Hain Celestial Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2024 (fiscal 2024 third quarter), compared with the corresponding 2023 periods. The filing was signed May 8, 2024. Hain markets organic and natural “better-for-you” products through its North America and International segments.
Financial performance
| Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Nine months ended March 31, 2024 | Nine months ended March 31, 2023 |
|---|---|---|---|---|
| Net sales | $438.4 million | $455.2 million | $1,317.5 million | $1,348.8 million |
| Gross profit / margin | $96.7 million / 22.1% | $97.5 million / 21.4% | $282.8 million / 21.5% | $295.7 million / 21.9% |
| Operating loss | $(27.9) million | $(140.9) million | $(31.0) million | $(97.7) million |
| Net loss | $(48.2) million; $(0.54) per diluted share | $(115.7) million; $(1.29) per diluted share | $(72.1) million; $(0.80) per diluted share | $(97.8) million; $(1.09) per diluted share |
| Adjusted EBITDA | $43.8 million; 10.0% margin | $37.3 million; 8.2% margin | $115.0 million; 8.7% margin | $123.1 million; 9.1% margin |
Q3 sales fell 3.7% year over year; North America declined 6.5%, while International grew 1.0%. For the nine-month period, sales declined 2.3% (2.1% excluding divestitures and discontinued brands); North America fell 7.2% and International increased 6.2%, including favorable foreign-exchange effects. Q3 gross margin improved 70 basis points, but nine-month gross margin declined 40 basis points. Net loss improved against prior periods, in part because impairment charges were lower; the company nevertheless remained loss-making. Adjusted EBITDA is a non-GAAP measure and excludes specified costs, including impairment, restructuring and certain litigation items.
Cash flow, balance sheet and liquidity
- For the nine months, operating cash flow was $77.0 million, versus $26.3 million a year earlier; capital expenditures were $24.8 million and reported free cash flow was $52.2 million, versus $4.9 million. Management attributed the operating cash flow increase mainly to working-capital improvements, including accounts payable optimization and inventory management.
- Cash was $49.5 million at March 31, 2024, down from $53.4 million at June 30, 2023. Working capital was $299.6 million, down from $358.9 million.
- Total debt was $777.5 million, down from $828.7 million at June 30, 2023. The company had $496.0 million drawn on its revolver, $283.1 million in term loans, and $300.8 million of facility availability, subject to covenant compliance.
- At March 31, 2024, the company reported compliance with its credit covenants; secured leverage and leverage ratios were each 3.85:1.00, and interest coverage was 3.49:1.00. The credit facilities mature December 22, 2026. The weighted-average borrowing rate was 8.10% before hedge effects and 6.96% including hedges.
Material changes, outlook and notable items
- The Hain Reimagined multi-year transformation program, launched in fiscal 2024, targets portfolio and footprint optimization, growth investment and improved profitability. Management expects implementation by the end of fiscal 2027, cumulative pretax charges of $115–$125 million (including approximately $25 million of potential inventory reductions), and annualized pretax savings of $130–$150 million. Approximately $50 million of program expenses were incurred in the first nine months.
- Q3 North America sales weakness reflected personal-care distribution losses and continued organic-formula supply challenges. Nine-month North America profitability also faced lower volume and inflation. International results benefited from pricing, private-label performance and currency, though volumes and some categories were weaker.
- Q3 impairment charges were $49.4 million, versus $156.6 million a year earlier; nine-month charges were $70.8 million versus $156.9 million. Current-period charges included ParmCrisps, Thinsters, personal-care brands and North American production assets. The U.S. reporting unit’s estimated fair value exceeded carrying value by only 5.2%, leaving goodwill exposed to adverse changes in forecasts or market assumptions.
- On April 8, 2024, after quarter-end, Hain completed the sale of its Thinsters cookie business for $7.7 million, subject to customary adjustments, and used the proceeds to repay term loans. A related $10.8 million impairment was recorded in the quarter.
- Management said operating cash flows and available borrowing capacity should meet anticipated needs for the foreseeable future. The filing does not provide a specific consolidated revenue or earnings forecast.
Risks and contingencies
- Hain faces consumer and personal-injury litigation concerning alleged heavy metals in Earth’s Best baby food, including a federal multidistrict proceeding, state cases and a New Mexico enforcement action. The company denies the allegations and says it will defend the matters. It had recorded no liability for the disclosed matters at period-end; potential costs could be material and were not reasonably estimable.
- The SEC informed the company in November 2023 of an investigation concerning certain acquisition and disposition accounting matters and past earnings guidance; Hain said it is cooperating.
- Other identified risks include competition and distribution losses, supply availability and input costs, execution of restructuring and growth plans, foreign-exchange and interest-rate exposure, and potential further impairment. Inflation, consumer behavior and geopolitical developments may affect results.
- The filing reports effective disclosure controls as of March 31, 2024 and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether North America sales and margins stabilize, particularly in baby/kids, personal care and meal preparation, and whether International growth persists without relying on currency or pricing.
- Verify delivery, timing and cash costs of Hain Reimagined, including whether targeted savings translate into sustainable operating margins.
- Monitor cash conversion and working-capital improvements, capital spending, debt repayments, borrowing costs and covenant headroom.
- Assess further impairment risk, especially the U.S. reporting unit’s 5.2% valuation headroom and the performance of affected brands.
- Follow developments in baby-food litigation and the SEC investigation, including possible financial, operational or reputational consequences.
- Confirm the final proceeds and debt reduction from the Thinsters sale, including any post-closing adjustments.