Hain Celestial: Positive Gross Margins, Bottom-Line Growth Reaffirm FY 2023 Guidance

New York-based organic and natural products company Hain Celestial announced today that net sales for Q1 FY 2023 decreased 3% year-over-year to $439.4 million.

“Our first quarter results delivered performance better than our guidance with sequential improvements in gross margin and bottom-line growth versus the fourth quarter of fiscal 2022,” said Hain Celestial president and CEO Mark L. Schiller in a press release. “Behind the continued strength of our growth brands, we benefited from the solid performance of our supply chain and continued productivity efforts and strong contributions from our North America business.”

Hain, whose portfolio includes brands such as Terra, Garden of Eatin’, ParmCrisps, Thinsters and Sensible Portions, operates under two reportable segments: North America and International. During the earnings call, Schiller cited three primary driving factors behind the higher margins: improved performance of the company’s internal supply chain, reduced supply chain issues on its largest brand and increased pricing in North America.

The North America segment increased 9% year-over-year to $288.4 million, accounting for a majority of net sales in Q1 2023, ended Sept. 30. When adjusted for foreign exchange, acquisitions, divestitures and discontinued brands, net sales increased 3% year-over-year thanks to strong sales in snacks, yogurt, baby and other categories in the U.S.

According to Schiller, the supply chain disruptions that had plagued Terra have been “substantially resolved,” and the 27% gain in net sales was the highest quarterly growth from the brand in nearly four years. Additionally, Sensible Portions continued to grow double-digits, as it has for the past three years.

Segment growth profit for Q1 2023 increased 15% year-over-year to $65.5 million, while gross margin was 22.7%, a 130-point increase from the year prior. The company attributed that growth to pricing increases and cost improvements driven by higher productivity, partially offset by inflation and lower net sales in Canada compared to the year prior.

Adjusted EBITDA on a constant currency basis was $30.9 million, a 28% increase from the prior year period.

Meanwhile, the international segment’s gross profit fell to $28.8 million, a 41% decrease from the year prior; gross margin was 19.1%, a 660-point basis decrease from the previous year. When adjusted for foreign sales and divestitures, net sales decreased 7% compared to the year prior due to continued softness in plant-based categories and the loss of a large non-dairy co-manufacturing customer in Europe.

“Given the volatile European environment, the financial progress was modest and, as expected, foreign exchange has had a material impact on our reported results,” Schiller said during the call. “As previously mentioned, our plant-based businesses continue to struggle along with the [other] categories, offsetting the progress on the rest of the international business.”

Looking ahead, Hain Celestial is reaffirming its previously disclosed FY 2023 guidance of adjusted net sales and adjusted EBITDA on a constant currency basis of -1% to +4% compared to the year prior, with growth skewed toward the second half of the year. Several factors are expected to drive this growth, including ongoing momentum in North America, 2023 price increases, continued improvements in the company’s supply chain and an improving retailer environment in the UK.

However, the company projected that three factors will contribute to softening in the North America top line in Q2: continued shortages on baby formula with less inventory to sell than in previous quarters, lack of success in renewing the club and hair care program from last year, and softening of the tea category due to warmer weather.

“As discussed many times, we live in a volatile world, and there are many sources of potential upside and downside based on things out of our control. The challenges include currency fluctuations, consumer behavior, recessions, inflation and the Russia-Ukraine war” said Schiller. “That said, we’re doing a good job controlling the controllables and now have more visibility than we did just a few months ago and are optimistic that we’ll see some normalizing.”