The Hain Celestial Group Q4 and Fiscal Year 2009 Results: Operating Free Cash Flow Improves to $28.1 Million for the Fourth Quarter
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Source: The Hain Celestial Group, Inc.
26/08/2009
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Melville, N.Y., Aug. 25 - The Hain Celestial Group, Inc., a leading natural and organic products company providing consumers with A Healthy Way of Life(TM), today reported results for the fourth quarter and fiscal year ended June 30, 2009.
The Company reported earnings per share on a GAAP basis of $0.03 per share including an $0.08 per share loss from Hain Pure Protein ("HPP") for the fourth quarter. The Company reported adjusted earnings(1) of $0.28 per share for the fourth quarter on the strength of solid results in its Hain Celestial US operations. The $0.28 per share includes a $0.04 per share adjusted loss absorbed from the Company's investment in its HPP joint venture. For the fiscal year, the Company reported a loss per share on a GAAP basis of ($0.61) and adjusted earnings of $1.24 per share with adjustments principally from the previously recorded third quarter impairment charges of $1.20 per share.
The Company generated $28.1 million of operating free cash flow(2) in the fourth quarter of fiscal 2009, an improvement of $33.2 million compared to the prior year quarter. This enabled the Company to reduce its outstanding debt by $30.2 million in the quarter. For the full year, the Company reduced debt by $47.2 million.
"Our business demonstrated solid performance with growth from our United States and Canada operations in a tough economy. We saw growth in key categories including tea, infant and toddler care, dry grocery, non-dairy beverages, nut butters and frozen. At the same time, we are positioned for a turnaround in Europe. We are consolidating our Daily Bread(TM) production into our Luton facility, and we have gained new customers at our Fakenham facility where we've seen growth in both Linda McCartney(R) branded and private label sales," said Irwin D. Simon, President and Chief Executive Officer of Hain Celestial.
The Company's net sales for the fourth quarter totaled $262.7 million versus the prior year's fourth quarter sales of $278.3 million. For the full year, the Company's sales reached a record $1.135 billion, a 7.5% increase over the prior year's $1.056 billion in sales. Foreign exchange rates negatively impacted sales by $10.7 million in the fourth quarter and by $35.6 million for the year. Sales for the full year were also impacted by distributor, retailer and consumer de-stocking, and in the UK by the loss of a co-pack contract and the recently commenced phasing-out of the supply of fresh sandwiches to a major retail customer.
In fiscal 2009, the Company restarted consumption growth in tea as it increased its focus on selling core SKUs. The Company implemented a Stock Keeping Unit ("SKU") program at Celestial Seasonings(R), which was modeled after the successful SKU rationalizations in grocery, snacks and personal care. The Company also concluded the consolidation of its personal care operations and distribution centers. These actions collectively resulted in fourth quarter pre-tax charges of $7.8 million, or $0.12 per share, which includes $7.1 million charged to cost of sales for inventory and related items and $0.7 million charged to general and administrative expenses for severance and other costs.
GAAP gross margins were 19.4% in the fourth quarter this year as compared to 24.3% in the prior year quarter. GAAP gross margins in the current year quarter were impacted principally by charges from the SKU Rationalization and HPP. Adjusted gross margins for the fourth quarter were 24.4%, and further improved to 28.9%, a 156 basis point improvement over the prior year quarter, after removing HPP sales of $35.5 million and cost of sales of $36.9 million. The improved result was achieved through the maturing of price increases and a continuing focus on cost containment and productivity initiatives while the inflationary effects of input costs have begun to abate.
On a GAAP basis, selling, general and administrative expenses as a percentage of sales was 20.7% in this year's quarter compared to 20.1% in the prior year quarter. The Company's adjusted selling, general and administrative expenses were $1.2 million lower in the fourth quarter this year as compared to last year. For the full year, selling, general and administrative expenses on a GAAP basis were 18.9% this year versus 19.6% last year and 17.5% this year versus 18.5% of sales on an adjusted basis in the prior year. Adjusted selling, general and administrative expenses increased as a percentage of sales to 19.0% in this year's quarter compared to 18.4%. Both GAAP and adjusted selling, general and administrative expenses increased due to the effect of fixed expenses on lower sales.
The Company's balance sheet remains strong, with $212.6 million in working capital and a current ratio of 2.6 at June 30, 2009. Debt as a percentage of equity was 36.8%, with equity at $701.3 million.
The Company's adjusted effective tax rate for the full year was 33.8% versus 34.6% in the prior year. The Company's adjusted effective tax rate through the nine months ended March 31, 2009 was 36.5%. The decrease compared to the Company's estimated tax rate resulted from lower than anticipated estimated state taxes, due principally to the mix in income among the various states, and lower than anticipated foreign taxes. There was no impact from the change in tax rate on fourth quarter GAAP earnings, while fourth quarter adjusted earnings benefitted by $0.01 per share.
"Our investments in the operational performance of our business units position us well to offer innovative new products with healthful attributes and invest in the long-term for our core brands, rolling out innovative new products to the grocery and mass market channels to meet consumers' needs," said Irwin Simon. One of these innovations is a collaborative effort to create Martha Stewart Clean, a new line of natural cleaning products developed with Martha Stewart to be introduced later in fiscal 2010. We are very excited about the prospects for these products."
"The Company improved many key financial metrics with an emphasis on gross margin, generating cash and debt reduction, strengthening our balance sheet during the fourth quarter. Despite the recessionary environment, our focused execution on cost containment, productivity, cash flow and margin enhancement allowed us to build upon the foundation of our long-term strategy of sustainable growth. We are well-positioned to gain momentum with our sales and earnings in fiscal year 2010, and we are committed to creating and promoting A Healthy Way of Life(TM) for the benefit of our shareholders, customers, consumers and employees," concluded Irwin Simon.
Fiscal Year 2010 Guidance
The Company announced its fiscal year 2010 guidance of $1.010 to $1.030 billion in sales and $1.19 to $1.28 of earnings per share. Sales are expected to increase from 4% to 6% from the Company's fiscal year 2009 sales base less sales of HPP and items discontinued in the SKU rationalization.
(1) See Reconciliation of GAAP Results to Non-GAAP Presentation Tables.
(2) See Non-GAAP Financial Measures.
The Hain Celestial Group
The Hain Celestial Group (NASDAQ: HAIN), headquartered in Melville, NY, is a leading natural and organic products company in North America and Europe. Hain Celestial participates in almost all natural categories with well-known brands that include Celestial Seasonings(R), Terra(R), Garden of Eatin'(R), Health Valley(R), WestSoy(R), Earth's Best(R), Arrowhead Mills(R), MaraNatha(R), SunSpire(R), DeBoles(R), Hain Pure Foods(R), Hollywood(R), Spectrum Naturals(R), Spectrum Essentials(R), Walnut Acres Organic(R), Imagine(R), Rice Dream(R), Soy Dream(R), Rosetto(R), Ethnic Gourmet(R), Yves Veggie Cuisine(R), Granose(R), Realeat(R), Linda McCartney(R), Daily Bread(TM), Lima(R), Grains Noirs(R), Natumi(R), JASON(R), Zia(R) Natural Skincare, Avalon Organics(R), Alba Botanica(R), Queen Helene(R), Tushies(R) and TenderCare(R). Hain Celestial has been providing "A Healthy Way of Life(TM)" since 1993.
Non-GAAP Financial Measures
Management believes that the non-GAAP financial measures presented provide useful additional information to investors about current trends in the Company's operations and are useful for period-over-period comparisons of operations. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded. They should only be read in connection with the Company's condensed consolidated statements of earnings presented in accordance with GAAP.
The Company defines Operating Free Cash Flow as cash provided from operating activities less capital expenditures. In the fourth quarter of fiscal year 2009, cash provided from operating activities was $31.1 million and capital expenditures were $3.0 million for a total of $28.1 million. In the fourth quarter of fiscal year 2008, cash provided from operating activities was $3.4 million and capital expenditures were $8.5 million for a total usage of ($5.1) million.
THE HAIN CELESTIAL GROUP, INC.
Consolidated Balance Sheets
(In thousands)
June 30, June 30,
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2009 2008
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $41,408 $58,513
Trade receivables, net 114,506 118,867
Inventories 158,590 175,667
Deferred income taxes 13,028 12,512
Other current assets 21,599 27,482
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Total current assets 349,131 393,041
Property, plant and equipment, net 102,135 159,089
Goodwill, net 456,459 550,238
Trademarks and other intangible assets, net 149,196 136,861
Other assets 66,575 20,155
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Total assets $1,123,496 $1,259,384
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $134,618 $145,186
Income taxes payable 1,877 907
Current portion of long-term debt 44 222
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Total current liabilities 136,539 146,315
Deferred income taxes 24,615 26,524
Other noncurrent liabilities 2,647 5,012
Long-term debt, less current portion 258,372 308,220
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Total liabilities 422,173 486,071
Minority Interest - 30,502
Stockholders' equity:
Common stock 417 411
Additional paid-in capital 503,161 488,650
Retained earnings 212,285 237,008
Treasury stock (16,309) (15,473)
Accumulated other comprehensive income 1,769 32,215
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Total stockholders' equity 701,323 742,811
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Total liabilities and stockholders' equity $1,123,496 $1,259,384
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THE HAIN CELESTIAL GROUP, INC.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Twelve Months
Ended June 30, Ended June 30,
----------------- -------------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited)
Net sales $262,705 $278,261 $1,135,306 $1,056,371
Cost of sales 211,622 210,669 876,344 772,062
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Gross profit 51,083 67,592 258,962 284,309
SG&A expenses 54,372 55,834 215,008 207,553
Impairment of goodwill
and intangibles 63 - 52,630 -
------ ------ ------ -------
Operating income (loss) (3,352) 11,758 (8,676) 76,756
Interest expense and
other expenses (3,083) 2,512 7,842 11,311
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Income (loss) before
income taxes (269) 9,246 (16,518) 65,445
Income tax provision (1,534) 2,742 8,205 24,224
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Net income (loss) $1,265 $6,504 $(24,723) $41,221
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Basic per share amounts $0.03 $0.16 $(0.61) $1.03
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Diluted per share amounts $0.03 $0.16 $(0.61) $0.99
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Weighted average common
shares outstanding:
Basic 40,686 40,133 40,483 40,077
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Diluted 41,011 41,550 40,483 41,765
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THE HAIN CELESTIAL GROUP, INC.
Consolidated Statements of Operations With Adjustments
Reconciliation of GAAP Results to Non-GAAP Presentation
(in thousands, except per share amounts)
Three Months Ended June 30,
---------------------------
2009 Adjust- 2009 2008
GAAP ments Adjusted Adjusted
----- ------- -------- --------
(Unaudited)
Net sales $262,705 $262,705 $278,261
Cost of Sales 211,622 $(13,107) 198,515 207,195
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Gross profit 51,083 13,107 64,190 71,066
SG&A expenses 54,372 (4,528) 49,844 51,072
Impairment of goodwill and
intangibles 63 (63) - -
------ ----- ----- ------
Operating income (loss) (3,352) 17,698 14,346 19,994
Interest and other
expenses, net (3,083) 2,872 (211) 2,512
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Income (loss) before
income taxes (269) 14,826 14,557 17,482
Income tax provision (1,534) 4,771 3,237 3,482
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Net income (loss) $1,265 $10,055 $11,320 $14,000
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Basic net income (loss)
per share $0.03 $0.25 $0.28 $0.35
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Diluted net income
(loss) per share $0.03 $0.25 $0.28 $0.34
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Weighted average common shares
outstanding:
Basic 40,686 40,686 40,133
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Diluted 41,011 41,011 41,550
====== ====== ======
FY 2009 FY 2008
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Impact Impact
on Impact on Impact
Income on Income on
before Income before Income
income tax income tax
taxes provision taxes provision
------- --------- ------- ---------
(Unaudited)
Start-up and integration
costs related to the
Company's Kosher Valley
poultry operations $3,901 $1,297
Start-up costs at the
Fakenham manufacturing
facility related to the
integration of the
Haldane Foods frozen meat-
free operations and, in
2009, unabsorbed overhead
resulting from expiration
of a co-pack agreement with
the prior owner 1,506 422 $2,537 $230
SKU rationalization,
severance and other
reorganization costs 7,064 2,558 937 285
Other items 636 128
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Cost of sales 13,107 4,405 3,474 515
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Professional fees and other
expenses incurred in
connection with the review
of the Company's stock
option practices, net of
insurance recovery 1,079 462
Stock compensation Expense 2,756 1,002 2,273 (667)
Severance and other
reorganization costs 707 209 1,410 430
Other items 1,065 232
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SG&A expenses 4,528 1,443 4,762 225
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Impairment of goodwill and
intangibles 63 (10) - -
-- --- ----- ---
Other (income) expenses,
net (2,872) (1,067)
------ ------ ----- ---
Interest and other
expenses, net (2,872) (1,067) - -
------ ------ ----- ---
Total adjustments $14,826 $4,771 $8,236 $740
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THE HAIN CELESTIAL GROUP, INC.
Consolidated Statements of Operations With Adjustments
Reconciliation of GAAP Results to Non-GAAP Presentation
(in thousands, except per share amounts)
Year Ended June 30,
-------------------
2009 Adjust- 2009 2008
GAAP ments Adjusted Adjusted
----- ------- -------- --------
(Unaudited)
Net sales $1,135,306 $1,135,306 $1,056,371
Cost of Sales 876,344 $(25,411) 850,933 757,623
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Gross profit 258,962 25,411 284,373 298,748
SG&A expenses 215,008 (16,177) 198,831 195,782
Impairment of goodwill and
intangibles 52,630 (52,630) - -
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Operating income (loss) (8,676) 94,218 85,542 102,966
Interest and other expenses,
net 7,842 2,038 9,880 13,313
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Income (loss) before income
taxes (16,518) 92,180 75,662 89,653
Income tax provision 8,205 17,342 25,547 30,994
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Net income (loss) $(24,723) $74,838 $50,115 $58,659
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Basic net income (loss) per
share $(0.61) $1.85 $1.24 $1.46
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Diluted net income (loss)
per share $(0.61) $1.85 $1.24 $1.40
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Weighted average common shares
outstanding:
Basic 40,483 40,483 40,077
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Diluted 40,483 40,483 41,765
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FY 2009 FY 2008
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Impact Impact
on Impact on Impact
Income on Income on
before Income before Income
income tax income tax
taxes provision taxes provision
------- --------- ------- ---------
(Unaudited)
Start-up and integration costs
related to the Company's
Kosher Valley poultry
operations $6,201 $2,180
Start-up costs at the
Fakenham manufacturing
facility related to the
integration of the Haldane
Foods frozen meat-free
operations and, in 2009,
unabsorbed overhead resulting
from expiration of a co-pack
agreement with the prior owner 8,153 2,284 $7,490 $2,097
SKU rationalization,
severance and other
reorganization costs 8,763 3,160 6,949 2,558
Impact of co-pack pricing
agreement related to
acquisition of turkey
processing facility 721 277
Other items 1,573 486
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Cost of sales 25,411 8,387 14,439 4,655
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Professional fees and other
expenses incurred in
connection with the review of
the Company's stock option
practices, net of insurance
recovery 1,416 530 5,774 2,229
Stock compensation expense 7,211 2,668 2,129 (722)
Legal settlement 1,350 505
Severance and other
reorganization costs 4,145 1,477 3,868 1,392
Other items 2,055 602
----- --- ------ -----
SG&A expenses 16,177 5,782 11,771 2,899
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Impairment of goodwill and
intangibles 52,630 4,143 - -
------ ----- ------ -----
Other (income) expenses, net (2,038) (970)
Gain on the sale of the
Company's investment in a
rice cake manufacturing
joint venture in Belgium
recorded in the first
quarter of FY 2008 (2,002) (784)
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Interest and other
expenses, net (2,038) (970) (2,002) (784)
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Total adjustments $92,180 $17,342 $24,208 $6,770
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