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Hanesbrands (HBI) Q3 Earnings Meet Estimates, Sales Beat

Zacks Equity Research

Hanesbrands Inc. HBI came out with its third-quarter 2019 results, wherein the bottom line met the Zacks Consensus Estimate. Nonetheless, the top line surpassed the consensus mark. Also, the company’s net sales and earnings grew year over year.

Management stated that quarterly results came in line with their expectations. As a result, Hanesbrands raised the midpoint of net sales and earnings per share view for 2019. The company pointed that its International businesses remain strong and growth in global Champion continues. Also, the company is focusing on improving consumer-direct channels and lowering debt burden.

The company posted adjusted earnings of 54 cents a share. Notably, quarterly earnings improved 3.8% from the year-ago period benefiting from higher net sales, fall in adjusted SG&A costs and reduced interest expenses.

Net sales rose about 1% to $1,867 million and surpassed the Zacks Consensus Estimate of $1,858.4 million. On a constant-currency basis, sales were up 2%. The upside in this quarter was backed by increased sales from International units, mainly fueled by strength in Champion.

Global Champion registered the ninth straight quarter of double-digit sales growth. Sales increased 26% in constant currency, excluding the U.S. mass channel. While domestic Champion sales soared 29%, international Champion sales surged 24%, with double-digit gains in Europe, Asia, and Australia. Sales also increased in double-digits in the activewear and innerwear product segments.

Also, global consumer-directed sales (including retail and online networks) rose 10% on a reported basis, representing 23% of total sales. On a constant-currency basis, the same increased 13%, up double-digits both domestically and internationally.

Moving on, adjusted operating profit grew 0.7% to $279.7 million. However, adjusted operating margin remained flat at 15%.

Hanesbrands Inc. Price, Consensus and EPS Surprise


Hanesbrands Inc. Price, Consensus and EPS Surprise

Hanesbrands Inc. price-consensus-eps-surprise-chart | Hanesbrands Inc. Quote

Segment Details

Innerwear: Sales declined 3.5% in the quarter to $578.5 million due to lower-than-anticipated back-to-school retail environment impacting Innerwear basics replenishment. Further, operating profit declined 8.1% to $121.5 million. Nevertheless, the company witnessed strong performance in the shapewear category.

Activewear: Sales fell 1.2% to $548.1 million due to sales decline in non-Champion portion of the segment. Outside the mass channel, Champion activewear sales rose 18%. Operating profit rose 4% to $97.3 million on account of improved Champion profitability and the benefit of pricing.

International: Sales at this segment improved 7.1% to $663.5 million (up 11% in constant currency) driven by sturdy sales in innerwear and activewear units. The company registered double-digit Champion activewear growth in Europe, Asia and Australia. The segment’s innerwear sales rose across multiple brands in Australia, Germany, the United Kingdom, Mexico, and Canada. Operating profit at the International segment rose 7.6% to $107.2 million in the quarter.

Other: Sales jumped 3.1% to roughly $76.9 million. The segment posted an operating profit of $9.6 million, up 14.8% year over year.

Other Financial Details

Hanesbrands, which carries a Zacks Rank #3 (Hold), ended the third quarter with cash and cash equivalents of $317 million, long-term debt (including current portion) of $3,619.5 million and stockholders’ equity of $1,230.2 million. The company lowered its net debt by approximately $250 million compared with the end of the second quarter. On a year-over-year basis, the company reduced its debt load by about $470 million.

Management envisions interest expense and other expenses to be about $213 million combined for 2019, down approximately $11 million from the prior view. For the final quarter, the company anticipates interest expense and other expenses to be roughly $51 million combined.

During the quarter, the company generated net cash from operations of $302.1 million and incurred capital expenditures of $21.7 million, thereby resulting in free cash flow of $280.4 million. The company projects net cash from operations of $700-$800 million and capital expenditure investment of approximately $90-$100 million for 2019.


Management issued guidance for the fourth quarter. For the quarter, it anticipates the top line to be in the range of $1.719-$1.769 billion. Adverse currency fluctuations are expected to hurt net sales by approximately $20 million. Adjusted operating profit is expected to be $259-$284 million. Moreover, the company projects adjusted earnings to be 48-54 cents a share. The Zacks Consensus Estimate for the metric is pegged at 49 cents.

For 2019, net sales are expected to be $6.935-$6.985 billion versus prior view of $6.885-$6.985 billion. Adverse currency fluctuations are expected to lower net sales by about $123 million for the full year.

GAAP operating profit is likely to be $900-$925 million versus prior expectation of $900-$930 million. Adjusted operating profit is forecasted to be $955-$980 million versus prior projection of $955-$985 million. Further, the company envisions adjusted earnings of $1.74-$1.80 versus prior estimate of $1.72-$1.80 for the year.

At the mid-point, the current guidance for 2019 indicates year-over-year growth of more than 2% in net sales, 5% in operating profit on a GAAP basis and 2% in adjusted operating profit. Further, the guidance represents mid-point growth of 8% and 4% for GAAP and adjusted earnings, respectively.

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