Whole Earth Brands, Inc. (NASDAQ:FREE) is a global food company enabling healthier lifestyles and providing access to high-quality, plant-based sweeteners, flavor enhancers, and other foods through its diverse portfolio of trusted brands and delicious products. The company operates a proven platform organized into two reportable segments: Branded CPG and Flavors & Ingredients.
Business Overview
The Branded CPG segment, comprised of the Merisant, Wholesome, and Swerve divisions, is a global consumer packaged goods (CPG) business focused on building a branded portfolio oriented toward serving customers seeking better-for-you sweeteners across the zero calorie, plant-based, organic, non-GMO, and Fair Trade spaces in zero/low calorie sweeteners, sugar, honey, agave, and baking mix and baking chocolate segments. The company's global flagship brands include Whole Earth®, Pure Via®, Wholesome®, Swerve®, Canderel®, Equal®, and existing branded adjacencies.
The Flavors & Ingredients segment, comprised of the Mafco Worldwide division, is a global, business-to-business focused operation with a long history as a trusted supplier of essential, functional ingredients to some of the CPG industry's largest and most demanding customers. The segment's products provide a variety of solutions for customers, including flavor enhancement, flavor/aftertaste masking, moisturizing, product mouthfeel modification, and skin soothing characteristics. This segment operates the company's licorice-derived products business.
Financials
In fiscal year 2023, Whole Earth Brands generated annual revenue of $550.9 million, a decrease of 2.2% compared to the prior year. The company's net loss for the year was $38.1 million, compared to a net loss of $19.8 million in the prior year. Operating cash flow for the year was $24.9 million, and free cash flow was $19.2 million.
For the first quarter of 2024, the company reported product revenues of $129.5 million, a decrease of 2.2% compared to the first quarter of 2023. The Branded CPG segment generated $98.5 million in product revenues, a decrease of 3.5% year-over-year, while the Flavors & Ingredients segment reported $31.0 million in product revenues, an increase of 2.1% year-over-year.
The company's gross profit for the first quarter of 2024 was $37.3 million, an increase of 15.4% compared to the first quarter of 2023. Gross profit margin improved to 28.8% from 24.4% in the prior-year period, driven by lower raw material costs, reduced freight expenses, and favorable product mix.
Selling, general, and administrative (SG&A) expenses in the first quarter of 2024 were $29.5 million, an increase of 19.5% compared to the first quarter of 2023. The increase was primarily due to $3.6 million in costs associated with the pending merger, a $0.8 million increase in bonus expense, a $0.6 million increase in marketing expense, and a $0.3 million increase in stock-based compensation expense.
Operating income for the first quarter of 2024 was $3.1 million, an increase of 4.1% compared to the first quarter of 2023. The Branded CPG segment reported operating income of $5.0 million, a significant improvement from an operating loss of $0.8 million in the prior-year period, driven by lower raw material and freight costs, as well as a decline in costs associated with the supply chain reinvention. The Flavors & Ingredients segment reported operating income of $8.6 million, a decrease of 9.9% year-over-year, primarily due to unfavorable product mix.
The company's net loss for the first quarter of 2024 was $9.4 million, compared to a net loss of $19.8 million in the first quarter of 2023. The effective tax rate for the first quarter of 2024 was (25.2)%, compared to (137.6)% in the prior-year period.
Liquidity
Whole Earth Brands' balance sheet remains strong, with $23.8 million in cash and cash equivalents as of March 31, 2024. The company's total debt stood at $426.1 million, with a net debt position of $402.3 million. The company's current ratio was 3.34, and its quick ratio was 1.06, indicating a solid liquidity position.
Geographic Performance
In terms of geographic performance, the Branded CPG segment generated 73.9% of its revenues from North America, 15.0% from Europe, 2.7% from India, Middle East, and Africa, 4.9% from Asia-Pacific, and 3.6% from Latin America in the first quarter of 2024. The Flavors & Ingredients segment operates globally, serving customers across various regions.
Recent Developments
On February 12, 2024, Whole Earth Brands announced that it had entered into an Agreement of Merger with Ozark Holdings, LLC and Sweet Oak Merger Sub, LLC, a wholly-owned subsidiary of Ozark Holdings. Under the terms of the agreement, Merger Sub is expected to merge with and into Whole Earth Brands, with the company surviving as a wholly-owned subsidiary of Ozark Holdings. The transaction is expected to close in the second quarter of 2024, subject to customary closing conditions and shareholder approval.
Risks and Challenges
The pending merger presents both opportunities and risks for Whole Earth Brands. On the positive side, the transaction could provide the company with additional resources and expertise to navigate the challenging operating environment, which has been impacted by factors such as inflation, supply chain disruptions, and changing consumer preferences. However, the integration process and any potential changes in strategy or leadership could also introduce uncertainty and operational risks.
Outlook
Looking ahead, Whole Earth Brands faces a number of key challenges and opportunities. The company must continue to navigate the inflationary environment and its impact on raw material and freight costs, while also adapting to evolving consumer trends and preferences in the better-for-you and plant-based food and beverage categories. The successful integration of the Branded CPG and Flavors & Ingredients segments will also be crucial to the company's long-term success.
Conclusion
Despite the near-term headwinds, Whole Earth Brands remains well-positioned as a diversified food company with a portfolio of trusted brands and a strong presence in the growing plant-based and better-for-you food and beverage markets. The company's focus on innovation, operational efficiency, and strategic partnerships will be key to driving long-term growth and creating value for shareholders.