November 10, 2020
Hain Celestial's strategy of focusing on its top brands, reducing its SKUs and increasing profitability continues to reap benefits.
For the third straight quarter, the global organic and natural products company reported increases in net sales, gross margin and adjusted gross income. The company released its Q1 2021 earnings report Monday afternoon, in advance of Tuesday morning's earnings call.
"I am very proud of the strong results the team has delivered in the quarter and the growth momentum of our business. Our transformation plan is clearly working, and we continue to believe there is significant upside, both in North America and our international businesses," Mark Schiller, president and CEO of Hain Celestial, said Tuesday.
In a September call with Barclays Global Consumer Staples Conference, he said that virtually all the company's brands were profitable.
The company is set up for continued growth because, by implementing the strategy 18 months ago, its foundation became stronger. At the same time, consumer behavior changed in a way that favors Hain's brands, Schiller said.
"Remember that our transformation started well before the pandemic when we made the decision to eliminate money-losing SKUs and poor ROI investment, even if it meant giving up topline growth," Schiller said. "Importantly, those decisions and actions are behind us, and we now have a strong foundation to grow from."
During the COVID-19 pandemic, Hain continued to spend more on marketing its "Get Bigger" brands, the company's most profitable. Household penetration has increased 11% and the repeat sales rate has increased 17%; this quarter, household penetration is up 15%, while the repeat rate is up 20%, he said.
"Given that eating occasions migrated back out of home as the economy reopened in Q1, the increase in household penetration and repeat rates reinforces that our brands are getting stronger. We're also seeing material gains in distribution, driven by our innovation and strong service levels," he said.
Hain will also benefit because consumers have become more health-conscious, made lifestyle changes and started eating more healthy foods, he said. In addition, they are willing to pay more for organic, non-GMO and preservative-free foods, he said.
Schiller also expects consumers to continue buying groceries online because of the convenience and wider selection.
"The disruption of the market caused by the pandemic, along with our proactive management focus on what matters to our retailers and consumers, has enabled us to gain shelf space, capture new consumers and increase market share. As a result, we expect our momentum to continue going forward," he said. Throughout the pandemic, Hain's online sales growth has been above 50%, he said.
First quarter results beat company's expectations
Hain expected to see mid-single digit topline growth and margin improvement of several hundred basis points, Schiller said in the fiscal 2020 earnings call in August. He also expected adjusted EBITDA growth of about 25%.
"I'm pleased to report that we have over delivered on all of these projections and turned in our best quarter in several years," he said Tuesday.
The company reported these results for the first quarter, which ended Sept. 30:
Net sales increased 3% to $498.6 million, or 1% on a constant currency basis, compared to Q1 2020.
Adjusted net sales increased 5% compared to the prior year period.
Gross margin was 23.9%, a 360 basis point increase from Q1 2020.
Adjusted gross margin was 24.1%, a 326 basis point increase.
Net loss of $10.8 million, driven by the collapse of the European fruit business, which lost $32.5 million.
Adjusted net income of $27.4 million compared to $8.4 million in prior year period.
Adjusted EBITDA was $54.9 million, a 71% increase from last year's $32.1 million.
First quarter sales in the International division rose 4% to $218.0 million. If not for the fruit business, which Hain has put on the market, Q1 International sales would have in the double-digits, Schiller said.
In North America, net sales increased 3% to $280.7 million, with an adjusted net sales increase of 10%. About two-third of sales in North America comes from the Get Bigger brands, which grew 16% in Q1, he said.
The company's market share increased in tea, snacks and yogurt. Sensible Portions, Celestial Seasoning, Greek Gods, as well as the personal care lines Alba and Live Clean, were all particularly strong, he said. In September, Schiller shared packaging changes the company has made, such as using bright yellow for all Alba products and adding smaller size packaging to attract new customers and smaller households.
Six weeks into the second quarter, all Get Bigger brands are showing sales increases, Schiller noted.
Because of the pandemic, the rollout of new products has been slower than Schiller would have liked, he said. Screamin' Hot Veggie straws, a new flavor in the Sensible Portions line, is only available in 25% of retailers that carry Sensible Portions, for example.
"We have a robust pipeline on snacks coming, including more hot items on some of our other snack items," Schiller said, referring to the popular spicy flavor, not temperature.
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