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Hain Celestial has faith in its 3.0 strategy, CEO says

Sales dropped slightly in the second quarter, but price increases kept margin decreases to a minimum.

Victoria A.F. Camron

February 3, 2022

4 Min Read

Sales of Hain Celestial's "growth brands"—plant-based meat, non-dairy beverages, and snacks—continue to increase as U.S. grow, CEO and President Mark Schiller reported Thursday morning.

Those growth brands, which make up almost 70% of the company's total sales, increased slightly when compared with the second quarter of FY 2022 and 12.6% compared with the same period in FY 2020, he said.

"I'm pleased to report that net sales in the United States, our biggest market, were strong and continue to show material sequential improvement, Schiller said. The second quarter ended Dec. 31, 2021.

Snacks, tea, yogurt, baby and personal care categories make up 85% of Hain Celestial's sales had consumption growth of 14% compared with last year and 22% compared with two years ago, the company reported. Household penetration continued to increase, as well, up nearly 10% compared with FY20.

"Snacks and baby food led the way with growth up more than 35% year-over-year," he said. "Celestial Seasonings gained more than a full share point and delivered high single-digit growth in the quarter, overlapping significant growth from last year."

Sales of Greek Gods yogurt have stabilized after sustaining significant supply chain challenges, and a product reformulation and changes to the sizes and price of Garden of Eatin' snacks have led to consumption growth as well, he said.

Related:Hain Celestial names new chief financial officer

"Unit velocities on the growth brands in the US were up mid-single digits even with retail prices increasing more than 7% in the quarter and average items per store also increased nicely despite supply chain challenges. So, in summary, we're seeing tremendous momentum on the top line in the US and that growth has accelerated thus far in Q3," Schiller said.

Companywide sales generally in line with guidance

Hain Celestial's sales fell in the high  range of previous guidance and a January update. But profits were slightly lower than expected.

"With regard to profitability, our bottom line came in slightly below our original guidance, driven by continued and well-publicized industry-wide supply chain and labor challenges," Schiller said. "While the team is doing a great job with pricing and productivity to offset almost all of these additional costs, late in the quarter, we did experience some incremental unforeseen costs, which led to about a $3 million miss to our original adjusted EBITDA guidance."

Hain reported these second quarter results:

  • Net sales decreased 10% to $476.9 million compared to the prior year period.

  • When adjusted for foreign exchange, acquisitions, divestitures and discontinued brands, net sales decreased 2% compared to the prior year period.

  • Gross margin of 24.6% was flat compared to the prior year period.

  • Adjusted gross margin of 24.6%, a 74 basis-point decrease from the prior year period.

  • Operating income of $32.0 million compared to $13.0 million in the prior year period.

  • Adjusted operating income of $45.7 million compared to $48.1 million in the prior year period.

  • Net income of $30.9 million compared to $2.2 million in the prior year period.

  • Adjusted net income of $34.3 million compared to $34.7 million in prior year period.

  • Adjusted EBITDA of $59.3 million compared to $62.2 million in the prior year period.

  • Adjusted EBITDA margin of 12.4%, a 66 basis-point increase compared to the prior year period.

  • Earnings per diluted share (“EPS”) of $0.33 compared to $0.02 in the prior year period.

  • Adjusted EPS of $0.36 compared to $0.34 in the prior year period.

Related:Hain Celestial introduces next strategy to increase sales, profits

The company also repurchased 2 million shares, or 2.1% of the outstanding common stock, at an average price of $44.31 per share.

Chief Financial Officer Javier Idrovo, who leaves the company on Friday for another opportunity, said the company experienced higher-than-expected inflation and cost pressures in distribution and warehousing due to labor shortages, freight carrier availability and other freight costs. Schiller has previously said that Hain is emphasizing customer service, which can force the company to hire trucks at the last minute, which costs more than usual.

"The supply chain challenges also impacted our international operations with the added headwind of higher-than-expected energy costs that we are now forecasting to remain throughout the rest of fiscal year 2022," Idrovo said. During the call, Schiller said energy costs in Europe increased by a factor of 10 compared with a year ago.

Idrovo said, "While the industry-wide supply chain challenges impacted the profitability of the quarter, our pricing actions and productivity initiatives contributed to a sequential improvement in margins."

Schiller added, "We were very surgical in our pricing decisions, analyzing many variables, including price gaps and thresholds, brand velocities, consumer loyalty and brand momentum. So far, our pricing has been very effective and unit volume impact has been minimal. In both North America and international, we're in the process of taking additional pricing in the second half of the year and are in discussions with our customers as we speak."

With the price increases coming in the next 90 days, the company will have raised its prices more than $100 million, he said.

About the Author(s)

Victoria A.F. Camron

Digital content specialist, New Hope Network

Victoria A.F. Camron was a freelance writer and editor contracted with New Hope Network from 2015 until April 2022, when she was hired as New Hope Network's digital content specialist—otherwise known as the web editor.

As she continues the work she has done for years—covering the natural products industry for NewHope.com and Natural Foods Merchandiser; writing up earnings calls and other corporate news; and curating roundups of trends and information for the website—she is thrilled to be an official part of the New Hope team. (She doesn't mind having paid holidays and vacations again, though!) Victoria also compiled and edited newsletters, and served as interim content director for Delicious Living in 2016.

Before working as a freelancer, she spent 17 years in community newspapers in Longmont, Colorado, and St. Charles and Wheaton, Illinois. Victoria is a Colorado native and a graduate of Metropolitan State College of Denver.

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