(R)
continued partnership with The Heart Truth and WomenHeart to raise
awareness of heart disease with The Red Dress campaign
Sale of Biomarche
The Company also announced the sale of Biomarche, its Belgian-based provider of fresh organic fruits and vegetables, to Pro Natura, a French company specializing in the distribution of organic produce. Terms of the transaction were not disclosed.
"As the Company continues to expand in Europe, we plan to focus on fresh prepared foods and higher margin branded products. The sale of Biomarche organic products representing $18 million in sales that were non-branded and lower margin should increase our overall margins in Europe. This divestiture enables us to streamline our business and focus on our core strategy of natural and organic brands and products that complement our growth plan in Europe," said Irwin Simon.
Fiscal Year 2007 Guidance
The Company announced fiscal year 2007 sales guidance of $880 million to $900 million, an increase of 19% to 22% over 2006 sales and earnings per share of $1.15 to $1.19 increasing 13% to 17% on existing business.
"As we look to 2007, we implemented a price increase with our new fiscal year and are already seeing a continuation of the positive trends that drove our success this past year -- including strong general consumer and customer interest in natural and organic products; more and more demand for Hain Celestial's brands; and a full program of exciting new products which we believe will further build our business in the year to come," concluded Irwin Simon.
Impact of Financial Accounting Standards Board Statement No. 123R
Statement of Financial Accounting Standards No. 123R ("Statement 123R") requires that contractual commitments to issue stock options be recorded as an expense whether or not the options have been granted. The Company's employment agreement with its Chief Executive Officer contains such a commitment; however the options which were to be awarded in July 2005 and July 2006 have not been granted, principally due to an insufficient number of shares available under the Company's Long Term Incentive and Stock Award Plans. Under Statement 123R, regardless of whether the options are ever granted, either currently or in the future, a non-cash accounting expense is required to be recorded during the year leading up to the anticipated grant date under the contract. This period is defined in Statement 123R as the "requisite service period." As the requisite service period related to the July 2005 un-granted options was completed on June 30, 2005, prior to the required implementation of Statement 123R, no expense has been recorded for the July 2005 un-granted options. The requisite service period related to the July 2006 un-granted options was completed during the fiscal year ended June 30, 2006, and as a result, $3.2 million of compensation expense was earned during the fiscal year with $0.8 million, or $0.01 per share, earned in the fourth quarter. Earlier quarters of the year have been adjusted to reflect charges during the requisite service period of $0.8 million in the first quarter, $0.5 million in the second quarter, and $1.1 million in the third quarter. Each of these adjustments has been determined using the Black- Scholes model to value the un-granted options measured at the end of each quarter. The Company did not grant any stock options or restricted stock during fiscal year 2006.
The Hain Celestial Group
The Hain Celestial Group (HAIN) , headquartered in Melville, NY, is a leading natural and organic food and personal care products company in North America and Europe. Hain Celestial participates in almost all natural food categories with well-known brands that include Celestial Seasonings(R), Terra Chips(R), Garden of Eatin'(R), Health Valley(R), WestSoy(R), Earth's Best(R), Arrowhead Mills(R), DeBoles(R), Hain Pure Foods(R), FreeBird(TM), Hollywood(R), Spectrum Naturals(R), Spectrum Essentials(R), Walnut Acres Organic(TM), Imagine Foods(R), Rice Dream(R), Soy Dream(R), Rosetto(R), Ethnic Gourmet(R), Yves Veggie Cuisine(R), Linda McCartney(R), Lima(R), Grains Noirs(R), Natumi(R), JASON(R), Zia(R) Natural Skincare and Queen Helene(R). For more information, visit www.hain-celestial.com.
Safe Harbor Statement
This press release contains forward-looking statements within and constitutes a "Safe Harbor" statement under the Private Securities Litigation Act of 1995. Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements that involve known and unknown risks and uncertainties, which could cause our actual results to differ materially from those described in the forward- looking statements. These risks include but are not limited to general economic and business conditions; the ability to implement business and acquisition strategies and integrate acquisitions; competition; retention of key personnel; compliance with government regulations and other risks detailed from time-to-time in the Company's reports filed with the Securities and Exchange Commission, including the report on Form 10-K for the fiscal year ended June 30, 2005. The forward-looking statements made in this press release are current as of the date of this press release, and the Company does not undertake any obligation to update forward-looking statements.