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Hain Celestial (HAIN) Stock Rallies on Q1 Earnings Beat

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The Hain Celestial Group, Inc. HAIN reported better-than-expected earnings for first-quarter fiscal 2020. While both top and bottom lines declined year over year, the company’s margins witnessed growth. Further, Hain Celestial is on track with its saving initiatives and expects margins to improve in each quarter in fiscal 2020.

Markedly, shares of this manufacturer, marketer, distributor and seller of organic and natural products gained 5.4% during the trading session on Nov 7. Moreover, this Zacks Rank #3 (Hold) stock has gained 15.4% in the past three months, comfortably outpacing the industry’s growth of 3.1%.
Effective Jul 1, the company’s Canada and Hain Ventures operating segments were moved from the Rest of World reporting segment to the United States reportable segment. The combined segment was renamed as “North America”. Similarly, the Europe operating segment was combined with the United Kingdom reportable segment and now are together reported as the “International” segment.

Quarter in Detail

The company posted adjusted earnings of 8 cents a share that surpassed the Zacks Consensus Estimate by a penny, though it declined 11.1% year over year. The downside can be attributed to soft sales and increased net interest expenses.

Net sales decreased 7% year over year to $482.1 million and missed the Zacks Consensus Estimate of $493 million. The top line was hurt by the sluggish performance of the North America and the International segments. On a constant-currency basis, net sales dropped 5%. On adjusting for currency fluctuations, buyouts, divestitures and various other items like SKU rationalization, net sales edged down 1%.

Net sales in the North America segment fell 7% year over year to $239.8 million. On adjusting for currency fluctuations, buyouts, divestitures and various other items like SKU rationalization, net sales went declined 1%. Segment adjusted operating income rose a solid 68% to $19 million.

International net sales decreased 7% to $210.4 million, while the same was flat year over year on adjusting for the aforementioned items. Currency headwinds impacted net sales by about $11 million. On a currency-neutral basis, segment net sales fell 2.5%. Nonetheless, management is impressed with the performance despite a tough business landscape in Europe, along with the uncertainty in the U.K. related to Brexit. Segment adjusted operating income decreased 7% to $11.5 million.

Costs & Margins

Adjusted gross margin expanded 240 basis points (bps) to 20.9%, courtesy of trade efficiencies, lower supply-chain expenses in the United States and productivity savings. However, elevated commodity expenses were a deterrent.

Adjusted operating income was $16.9 million compared with $17 million in the year-ago period. Adjusted operating margin rose 10 bps to 7.3%. Adjusted EBITDA grew 11.8% to $32.1 million, while adjusted EBITDA margin expanded 110 bps to 6.7%. The expansion was fueled by improved profitability in North America through SKU rationalization, supply-chain efficiencies and removal of uneconomical investments. 

Other Financials

The company ended the quarter with cash and cash equivalents of $20.5 million, long-term debt (excluding current portion) of $323.4 million and total shareholders’ equity of $1,470.9 million. Cash used in operating activities from continuing operations totaled $3.6 million, while capital expenditures incurred during the fiscal were around $13.1 million. The company used operating free cash flow from continuing operations of $16.7 million during the quarter.

For fiscal 2020, cash flow from operations is anticipated to be $110-$140 million. Further, capital expenditures are expected between $70 million and $80 million.

Other Developments & Guidance

Hain Celestial concluded the sale of Arrowhead Mills and SunSpire brands to Hometown Food Company last month. In August, the company concluded the sale of Tilda to EBRO FOODS.

Notably, Hain Celestial is on track with saving initiatives. The company expects productivity savings of roughly $90 million in fiscal 2020, almost in line with the amount generated in fiscal 2019. Management expects a slight drop in inflation in fiscal 2020.

All said, Hain Celestial reiterated its outlook for fiscal 2020 on a proforma basis that excludes contributions from Tilda. Adjusted EBITDA is expected to grow 2-16% to $168-$192 million. In fact, the company expects each quarter of fiscal 2020 to witness adjusted gross and adjusted EBITDA margin growth.

Additionally, Hain Celestial anticipates adjusted earnings per share of 59-72 cents, which suggests a decline of 2% to an increase of 20% from fiscal 2019.  The Zacks Consensus Estimate is currently pegged at 67 cents.

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