Hain Celestial Group, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended June 30, 2023. The request metadata says “2022 Q4,” but this filing reports FY2023 results, with FY2022 as the primary comparable period. Hain sells better-for-you food, beverage and personal-care products through two segments: North America and International.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $1.797 billion | $1.892 billion |
| Gross profit / margin | $396.4 million / 22.1% | $427.4 million / 22.6% |
| Operating income (loss) | $(85.6) million | $104.7 million |
| Net income (loss) | $(116.5) million | $77.9 million |
| Diluted EPS | $(1.30) | $0.83 |
| Adjusted EBITDA | $166.6 million | $200.6 million |
| Operating cash flow | $66.8 million | $80.2 million |
| Operating free cash flow | $38.9 million | $40.3 million |
Reported sales fell 5.0%; excluding foreign exchange and the impact of acquisitions, divestitures and discontinued brands, sales declined 2.7%. Gross margin contracted 0.5 percentage point. FY2023 operating and net losses included $175.5 million of non-cash impairment charges, principally for trademarks and customer-relationship assets. Adjusted EBITDA, a non-GAAP measure, declined 16.9%.
Segments: North America sales declined 2.1% to $1.139 billion, while segment Adjusted EBITDA rose 1.0% to $123.4 million and margin improved to 10.8%. International sales declined 9.8% to $657.5 million; on a constant-currency basis they declined 1.0%. International Adjusted EBITDA fell 24.6% to $82.9 million, with margin down to 12.6%, reflecting energy and supply-chain costs. Currency movements materially affected reported International sales.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $53.4 million, down from $65.5 million; working capital was $358.9 million, up from $329.0 million.
- Total debt was $828.7 million, down $59.9 million year over year after $59.5 million of net repayments. The weighted-average rate on credit-agreement borrowings was 5.94% at year-end.
- Available credit capacity was $254.5 million, subject to covenant compliance. The company reported compliance with its covenants at June 30, 2023.
- On August 22, 2023, after year-end, Hain amended its credit agreement, temporarily easing certain secured-leverage limits and increasing borrowing spreads during the amendment period. The credit facilities mature in December 2026.
- Total assets were $2.259 billion and stockholders’ equity was $1.018 billion. Goodwill was $938.6 million; net trademarks and other intangible assets were $298.1 million.
- No cash dividends have been paid. Hain made no repurchases under its public share-repurchase program in FY2023; $173.5 million remained authorized at year-end.
Material changes and management commentary
- Higher energy and supply-chain costs pressured International profitability. In North America, pricing and productivity more than offset inflation and volume losses at the Adjusted EBITDA level.
- Interest and other financing expense increased to $45.8 million from $12.6 million, primarily due to higher interest rates and debt associated largely with the prior-year THWR acquisition and repurchases.
- Fiscal 2023 included $175.5 million in impairment charges, versus $1.9 million in FY2022. Brand-related charges included ParmCrisps, Thinsters, Imagine, Joya and Queen Helene; the filing attributes the ParmCrisps and Thinsters impairments to weaker actual and projected performance and cash flows.
- Wendy Davidson became CEO on January 1, 2023, succeeding Mark Schiller, who remained on the board. The company selected Hoboken, New Jersey, as its new global headquarters; a related lease had not commenced by year-end.
- Management expects inflationary costs to remain elevated, with pricing actions expected to offset them only partially. It also expects a continued high interest-rate environment. The filing provides no specific numerical FY2024 revenue or earnings guidance.
Risks, contingencies and unusual items
- Risks include competition, changing consumer demand, input-cost inflation, supply-chain and co-manufacturer dependence, customer and distributor concentration, international and currency exposure, and compliance with debt covenants. Walmart and affiliates accounted for 16% of FY2023 sales.
- Earth’s Best baby-food litigation includes consumer class actions, personal-injury claims and a New Mexico enforcement action concerning alleged heavy metals. Hain denies the allegations. The filing states no liability was recorded for the disclosed litigation at year-end; outcomes and potential costs remain uncertain.
- Securities class and derivative litigation related to a prior internal accounting review remains pending. The company may have indemnification obligations to former officers and directors.
- The filing identifies goodwill and intangible impairment as a continuing risk. Goodwill was not impaired in the FY2023 annual test, but the test depends on estimates of future cash flows and market conditions.
- Interest-rate sensitivity analysis estimated that a one-percentage-point rate increase would raise net interest expense by approximately $5.5 million, after considering swaps. A hypothetical 10% change in primary input costs would change cost of sales by approximately $106 million before offsets.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of June 30, 2023.
Most important facts for investors to verify
- Whether sales and volume trends stabilize, particularly in North American tea and personal care and European plant-based categories.
- Whether pricing and productivity can offset inflation and restore International Adjusted EBITDA and margins.
- The sustainability of cash generation and the company’s capacity to service debt under variable rates and amended covenant terms.
- Assumptions behind the $175.5 million impairment charge and the risk of further brand or goodwill impairments.
- Developments in Earth’s Best litigation and related regulatory inquiries, including potential financial exposure not accrued in the filing.
- Progress on the Hoboken headquarters lease and other strategic or cost-reduction initiatives; the filing does not provide quantified savings guidance.