Hain Celestial Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended June 30, 2022. Although the request identifies “2021 Q4,” this filing covers the full fiscal year 2022, not a standalone quarter.
Business context
Hain Celestial markets, manufactures and sells natural, organic and “better-for-you” food, beverage and personal care products in more than 75 countries. Its reportable segments are North America and International. Fiscal 2022 included the December 2021 acquisition of That's How We Roll (ParmCrisps and Thinsters) for approximately $260.4 million, net of cash acquired. Prior-period comparisons reflect divestitures and discontinued operations.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $1.892 billion | $1.970 billion |
| Gross profit / margin | $427.4 million / 22.6% | $491.6 million / 25.0% |
| Operating income / margin | $104.7 million / 5.5% | $107.4 million / 5.4% |
| Net income | $77.9 million | $77.4 million |
| Diluted EPS | $0.83 | $0.76 |
| Adjusted EBITDA | $200.6 million | $258.9 million |
| Cash from continuing operating activities | $80.2 million | $196.8 million |
| Operating free cash flow | $40.3 million | $125.2 million |
Reported net sales declined 4.0%; on a constant-currency basis and adjusted for acquisitions, divestitures and discontinued brands, sales declined approximately 0.4%. North America sales increased 5.3% reported (3.5% adjusted), while International sales declined 15.9% reported (5.6% adjusted). International weakness reflected, among other factors, the loss of a European non-dairy co-manufacturing customer and lower U.K. volume.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $65.5 million at June 30, 2022, versus $75.9 million a year earlier; working capital was $329.0 million.
- Total debt was approximately $888.6 million, compared with $231.0 million at June 30, 2021. The increase primarily reflects acquisition funding and share repurchases. The weighted-average borrowing rate was 3.10%.
- The amended secured credit agreement provides $1.1 billion of total financing and matures December 22, 2026. Approximately $204.0 million was available at year-end; the company reported compliance with its covenants.
- Investing cash outflow was $288.3 million, mainly due to the THWR acquisition. Financing cash inflow was $212.8 million, including net borrowings, offset partly by $410.5 million of share repurchases and employee tax withholding.
Material changes and unusual items
- Gross margin fell 2.4 percentage points, amid inflation, freight, warehousing and other supply-chain costs. SG&A was nearly flat in dollars but rose as a share of sales to 15.9% from 15.3%.
- Adjusted EBITDA fell 22.5%. Net income rose slightly, while diluted EPS increased partly because the weighted-average share count declined following repurchases.
- FY2021 included a $57.9 million impairment charge, principally related to the U.K. Fruit business; FY2022 impairment was $1.9 million. FY2022 also benefited from a lower effective tax rate (21.9% versus 37.8%), including reversals of certain tax reserves and other discrete items.
- The company repurchased 10.6 million shares for approximately $408.9 million in FY2022; $173.5 million remained authorized at year-end.
- Foreign currency translation reduced accumulated other comprehensive income by $102.1 million during FY2022.
Outlook, risks and contingencies
- Management expected input-cost inflation to continue through FY2023. It planned further pricing actions and cited cost savings and efficiencies as mitigants, while warning that these may not fully offset cost increases.
- Management expected FY2023 capital expenditures of approximately 3% of net sales. It stated cash, operating cash flow and credit availability should be sufficient for ordinary working capital, planned capital expenditures and other expected cash needs for at least 12 months.
- Supply-chain disruption, labor shortages, transportation and energy costs, the Russia-Ukraine war, COVID-19-related uncertainty, foreign exchange, and changing consumer demand remain material risks.
- Pending matters include securities and stockholder litigation related to a prior internal accounting review, consumer and personal-injury litigation concerning alleged heavy metals in Earth’s Best baby food, and a New Mexico enforcement action. The company denies the allegations; it had recorded no liability for the disclosed matters because amounts were not judged probable and reasonably estimable.
- The annual goodwill test found no reporting-unit impairment, though management noted that changed assumptions or market conditions could lead to future impairment. Ernst & Young issued unqualified opinions on the financial statements and internal control; the acquired THWR business was excluded from the internal-control assessment while being integrated.
Important facts for investors to verify
- Whether FY2023 pricing actions and cost initiatives offset inflation without materially reducing volumes or demand.
- Drivers of continuing International sales weakness, especially Europe and the U.K., and the effects of the lost co-manufacturing customer and customer shipment halts.
- Debt levels, borrowing costs, covenant headroom and cash generation following the acquisition and substantial share repurchases.
- Developments and potential financial exposure in the baby-food litigation and securities and stockholder cases; no loss estimate is provided in the filing.
- THWR’s post-acquisition performance and integration, including the assumptions supporting acquired intangible-asset valuations.
- Whether reported results are comparable after divestitures, discontinued operations, currency effects and the FY2022 trade-promotion estimate revision, which increased net sales by 0.2%.