Hain Celestial Group, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2023 (first quarter of fiscal 2024), compared with the three months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions.
Business context
Hain Celestial markets, manufactures and sells natural and “better-for-you” food, beverage and personal care products through two reportable segments: North America and International.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change / context |
|---|---|---|---|
| Net sales | $425.0M | $439.4M | Down 3.3%; down 2.9% excluding divestitures and discontinued brands |
| Gross profit / margin | $83.9M / 19.7% | $94.3M / 21.5% | Margin down 1.8 percentage points |
| Operating income (loss) | $(2.3)M | $15.8M | Declined $18.1M |
| Net income (loss) | $(10.4)M | $6.9M | Diluted EPS: $(0.12), versus $0.08 |
| Adjusted EBITDA | $24.1M | $36.0M | Down 33.1%; margin 5.7%, versus 8.2% |
| Operating cash flow | $14.0M | $(5.1)M | Improved $19.1M, primarily from working-capital changes |
| Free cash flow | $7.1M | $(12.3)M | Non-GAAP measure; operating cash flow less capital expenditures |
| Capital expenditures | $6.9M | $7.2M | Company expects approximately $50M for FY2024 |
Lower North American sales volume and inflation weighed on gross profit; pricing and productivity partly offset the pressure. Interest and other financing expense increased to $13.2M from $7.7M, mainly due to higher borrowing rates.
Segments and material changes
- North America: Sales fell 9.8% to $260.1M. Adjusted EBITDA declined 39.2% to $18.7M and margin fell to 7.2% from 10.7%. The filing attributes lower sales to continuing industry-wide organic formula supply challenges, timing of a personal-care sun-care program, and reduced Terra snacks promotions. Profitability also reflected inflation, lower volume and higher inventory obsolescence reserves.
- International: Sales rose 9.3% to $165.0M, mainly from meal preparation and beverage growth. Adjusted EBITDA increased 16.7% to $17.4M; margin improved to 10.6% from 9.9%, supported by pricing.
- Consolidated sales declined despite International growth. SG&A increased 3.0% to $77.2M. Adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results.
Liquidity, debt and balance sheet
- Cash was $38.3M at September 30, down from $53.4M at June 30, 2023; substantially all cash was held outside the United States.
- Total debt was approximately $815.0M, down from $828.7M at June 30. Working capital was $319.2M, down from $358.9M.
- The amended credit agreement provides $1.1B of senior secured financing and matures December 22, 2026. At quarter-end, $530.0M was drawn on the revolver, $286.9M in term loans was outstanding, and $265.5M was available, subject to covenant compliance. The weighted average borrowing rate was 7.86%.
- The company reported compliance with all credit covenants at September 30. The credit agreement includes leverage and interest-coverage requirements; the amended minimum interest coverage ratio is 2.50:1.00.
- Management said operating cash flows and borrowing capacity should be adequate for anticipated expenditures for the foreseeable future. The company made no share repurchases during the quarter; $173.5M remained under the authorization.
Outlook, unusual items and risks
- Hain Reimagined: A multi-year program launched in Q1 FY2024 to focus the portfolio, simplify the footprint, grow selected platforms, build capabilities and improve efficiency. Completion is expected by FY2027. Management estimates cumulative pretax charges of $115M–$125M, including approximately $25M of potential inventory reductions tied to brand or category exits, and annualized pretax savings of $130M–$150M.
- The quarter included $9.7M of restructuring-related charges across productivity and transformation costs and cost of sales. The company also recorded a $0.7M non-cash equipment impairment and a $0.1M loss on sale of a U.S. facility.
- Management cited inflation, possible recession, changing consumer behavior, supply-chain costs and geopolitical events as uncertainties. Product demand and cash flows are seasonal; the company cautions that first-quarter results are not necessarily indicative of full-year results.
- Earth’s Best baby-food litigation includes consumer, personal-injury and government matters alleging heavy-metal-related harm or inadequate disclosure. Hain denies the allegations and says it will defend the cases; certain matters remain pending or on appeal. No liability was recorded for the disclosed litigation because the company said losses were not then both probable and reasonably estimable; adverse outcomes could nevertheless result in substantial costs.
- The securities class action was dismissed by the District Court on September 29, 2023; plaintiffs appealed in October. The related derivative action remained stayed pending the appeal. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether North American sales and margins recover, particularly in baby/kids, personal care and snacks, and whether International growth continues.
- Progress against Hain Reimagined’s savings, timing, total charges and potential inventory reductions.
- Debt, borrowing costs, covenant headroom and available revolver capacity as operating performance and interest expense evolve.
- How operating cash flow and working capital perform beyond this quarter, given the filing’s reliance on working-capital improvements to support cash generation.
- Developments in baby-food and securities litigation, including potential exposure and any change in the company’s assessment or accruals.