Posted on February 7, 2018

Hain Celestial aims to sell organic meat business

Organic food giant just misses earnings expectations

The Hain Celestial Group, Inc. on Wednesday posted second-quarter adjusted net income of $42.7 million, or $0.41, missing analysts estimates by a penny, while revenue came in at $775.2 million, in line with analysts expectations.

The Lake Success, N.Y.-based organic food manufacturer and marketer (NASDAQ: HAIN) officially said it was exploring the sale of its Hain Pure Protein (HPP) business, which comes after Hain founder and CEO Irwin Simon told the New York Post last month that the company was exploring selling some of its "more lower-margin businesses," including HPP.

Hain also owns the Earth’s Best organic baby food, Celestial Seasonings tea, Walnut Acres Organic, Rudi’s Organic Bakery, and BluePrint cold-pressed juice brands, among others.

Shares of Hain Celestial fell 8.3 percent at the opening bell Wednesday to $33.34. The company’s stock has a 52-week trading range of $31.01-$45.61, with a market cap of $3.5 billion. The stock is down 20 percent in 2018.

Hain posted adjusted gross margin for the quarter ended Dec. 31 was 20.2 percent and adjusted operating income was $62.1 million. Second quarter EBITDA increased 2 percent to $61 million; adjusted EBITDA increased 19 percent to $82.7 million.

U.S. sales fell 3 percent to $270.3 million while Hain Celestial U.K. sales rose 12 percent to $238.2 million, and Hain Pure Protein sales increased 4 percent to $159 million.

U.S. results

Hain said first quarter sales in the U.S. market fell 3 percent to $270.3 million over the prior year period, mainly dur to inventory realignment at certain customers.

The results reflect growth from its Celestial Seasonings, Terra, Garden of Eatin, Alba Botanica, Avalon Organics, Live Clean and Earth’s Best brands offset by declines from its Sensible Portions, Spectrum and The Greek Gods brands, despite growth from MaraNatha and Arrowhead Mills brands.

Hain said the declines were driven "by the strategic decision to no longer support certain lower margin stock keeping units (SKUs) in order to reduce complexity and increase gross margins as the Company continues its focus on its top 500 SKUs in the United States."

U.S. segment operating income was $21.9 million, a 45 percent decrease, and adjusted operating income was $31 million, a 24 percent decrease, "driven primarily by higher marketing investments, increased freight and commodity costs and unfavorable mix."

Hain Pure Protein results

Net sales for Hain Pure Protein (HPP) increased 4 percent to $159 million, reflecting a 15 percent increase from its Plainville Farms business, a 17 percent boost from its FreeBird brand, and a 7 percent increase from its Empire Kosher brand, but offset by a decrease in private label sales.

The HPP segment’s operating income increased to $5.3 million or 50 percent from the same period in FY2017, and adjusted operating income increased 256 percent to $12.6 million due to improvements in operating expenses across the business.

FY2018 outlook

The company said it still expects FY2018 sales of almost $2.967 billion to $3.036 billion, an increase of about 4-6 percent.

But it narrowed its forecast for adjusted EBITDA of $340 million to $355 million, a 24-29 percent increase, and adjusted EPS of $1.64 to $1.75, a 34-43 percent increase, which includes an 8-to-9 cents tax overhaul benefit.

Meanwhile, Hain said it closed on an expanded, unsecured $1.3 billion senior credit facility led by Bank of America Merrill Lynch and Wells Fargo Bank. The amended and restated credit agreement and related commitments include a $1 billion revolving credit facility and $300 million term loan, both of which are scheduled to mature in February 2023.

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