Hain Celestial Group, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2020. Unless noted, amounts are in millions of dollars. The company sells natural and organic food, beverage, and personal-care products in more than 75 countries.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net sales | $528.4 | $506.8 | $1,027.0 | $988.9 |
| Gross profit / margin | $130.0 / 24.6% | $105.6 / 20.8% | $249.1 / 24.3% | $203.4 / 20.6% |
| Operating income | $13.0 | $9.2 | $16.2 | $11.6 |
| Continuing operations net income (loss) | $2.2 | $1.9 | ($8.6) | ($3.1) |
| Net income (loss), including discontinued operations | $2.1 | ($1.0) | $2.6 | ($108.0) |
| Adjusted EBITDA | $62.2 | $45.0 | $117.1 | $77.1 |
Quarterly sales increased 4.3% reported and 2.2% at constant currency; first-half sales increased 3.9% reported and 1.9% at constant currency. Gross-margin gains reflected productivity savings, favorable mix, and lower trade promotions. Adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results.
For the six months, continuing-operations operating cash flow was $104.5, capital expenditures were $29.7, and operating free cash flow was $74.9, compared with negative $12.2 in the prior-year period. Cash and cash equivalents were $46.8 on the balance sheet, or $60.6 including $13.8 classified in assets held for sale. Working capital from continuing operations was $270.8.
At December 31, 2020, total debt was $294.2, including $293.0 drawn on the revolving facility; the weighted-average borrowing rate was 1.40%. The company reported $700.6 of available facility capacity and compliance with its debt covenants. It repurchased $71.7 of shares in the first half and had $118.1 of authorization remaining.
Material changes and unusual items
- North America Q2 sales rose 0.7% and segment operating income increased to $32.4 from $20.1. International sales rose 8.7% reported, or 4.4% constant currency, but the segment recorded a $2.7 operating loss versus $12.9 income a year earlier.
- A $56.1 first-half impairment reserve against the U.K. Fruit business, including $23.6 in Q2, was the principal exceptional item. The business was sold on January 13, 2021; its assets and liabilities were classified as held for sale at quarter-end.
- First-half continuing-operations results included $7.8 of productivity and transformation costs, down from $26.4, and a $21.4 income-tax provision. The unusually high 154.3% effective tax rate reflected discrete tax effects, including the Fruit reserve and a legal-entity reorganization.
- First-half discontinued-operations income was $11.3, largely reflecting a deferred tax benefit associated with Tilda. The prior-year period included substantial Tilda-related translation losses, contributing to the $108.0 net loss then reported.
- The company continued portfolio simplification and cost-reduction initiatives, including workforce reductions and product rationalization. Management said additional productivity initiatives were planned for fiscal 2021.
Outlook, commentary, and risks
No specific numerical revenue, earnings, or cash-flow guidance is provided in the filing. Management said its strategy remains focused on portfolio simplification, stronger capabilities, margin and cash-flow improvement, and profitable sales growth. COVID-19 had increased overall demand, particularly for at-home consumption, but management cautioned that the duration of demand gains and the pandemic’s effects remain uncertain. It cited possible supply-chain and operating-cost pressures, weaker demand if economic conditions deteriorate, commodity and freight volatility, customer and distributor risks, and debt-covenant exposure.
The filing reports an appeal in a securities class action that had been dismissed with prejudice; oral argument had not been scheduled. A related stockholder class and derivative matter remained stayed while plaintiffs reviewed materials following the board’s rejection of a stockholder demand. Management stated that other ordinary-course claims were not expected to have a material adverse effect. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether the Fruit sale proceeds and final disposal accounting differ materially from the held-for-sale estimate and impairment recognized.
- How much reported sales growth reflects foreign exchange, pandemic-related demand, and divestitures or SKU rationalization—and whether demand persists.
- Whether International operations recover after the Fruit impairment and what further costs or savings result from productivity programs.
- The sustainability of operating cash flow and working-capital improvement, given the increase in inventory and the company’s ongoing repurchases and borrowing.
- Future tax-rate variability, covenant headroom, and developments in the securities appeal and related stockholder litigation.