The Hain Celestial Group, Inc. (NASDAQ:HAIN) is a leading global health and wellness company whose purpose is to inspire healthier living through better-for-you brands. With a diverse portfolio of beloved brands across snacks, baby/kids, beverages, meal preparation, and personal care, Hain Celestial is well-positioned to capitalize on the growing consumer demand for natural and organic products.
Hain Reimagined: A Transformative Strategy
In September 2023, Hain Celestial unveiled its Hain Reimagined strategy, a multi-year growth, transformation, and restructuring program aimed at optimizing the company's portfolio, improving underlying profitability, and increasing its flexibility to invest in targeted growth initiatives, brand building, and other capabilities critical to delivering future growth.
The Hain Reimagined strategy is grounded on four strategic pillars: Focus, Grow, Build, and Fuel. Under the Focus pillar, the company is concentrating its portfolio in five consumer-centric better-for-you platforms: Snacks, Baby & Kids, Beverages, Meal Preparation, and Personal Care. The company is also simplifying its global footprint, maintaining a direct presence in five key markets – United States, Canada, UK, Ireland, and Western Europe – and aligning its global operating model and footprint to leverage scale and realize synergies across the business.
The Grow pillar focuses on delivering share gain in key platforms where Hain Celestial has the most compelling right to win, through expanded channel reach and acceleration in its innovation pipeline. The Build pillar is dedicated to enhancing critical capabilities in brand building and the effectiveness of marketing spend, expanding reach across under-penetrated margin-accretive channels such as away-from-home and omni-channel e-commerce, and enhancing the company's innovation capability to be more leading edge in better-for-you products. Finally, the Fuel pillar aims to drive revenue growth management, working capital management, and operational efficiency to fund growth and enhance margins.
Quarterly Performance: Navigating Headwinds and Laying the Foundation
For the third quarter of fiscal year 2024, Hain Celestial reported net sales of $438.4 million, a decrease of 3.7% compared to the prior year quarter. Organic net sales, adjusted for the impact of divestitures and discontinued brands, also decreased 3.7%. The decline was primarily driven by lower sales in the North America reportable segment, partially offset by growth in the International segment.
Gross profit for the quarter was $96.7 million, a decrease of 0.8% compared to the prior year quarter. Gross profit margin improved slightly to 22.1% from 21.4% in the prior year quarter, reflecting the company's focus on productivity and pricing initiatives.
Selling, general, and administrative expenses decreased 11.1% to $66.7 million, driven by a reduction in employee compensation-related expenses. However, the company recognized non-cash impairment charges of $49.4 million primarily related to the ParmCrisps®, Thinsters®, and certain North America personal care intangible assets.
Adjusted EBITDA for the quarter was $43.8 million, an increase of 17.5% compared to the prior year quarter. Adjusted EBITDA margin expanded to 10.0% from 8.2% in the prior year quarter, reflecting the company's progress on the Fuel pillar of its Hain Reimagined strategy.
On a segment basis, North America net sales decreased 6.5% to $268.1 million, primarily due to a decline in the Personal Care business and lower sales in baby formula. Adjusted EBITDA for the North America segment increased 2.5% to $27.9 million, with a 90-basis point improvement in adjusted EBITDA margin to 10.4%.
The International segment reported a 1.0% increase in net sales to $170.3 million, driven by growth in the beverages category. Adjusted EBITDA for the International segment increased 15.4% to $24.5 million, with a 180-basis point improvement in adjusted EBITDA margin to 14.4%.
Cash Flow and Balance Sheet: Prioritizing Debt Reduction
Hain Celestial generated $76.9 million in cash from operating activities during the first nine months of fiscal year 2024, an increase of $50.7 million compared to the prior year period. This improvement was primarily driven by higher cash generation from working capital accounts, partially offset by a reduction in net income adjusted for non-cash charges.
Capital expenditures for the nine-month period were $24.8 million, compared to $21.4 million in the prior year period. Free cash flow, defined as net cash provided by operating activities less purchases of property, plant, and equipment, was $52.2 million, an increase of $47.3 million from the prior year period.
As of March 31, 2024, the company had $49.5 million in cash and cash equivalents and $777.5 million in total debt, resulting in a net debt position of $728.0 million. The company's net leverage ratio, as calculated under its amended credit agreement, was 3.9x at the end of the third quarter.
Guidance and Outlook: Navigating Headwinds, Laying the Foundation for Growth
For the full fiscal year 2024, Hain Celestial revised its guidance. The company now expects organic net sales to decline approximately 3% to 4% year-over-year, adjusted EBITDA to be between $150 million and $155 million, gross margin expansion of up to 50 basis points, and free cash flow of $40 million to $45 million.
The revised guidance reflects several factors, including the continued challenges in the infant formula supply, the pace of stabilization in the Personal Care business, and the execution in the Snacks category. While the pivot to growth is taking longer than initially anticipated, the company remains confident in its ability to achieve the financial algorithm outlined in its Hain Reimagined strategy.
Business Overview
Hain Celestial is a leading global health and wellness company with a diverse portfolio of beloved brands across five key platforms: Snacks, Baby & Kids, Beverages, Meal Preparation, and Personal Care. The company's mission is to inspire healthier living for people, communities, and the planet through its better-for-you products.
The company's Snacks platform includes brands such as Garden Veggie™, Terra®, and Garden of Eatin'®, catering to the growing consumer demand for healthier snacking options. The Baby & Kids platform features the Earth's Best® and Ella's Kitchen® brands, which are well-positioned to capitalize on the trend towards organic and natural baby and children's products. The Beverages platform includes Celestial Seasonings® teas, Joya® and Natumi® plant-based beverages, and The Greek Gods® yogurt, among others. The Meal Preparation platform encompasses brands like Cully & Sully®, Imagine®, and New Covent Garden® soups, while the Personal Care platform includes Alba Botanica®, Avalon Organics®, and JASON® natural personal care products.
Hain Celestial operates in two reportable segments: North America and International, with a direct presence in five key markets: the United States, Canada, the United Kingdom, Ireland, and Western Europe. The company's products are marketed and sold in over 75 countries around the world, leveraging a diverse distribution network that includes specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels, and club, drug, and convenience stores.
Risks and Challenges
Hain Celestial operates in a highly competitive and rapidly evolving industry, where it faces challenges from both established players and emerging brands. The company's ability to maintain its market share and profitability is dependent on its ability to anticipate and respond to changing consumer preferences, effectively manage its supply chain, and navigate inflationary pressures and supply chain disruptions.
The company's reliance on a limited number of large customers and its exposure to fluctuations in foreign currency exchange rates also present risks to its financial performance. Additionally, the company's operations are subject to various regulatory requirements, and any failure to comply with these regulations could result in significant legal and financial consequences.
Hain Celestial's success is also dependent on its ability to effectively integrate and manage any future acquisitions, as well as its ability to protect its intellectual property and maintain the reputation of its brands.
Financials
For the fiscal year ended June 30, 2023, Hain Celestial reported net sales of $1,796.6 million, a decrease of 2.3% compared to the prior year. Net income for the same period was -$116.5 million, and the company generated $66.8 million in operating cash flow and $38.9 million in free cash flow.
During the first nine months of fiscal year 2024, the company reported net sales of $1,317.5 million, a decrease of 2.3% compared to the prior year period. Net loss for the nine-month period was $72.1 million, and the company generated $77.0 million in operating cash flow and $52.2 million in free cash flow.
The company's financial performance during the third quarter of fiscal year 2024 was impacted by several factors, including the continued challenges in the infant formula supply, the pace of stabilization in the Personal Care business, and the execution in the Snacks category. However, the company's progress on the Focus and Fuel pillars of its Hain Reimagined strategy has enabled it to expand margins and deliver strong cash flow, while also reducing its debt burden.
Liquidity
As of March 31, 2024, Hain Celestial had $49.5 million in cash and cash equivalents and $777.5 million in total debt, resulting in a net debt position of $728.0 million. The company's net leverage ratio, as calculated under its amended credit agreement, was 3.9x at the end of the third quarter.
Hain Celestial's liquidity position is supported by its $800 million senior secured revolving credit facility, which matures in December 2026. As of March 31, 2024, the company had $300.8 million available under the credit facility, subject to compliance with financial covenants.
The company's primary uses of cash include funding its operations, capital expenditures, and debt service. Hain Celestial has prioritized debt reduction as a key focus, and it has reduced its net debt by $47 million since the beginning of the fiscal year. The company's long-term goal is to reduce its balance sheet leverage to 3x adjusted EBITDA or less.
Conclusion
Hain Celestial is in the midst of a transformative journey, as it implements its Hain Reimagined strategy to optimize its portfolio, improve profitability, and position the company for sustainable growth. While the company has faced some near-term headwinds, it has made significant progress on the Focus and Fuel pillars of its strategy, laying the foundation for future success.
By simplifying its global footprint, integrating its operating model, and driving operational efficiencies, Hain Celestial is poised to unlock the full potential of its diverse portfolio of better-for-you brands. As the company continues to invest in brand building, innovation, and channel expansion, it is well-positioned to capitalize on the growing consumer demand for natural and organic products and deliver long-term value for its shareholders.