Hain Celestial Group, Inc. — Form 10-Q summary
Reporting period: Fiscal second quarter and six months ended December 31, 2021. The company sells organic and natural products in more than 80 countries through its North America and International segments. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 |
|---|---|---|
| Net sales | $476.9; down 9.7% year over year | $931.8; down 9.3% |
| Adjusted sales, constant currency and adjusted for portfolio changes | Down 2.2% | Down 1.2% |
| Gross profit / margin | $117.3 / 24.6%; margin unchanged year over year | $222.7 / 23.9%, versus 24.3% |
| Operating income | $32.0, versus $13.0 | $57.6, versus $16.2 |
| Net income from continuing operations | $30.9, or $0.33 diluted EPS; prior year $2.2, or $0.02 | $50.3, or $0.52 diluted EPS; prior year loss of $8.6, or $0.09 |
| Adjusted EBITDA (non-GAAP) | $59.3, down 4.7% | $106.6, down 9.0% |
| Operating cash flow from continuing operations | Not presented for the quarter | $68.0, versus $104.5 |
| Operating free cash flow (non-GAAP) | Not presented for the quarter | $40.0, versus $74.9 |
- Segments: Quarterly North America sales fell 2.7% to $275.0; International sales fell 17.9% to $201.9. Adjusted for currency and portfolio changes, North America sales grew 0.5%, while International sales declined 5.8%. North America operating income declined to $27.2; International reported $27.4 versus a $2.7 loss, largely reflecting the absence of prior-year impairment charges.
- Balance sheet and liquidity: At December 31, cash was $77.2, working capital was $277.9, and debt was $739.4, compared with $231.0 debt at June 30, 2021. Borrowing availability under the credit agreement was $353.2; the company reported compliance with its covenants.
- Financing: A December refinancing established $300.0 of term loans and an $800.0 secured revolving facility, both maturing December 22, 2026. The weighted average interest rate on outstanding credit-agreement borrowings was 1.45% at quarter-end.
Material changes and unusual items
- Reported sales comparisons reflect portfolio changes and lower demand as pandemic-related purchasing normalized. Management said adjusted sales fell 2.2% in the quarter and 1.2% for the half year.
- Quarterly gross margin held at 24.6%, but the six-month margin slipped 0.4 percentage points. Management cited inflation and supply-chain pressures, including labor, warehousing, distribution, and freight costs.
- Quarterly operating income and net income benefited from an $8.7 gain on sale of undeveloped Boulder land. The prior-year comparison included $25.2 of quarterly and $57.7 of six-month long-lived asset impairment, primarily tied to the UK fruit business.
- On December 28, Hain acquired That's How We Roll, maker of ParmCrisps and Thinsters, for $260.9 cash consideration, funded with borrowings. Preliminary purchase accounting included $193.8 of identifiable intangible assets and $93.6 of goodwill. The acquired business contributed immaterial sales and pretax income in the reported periods.
- The company repurchased $265.4 of shares in the six months, including 1.7 million shares bought directly from affiliates of a director at $45 per share. Remaining authorization was $117.0 at December 31; the board authorized a further $200.0 in January 2022.
Outlook, risks, and contingencies
- The filing provides no specific numerical sales, earnings, or cash-flow guidance. Management said operating cash flows and available borrowing capacity should be adequate for anticipated expenditures in the foreseeable future, while noting that interim results may not indicate full-year results.
- Management’s Hain 3.0 strategy emphasizes global growth in selected health and wellness categories, portfolio simplification, and targeted acquisitions. COVID-related demand had moderated; management also cited continuing supply-chain and labor challenges and industry-wide inflation.
- Twenty-nine active consumer class actions alleged that Earth’s Best baby food contained unsafe or undisclosed heavy metals; the company denies the allegations. The filing also describes four personal-injury lawsuits, a New Mexico government enforcement action, and related government information requests. The company said it would defend the cases and was cooperating with requests.
- A federal securities class action was revived when the Second Circuit vacated the dismissal and remanded it for further proceedings. Related stockholder litigation remained stayed through December 30, 2022. The filing does not quantify potential losses for these matters.
- Other stated risks include consumer-demand changes, customer concentration, input-cost inflation, supply-chain and manufacturing disruption, foreign exchange, regulatory matters, litigation, and goodwill or intangible-asset impairment. Management reported disclosure controls were effective; THWR was excluded from the controls assessment while being integrated.
Investor verification priorities
- Assess underlying sales trends by segment and category, separating portfolio effects, currency, and normalized pandemic demand from reported declines.
- Track gross-margin recovery, inflation and freight impacts, and whether cost and productivity initiatives offset them; compare GAAP results with non-GAAP adjusted EBITDA.
- Review debt, interest costs, covenant headroom, and liquidity after the THWR acquisition and substantial share repurchases.
- Verify acquisition integration, purchase-price allocation, and expected contribution from THWR; assess the sustainability of the land-sale gain and other unusual items.
- Monitor developments and potential financial exposure in baby-food and securities litigation; the filing provides no clear estimate of potential loss.