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Hain Celestial (HAIN) Gains on Q2 Earnings Beat, Revises View

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The Hain Celestial Group, Inc. (HAIN - Free Report) reported better-than-expected earnings and sales for second-quarter fiscal 2020. Also, the bottom line improved year over year, thanks to improved margins. Further, Hain Celestial is on track with its saving initiatives and expects adjusted gross margin and adjusted EBITDA margin expansion in each quarter of fiscal 2020. As a result, management raised the low end of adjusted EBITDA and adjusted earnings per share view for the current fiscal year.

Markedly, shares of this organic and natural products company gained nearly 10% during the trading session on Feb 6. Moreover, this Zacks Rank #2 (Buy) stock has risen 27.5% in the past six months, outpacing the industry’s growth of only 5.7%.

Quarter in Detail

The company posted adjusted earnings of 17 cents a share that surpassed the Zacks Consensus Estimate by a couple of cents and increased 41.7% year over year. This marked the company’s second consecutive beat.

The Hain Celestial Group, Inc. Price, Consensus and EPS Surprise


The Hain Celestial Group, Inc. Price, Consensus and EPS Surprise

The Hain Celestial Group, Inc. price-consensus-eps-surprise-chart | The Hain Celestial Group, Inc. Quote

Net sales were $506.8 million, which outshined the Zacks Consensus Estimate of $499 million. The metric declined 5% on both reported and constant-currency basis. The top line was hurt by soft performance by the company’s North America and the International segments. On adjusting for currency fluctuations, buyouts, divestitures and various other items like SKU rationalization, net sales edged down 1%.

Net sales at the North America segment fell 8% year over year to $280.7 million. On adjusting for divestitures and SKU rationalization, net sales declined 2%. Segment adjusted operating income rose a solid 51% to $25 million.

International net sales inched down 1% to $226.1 million, while the metric remained flat at constant currency. On adjusting for currency fluctuations, divestitures and SKU rationalization, net sales edged up 1%. Segment adjusted operating income fell 12% to $16.5 million.

Costs & Margins

Adjusted gross margin expanded 220 basis points (bps) to 22%, courtesy of trade efficiencies, lower supply-chain expenses in the United States and productivity savings. However, foreign currency fluctuations impacted gross profit slightly in the quarter.

Adjusted operating income was $29.5 million in the quarter, up 20.9% from $24.4 million in the year-ago period. Adjusted operating margin rose 120 bps to 5.8%. Adjusted EBITDA grew 18.7% to $45 million, while adjusted EBITDA margin expanded 180 bps to 8.9%. The expansion was fueled by improved profitability in North America and supply-chain efficiencies.

Other Financials

The company ended the quarter with cash and cash equivalents of $37 million, long-term debt (excluding current portion) of $324.9 million and total shareholders’ equity of $1,521.1 million. Cash used in operating activities from continuing operations totaled $17.1 million during the first six months of fiscal. The company’s operating free cash flow from continuing operations was negative $12.2 million during the first six months.

Capital expenditures were around $16 million in the fiscal second quarter.

For fiscal 2020, cash flow from operations is now anticipated at the low end of $110-$140 million or about $110 million. Further, capital expenditures are expected between $60 million and $70 million.

Other Developments & Guidance

Hain Celestial concluded the sale of Arrowhead Mills and SunSpire brands in the fiscal second quarter. Moreover, the company is on track to consolidate Canada and the United States into a single North American operating unit. This is likely to generate additional cost savings of $5-$8 million in the next 12-18 months.

Furthermore, management projects that the rate of sales decline in the back half of fiscal 2020 will improve in comparison to the first half. The improvement will be mainly backed by strength in Get Bigger brands from assortment optimization, promotional activity and innovation.

All said, Hain Celestial updated its outlook for fiscal 2020. Adjusted EBITDA is now expected to grow 7-16% to $177-$192 million. Earlier, it expected the same to grow 2-16% to $168-$192 million. At constant currency, adjusted EBITDA is likely to improve 8-18% to $179-$194 million.

Additionally, Hain Celestial now envisions adjusted earnings per share of 62-72 cents, which suggests growth of 3-20% from fiscal 2019. Previously, management projected earnings per share of 59-72 cents, which suggested a decline of 2% to an increase of 20%. The Zacks Consensus Estimate for fiscal 2020 earnings is currently pegged at 67 cents.

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