The Hain Celestial Group, Inc. HAIN reported fourth-quarter fiscal 2018 results, wherein sales marked its third consecutive miss. Also, the bottom line fell year over year, which can be accountable to elevated promotions and freight costs that hurt the company’s gross margin.
Consequently, shares of Hain Celestial lost 6.4% yesterday, taking its year-to-date performance to a slump of almost 37% compared with the industry’s drop of 5.1%.
Q4 in Detail
Adjusted earnings per share of 27 cents came a penny ahead of the Zacks Consensus Estimate, though it declined 34.1% year over year. The downside can be attributed to higher SG&A costs, increased interest expenses and factors that affected gross margin.
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. Quote
Net sales advanced 3% year over year to $619.6 million, missing the Zacks Consensus Estimate of $629 million. On a currency-neutral basis, net sales dipped 1% as a low-double-digit rise in the United Kingdom and Rest of World was countered by a mid-single-digit decline in the United States. On adjusting for currency fluctuations, buyouts, divestitures and various other items like SKU rationalization, sales jumped 3%.
Segment-wise, net sales at the United States segment dropped 6% year over year to $269.9 million. Net sales in the United Kingdom and Rest of the World segments rose 10% and 12%, respectively, to $239.1 million and $110.7 million.
The company’s divestment of Hain Pure Protein business is expected to close in the first half of fiscal 2019. During the fourth quarter, results of this segment formed part of the company’s discontinued operations.
Costs & Margins
Adjusted gross margin contracted 290 basis points (bps) to 21.1% owing to increased investments related to trade and promotions in the United States along with escalated freight and commodity expenses. This was somewhat made up by cost savings from Project Terra.
SG&A expenses increased nearly 8% to $80.8 million. As a percentage of sales, the same increased 70 bps to 13.2% on account of increased marketing and headcount investments in the United Kingdom, the United States and Canada. This was partly compensated by Project Terra cost savings.
Adjusted operating income tanked 32.4% to $44.5 million, while adjusted operating margin contracted 370 bps to 7.2%.
Other Financials
The company ended the quarter with cash and cash equivalents of $106.6 million, long-term debt (excluding current maturities) of nearly $687.5 million and shareholders’ equity of about $1,737 million. Cash flow from operating activities totaled $121.3 million in fiscal 2018 compared with $232.7 million in fiscal 2017.
During fiscal 2018, the company incurred capital expenditures of $70.9 million, which resulted in operating free cash flow from continuing operations of $50.4 million.
Outlook
Hain Celestial remains focused on its global strategic goals and continues to make marketing investments in key brands. Further, the company is gaining from additional savings and productivity from Project Terra. Markedly, Hain Celestial generated cost savings of nearly $63 million from Project Terra during the fiscal, though the impact was negated by greater brand investments (especially in the United States) and increased cost inflation.
That being said, management aims to return its U.S. business to growth in fiscal 2019, wherein it also intends to generate greater profits. Incidentally, the company expects net sales in fiscal 2019 to increase nearly 2-4% to $2.50-$2.56 billion.
Adjusted EBITDA is expected to rise in the range of about 7-17% to $275-$300 million. This includes the expected impact of Project Terra savings of nearly $90-$115 million, higher brand investments and COGS inflation of about 2% related to freight and commodity costs.
Effective tax rate for fiscal 2019 is anticipated in the range of 27-28%.
This Zacks Rank #3 (Hold) company envisions adjusted earnings per share in a band of $1.21-$1.38, reflecting a jump of roughly 4-19% from fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 is currently pegged at $1.32.
Notably, sales and earnings growth are expected to be more weighted toward the second half of fiscal 2019, as the company anticipates to reap the benefits from its planned U.S. brand investments, distribution gains and efforts to optimize pricing. Further, savings and productivity gains from Project Terra are likely to speed up as the year progresses.
For the first quarter of fiscal 2019, the company projected net sales growth in the range of flat to slightly down. Moreover, both adjusted EBITDA and the bottom line are anticipated to fall year over year at a rate similar to that in the fourth quarter of fiscal 2018.
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