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Helen of Troy (HELE) Q3 Earnings Top Estimates, Decline Y/Y
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Helen of Troy Limited (HELE - Free Report) posted third-quarter fiscal 2023 results, wherein the top and bottom lines declined year over year but came ahead of the Zacks Consensus Estimate. A tough operating landscape, including inflation, increased interest rates and reduced operating leverage were downsides. Also, consumption remained low in certain categories.
However, management raised the lower end of its sales and adjusted earnings per share (EPS) guidance for fiscal 2023.
Quarter in Detail
Adjusted earnings of $2.75 per share beat the Zacks Consensus Estimate of $2.64 but declined 26.1% year over year. The metric was hurt by reduced adjusted operating income, increased interest expenses and an elevated effective income tax rate. These were somewhat offset by reduced weighted average diluted shares outstanding.
Helen of Troy Limited Price, Consensus and EPS Surprise
Consolidated net sales of $558.6 million surpassed the Zacks Consensus Estimate of $522 million. However, the metric tumbled 10.6% from the third quarter of fiscal 2022. The downside was a result of softness in the organic business to the tune of 18.5%, partly compensated by contributions from the buyouts of Osprey ($43.3 million) and Curlsmith ($13.1 million).
The organic business was hurt by decreased sales in all segments stemming from reduced consumer demand, lower orders from retail customers and spending pattern shifts. A net sales revenue drop in the Non-Core business stemming from the divestiture of the Personal Care business was also a hurdle. These were somewhat made up by a customer price rise associated with higher freight and product costs, increased closeout channel sales in the Home & Outdoor segment and higher humidification product sales in the Health & Wellness segment.
The consolidated gross profit margin came in at 45.9%, up 2.1 percentage points. The upside resulted from the improved product mix of greater Home & Outdoor sales within consolidated net sales, a favorable customer mix within the Home & Outdoor unit and an improved product mix within the Beauty segment. These were partly negated by an unfavorable product mix in the Home & Outdoor unit and the net impact of inflationary costs and associated customer price increases.
The consolidated operating income stood at $77.2 million, down from the $90 million reported in the year-ago quarter. The consolidated operating margin declined 0.6 percentage points to 13.8% due to adverse operating leverage, higher outbound freight costs, and greater salary and wage costs, among others.
Segmental Performance
Net sales in the Home & Outdoor segment fell 7% to $228.9 million due to declines in the organic business. These were partly made up by contributions from the Osprey acquisition.
Net sales in the Health & Wellness segment declined 11.5% to $180.5 million due to the organic business decrease of 10.8%, stemming from the soft sales of thermometry, seasonal categories, water filtration and air filtration products.
Net sales in the Beauty segment tumbled 14.7% to $149.2 million. The downside was caused by a decline in the organic business to the tune of 20.7%.
Other Financial Details
Helen of Troy ended the quarter with cash and cash equivalents of $45.3 million and total short-and long-term debt of $1,080.5 million. Net cash used by operating activities for the first nine months of fiscal 2023 was $49.5 million.
In fiscal 2023, management expects to incur capital and intangible asset expenditures in the range of $175-$185 million.
Restructuring Plan
In the second quarter of fiscal 2023, Helen of Troy focused on developing a global restructuring plan, Project Pegasus. The plan aims at expanding operating margins via initiatives designed to improve efficiency and reduce costs.
Project Pegasus includes efforts to optimize the company’s brand portfolio, streamline and simplify the organization, grow the cost of goods savings projects and improve the efficiency of the supply-chain network. Further, the project aims at streamlining indirect spending and improving cash flow and working capital.
As part of Project Pegasus, management is unveiling three major changes to HELE’s organizational structure. These include unifying the company’s Beauty and Health & Wellness businesses into one segment – Beauty & Wellness.
Further, the changes include creating a North America Regional Market Organization to take care of sales and go-to-market strategies for all categories and channels in the United States and Canada. Finally, the company announced the further centralization of various functions under shared services, mainly Operations and Finance.
The newly unveiled structure is likely to lower Helen of Troy’s workforce by nearly 10%. Most role reductions are expected to be completed by Mar 1, 2023.
Management expects to achieve pre-tax operating profit enhancements in the band of $75-$85 million through Project Pegasus. The company expects total one-time pre-tax restructuring charges of about the $85-$95 million range through the plan, which is anticipated to be concluded in fiscal 2025.
Fiscal 2023 Guidance
Due to the sale of Helen of Troy’s Personal Care business, management is currently not anticipating any material activity associated with Non-Core businesses in fiscal 2023. Hence, the fiscal 2023 updated guidance includes consolidated results.
Since fiscal 2022 results included the material activity associated with Non-Core businesses, the consolidated and Core business year-over-year growth rates are different. Management considers Core business growth to be the most relevant.
Management now anticipates consolidated net sales between $2.025 billion and $2.05 billion, implying a decrease of 8.9%-7.8% and a Core business decline of 7.5%-6.4%. Earlier, Helen of Troy anticipated consolidated net sales between $2.00 billion and $2.05 billion, implying a decrease of 7.8%-10% and a Core business decline of 6.4%-8.6%.
The company’s updated net sales view assumes Home & Outdoor net sales growth of 2.5-3.5%, including the $180-$185 million band in sales from Osprey. Management expects a Health & Wellness net sales decline of 11-10%. Beauty Core business net sales are anticipated to decrease 18.5-17.5%, including sales worth the $35-$40 million band from Curlsmith.
HELE now expects adjusted EPS in the range of $9.20-$9.40. This indicates a consolidated adjusted EPS decline of 25.6-23.9% and a Core adjusted EPS drop of 24.5-22.8%. This includes 35-40 cents and 20-25 cents contributions from Osprey and Curlsmith, respectively.
Earlier, management anticipated adjusted EPS in the range of $9.00-$9.40, indicating a consolidated adjusted EPS decline of 23.9-27.2% and a Core adjusted EPS drop of 22.8-26.1%.
Shares of this Zacks Rank #3 (Hold) company have jumped 11% in the past three months compared with the industry’s growth of 15.8%.
The Zacks Consensus Estimate for Campbell Soup’s current financial-year sales and earnings suggests growth of 8.3% and 4.6%, respectively, from the corresponding year-ago reported figures.
Ingredion, which produces and sells starches and sweeteners, currently carries a Zacks Rank #2. Ingredion’s shares have rallied 21.5% in the past three months.
The Zacks Consensus Estimate for INGR’s current financial-year EPS suggests an increase of 5.9% from the year-ago reported number.
Nomad Foods, a frozen food product company, currently carries a Zacks Rank #2. NOMD has a trailing four-quarter earnings surprise of 11.5%, on average.
Nomad Foods’ shares have increased almost 27% in the past three months.
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Helen of Troy (HELE) Q3 Earnings Top Estimates, Decline Y/Y
Helen of Troy Limited (HELE - Free Report) posted third-quarter fiscal 2023 results, wherein the top and bottom lines declined year over year but came ahead of the Zacks Consensus Estimate. A tough operating landscape, including inflation, increased interest rates and reduced operating leverage were downsides. Also, consumption remained low in certain categories.
However, management raised the lower end of its sales and adjusted earnings per share (EPS) guidance for fiscal 2023.
Quarter in Detail
Adjusted earnings of $2.75 per share beat the Zacks Consensus Estimate of $2.64 but declined 26.1% year over year. The metric was hurt by reduced adjusted operating income, increased interest expenses and an elevated effective income tax rate. These were somewhat offset by reduced weighted average diluted shares outstanding.
Helen of Troy Limited Price, Consensus and EPS Surprise
Helen of Troy Limited price-consensus-eps-surprise-chart | Helen of Troy Limited Quote
Consolidated net sales of $558.6 million surpassed the Zacks Consensus Estimate of $522 million. However, the metric tumbled 10.6% from the third quarter of fiscal 2022. The downside was a result of softness in the organic business to the tune of 18.5%, partly compensated by contributions from the buyouts of Osprey ($43.3 million) and Curlsmith ($13.1 million).
The organic business was hurt by decreased sales in all segments stemming from reduced consumer demand, lower orders from retail customers and spending pattern shifts. A net sales revenue drop in the Non-Core business stemming from the divestiture of the Personal Care business was also a hurdle. These were somewhat made up by a customer price rise associated with higher freight and product costs, increased closeout channel sales in the Home & Outdoor segment and higher humidification product sales in the Health & Wellness segment.
The consolidated gross profit margin came in at 45.9%, up 2.1 percentage points. The upside resulted from the improved product mix of greater Home & Outdoor sales within consolidated net sales, a favorable customer mix within the Home & Outdoor unit and an improved product mix within the Beauty segment. These were partly negated by an unfavorable product mix in the Home & Outdoor unit and the net impact of inflationary costs and associated customer price increases.
The consolidated operating income stood at $77.2 million, down from the $90 million reported in the year-ago quarter. The consolidated operating margin declined 0.6 percentage points to 13.8% due to adverse operating leverage, higher outbound freight costs, and greater salary and wage costs, among others.
Segmental Performance
Net sales in the Home & Outdoor segment fell 7% to $228.9 million due to declines in the organic business. These were partly made up by contributions from the Osprey acquisition.
Net sales in the Health & Wellness segment declined 11.5% to $180.5 million due to the organic business decrease of 10.8%, stemming from the soft sales of thermometry, seasonal categories, water filtration and air filtration products.
Net sales in the Beauty segment tumbled 14.7% to $149.2 million. The downside was caused by a decline in the organic business to the tune of 20.7%.
Other Financial Details
Helen of Troy ended the quarter with cash and cash equivalents of $45.3 million and total short-and long-term debt of $1,080.5 million. Net cash used by operating activities for the first nine months of fiscal 2023 was $49.5 million.
In fiscal 2023, management expects to incur capital and intangible asset expenditures in the range of $175-$185 million.
Restructuring Plan
In the second quarter of fiscal 2023, Helen of Troy focused on developing a global restructuring plan, Project Pegasus. The plan aims at expanding operating margins via initiatives designed to improve efficiency and reduce costs.
Project Pegasus includes efforts to optimize the company’s brand portfolio, streamline and simplify the organization, grow the cost of goods savings projects and improve the efficiency of the supply-chain network. Further, the project aims at streamlining indirect spending and improving cash flow and working capital.
As part of Project Pegasus, management is unveiling three major changes to HELE’s organizational structure. These include unifying the company’s Beauty and Health & Wellness businesses into one segment – Beauty & Wellness.
Further, the changes include creating a North America Regional Market Organization to take care of sales and go-to-market strategies for all categories and channels in the United States and Canada. Finally, the company announced the further centralization of various functions under shared services, mainly Operations and Finance.
The newly unveiled structure is likely to lower Helen of Troy’s workforce by nearly 10%. Most role reductions are expected to be completed by Mar 1, 2023.
Management expects to achieve pre-tax operating profit enhancements in the band of $75-$85 million through Project Pegasus. The company expects total one-time pre-tax restructuring charges of about the $85-$95 million range through the plan, which is anticipated to be concluded in fiscal 2025.
Fiscal 2023 Guidance
Due to the sale of Helen of Troy’s Personal Care business, management is currently not anticipating any material activity associated with Non-Core businesses in fiscal 2023. Hence, the fiscal 2023 updated guidance includes consolidated results.
Since fiscal 2022 results included the material activity associated with Non-Core businesses, the consolidated and Core business year-over-year growth rates are different. Management considers Core business growth to be the most relevant.
Management now anticipates consolidated net sales between $2.025 billion and $2.05 billion, implying a decrease of 8.9%-7.8% and a Core business decline of 7.5%-6.4%. Earlier, Helen of Troy anticipated consolidated net sales between $2.00 billion and $2.05 billion, implying a decrease of 7.8%-10% and a Core business decline of 6.4%-8.6%.
The company’s updated net sales view assumes Home & Outdoor net sales growth of 2.5-3.5%, including the $180-$185 million band in sales from Osprey. Management expects a Health & Wellness net sales decline of 11-10%. Beauty Core business net sales are anticipated to decrease 18.5-17.5%, including sales worth the $35-$40 million band from Curlsmith.
HELE now expects adjusted EPS in the range of $9.20-$9.40. This indicates a consolidated adjusted EPS decline of 25.6-23.9% and a Core adjusted EPS drop of 24.5-22.8%. This includes 35-40 cents and 20-25 cents contributions from Osprey and Curlsmith, respectively.
Earlier, management anticipated adjusted EPS in the range of $9.00-$9.40, indicating a consolidated adjusted EPS decline of 23.9-27.2% and a Core adjusted EPS drop of 22.8-26.1%.
Shares of this Zacks Rank #3 (Hold) company have jumped 11% in the past three months compared with the industry’s growth of 15.8%.
Stocks to Consider
Some better-ranked stocks are Campbell Soup (CPB - Free Report) , Ingredion Incorporated (INGR - Free Report) and Nomad Foods (NOMD - Free Report) .
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank of 2 (Buy). CPB has a trailing four-quarter earnings surprise of 8.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Campbell Soup’s current financial-year sales and earnings suggests growth of 8.3% and 4.6%, respectively, from the corresponding year-ago reported figures.
Ingredion, which produces and sells starches and sweeteners, currently carries a Zacks Rank #2. Ingredion’s shares have rallied 21.5% in the past three months.
The Zacks Consensus Estimate for INGR’s current financial-year EPS suggests an increase of 5.9% from the year-ago reported number.
Nomad Foods, a frozen food product company, currently carries a Zacks Rank #2. NOMD has a trailing four-quarter earnings surprise of 11.5%, on average.
Nomad Foods’ shares have increased almost 27% in the past three months.