MELVILLE, N.Y., May 4, 2005 /PRNewswire-FirstCall via COMTEX/ -- The Hain Celestial Group, Inc. (HAIN), a leading natural and organic food and personal care products company, today announced strong sales and earnings growth for the third quarter of fiscal 2005 ended March 31, 2005. Net Sales for the third quarter were $161.3 million compared with $136.9 million for the third quarter of 2004, an increase of 18%. Net income was $7.7 million or $0.21 per share, compared with $5.0 million, or $0.14 per share, in the third quarter of 2004, an increase of 50% in earnings per share.
Hain Celestial's third quarter performance was driven by strong performances from several key brands, including sales growth from Terra Chips(R) at 15%; Garden of Eatin'(R) at 23%; Earth's Best(R) at 74%; Imagine(R) soups at 20%; Health Valley soups at 13%; Celestial Seasonings(R) at 6%; Ethnic Gourmet(R) and Rosetto(R) frozen foods at 15%. The Company's European business grew 20%. Partially offsetting these increases were lower volumes from Carb Fit(R) and other specialty product lines, and the Company's Canadian operations.
As disclosed in the previous quarter, Hain Celestial continued the implementation of its Stock Keeping Unit ("SKU") rationalization program, which had the impact of reducing the Company's GAAP earnings in the current quarter by $1.2 million, or $0.02 per share. The cost of the program is included in cost of goods sold, and consisted of reduced selling prices of SKUs already identified for elimination, as well as the sell-off of certain related inventories in liquidation markets. Non-GAAP earnings were $0.23 per share, adjusting for the impact of the elimination of the related SKUs during the quarter.
"The momentum of our core natural and organic brands continued through the third quarter with our entire team driving strong sales and effective cost control," said Irwin D. Simon, President and Chief Executive Officer. "Despite the challenging environment for food companies with input costs rising, we achieved impressive top line growth in our core natural and organic categories. We are excited about the market opportunity given the expansion of supernatural, natural and conventional stores, increasing consumer awareness of our products, and the new government food pyramid, which recommends healthier food choices."
Consistent with others in the food industry, the Company said that it is experiencing the challenges of rising input costs from commodities, including ingredients, fuel, packaging and other costs. Gross margins of 28.2% in the third quarter 2005 included the impact of these costs. Higher input costs aggregated $4.5 million, and caused a 2.8% margin impact; changes in the mix of sales caused a 1.1% margin impact; and the SKU rationalization program caused a 0.6% margin decline. Hain Celestial's price increase implemented in the first quarter of fiscal 2005 partially offset these increases, and contributed approximately 2.5% to margins. In all, without these items, gross margins in this year's quarter would have been 30.2% compared with 28.2% in last year's quarter.
Offsetting the cost increases, the Company incurred a lower tax rate of 27% in the current year quarter as compared to 38% in the prior year quarter, due to a reduction in deferred tax liabilities resulting from the termination of certain outstanding tax matters. The deferred tax reduction amounted to $1.3 million in the current quarter, or $0.03 per share, and is equal to the amount charged against the Company's earnings when these matters arose in a prior year. The Company anticipates that its effective tax rate will be 39% in the fourth quarter, and anticipates its overall tax rate for the full fiscal year 2005 will approximate 37%, the Company's approximate effective tax rate in recent prior years.
To offset the increased costs of doing business, the Company said that it plans to implement a new price increase, averaging 2.5% to 3.5%, on certain of its brands effective June 2005.
The Company's balance sheet remains strong as working capital totaled $128.6 million and equity totaled $530 million at the end of the third quarter. The Company's increased focus on its Cash Conversion Cycle resulted in a reduction of 4 days to 78 days for the third quarter versus 82 days for the second quarter, and a reduction of 6 days from 84 days for the comparable prior year period. Operating Free Cash Flow was $14.8 million for the third quarter.
"We continue to execute our strategy with effective trade promotions and to build on our business fundamentals with innovative new products in snacks, grocery, frozen and personal care, which should all be in distribution this June. In April, we completed the acquisition of Zia(R) Natural Skincare, a premium-priced line to complement the value-priced natural and organic personal care lines of JASON(R). While the personal care category is still new for us, we have already begun to develop and launch new products, including the Red Elements(TM) skin care line with red tea and other essential elements known for anti-aging, and teaming our Earth's Best brand with JASON to offer Earth's Best Baby Body Care by JASON, featuring 70% organic formulas to nourish babies' skin."
The Company also announced it has begun to evaluate streamlining its business to further focus on growth opportunities in the natural and organic sector. The Company is considering its options with regard to the divestiture of several non-core specialty product lines: Estee(R) and Featherweight(R) medically-directed, weight-management products and Kineret(R) and Kosherific(R) kosher foods.
The Company also announced that it has reached a preliminary understanding with Yeo Hiap Seng Limited ("YHS"), a Singapore based food and beverage company listed on the Singapore stock exchange whose primary brand is "Yeo's," to pursue joint interests in food marketing and product development. The arrangement may include each company making up to US$8 million equity investments in the other, and the structuring of joint venture and distribution arrangements. Definitive terms are to be negotiated.
"We expect to finish our fiscal year with strong growth in sales and earnings, well positioned for margin enhancement in our core brands for fiscal year 2006," concluded Irwin Simon.
The Company anticipates revenues of $156 to $163 million and earnings of $0.19 to $0.21 per share for the fourth quarter to conclude its fiscal year ending June 30, 2005.
The Hain Celestial Group
The Hain Celestial Group (HAIN), headquartered in Melville, NY, is a leading natural and organic beverage, snack, specialty 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), Hain Pure Foods(R), Hollywood(R), Walnut Acres Organic(R), Imagine Foods(R), Rice Dream(R), Soy Dream(R), Rosetto(R), Ethnic Gourmet(R), Kineret(R), Yves Veggie Cuisine(R), Lima(R), Biomarche(R), Grains Noirs(R), Natumi(R), JASON(R) and Zia(R) Natural Skincare. For more information, visit http://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, integrate acquisitions, and obtain financing for general corporate purposes; competition, retention of key personnel and 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, 2004. 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.