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Hain Celestial (HAIN) Stock Declines Despite Q4 Earnings Beat

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Zacks Equity Research
·5 min read
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The Hain Celestial Group, Inc. HAIN reported fourth-quarter fiscal 2020 results, wherein the bottom line exceeded the Zacks Consensus Estimate, while the top line missed the same. Results in North America benefited from increased at-home consumption due to COVID-19, though the International segment faced challenges related to the pandemic-led fruit business declines in the U.K.

While management did not offer any financial guidance for fiscal 2021 due to the uncertainty surrounding the pandemic, it envisions continued margin growth, robust double-digit adjusted EBITDA improvement and a double-digit rise in operating free cash flow. The first half is likely to see greater net sales and adjusted EBITDA improvements due to solid consumer and customer plans, together with increased at-home consumption owing to coronavirus. The second half of fiscal 2021 is likely to witness a slowdown in growth.

Industry experts believe that lower-than-expected sales in the fourth quarter, together with anticipations of a slowdown in the second half of fiscal 2021, dented investors’ confidence. Incidentally, shares of this organic and natural products company dropped 8.1% during the trading session on Aug 25.

Quarter in Detail

The company posted adjusted earnings of 32 cents a share, which surpassed the Zacks Consensus Estimate of 27 cents. This marked the company’s fourth consecutive beat. Higher sales and margins seem to have fueled the bottom line.

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 and EPS Surprise

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

Net sales were $511.7 million, which climbed 1% on reported and 3% on a constant-currency basis. Sales missed the consensus mark of about $513 million. The top line was backed by higher sales at the company’s North America segment, partly offset by declines in the International unit. On adjusting for currency fluctuations, divestitures and various other items like SKU rationalization, net sales advanced 7%.

Net sales in the North America segment increased 5% year over year to $298.6 million. On adjusting for currency movements, divestitures, discontinued brands and SKU rationalization, net sales grew 13%. Segment adjusted operating income rose a solid 57% to $38.9 million.

International net sales dropped 3% year over year to $213.1 million. On adjusting for foreign currency fluctuations, divestitures, discontinued brands and SKU rationalization, net sales were flat year over year. Segment sales continued to face hurdles in the foodservice channel due to the pandemic. Further, segment adjusted operating income dipped 1% to $22.7 million.


Adjusted gross margin expanded 257 basis points (bps) to 25.3%, thanks to greater sales, solid supply-chain productivity efforts, better product mix and improved absorption of overheads across plants. However, foreign currency fluctuations affected adjusted gross profit to the tune of $2 million in the quarter.

Adjusted operating income was $47.9 million in the quarter, up 39.2% from $34.4 million in the year-ago quarter. Adjusted EBITDA grew 25.9% to $62.2 million, while adjusted EBITDA margin expanded 237 bps to 12.1%. The expansion was fueled by a higher gross margin.

Other Financials

The company ended the quarter with cash and cash equivalents of $37.8 million, long-term debt (excluding current portion) of $281.1 million and total shareholders’ equity of $1,443.6 million. Cash provided by operating activities from continuing operations totaled $156.9 million during fiscal 2020. The company’s operating free cash flow from continuing operations was roughly $96 million for fiscal 2020. Capital expenditures were $60.9 million in the same time frame.

During the quarter, management bought back 0.1 million shares at an average cost of $24.97 per share. In fiscal 2020, Hain Celestial bought back 2.6 million shares for a total of $60.2 million. The company had shares worth $189.8 million remaining under its buyback authorization as of Jun 30, 2020.

Other Developments & Outlook

On May 1, 2020, Hain Celestial divested its Rudi's business, which was part of the United States reporting segment. Further, effective Jul 21, the company closed the sale of Danival to a subsidiary of Wessanen N.V.

Management remains pleased with its fiscal 2020 performance, with profitability toward the higher end of its anticipations. Results were backed by continued focus on the transformation plan, which led to solid margin improvement and operating cash flow generation. Hain Celestial remains committed to its core growth pillars, which include simplifying portfolio, building capability, curtailing costs and boosting sales.

For the first quarter of fiscal 2021, management anticipates net sales to grow in mid-single digit, after excluding divestitures and discontinued brands. Further, it expects margin to rise by several 100 points in the quarter and anticipates higher adjusted EBITDA.

This Zacks Rank #3 (Hold) stock has risen 6.3% in the past three months compared with the industry’s growth of 13%.

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Campbell Soup CPB, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 8.3%.

B&G Foods BGS, with a Zacks Rank #2, has a robust earnings surprise record.

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