Hain Celestial Group, Inc. — Form 10-Q Summary
Period clarification: The request labels this “2022 Q3,” but the filing is for the quarter ended March 31, 2023—Hain Celestial’s fiscal third quarter of 2023. It reports three- and nine-month results versus the periods ended March 31, 2022. The company sells organic and natural food, beverage, and personal-care products through North America and International segments.
Financial performance
| Metric | Quarter ended March 31, 2023 | Nine months ended March 31, 2023 |
|---|---|---|
| Net sales | $455.2 million; down 9.5% year over year | $1,348.8 million; down 6.0% |
| Net sales, constant currency and adjusted for acquisitions, divestitures, and discontinued brands | Down 5.8% | Down 3.1% |
| Gross profit / margin | $97.5 million / 21.4%, versus 23.0% | $295.7 million / 21.9%, versus 23.6% |
| Operating income (loss) | $(140.9) million, including $156.6 million of impairment charges | $(97.7) million, including $156.9 million of impairment charges |
| Net income (loss) | $(115.7) million; diluted EPS $(1.29) | $(97.8) million; diluted EPS $(1.09) |
| Adjusted EBITDA (non-GAAP) | $37.3 million, down 36.5%; constant-currency decrease 33.0% | $123.1 million, down 25.5%; constant-currency decrease 20.9% |
Quarterly sales fell in both segments. North America sales declined 12.0% reported and 10.8% on an adjusted constant-currency basis; lower snack, personal-care, and tea sales contributed, including reduced ParmCrisps distribution and promotions. International sales declined 4.9% reported but rose 3.5% on an adjusted constant-currency basis. For the nine-month period, International sales declined 13.6% reported and 2.3% adjusted constant currency, reflecting weaker Europe and U.K. sales and the loss of a large non-dairy co-manufacturing customer.
Impairments were principally non-cash charges for ParmCrisps and Thinsters trademarks and ParmCrisps customer relationships. Management cited declines in actual and projected brand performance and cash flows. The company recorded a $102.0 million ParmCrisps trademark charge, an $8.5 million Thinsters trademark charge, and a $45.8 million ParmCrisps customer-relationship charge. Reported operating and net losses therefore include a substantial unusual item.
Cash, debt, and liquidity
- At March 31, 2023, cash was $43.7 million, versus $65.5 million at June 30, 2022; working capital was $348.1 million.
- Nine-month operating cash flow was $26.3 million, down from $99.2 million. Capital expenditures were $21.4 million, leaving operating free cash flow of $4.9 million, versus $65.2 million a year earlier.
- Total debt was $856.6 million, down from $888.6 million at June 30, 2022. Debt included $567.0 million drawn on the revolver and $290.6 million of term loans. The weighted-average borrowing rate was 5.90%.
- Credit-agreement availability was $228.9 million, subject to covenant compliance. The company reported compliance with all covenants. The facilities mature December 22, 2026.
- The company sold $290.9 million of receivables through non-recourse financing arrangements during the nine months, compared with $112.6 million in the prior-year period.
Material changes and other notable items
- Quarterly interest and financing expense rose to $13.4 million from $3.2 million; the nine-month amount rose to $31.9 million from $7.7 million. Management attributed the increase to higher interest rates and debt levels.
- Gross margin declined year over year, with management citing inflation, sales mix, lower sales, and energy and supply-chain costs. Pricing and productivity partly offset cost pressures.
- The company completed the Westbrae Natural divestiture in December 2022 for $7.5 million cash and recognized a $3.5 million pretax gain.
- Wendy P. Davidson became President and CEO on January 1, 2023, succeeding Mark L. Schiller. The nine-month results include $5.1 million of CEO succession costs; Schiller’s disclosed severance was $4.7 million.
- No shares were repurchased under the share-repurchase program in the nine-month period. Remaining authorization was $173.5 million.
Outlook, risks, and contingencies
No specific numerical revenue or earnings guidance is provided in the supplied filing text. Management said it expects elevated input costs to continue, with pricing actions expected to mitigate them only partially, and expects the high interest-rate environment to continue. It also described consumer shifts toward lower-priced products, particularly in Europe, and ongoing supply-chain, labor, energy, and raw-material challenges associated in part with the Russia-Ukraine war. Management stated that operating cash flows and borrowing capacity should be adequate for anticipated needs for the foreseeable future.
Material risks include competition, execution of productivity and strategic initiatives, customer and distributor concentration, inflation and supply availability, foreign exchange, variable-rate debt, and international operations. The company faces consumer class actions and personal-injury claims concerning alleged heavy metals in Earth’s Best baby food, as well as a New Mexico government enforcement action and securities and stockholder litigation. Hain denies the allegations and says its products are safe and properly labeled. It had recorded no liability for the disclosed matters at period end; outcomes and potential costs remain uncertain. In one personal-injury case, a jury trial ended in a judgment for Hain, which plaintiffs appealed.
The company reported disclosure controls were effective as of March 31, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reporting-period mismatch: this is fiscal Q3 2023, not 2022 Q3.
- Review the assumptions and sensitivity behind the $156.6 million impairment and the remaining carrying values of the ParmCrisps and Thinsters assets.
- Track underlying sales, margins, and segment trends apart from currency, portfolio changes, and impairment charges.
- Assess whether cash generation and liquidity remain adequate, including the effects of receivables sales, working capital, capital spending, and variable-rate debt.
- Monitor covenant headroom, borrowing costs, and the company’s ability to reduce debt.
- Follow developments and potential exposure in baby-food litigation and regulatory inquiries; no liability was accrued at period end.
- Look for subsequent formal guidance and evidence that pricing and productivity gains are offsetting inflation and weaker demand.