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Hain Celestial's (HAIN) Q2 Earnings Beat Estimates, Sales Soft

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The Hain Celestial Group, Inc. (HAIN - Free Report) posted second-quarter fiscal 2022 results with earnings surpassing the Zacks Consensus Estimate and increasing year over year. However, the top line was soft as the metric lagged the consensus mark and plunged year over year.

During the reported quarter, HAIN witnessed stronger inflation as well as persistent industry-wide distribution and warehousing costs, induced by labor shortages and freight-related headwinds. Given the company’s pricing and productivity efforts coupled with the anticipation of supply-chain and labor challenges, management is confident of accomplishing Hain 3.0 profitability targets. The 3.0 strategy mainly focuses on distribution expansion and innovation to boost the top line.

Over the past three months, this currently Zacks Rank #4 (Sell) player’s shares have decreased 18.8% against the industry’s rise of 1.9%.

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Quarter in Detail

Hain Celestial posted adjusted earnings of 36 cents a share, which came ahead of the Zacks Consensus Estimate of 33 cents. The bottom line increased 5.9% from 34 cents reported in the prior-year quarter.

Net sales came in at $476.9 million, missing the consensus mark of $480 million and declining 10% year over year. Upon adjusting for foreign exchange, divestitures and discontinued brands, net sales dipped 2% year over year. Foreign exchange impacts on sales were minimal, while divestitures and brand discontinuations lowered net sales nearly 8% from the year-earlier period’s levels.

Adjusted gross profit amounted to $117.3 million, down 12.4% from the prior-year quarter’s tally. Adjusted gross margin fell 74 basis points (bps) year over year to 24.6%. HAIN witnessed continued high inflation and supply disruptions in the quarter. However, to mitigate these costs, management took productivity efforts and major pricing efforts in the first half of fiscal 2022.

Adjusted operating income was $45.7 million in the reported quarter, down 5% from $48.1 million in the year-ago quarter.

Adjusted EBITDA dropped 4.7% year over year to $59.3 million, while adjusted EBITDA margin expanded 66 bps to 12.4%.

Segmental Results

Net sales in the North America segment fell 3% year over year to $275 million. On adjusting for currency movements, acquisitions, divestitures and discontinued brands, net sales inched up 1% on higher sales in the snacks category.

Segment adjusted operating income tumbled 18% to $29 million. The segment’s adjusted EBITDA amounted to $33.3 million, down nearly 16%. Adjusted EBITDA margin contracted 190 bps to 12.1%.

International net sales declined 18% year over year to $201.9 million. On adjusting for foreign currency fluctuations, divestitures and discontinued brands, net sales dropped 6% year over year due to a decrease in the Europe operating segment. This was somewhat offset by higher sales in the Ella's Kitchen UK operating segment.

Segment adjusted operating income rose 11% to $27.8 million. Adjusted EBITDA was $34.3 million, up 7% year over year. Adjusted EBITDA margin expanded 390 bps to 17%.

Other Financials

Hain Celestial ended the reported quarter with cash and cash equivalents of $77.2 million, long-term debt (excluding current portion) of $731.6 million and total shareholders’ equity of $1,263.9 million.

Cash provided by operating activities from continuing operations was $68 million and operating free cash flow from continuing operations was $40 million in the first half.

Hain Celestial’s board approved an additional $200 million share buyback authorization. Share repurchases under this authorization will start after HAIN’s present $300-million authorization is completely utilized. During the reported quarter, HAIN repurchased 2 million shares worth $89.8 million, excluding commissions. As of Dec 31, 2021, it had $117 million available under its $300-million authorization.

During the reported quarter, Hain Celestial also refinanced its revolving credit facility via a Fourth Amended and Restated Credit Agreement.

On Dec 28, 2021, management concluded the acquisition of That’s How We Roll, the producer and marketer of ParmCrisps and Thinsters. These brands offer simple better-for-you snacks.

Outlook

For fiscal 2022, Hain Celestial continues to expect low single-digit growth in adjusted net sales year over year, adjusting for currency, divestitures, acquisitions and discontinued brands. This implies mid- to high-single-digit increase in the second half, driven by a distribution expansion, merchandising programs and gains from additional pricing in the market.

Hain Celestial anticipates the total inflation to be roughly 10% for the entire company compared to a plan of 5-6%. HAIN projects a total of nearly $40-50 million of additional out-of-plan costs this year with respect to supply disruptions. HAIN expects a modest adjusted gross margin decline and flat adjusted EBITDA growth.

Concerning the second half of the fiscal year, management forecasts a sequential improvement in adjusted EBITDA throughout the quarters of fiscal 2022 with the fourth quarter recording highest adjusted EBITDA growth year over year.

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