MELVILLE, N.Y., Feb 01, 2007 /PRNewswire-FirstCall via COMTEX/ -- The Hain Celestial Group, Inc. (HAIN) , a leading natural and organic food and personal care products company, today reported results for the second quarter ended December 31, 2006. The Company reported net sales of $230.9 million, a 24% increase compared with $186.2 million in the prior year second quarter. GAAP net income for the second quarter was $14.8 million, or $0.36 per diluted share, a 20% increase over the prior year's $12.3 million, or $0.32 per diluted share. Adjusted earnings for the quarter totaled $0.38 per share on adjusted net income of $15.6 million.
The Company successfully completed the previously announced start-up phase of the new production lines at its West Chester Frozen Foods Facility, and incurred the final start-up costs, consistent with its previous estimate of $0.6 million pre-tax, or $0.01 per share. The Company also incurred a non-cash mark-to-market charge of $0.7 million pre-tax, or $0.01 per share, to reflect its contractual obligation for ungranted stock options at fair value in accordance with SFAS No. 123R. These options remain ungranted and therefore remain subject to mark-to-market adjustments as was first reported by the Company with its fiscal year 2006 results.
"I am pleased with our performance this quarter. We continue to see robust sales and strong consumption from our Garden of Eatin'(R), Earth's Best(R), Arrowhead Mills(R), Rice Dream(R), Imagine(R) and Health Valley(R) soups, Ethnic Gourmet(TM), Westbrae(R), Yves Veggie Cuisine(R) and Spectrum(R) brands as well as significant contributions from our personal care brands, Hain Celestial Canada and Hain Celestial Europe, including Hain Celestial United Kingdom," said Irwin D. Simon, President and Chief Executive Officer of Hain Celestial. "The increasing scale and diversity of our business continues to provide the Company with a balanced portfolio of markets and categories that result in a stable base of sales and earnings that reflect the growth of the natural and organic category. At the same time, we are maintaining our focus on continually improving efficiencies."
The Company reported gross margin of 30.6% in the second quarter, compared to 31.2% in the prior year's second quarter. In order to compare gross margin performance against the prior year's comparable quarter, the Company reported that adjusted gross margin for the current quarter was 31.9% when excluding the final start-up costs at its West Chester Frozen Foods Facility and the Company's lower margin business in the UK. The 70 basis points margin improvement was achieved despite increasing input costs and the challenging selling conditions of the unusually warm weather throughout the quarter impacting the Company's Celestial Seasonings tea brand.
Selling, general and administrative expense for the second quarter was 19.4% of sales in the current year quarter compared to 19.9% in the prior year. Adjusted for the SFAS No. 123R charges for ungranted stock options, selling, general and administrative expense was 19.1% in the current year versus 19.6% in the prior year quarter. The Company continues to benefit from its increased scale and disciplined strategy for building effective marketing programs.
Interest expense in the second quarter was $2.3 million versus $1.3 million in the prior year quarter and interest income was $0.9 million this year versus $0.2 million last year. The higher level of interest expense was attributable to the $150 million of 10-year 5.98% Senior Notes issued in May 2006, which was in part offset by interest earned on excess cash balances.
The Company's effective tax rate for the quarter was 38.6% versus 37.9% in the prior year quarter.
Average diluted shares outstanding in the quarter were 41.2 million, an increase of 2.8 million shares, or 7%, over the second quarter of the prior year, and 1.2 million shares, or 3%, higher than in the immediately preceding first quarter of fiscal 2007. The increase resulted from additional shares issued for the exercise of employee stock options and higher equivalent shares included in the earnings per diluted share calculation resulting from the Company's higher share price. In announcing full year guidance in September 2006, the Company had anticipated an average diluted share count of 40.5 million for the full fiscal 2007 year.
The Company's balance sheet remains strong with $214.5 million in working capital and a current ratio of 2.9 at December 31, 2006. Debt as a percentage of equity was 23.3% with equity at $651.9 million. The number of days in the Company's cash conversion cycle was 67 compared to 71 days in the prior year period. Operating free cash flow was $61.0 million for the trailing twelve months ended December 31, 2006 versus $23.5 million in the comparable period of the prior year.
"The broad distribution of our natural and organic food and personal care products into varied channels in North America, Europe and the United Kingdom, alongside our effectiveness in executing our grocery and international businesses, allows us to continue to expand our growth in sales and earnings. These results were achieved despite unusually warm weather in the United States, which challenged our Celestial Seasonings(R) tea brand this past quarter," added Irwin Simon.
"I am particularly excited about the strategic opportunities from our most recent acquisitions of Avalon Natural Products and certain assets of Haldane Foods. These latest additions to our growing portfolio, with the synergistic opportunities they bring, will aid in our continued drive to achieve further margin efficiencies, general and administrative cost savings and to improve our return on equity. Avalon Organics(R) and Alba Botanica(R) are premier brands that complement our natural and organic personal care products. This acquisition demonstrates our commitment to and solidifies our position in the fast-growing personal care category. Haldane Foods provides us with critical mass in the meat-free category, building upon our Linda McCartney(R) brand. This acquisition establishes a manufacturing base for our non-dairy brands along with Haldane's soy-based products in the United Kingdom. These acquisitions strengthen our portfolio of brands to meet the increasing consumer needs for natural and organic products across multiple categories," concluded Irwin Simon.
Fiscal Year 2007 Outlook
The Company raised its annual guidance for fiscal year 2007 to reflect the recently completed acquisitions of Haldane Foods Limited and Avalon Natural Products. The Company expects full year fiscal 2007 sales of $900 million to $920 million and earnings per share of $1.16 to $1.21 based on 41.0 million shares outstanding.
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(TM), Rice Dream(R), Soy Dream(R), Rosetto(R), Ethnic Gourmet(TM), Yves Veggie Cuisine(R), Linda McCartney(R), Realeat(R), Lima(R), Grains Noirs(R), Natumi(R), JASON(R), Zia(R) Natural Skincare, Avalon Organics(R), Alba Botanica(R) 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, 2006. 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.