Melville, N.Y., Nov. 5 - 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 first quarter ended September 30, 2009.
The Company reported that earnings per share grew 17.6% to $0.20 per share on net income of $8.1 million as compared to the prior year quarter earnings of $0.17 per share on net income of $7.0 million, on the strength of profit contributions from the Company's United States and Continental European operations. These results are after the Company absorbed charges of $1.8 million, or $0.03 per share, for the planned and previously disclosed consolidation of its two United Kingdom-based fresh food-to-go production facilities, and a $1.0 million, or $0.02 per share, net loss representing the Company's minority interest in the quarterly results of Hain Pure Protein ("HPP").
Sales for the first quarter this year totaled $230.5 million versus $248.4 million in the prior year first quarter, after deducting $38.4 million of sales for HPP. Total sales in the prior year quarter amounted to $286.8 million including HPP, which was then a consolidated subsidiary. Sales in the current year first quarter were impacted by increased promotional spending activity and, the Company believes, would have otherwise increased over last year's quarter with the comparison unfavorably affected by a total of approximately $22 million from destocking at a major distributor, the Celestial Seasonings® SKU rationalization, reductions of personal care product sales into the chain drug channel, the phasing out of the supply of fresh sandwiches to a major retail customer in the United Kingdom and changes in foreign currencies.
Sales for the first quarter this year totaled $230.5 million versus $248.4 million in the prior year first quarter, after deducting $38.4 million of sales for HPP, a consolidated subsidiary in last year's quarter. Sales in the current year first quarter were impacted by increased promotional spending activity and, the Company believes, would have otherwise been in line with last year's quarter with the comparison unfavorably affected by a total of approximately $56 million, consisting of: the deconsolidation of $38.4 million from HPP, plus a total of $17.6 million from distributor and retailer destocking, the Celestial Seasonings® SKU rationalization, reductions of personal care products sales into the chain drug channel, the phasing out of the supply of fresh sandwiches to a major retail customer in the United Kingdom and changes in foreign currencies.
"Last year at this time we were experiencing strong sales in our first quarter, which began to moderate in the second quarter. In the current economic climate we are encouraged by signs of momentum in the United States, Canada and selected parts of Europe. This year we continue to see expanded distribution from new channels even as certain customers have reduced their inventory levels in the quarter," said Irwin D. Simon, President and Chief Executive Officer. "The Company realized more favorable fuel and commodity input pricing, cost containment and productivity initiatives. We believe the Company will continue to benefit from such initiatives and from new customers at our Fakenham facility, where we have seen expansion of both the Linda McCartney® brand and private label sales in the United Kingdom."
"In the United Kingdom, where we continue to focus on improving our sales and operating performance, we have consolidated into fewer production locations. We have moved production of Daily Bread(TM) products into our Luton facility. This consolidation has gone well and is now substantially complete, although additional consolidation costs will impact our second quarter. We continue to produce our frozen meat-free offerings at our Fakenham facility and our non-dairy beverage products at our Manchester facility," Mr. Simon said. "In addition, we absorbed a net loss from our minority interest in HPP amounting to $1.0 million in the quarter, which arose principally from sales of existing inventory of commodity products at lower than anticipated prices. We are encouraged by the progress HPP is making in moving away from commodity poultry products and concentrating on antibiotic-free products. We look forward to a return to profitable results at HPP during the remainder of the fiscal year."
Gross margins in this year's first quarter were 26.8% compared to 24.0% in the prior year quarter. The 280 basis point increase in gross margin is reflective of the deconsolidation of HPP offset by increased promotional spending. The Company anticipates higher margin performance in the coming quarters of the fiscal year.
Selling, general and administrative expenses were 18.5% as a percentage of sales in this year's first quarter compared to 18.6% in the prior year quarter. The deconsolidation of HPP, which operates at a lower expense base, affected the comparison of selling, general and administrative expenses as a percentage of sales by 183 basis points. This increase was offset by reductions in spending resulting from the Company's focus on cost control, including the benefit of actions taken in reducing headcount and consolidating locations.
"As stated when we reported our year-end results in late August, we expect to see a stronger second half of fiscal year 2010. With the benefit of new commodity contracts, we plan to maintain our higher level of promotional spending toward the consumer in the upcoming quarters and expect this to further our sales momentum," stated Irwin Simon. "We're excited about the launch of Martha Stewart Clean products, which are in selected stores now, and the nationwide rollout scheduled for early calendar year 2010. We are also excited about our joint venture with Hutchison Whampoa's China Meditech with its anticipated rollout of co-branded Zhi Ling Tong and Earth's Best® products later in the calendar year. In addition, we expect that as consumers dine at home and seek out more natural products, our Natural Initiative's back-to-basics approach to food labeling should solidify our leadership role in the natural and organic consumer products category," concluded Irwin Simon.
The Company's balance sheet remains strong. The Company reduced borrowings by $16.3 million in the quarter bringing the total debt reduction to $76.5 million over the most recent 12 months. Debt as a percentage of equity was 33.8%, with equity at $716.1 million at September 30, 2009. Operating free cash flow was $30.4 million over the most recent 12-month period, improving by $56.4 million from a year ago.
Fiscal Year 2010 Guidance
The Company reconfirmed its fiscal year 2010 guidance of $1.19 to $1.28 of earnings per share. For the full fiscal year 2010, sales are expected to increase from 4% to 6% from the Company's fiscal year 2009 sales base less HPP sales, items discontinued in the SKU rationalization and the reclassification of promotional expenses. Net sales are expected to be $1.0 to $1.02 billion due to the effect of the reclassification
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THE HAIN CELESTIAL GROUP, INC.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months
Ended Sept. 30,
-----------------
2009 2008
-------- --------
(Unaudited)
Note A
Net sales $230,484 $286,784
Cost of sales 168,676 217,951
------- -------
Gross profit 61,808 68,833
SG&A expenses 42,564 53,339
Restructuring expenses 1,779 598
----- ---
Operating income 17,465 14,896
Interest expense and other expenses 3,042 3,984
Equity in net loss of unconsolidated
affiliate, net 996 -
--- ---
Income before income taxes 13,427 10,912
Income tax provision 5,337 4,146
----- -----
Net income $8,090 $6,766
Loss attributable to noncontrolling interest - 256
--- ---
Net income attributable to The Hain
Celestial Group, Inc. $8,090 $7,022
====== ======
Basic net income per share $0.20 $0.17
===== =====
Diluted net income per share $0.20 $0.17
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Weighted average common shares outstanding:
Basic 40,701 40,225
====== ======
Diluted 41,159 41,499
====== ======
Note A - The three months ended September 30, 2008 includes an
adjustment of $2,533 ($12,572 for the fiscal year ended
June 30, 2009) to reclassify certain promotional expenses
which had the effect of reducing selling, general and
administrative expenses and reducing net sales. The
reclassification did not affect reported net income.
THE HAIN CELESTIAL GROUP, INC.
Consolidated Balance Sheets
(In thousands)
Sept. 30, June 30,
----------- ----------
2009 2009
----------- ----------
(Audited)
ASSETS
Current assets:
Cash and cash equivalents $16,647 $41,408
Trade receivables, net 131,838 114,506
Inventories 165,238 158,590
Deferred income taxes 13,333 13,028
Other current assets 17,149 21,599
------ ------
Total current assets 344,205 349,131
Property, plant and equipment, net 102,786 102,135
Goodwill, net 460,293 456,459
Trademarks and other intangible assets, net 148,055 149,196
Investments in and advances to affiliates 46,328 49,061
Other assets 17,177 17,514
------ ------
Total assets $1,118,844 $1,123,496
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $127,808 $134,618
Income taxes payable 5,582 1,877
Current portion of long-term debt 43 44
-- --
Total current liabilities 133,433 136,539
Deferred income taxes 24,633 24,615
Other noncurrent liabilities 2,656 2,647
Long-term debt, less current portion 242,036 258,372
------- -------
Total liabilities 402,758 422,173
Stockholders' equity:
Common stock 417 417
Additional paid-in capital 504,752 503,161
Retained earnings 220,375 212,285
Treasury stock (16,326) (16,309)
Accumulated other comprehensive income 6,868 1,769
----- -----
Total stockholders' equity 716,086 701,323
------- -------
Total liabilities and stockholders' equity $1,118,844 $1,123,496
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