Hain Celestial Group, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended June 30, 2021, with comparisons to fiscal 2020 and 2019. The filing is not for calendar 2020 Q4, despite the request metadata.
Business context
Hain Celestial markets, manufactures and sells organic, natural and “better-for-you” food, beverage and personal care products in more than 80 countries. Its reportable segments are North America and International. Management’s strategy emphasizes portfolio simplification, stronger capabilities, improved margins and cash flow, and profitable sales growth. The company divested several businesses and brands during FY2021, including its U.K. fruit business and Dream and WestSoy brands.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,970.3 million | $2,053.9 million |
| Gross profit / margin | $491.6 million / 25.0% | $465.8 million / 22.7% |
| Operating income / margin | $107.4 million / 5.4% | $56.0 million / 2.7% |
| Net income (loss) | $77.4 million | $(80.4) million |
| Diluted EPS | $0.76 | $(0.77) |
| Adjusted EBITDA (non-GAAP) | $258.9 million | $200.0 million |
| Operating cash flow from continuing operations | $196.8 million | $156.9 million |
| Operating free cash flow (non-GAAP) | $125.2 million | $96.0 million |
| Cash and cash equivalents at year-end | $75.9 million | $37.8 million |
| Long-term debt, including current portion | $231.0 million | $282.8 million |
Net sales fell 4.1% as reported; on a constant-currency basis and adjusted for divestitures and discontinued brands, they declined 0.6%. North America sales decreased 5.7% as reported (down 1.7% on the adjusted constant-currency basis); International sales decreased 1.8% as reported but increased 0.8% on that adjusted basis. Gross margin improved primarily through product mix, lower trade spend and supply-chain savings. North America operating income rose 34.5% to $129.0 million; International operating income fell 31.3% to $38.0 million, including the impact of the U.K. Fruit business impairment.
At June 30, 2021, working capital was $284.7 million. The company reported $763.6 million available under its revolving credit agreement and compliance with its covenants. All cash was held outside the United States. Capital expenditures were $71.6 million. The company repurchased $107.4 million of shares during FY2021.
Material changes and unusual items
- Net income improved from a loss to a profit, while continuing-operations net income rose to $66.1 million from $25.6 million. The change also reflects discontinued-operations results: FY2021 included $11.3 million of income, while FY2020 included a $106.0 million loss.
- FY2021 included a $56.1 million impairment reserve related to the U.K. Fruit business, which was sold in January 2021. The company also recorded a $4.9 million gain on sale of a manufacturing facility and gains on business and asset sales.
- Productivity and transformation costs declined to $18.9 million from $48.8 million. Initiatives include manufacturing consolidation, supply-chain improvements, SKU rationalization, North American business integration and outsourcing certain administrative processes.
- Interest and other financing expense declined to $8.7 million from $18.3 million, mainly reflecting lower debt and rates. The effective tax rate on continuing operations increased to 37.8% from 18.3%, with FY2021 affected by discrete items including the Fruit impairment and the U.K. tax-rate change.
Outlook, risks and contingencies
The filing provides no specific revenue or earnings guidance. Management expects input-cost inflation to continue into FY2022, plans to continue productivity initiatives, and expects FY2022 capital expenditures of approximately 3%–4% of net sales. Management states that cash, operating cash flows and credit availability should cover ordinary working-capital needs, planned FY2022 capital expenditures and other expected cash requirements for at least the next 12 months.
- COVID-19-related demand has normalized from the early-pandemic surge; ongoing uncertainty includes labor shortages, supply-chain disruption, costs and changing consumer demand.
- Commodity and ingredient inflation, including risks to organic ingredient availability, could pressure margins; the company seeks to offset cost increases through pricing, savings and efficiencies.
- Foreign exchange is material: approximately 52% of FY2021 sales were outside the United States. A hypothetical 5% weakening of relevant foreign currencies would have reduced FY2021 sales by about $53.2 million and operating income by about $3.0 million.
- Product-liability and litigation risks include 29 active consumer class actions and four personal-injury lawsuits alleging heavy-metal-related issues involving Earth’s Best baby food. The company denies the allegations and intends to defend the cases; government information requests are also pending. A separate securities-litigation appeal was scheduled for September 2021.
- Goodwill of $871.1 million and trademarks and other intangible assets of $314.9 million together represented 54% of total assets. Annual impairment testing found no goodwill or indefinite-lived intangible impairment at June 30, 2021, but results depend on assumptions about future cash flows and market conditions.
- The company’s $230 million of revolving-credit borrowings are variable-rate debt; interest-rate swaps covered a $230 million notional amount. The filing also identifies the transition away from LIBOR as a risk.
Important facts for investors to verify
- Whether normalized demand, divestitures and currency movements affect future sales comparability, and whether adjusted sales trends translate into reported growth.
- Whether gross-margin and cost-saving improvements persist as input inflation and labor and supply-chain pressures continue.
- The progress and financial effect of the FY2022 transformation, outsourcing and procurement-technology initiatives, including implementation costs and service risks.
- Developments, potential costs and insurance coverage related to the Earth’s Best litigation and the appeal in the prior securities case.
- Debt repayment, covenant headroom, cash availability across jurisdictions and the company’s planned capital spending and share repurchases.
- Key assumptions supporting goodwill and intangible valuations and the sensitivity of those valuations to weaker sales or profitability.