Hain Celestial Group, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the first quarter of fiscal 2023, the three months ended September 30, 2022, compared with the same quarter of 2021. Hain Celestial markets natural and organic food, beverage, and personal care products in more than 75 countries, through its North America and International segments. Amounts below are in U.S. dollars; financial statement figures are rounded to millions.
Financial results
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $439.4 million | $454.9 million | Down 3.4% |
| Gross profit / margin | $94.3 million / 21.5% | $105.4 million / 23.2% | Margin down 1.7 percentage points |
| Operating income / margin | $15.8 million / 3.6% | $25.5 million / 5.6% | Down 38.1% |
| Net income | $6.9 million | $19.4 million | Down 64.3% |
| Diluted EPS | $0.08 | $0.20 | Down 60.0% |
| Adjusted EBITDA | $36.0 million | $47.3 million | Down 23.9% |
| Operating cash flow | $(5.1) million | $37.6 million | Down $42.7 million |
| Operating free cash flow | $(12.3) million | $19.8 million | Down $32.1 million |
On a constant-currency basis, adjusted for acquisitions, divestitures, and discontinued brands, sales declined 0.8%; adjusted EBITDA declined 18.3%. The reported sales decline was substantially affected by foreign exchange, which added $26.9 million to the constant-currency comparison. Gross margin pressure reflected higher energy and supply-chain costs and lower International sales, partly offset by North America pricing and productivity improvements.
Segments and material changes
- North America: Sales rose 8.6% to $288.4 million; adjusted sales growth, excluding acquisition and portfolio effects, was 3.4%. Operating income increased 45.1% to $24.4 million, supported by pricing and productivity. The acquired That's How We Roll business contributed 3.6% of consolidated sales.
- International: Sales fell 20.3% to $151.0 million, or 6.7% on a constant-currency basis; operating income declined 68.1% to $7.7 million. The filing cites a lost large non-dairy co-manufacturing customer in Europe, lower sales, elevated energy and supply-chain costs, and manufacturing overhead under-absorption.
- Interest and other financing expense increased to $7.7 million from $1.9 million, reflecting higher debt and borrowing rates. The effective tax rate rose to 26.5% from 18.6%, including effects from stock-based compensation and uncertain tax positions.
- Other comprehensive loss was $52.5 million, mainly reflecting $67.1 million of foreign-currency translation loss. This reduced stockholders' equity during the quarter.
Liquidity, debt, outlook, and risks
- Cash was $51.8 million at September 30, down from $65.5 million at June 30. Working capital was $336.4 million. Cash used in operations reflected increased inventory and lower accounts payable, among other factors; inventory ended the quarter at $315.9 million.
- Total debt was $898.8 million, up from $888.6 million at June 30. The weighted-average rate on Credit Agreement borrowings was 4.38%. The company reported $188.2 million available under its revolving credit agreement and compliance with its financial covenants. The facility and term loans mature in December 2026.
- Management said cash, projected operating cash flows, and credit availability should cover ordinary working-capital needs, expected fiscal 2023 capital expenditures, and other requirements for at least the next 12 months. No specific earnings or sales guidance was provided in the supplied filing text.
- Management expects elevated supply-chain costs to continue, with some mitigation from pricing actions already taken and further actions planned in fiscal 2023. Risks discussed include inflation, sourcing and supply disruptions, foreign exchange, the Russia-Ukraine war, COVID-related challenges, consumer demand changes, and cybersecurity threats.
- Significant contingencies include consumer and personal-injury litigation concerning alleged heavy metals in Earth's Best baby food, a New Mexico government enforcement action, and securities and stockholder litigation. Hain disputes the allegations; it had recorded no liability for the disclosed matters as of quarter-end. The securities case remained subject to further proceedings, and the baby-food cases included scheduled 2023 trials.
Important facts for investors to verify
- Whether planned pricing and productivity actions offset persistent input, freight, energy, and manufacturing costs without materially weakening demand.
- Whether International sales and margins stabilize, particularly after the European co-manufacturing customer loss.
- Inventory levels, operating cash conversion, and continued reliance on receivables sales or revolving-credit borrowings to support working capital.
- Debt covenant headroom and the effect of higher interest rates on financing expense and liquidity.
- Developments in baby-food litigation and investigations, including potential financial exposure; no loss accrual had been recorded at quarter-end.
- The filing describes $83.7 million of receivables sold under non-recourse arrangements in the quarter, versus $22.9 million a year earlier; assess how this affects reported cash generation and liquidity.