Hain Celestial Group, Inc. — Form 10-Q Summary
Period clarification: The filing covers the quarter and nine months ended March 31, 2022 (fiscal Q3 2022), not 2021 Q3 as stated in the request metadata. Unless noted, amounts below are in millions of dollars.
Business context and reporting period
Hain Celestial markets, manufactures and sells natural and organic food, beverage and personal-care products in more than 80 countries. Its reportable segments are North America and International. The company acquired That's How We Roll (ParmCrisps and Thinsters) on December 28, 2021, and continued its portfolio simplification strategy.
Financial performance and liquidity
| Metric | Three months ended March 31, 2022 | Nine months ended March 31, 2022 |
|---|---|---|
| Net sales | $502.9; +2.1% year over year | $1,434.8; −5.6% |
| Gross profit / margin | $115.7 / 23.0%, versus 26.4% | $338.4 / 23.6%, versus 24.9% |
| Operating income | $35.2, down 29.1%; 7.0% margin versus 10.1% | $92.7, up from $65.8 |
| Net income | $24.5, down 28.4%; diluted EPS $0.27 versus $0.34 | $74.8 versus $36.9; diluted EPS $0.79 versus $0.36 |
| Adjusted EBITDA (non-GAAP) | $58.7 versus $73.8 | $165.2 versus $190.8 |
| Operating cash flow from continuing operations | Not reported as a quarterly figure | $99.2 versus $146.5 |
| Operating free cash flow (non-GAAP) | Not reported as a quarterly figure | $65.2 versus $93.5 |
At March 31, cash was $57.8 and working capital was $273.6. Total debt was $835.5, up from $231.0 at June 30, 2021; $253.1 of credit-facility capacity remained, and the company reported compliance with its covenants. The $1.1 billion secured credit agreement matures in December 2026. Nine-month capital expenditures were $33.9. Cash fell $18.1 from fiscal year-end.
Material changes versus comparable periods
- Quarterly reported sales rose modestly, but constant-currency sales adjusted for acquisitions, divestitures and discontinued brands increased only 1.5%. North America grew while International declined.
- For nine months, adjusted comparable sales declined 0.3%: North America increased 2.6%, while International fell 4.4%. Reported sales were also affected by currency and prior-period portfolio changes.
- Profitability weakened in Q3 as input, energy, freight, distribution and warehousing costs pressured gross margin. Nine-month operating income increased partly because the prior-year period included a $57.7 impairment charge, mainly tied to the UK Fruit business.
- Nine-month net income comparisons also reflect unusual items: 2022 included an $8.7 gain on sale of Boulder land and a lower effective tax rate; 2021 included $11.3 of discontinued-operations income, primarily a tax benefit.
- THWR contributed 5.0% of Q3 sales and 1.8% of nine-month sales. The acquisition was funded with borrowings; the preliminary purchase-price allocation included $193.8 of acquired identifiable intangibles and $94.1 of goodwill.
- The company repurchased 10.1 million shares for $395.8 during the nine months, and had $186.6 remaining under its repurchase authorization. Shares outstanding declined from 99.1 million at June 30, 2021 to 89.8 million at March 31, 2022.
Outlook, management commentary, risks and contingencies
The filing provides no quantified sales, earnings or margin guidance. Management said operating cash flows and available borrowing capacity should meet anticipated needs for the foreseeable future. Its Hain 3.0 strategy emphasizes global growth in priority health-and-wellness categories, portfolio simplification and targeted acquisitions. Management cautioned that interim results are not necessarily indicative of full-year results and that seasonality affects product demand.
- Inflation, labor shortages, freight and supply-chain constraints continued to pressure costs. The Russia-Ukraine war added fuel and raw-material costs, disrupted supply—including sunflower oil—and affected European consumer sentiment; the company also cited heightened cybersecurity risk.
- Twenty-nine active consumer class actions, five personal-injury lawsuits and a New Mexico government enforcement action concern alleged heavy metals in Earth's Best baby food. Hain denies the allegations and says its products are safe and properly labeled. It had recorded no liability for the disclosed legal matters; potential losses may not be reasonably estimable.
- A securities class action was remanded for further proceedings after an appellate decision vacated the prior dismissal. The related stockholder class and derivative action remained stayed. No liability was recorded for the disclosed litigation.
- Productivity and transformation initiatives included workforce reductions expected to generate charges during fiscal 2022. The filing reports $8.4 of such costs for the nine-month period.
- After quarter-end, on May 3, 2022, the board eliminated the Chief Commercial Officer position; the executive was scheduled to leave May 6, with responsibilities reassigned to other executives.
Important facts for investors to verify
- Whether pricing and cost actions can recover margin pressure, particularly in North America and International.
- THWR’s ongoing sales and profitability contribution, integration progress and final purchase-price allocation.
- Debt, interest expense and covenant headroom after acquisition financing and substantial share repurchases.
- Developments in baby-food litigation and government inquiries, and any change in the company’s ability to estimate or accrue potential losses.
- Reported versus adjusted comparable sales and earnings, including the effects of currency, portfolio changes, asset-sale gains and tax items.