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Hain Celestial's (HAIN) Q3 Earnings Miss Mark, Sales Rise Y/Y

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The Hain Celestial Group, Inc. (HAIN - Free Report) posted soft third-quarter fiscal 2022 results, wherein both sales and earnings lagged the Zacks Consensus Estimate. The bottom line also fell year over year. Management cited that the fiscal third quarter was a challenging period due to high inflation, supply-chain disruptions, ingredient and package shortage and eroding European consumer confidence, mainly due to the Russia-Ukraine conflict. These factors weighed on the quarterly performance.

Despite these weaknesses, management is confident of its Hain Celestial 3.0 initiative. 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 7.4% against the industry’s rise of 1.5%.

Quarter in Detail

Hain Celestial posted adjusted earnings of 33 cents a share, which lagged the Zacks Consensus Estimate of 46 cents. The bottom line also decreased 25% from 44 cents reported in the prior-year quarter.

Net sales came in at $502.9 million and missed the consensus mark of $528 million. However, the metric increased 2.1% year over year. Upon adjusting for foreign exchange, divestitures and discontinued brands, net sales rose 1.5% year over year. Foreign exchange impacts lowered sales nearly 150 basis points (bps), while acquisitions, divestitures and brand discontinuations contributed 210 bps to sales.

Adjusted gross profit amounted to $117.6 million, down 13% from the prior-year quarter’s tally. Adjusted gross margin contracted 400 bps year over year to 23.4%. HAIN witnessed high inflation as well as industry-wide disruptions and warehouse cost pressures due to labor crisis, freight carrier availability and freight costs in the quarter.

Adjusted operating income was $42.4 million in the reported quarter, down 29% from $59.7 million in the year-ago quarter.

Adjusted EBITDA dropped 20.5% year over year to $58.7 million, while adjusted EBITDA margin fell 330 bps to 11.7%.

Segmental Results

Net sales in the North America segment increased 13% year over year to $325.7 million. On adjusting for currency movements, acquisitions, divestitures and discontinued brands, net sales rose 9% on higher sales in the snacks, baby and personal care categories.

Segment-adjusted operating income tumbled 29% to $31.4 million. The segment’s adjusted EBITDA amounted to $37.3 million, down nearly 23%. Adjusted EBITDA margin contracted 540 bps to 11.4%.

International net sales declined 14% year over year to $177.2 million. Upon adjusting for foreign currency fluctuations, divestitures and discontinued brands, net sales dropped 8% year over year due to a decrease in the Europe and United Kingdom operating segments. This was somewhat offset by higher sales in the Ella's Kitchen UK operating segment.

Segment-adjusted operating income tumbled 36% to $18.8 million. Adjusted EBITDA was $26.5 million, down 28% year over year. Adjusted EBITDA margin contracted 300 bps to 14.9%.

Other Financials

Hain Celestial ended the reported quarter with cash and cash equivalents of $57.8 million, long-term debt (excluding current portion) of $827.8 million and total shareholders’ equity of $1,144 million.

Cash provided by operating activities from continuing operations was $99.2 million and an operating free cash flow from continuing operations was $65.2 million in the first three quarters of fiscal 2022.

Hain Celestial’s board approved an additional $200-million share buyback authorization. Share repurchases under this authorization started in February 2022, following the full utilization of HAIN’s previous $300-million authorization. During the reported quarter, HAIN repurchased 3.6 million shares worth $130.4 million, excluding commissions. As of Mar 31, 2022, HAIN had $186.6 million available under its $200-million authorization.

Outlook

For the fiscal fourth quarter, management projects low-to-mid-single-digit increase in adjusted net sales, backed by double-digit growth in North America. Reported net sales growth is likely to be 500 bps, higher than the adjusted net sales growth rate, mainly buoyed by the acquisition of That's How We Roll. Sales in North America are forecast to rise double-digits on solid consumption. Management expects a modest adjusted gross margin reduction and the adjusted EBITDA to decline low-to-mid-single digits, including about 300 bps of foreign exchange headwind, for the same quarter.

For fiscal 2022, management estimates nearly flat adjusted net sales, a modest adjusted gross margin decline and a low double-digit adjusted EBITDA decrease. This guidance reflects the impact of the pricing actions on North America, the UK and the EU, mitigated by the operating inflationary landscape, including the ongoing supply-chain disruptions.

Earlier, Hain Celestial had expected low-single-digit growth in adjusted net sales year over year for the full fiscal.

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