A month has gone by since the last earnings report for Hain Celestial (HAIN). Shares have added about 13.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Hain Celestial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Hain Celestial Q4 Earnings Miss Estimates
Hain Celestial reported fourth-quarter fiscal 2019 results. The company posted adjusted earnings of 21 cents a share that fell short of the Zacks Consensus Estimate by a penny and declined 22.2% year over year. The downside can be attributed to soft sales.
Net sales decreased about 10% year over year to $557.7 million and missed the Zacks Consensus Estimate of $581 million. The top line was hurt by sluggish performance in the United States, the U.K. and Rest of World. On a constant-currency basis, net sales dropped 7%. On adjusting for currency fluctuations, buyouts, divestitures and various other items like SKU rationalization, net sales declined 6%.
Net sales at the United States segment fell 11% year over year to $239.8 million. On adjusting for currency fluctuations, buyouts, divestitures and various other items like SKU rationalization, net sales went down 8%.
Net sales in the U.K. crashed 10% to $214.4 million, while the same fell 5% on adjusting for the aforementioned items. This was accountable to sales declines witnessed in Ella's Kitchen and Hain Daniels, somewhat compensated by strength in Tilda.
Net sales for the Rest of the World segment descended 7% to $103.5 million and dipped 1% after the above-mentioned adjustments.
Net sales for Hain Celestial Canada and Hain Ventures decreased 8% and 29%, respectively, whereas Hain Celestial Europe sales saw an increase of 1%.
Costs & Margins
Adjusted gross margin expanded 190 basis points (bps) to 23%, courtesy of efficiencies from trade, lower supply-chain expenses in the United States, and Project Terra sale. However, elevated commodity expenses remained a deterrent.
Adjusted operating income dropped almost 9% to $40.5 million, while adjusted operating margin rose 10 bps to 7.3%. Adjusted EBITDA dropped 7.2% to $57 million, while adjusted EBITDA margin improved 30 bps to 10.2%.
Notably, Hain Celestial benefited from Project Terra, which is aimed at cutting costs and complexity alongside driving sales. The company generated savings of nearly $32.9 million from this program in the fourth quarter and $91.6 million in fiscal 2019. Management had expected total savings from this program to be roughly $90 million in fiscal 2019.
The company ended the quarter with cash and cash equivalents of $39.5 million, long-term debt (excluding current portion) of nearly $613.5 million and total shareholders’ equity of $1,519.3 million. Cash flow from operating activities from continuing operations totaled $49.5 million, while capital expenditures incurred during the fiscal were around $77.1 million. The company used operating free cash flow from continuing operations of $27.6 million during the fiscal.
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 & Outlook
Hain Celestial concluded the sale of a significant chunk of assets related to the Plainville Farms business on Feb 15, 2019. Moreover, on Jun 29, the company sold its entire equity stake at Hain Pure Protein Corporation, which incorporates the FreeBird and Empire Kosher businesses.
Further, it is progressing well with its transformation strategy for the United States, which was announced on the company’s Investor Day. The strategy is aimed at simplifying portfolio, solidifying key capacities, enhancing margins, reviving top-line growth, and improving cash flows and ROIC. For fiscal 2020, the company expects to expand adjusted profit and EBITDA despite a lower top line. Further, it plans to rebuild a profitable base; improve top line; and efficiently manage mix, price, margin and volumes.
Management further stated that from fiscal 2020, it will change its reporting segments to North America, international and corporate. The company envisions tremendous purchasing, marketing, innovation and manufacturing synergies in North America.
All said, Hain Celestial issued a fresh outlook for fiscal 2020 on a proforma basis that excludes contributions from Tilda. Tilda was recently divested to Ebro Foods.
For fiscal 2020, adjusted EBITDA is expected to grow 2-16% to $168-$192 million. Further, Hain Celestial anticipates adjusted earnings per share of 59-72 cents, which suggests a decline of 2% to increase of 20% from fiscal 2019.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted -46% due to these changes.
At this time, Hain Celestial has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Hain Celestial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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