The Hain Celestial Group Net Sales up 24%

02/02/07 The Hain Celestial Group, Inc. a leading natural and organic food and personal care products company, reported results for the second quarter ended December 31, 2006. The Company reported net sales of $230.9 million, a 24% increase compared with $186.2 million in the prior year second quarter. GAAP net income for the second quarter was $14.8 million, or $0.36 per diluted share, a 20% increase over the prior year's $12.3 million, or $0.32 per diluted share. Adjusted earnings for the quarter totaled $0.38 per share on adjusted net income of $15.6 million.
 
The Company successfully completed the previously announced start-up phase of the new production lines at its West Chester Frozen Foods Facility, and incurred the final start-up costs, consistent with its previous estimate of $0.6 million pre-tax, or $0.01 per share. The Company also incurred a non-cash mark-to-market charge of $0.7 million pre-tax, or $0.01 per share, to reflect its contractual obligation for ungranted stock options at fair value in accordance with SFAS No. 123R. These options remain ungranted and therefore remain subject to mark-to-market adjustments as was first reported by the Company with its fiscal year 2006 results.

The Company reported gross margin of 30.6% in the second quarter, compared to 31.2% in the prior year's second quarter. In order to compare gross margin performance against the prior year's comparable quarter, the Company reported that adjusted gross margin for the current quarter was 31.9% when excluding the final start-up costs at its West Chester Frozen Foods Facility and the Company's lower margin business in the UK. The 70 basis points margin improvement was achieved despite increasing input costs and the challenging selling conditions of the unusually warm weather throughout the quarter impacting the Company's Celestial Seasonings tea brand.

Selling, general and administrative expense for the second quarter was 19.4% of sales in the current year quarter compared to 19.9% in the prior year. Adjusted for the SFAS No. 123R charges for ungranted stock options, selling, general and administrative expense was 19.1% in the current year versus 19.6% in the prior year quarter. The Company continues to benefit from its increased scale and disciplined strategy for building effective marketing programs.

Interest expense in the second quarter was $2.3 million versus $1.3 million in the prior year quarter and interest income was $0.9 million this year versus $0.2 million last year. The higher level of interest expense was attributable to the $150 million of 10-year 5.98% Senior Notes issued in May 2006, which was in part offset by interest earned on excess cash balances.

The Company's effective tax rate for the quarter was 38.6% versus 37.9% in the prior year quarter.

Average diluted shares outstanding in the quarter were 41.2 million, an increase of 2.8 million shares, or 7%, over the second quarter of the prior year, and 1.2 million shares, or 3%, higher than in the immediately preceding first quarter of fiscal 2007. The increase resulted from additional shares issued for the exercise of employee stock options and higher equivalent shares included in the earnings per diluted share calculation resulting from the Company's higher share price. In announcing full year guidance in September 2006, the Company had anticipated an average diluted share count of 40.5 million for the full fiscal 2007 year.

The Company's balance sheet remains strong with $214.5 million in working capital and a current ratio of 2.9 at December 31, 2006. Debt as a percentage of equity was 23.3% with equity at $651.9 million. The number of days in the Company's cash conversion cycle was 67 compared to 71 days in the prior year period. Operating free cash flow was $61.0 million for the trailing twelve months ended December 31, 2006 versus $23.5 million in the comparable period of the prior year.