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The Hain Celestial Group, Inc.’s HAIN second-quarter fiscal 2021 top and bottom line exceeded the Zacks Consensus Estimate and improved year over year on strong performance by North America and International units.
Management is particularly impressed with the strong sales and margin growth witnessed in the quarter. Also, the company’s transformation and productivity initiatives bode well. Management cited that in both the North America and International segments, the company has identified nearly $150 million of additional cost savings, which is likely to continue in the years ahead. Moreover, management believes that despite the challenges surrounding the coronavirus pandemic, the company is well positioned to keep growing. In fact, it expects sustained margin growth for the third quarter and fiscal 2021.
Impressively, shares of this organic and natural products company have risen 21.8% in the past three months, outpacing the industry’s rise of 4.9%.
Quarter in Detail
Hain Celestial posted adjusted earnings of 34 cents a share, which surpassed the Zacks Consensus Estimate of 28 cents. This marked the company’s sixth consecutive beat. The bottom line also improved 50% from 17 cents reported in the prior-year quarter. Higher sales and margins coupled with a lower adjusted effective tax rate fueled the bottom line.
Net sales were $528.4 million, which climbed 3% on reported and 1% on a constant-currency (cc) basis. Notably, this marked the fourth consecutive quarter of sales growth. The top line surpassed the consensus mark of $522 million. Higher sales in the North America and International segments aided the top line. Also, currency acted as a tailwind and contributed around 200 basis points (bps) to sales. However, divestitures and brand discontinuations hurt sales by 360 bps. On adjusting for currency fluctuations, divestitures and discontinued brands, net sales advanced 6%.
Adjusted gross margin expanded 331 bps to 25.3%, buoyed by a decline in low trade ROI trade investments, gains from supply-chain productivity initiatives, higher product mix from SKU rationalization efforts and improved overhead absorption in plants.
Further, adjusted operating income was $48.1 million in the quarter, up 63.1% from $29.5 million in the year-ago quarter. Adjusted EBITDA increased 38.2% to $62.2 million, while adjusted EBITDA margin expanded 288 bps to 11.8%. The expansion was fueled by a higher gross margin.
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 in the North America segment rose 1% year over year to $282.6 million. On adjusting for currency movements, divestitures and discontinued brands, net sales grew 6%. Segment adjusted operating income jumped 42% to $35.4 million. The segment’s adjusted EBITDA amounted to $39.6 million, rising nearly 31%. Moreover, adjusted EBITDA margin (as a percentage of sales at cc) expanded 327 bps to 14%. The Get Bigger brand is also performing well.
International net sales advanced nearly 9% year over year to $245.8 million. On adjusting for foreign currency fluctuations, divestitures and discontinued brands, net sales increased 6% year on year. Foreign exchange contributed nearly 430 bps to sales, while divestitures marred sales by 190 bps.
Net sales growth was driven by the strength of our non-dairy brands, such as Joya and Natumi in Europe, most of our Hain Daniels business, including our leading market share Linda McCartney and Hartley's brands in the UK, as well as our Ella's UK business.
Effective Jan 13, 2021, the company divested its U.K. fruit business including the Orchard House Foods Limited business and associated brands to a U.K.-based private equity company Elaghmore. However, details of the transaction were kept under wraps. Excluding the food business, net sales for the segment increased about 14% at constant currency after being adjusted for divestitures.
Further, segment adjusted operating income surged 51% to $25.1 million. Adjusted EBITDA amounted to $32.2 million, rising nearly 28%. Adjusted EBITDA margin (as a percentage of sales at cc) expanded 186 bps to reach 13%.
This Zacks Rank #2 (Buy) company ended the quarter with cash and cash equivalents of $46.8 million, long-term debt (excluding current portion) of $293.3 million and total shareholders’ equity of $1,454.6 million.
Cash provided by operating activities from continuing operations were $63.9 million and operating free cash flow from continuing operations were $46.3 million in the second quarter. During the year-to-date period through fiscal second quarter, cash provided by operating activities from continuing operations was $104.5 million and operating free cash flow from continuing operations was $74.9 million.
During the quarter, management repurchased 0.9 million shares worth $29.7 million, excluding commissions under its share buyback program. The company had shares worth $118.1 million remaining under its buyback authorization as of Dec 31, 2020.
Management did not provide any specific financial guidance for fiscal 2021 owing to the COVID-19 uncertainties. Driven by a robust second-quarter performance, management reaffirmed its view for the fiscal year. The company continues to anticipate gross margin and adjusted EBITDA margin expansion along with double-digit adjusted EBITDA and operating free cash flow improvement for the same fiscal. For the third quarter, it forecasts solid gross margin and EBITDA margin expansion with adjusted EBITDA rising close to 10%.
For the fiscal third quarter, the top-line results are likely to reflect the adverse impact of divestitures, including that of the fruit business; the Brexit volume; and the lapping of a Personal Care club program that was likely to occur late this year.
With respect to the second half, management assumes foreign exchange translation to be a tailwind compared to the year-ago period and cost of goods inflation of nearly 2% that will be more than offset by productivity efforts. For the second half, capital expenditures are projected between 4% and 5% of net sales and an adjusted effective tax rate between 24% and 25%. Management projects inventory levels to decline throughout second-half fiscal 2021. Given a healthy balance sheet coupled with expectations of delivering robust free cash flow, Hain Celestial remains well poised to reinvest in business and maximize shareholders’ value.
Other Solid Consumer Staples Stocks
Darling Ingredients DAR, which currently flaunts a Zacks Rank #2, has a trailing four-quarter earnings surprise of 26.3%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Medifast MED, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 20.2%, on average.
Calyxt CLXT, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 5%, on average.
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