Hain Celestial Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2011 (fiscal Q3 2011). The request metadata says “2010 Q3,” but the filing itself reports fiscal 2011 Q3 and compares results with the periods ended March 31, 2010. Dollar amounts below are in millions unless noted.
Business context
Hain manufactures, markets, distributes, and sells natural and organic food, beverage, personal care, and household products. It reports one business segment. Growth strategy includes developing brands and acquiring complementary businesses. The filing covers acquisitions of Greek Gods, GG UniqueFiber, and Danival.
Key financial results
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net sales | $288.4 vs. $222.1; up 29.8% | $838.2 vs. $694.5; up 20.7% |
| Gross profit / margin | $82.6 / 28.6% vs. $61.5 / 27.7% | $238.1 / 28.4% vs. $193.2 / 27.8% |
| Operating income / margin | $30.8 / 10.7% vs. $19.3 / 8.7% | $79.1 / 9.4% vs. $58.4 / 8.4% |
| Net income | $16.8 vs. $2.7 | $42.1 vs. $21.9 |
| Diluted earnings per share | $0.38 vs. $0.06 | $0.95 vs. $0.53 |
| Operating cash flow | Not separately stated | $40.4 vs. $38.6 |
| Capital expenditures | Not separately stated | $7.8 vs. $7.4 |
- At March 31, 2011, cash was $25.6, current assets $361.9, and current liabilities $191.3. Total assets were $1,325.6.
- Debt included $150.0 of 5.98% senior notes due May 2016 and $86.0 drawn on a $400.0 revolving facility due July 2015. Balance-sheet debt was $237.3, including current portion.
- Cash increased $8.3 during the nine months. Investing used $49.9, including $45.3 for acquisitions; financing provided $18.5, including $11.1 of revolving-credit borrowings.
- Trailing-12-month operating free cash flow, a company-defined non-GAAP measure after capital spending, was $61.0 versus $59.4.
Material changes versus comparable periods
- Quarterly revenue growth reflected improved consumption, recovery in the previously weak grocery channel, fewer effects from prior-year distributor destocking, and acquired brands. North American sales rose 30.9%; European sales rose 23.4%.
- Nine-month North American sales rose 23.5%. European sales rose 4.4%, despite a $4.9 adverse foreign-exchange impact; UK food-to-go sales were affected by the loss of Marks and Spencer sandwich business.
- Gross margin improved in both periods. Management attributed the improvement to product mix, including higher-margin Greek Gods and Sensible Portions products, and cost savings that more than offset input-cost increases.
- SG&A rose 27.3% for the quarter and 20.4% for the nine months, primarily from acquired businesses, amortization, and selling activity; SG&A as a share of sales declined slightly.
- The nine-month effective tax rate fell to 40.7% from 52.4%, mainly because the prior-year period included $6.4 of UK deferred-tax valuation allowances. The quarter’s rate was 39.6% versus 80.9%.
Outlook, risks, and unusual items
- Management said recent acquisitions were increasing sales and described early results from Danival and GG UniqueFiber as encouraging. It expects about $11 million in capital spending for fiscal 2011 and believes cash, operating cash flow, and credit availability will fund anticipated needs. The filing refers to the company’s ability to achieve fiscal 2011 sales and EPS guidance as a risk, but this text does not provide specific guidance figures.
- Management anticipated higher input costs and noted that macroeconomic uncertainty could affect consumer confidence and spending. Mitigation measures include efficiency improvements, cost savings, and price increases where competition permits.
- In Q3, the company initiated closure of its Manchester, UK non-dairy beverage facility and recorded related restructuring costs. It also recognized acquisition/integration costs offset by a $4.1 reduction in World Gourmet contingent consideration expense.
- Contingent consideration liabilities totaled $52.7 at March 31. Greek Gods’ first-year targets were achieved, triggering a $15.4 payment expected in fiscal Q4; future payments also depend on results and estimates.
- Goodwill was $569.2 and trademarks and other intangible assets were $220.6. Acquisition purchase-price allocations remained subject to final valuation. The company identified goodwill impairment estimates as a risk.
- Other risks include acquisition integration and execution, competition, reliance on third-party manufacturers and distributors, changing consumer demand, commodity and labor costs, foreign exchange, regulation, and UK operations. Management stated pending ordinary-course litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether sales and margin growth persists after accounting for acquisitions, prior-year distributor destocking, and consumption trends.
- Progress integrating Greek Gods, Sensible Portions, Danival, and GG UniqueFiber, including final purchase-price allocations and contingent consideration payments.
- Cash conversion and working-capital trends, particularly receivables and inventory, alongside acquisition spending and revolving-credit borrowings.
- Exposure to rising input costs, foreign exchange, and UK losses, including the potential for future tax benefits or continued valuation allowances.
- Fiscal 2011 sales and EPS guidance, which the filing references but does not quantify in the provided text.