Hain Celestial slashes SKUs, braces for a ‘longer than expected’ return to growth

13-May-2024 - Last updated on 14-May-2024 at 15:02 GMT

Source: Hain Celestial

Hain Celestial is slashing its portfolio and consolidating its operating footprint to “unlock savings” and “further de-leverage the balance sheet” as part of a broader “Hain Reimagined Strategy,” but the four-prong plan may take longer than expected as illustrated by the company’s disappointing third quarter earnings, warned CEO Wendy Davidson.

The health and wellness company’s net sales fell 3.7% to $438.4m in the company’s third quarter ending March 31 compared to the same period last year – missing analyst expectations by 5.4%. Earnings per share of 13 cents compared to adjusted EPS of 8 cents in the prior year also missed expectations, despite the improvement.

While Davidson said she was “disappointed in the top line results in the quarter,” she added she was “pleased to deliver continued margin expansion and momentum,” including a 60-basis point increase in the gross profit margin to 22.1% and 90-basis point increase in the adjusted gross profit margin of 22.3%. Net loss also tightened to $48.2m compared to $115.7m in the same period last year.

These results simultaneously reinforce the company’s ability “to achieve the financial algorithm outlined with Hain Reimagined in September,” and suggest the strategy’s “starting point in some areas was less developed than we initially anticipated, requiring a heavier lift and causing the pivot to growth to take longer than expected,” Davidson said.

Hain slashes SKUs in snacks, meal prep, children’s food and beverage

Hain Reimagined includes four pillars, the first of which is to “focus and simplify” its diverse portfolio and footprint.

Under this pillar in the quarter, Hain “removed underperforming SKUs representing 6% of items in our global portfolio,” the bulk of which were in personal care, but a significant portion of which were in food and beverage, Davidson said.

Among the cuts in the company’s food portfolio was the previously disclosed sale to J&J Snack Foods of Thinsters cookies, a brand which Davidson noted did not align with Hain Celestial’s focus on better-for-you options.

The company also is streamlining its Meal Prep division after sluggish sales of plant-based, meat-free offerings under the Linda McCartney Foods brand dragged down overall segment sales, which declined low single digits in the quarter.

Trimming the portfolio also allowed Hain Celestial to reduce its operating footprint, including divesting two distribution centers with the sale of Thinsters and removing one co-manufacturer from the network. It also consolidated its Yves plant-based meat free manufacturing plants in Cananda in late fiscal 2023, which helped it deliver operational efficiencies and focus on the Yves brand.

“We continue to identify opportunities to further simplify and streamline our business through optimizing our operational model, leveraging synergies and scale and focus on shaping a winning portfolio,” Davidson said in a statement ahead of the company’s earning call.

Fuel pillar delivers ‘significant progress in unlocking savings,’ marketing

Advances under the “fuel pillar” of Hain Reimagined complement the company’s effort under the “focus and simply” pillar by unlocking cost savings and driving better price utilization and promotions of remaining SKUs.

For example, the company increased marketing slightly as a percent of revenue to focus on snacks, beverage and baby, within which the company is “seeing momentum and successful innovation launches, including Garden Veggie Flavor Burst and Celestial Seasonings Sleepytime with melatonin,” Davidson said.

She said she is optimistic about continued growth in snacking this summer when the company will launch its “first-ever national multi-brand merchandising program” to support its better-for-you snacks portfolio in its “Savor Year Summer Snacking” promotion.

Complementing the promotional effort is the use of new digital technology and “improved processes” to reduce inventory level by nearly 10% year-to-date and drive end-to-end operational efficiency to sourcing and productivity.

“These efforts have enabled us to expand margins and deliver strong cash flow while both offsetting inflation and investing in capabilities to enable our pivot to growth,” Davidson said.

Taking these considerations into account, the company revised its fiscal 2024 guidance so that it now expects organic net sales to decline 3% to 4% year-over-year, adjusted EBITDA to be between $150m and $155m and gross margin expansion of up to 50 basis points with free cash flow of $40m to $45m.