Hain Celestial (HAIN) Meets Q1 Earnings, Sales Top Estimates

The Hain Celestial Group, Inc. (NASDAQ:HAIN) commenced the first quarter of fiscal 2018 on a mixed note. The quarterly earnings came in line with the Zacks Consensus Estimate, while revenues surpassed the same.

The company reported adjusted earnings per share of 23 cents that met the consensus mark and increased 64.3% year over year. Moreover, on a GAAP basis earnings increased to 19 cents from 8 cents reported in the prior-year quarter.

Net sales increased 4% year over year to $708.3 million and also beat the Zacks Consensus Estimate of $698 million. Rise in sales were driven by double-digit growth in Canada and Europe. It was also aided by low-single digit growth in the United States, UK and Hain Pure Protein segments. The company’s sales increased 4% on a constant currency basis.

Following the results, not much movement was witnessed in after-hour trading session yesterday. However, the company’s shares have tanked 20.4% in the past three months, wider than the industry’s dip of 5.9%.

Segment Performance

In the reported quarter, net sales at U.S. segment rose 4% year over year to $263.7 million. Net sales in U.K. inched up 1% to $222.4 million. Further, operations in the Rest of World segment witnessed a 14% increase in net sales to $103.1 million, while Hain Pure Protein Corporation (HPPC), acquired in July 2014, observed a gain of 2% in net sales amounting to roughly $199.1 million.

The company continues to focus on 500 SKUs as well as top 11 brands to drive growth. These brands include Terra, Celestial Seasonings, Dream, Earth’s Best, MaraNatha, Imagine, Garden of Eatin', The Greek Gods, Sensible Portions and Spectrum, along with Alba Botanica.

Gross profits were up 19.8% year over year to $131.6 million. Adjusted operating income surged 46% to $39.7 million, while adjusted operating margin expanded 160 basis points to 5.6%.

Other Financials

The company ended the quarter with cash and cash equivalents of $126.8 million, long-term debt (excluding current maturities) of nearly $746.4 million, and shareholders’ equity of $1,767.5 million. Cash flow from operating activities was negative $19.4 million, compared with the prior-year quarter figure of positive $12.8 million, while capital expenditures were roughly $14.9 million. The company generated operating free cash flow of negative $34.4 during the quarter, compared with negative free cash flow of $1.7 million in the first quarter fiscal 2017.

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

Guidance

The company reiterated fiscal 2018 guidance. For fiscal 2018, the company continues to expect net sales between $2.967 billion and $3.036 billion, representing growth of 4-6% on a year-over-year basis. Growth in the United States and HPP are projected to be in the range of low to mid-single digit. Meanwhile, U.K. and the Rest of World segment are projected to witness growth of low to mid-single-digit, compared with prior estimate of mid to high-single digits. Profits in fiscal 2018 are anticipated to be robust with adjusted EBITDA ranging between $350 million and $375 million, up nearly 27% to 36% year over year. Cash flow from operation is anticipated in the range of $235-$270 million, while capital expenditure is projected to be $75 million. The company projects adjusted earnings per share to be in the range of $1.63 to $1.80, up nearly 34-48% from fiscal year 2017.

Strategic Initiatives

During the fourth quarter of fiscal 2017, the company completed two strategic acquisitions. Hain Celestial revealed that one of its wholly-owned subsidiaries acquired England based, The Yorkshire Provender Limited. Founded in 2007, Yorkshire Provender prepares superior soup brands, with its products being sold to major retailers, on-the-go food joints and other food service providers in UK. Hain Celestial is likely to benefit from this deal, as it will enhance its soup offerings, alongside leading to infrastructural growth. Moreover, Hain Celestial Group also acquired Portland, OR, based firm, The Better Bean Company.

The company, which began a strategic review under Project Terra in fiscal 2016, anticipates to generate worldwide cost savings worth $350 million through fiscal 2020 (comprises annual productivity). To achieve the savings, the company intends to optimize plants, co-packers and procurement, along with rationalizing product portfolio. Further, it plans on reinvesting the additional savings through brand development and household penetration.

Previously the company had announced that in an attempt to augment sales and margin growth, it plans to create five strategic platforms in U.S. segment, including Fresh Living, Better-for-You Baby, Better-for-You Snacking, Better-for-You Pantry and Pure Personal Care.

Zacks Rank & Other Stocks to Consider

Hain Celestial currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks which warrant a look in the same sector include B&G Foods, Inc. (NYSE:BGS) , McCormick & Company, Incorporated (NYSE:MKC) and Lamb Weston Holdings, Inc. (NYSE:LW) . All these stocks carry the same rank as Hain Celestial. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

B&G Foods has reported better-than-expected earnings in the trailing two quarters, out of three quarters.

McCormick & Company has an impressive long-term earnings growth rate of 9.4%.

Lamb Weston Holdings earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 11%.

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