The Hain Celestial Group Announces Record Sales
Sales grew 22% in first quarter fiscal year 2009, reconfirms full year sales and earnings guidance.
04/11/08 The Hain Celestial Group, Inc., a leading natural and organic food and personal care products company, reported results for the first quarter ended September 30, 2008. Reflecting continued strong consumer demand for its brands and products, the Company reported record first quarter net sales of $289.3 million, a 22% increase over the prior year's first quarter sales of $237.2 million. Net income in the first quarter was $7.0 million on a GAAP basis and $11.4 million after reflecting previously announced adjustments resulting from continuing personnel and facility costs related to the execution of the Stock Keeping Unit ("SKU") Rationalization Program; acquisition-related integration and start-up costs in the United Kingdom, reflecting initiatives which were completed in this year's first quarter; the costs of the now completed, below market contract at Hain Pure Protein's New Oxford facility; stock compensation related expense; and continued additional professional fees. Diluted earnings per share for the first quarter totaled $0.17 on a GAAP basis and $0.28 after these adjustments. Net income and earnings per share were affected by the highest commodity and input costs in the Company's history, with such costs estimated to be $10 million higher than last year. The Company's results do not reflect the benefit of its August price increases, which are expected to improve the Company's sales and margins in the second half of the year. The Company realized approximately $1 million from these increases in its first quarter.
"We are pleased that, even with the economic difficulties experienced in many markets, consumers increased their demand for our natural and organic food and personal care products. We are also pleased to see that the sales momentum experienced in the first quarter continued through the month of October. With our grocery, snacks, and tea products selling at an average price of $3.99, our brands meet our consumers' needs in this economy. Additionally, we believe our portfolio approach-in products, distribution channels and geographic markets-benefited our performance this quarter. Our new fiscal year began with continued strong sales in all our geographic markets-the United States, Canada, and Europe-across various distribution channels. In North America, our focus on new product innovation and increased sales and distribution of our core items resulted in strong contributions from Rice Dream, WestSoy, Earth's Best, MaraNatha, Imagine, Spectrum, Garden of Eatin', Rosetto, Yves, Jason, Avalon and the Hain Pure Protein brands. In Europe, our approach led to similar sales trends from the Lima, Natumi, Rice Dream, Grains Noirs and Daily Bread brands," said Irwin D. Simon, President and Chief Executive Officer.
The Company continues to see strong sales despite the slowdown in the economy. Hain Celestial has experienced growth in the natural sector with independent natural stores and supermarkets, mass market retailers, chain drug stores and other retail outlets. The Company believes it is attracting new consumers who are not dining out but are looking for healthful dining experiences at home, and consumers are finding our products at more retail outlets, such as supermarkets, club stores and mass merchants. The Company has also seen an increase in poultry sales, where consumers are trading down from other proteins to chicken and turkey; consumers are also eating more seitan, tofu and tempeh rather than red meat. The at-home dining trend is more prevalent for breakfast and dinner, where the Company's product categories can provide healthy, reasonably priced meals and snacks. The Company continues to see substantial growth in its Earth's Best brands with parents concerned about healthy eating for their infants, toddlers and kids, and believes that consumers staying at home are drinking more tea and trading down from more expensive beverage offerings.
Reflecting the previously stated adjustments, gross margin for the same brands operated by the Company (other than the Company's lower margin Hain Pure Protein joint venture) was 28.6% in the first quarter, versus 30.8% in the prior year quarter. Inflation in input costs, including higher commodity and fuel costs, amounted to over 7% in the quarter when measured against the prior year comparable quarter. While this inflation was partially offset by productivity improvements and price increases, the full impact of the price increase announced in July is expected to benefit the Company over the remaining quarters in its fiscal year. The Company expects that the benefits from this price increase will improve margins during the second half of the fiscal year by 200 to 300 basis points. In Personal Care, where the SKU Rationalization eliminated costs, the brands continued to experience good sales growth, and benefited from a margin improvement of approximately 200 basis points in the first quarter.
Adjusted selling, general and administrative expenses declined as a percentage of sales to 18.2% compared to 20.2%, with the Company's continued focus on cost savings and achieving the benefit of synergies from acquisitions.
The Company's balance sheet remains strong, with $272.2 million in working capital and a current ratio of 2.8 at September 30, 2008. Debt as a percentage of equity was 43.1%, with equity at $745.2 million. The Company's cash conversion cycle was 79 days, compared to 75 days in the prior year period, with the increase coming principally in the Company's inventory of turkey in preparation for the holiday season demands in that category and increased ingredients for Grocery and Snacks. The Company's receivables days have declined, and payables days remain consistent with past periods.
Interest expense, net, was $3.6 million in the first quarter compared to $2.7 million for the prior year quarter. The Company's interest cost this year includes the cost of higher borrowings resulting from acquisitions during the prior fiscal year. "Other expenses, net" in the prior year included a $2.0 million gain on the sale of an investment in a joint venture in Europe. The Company's effective tax rate for the current period was 38%.
"Having good brands in good categories will continue to drive sales. At the same time, the Company will continue to build on the successful productivity initiatives commenced in prior years to control its expenses, reducing overhead and capital expenditures and other costs. Our Company is well-positioned with a proven management team to enable Hain Celestial to deal with this tough economic environment. We continue to experience solid growth and steady performance and expect our strategic pricing actions and productivity initiatives to deliver on our objectives for the year and our long-term goals to enhance shareholder value," concluded Irwin Simon.
