The Hain Celestial Group, Inc.HAIN reported quarterly numbers after a gap of more than one year when it posted third-quarter fiscal 2017. This gap was due to internal evaluation. The company has successfully completed the accounting review and audit. Notably, it has not made any major changes to its previously stated financial numbers.
In third-quarter fiscal 2017, the company adjusted reported earnings per share of 33 cents, missing the Zacks Consensus Estimate of 52 cents and also decreased 32.7% year over year. On a GAAP basis, the company's earnings came in at 30 cents per share, down 36.2% from the year-ago period.
Net sales declined 4.1% to $706.6 million and also lagged the Zacks Consensus Estimate of $758 million. In the first nine months of fiscal 2017, the company generated net sales of $2,128 million, down 0.9% year over year primarily due to dismal performance of U.S. segment. Moreover, adverse foreign currency fluctuations impacted net sales by $96.2 million during the first nine months of fiscal 2017. On a constant currency basis, sales grew 4% year over year.
Following the results, the company's shares declined 1.5% yesterday. In fact, in the past six months the company's shares have declined 17%, wider than the Zacks categorized Food-Miscellaneous/Diversified industry which dipped 4.1%.
Segment Performance (For the first nine months ended Mar 31, 2017)
Net sales at U.S. segment decreased 6% year over year to $882.3 million mainly due to inventory realignment as well as product rationalization of $55 million. Net sales in the U.K. increased 3% to $573.5 million. Further, operations in the Rest of World segment witnessed a 6.5% increase in net sales to $285 million, while Hain Pure Protein Corporation ("HPPC"), which was acquired in Jul 2014, witnessed a gain of 2.1% upside in net sales to roughly $387.4 million.
The company stated that it will focus on 500 SKUs as well as top 11 brands to drive growth. These brands include Terra, Celestial Seasonings, Dream, Earth's Best, MaraNatha, Imagine, Garden of Eatin', The Greek Gods, Sensible Portions and Spectrum, along with Alba Botanica.
Gross profit declined 15.6% year over year to $391.7 million in the first nine months of fiscal 2017. Adjusted operating income plunged 42.4% to $134.8 million, while adjusted operating margin contracted 460 basis points to 6.3%.
The company ended the quarter with cash and cash equivalents of $162.6 million, long-term debt (excluding current maturities) of nearly $780.9 million, and shareholders' equity of $1,665.5 million. Cash flow from operating activities for the nine months period was $148 million, up 12% year over year, while capital expenditures were roughly $45 million. The company generated operating free cash flow of $103.9 million during the first three quarters.
Hain Celestial updated the strategic initiatives which were announced in fiscal 2016. The company, which began a strategic review under Project Terra in fiscal 2016, expects to generate worldwide cost savings worth $350 million through fiscal 2020 (comprises annual productivity). To achieve these savings, the company intends to optimize plants, co-packers and procurement, along with rationalizing product portfolio, and consequently reinvesting the additional savings through brand development and household penetration.
Earlier the company had announced that in an attempt to augment sales and margin growth, the company plans to create five strategic platforms in its U.S. segment, including Fresh Living, Better-for-You Baby, Better-for-You Snacking, Better-for-You Pantry and Pure Personal Care.
Additionally, Hain Celestial created Cultivate Ventures or "Cultivate", which is a unit focused on three main ideas - investing in the company's small yet high potential brands, making small acquisitions, and investing in products, concepts and technology, committed to health and wellness.
The company provided the fourth quarter and fiscal 2017 guidance and also initiated fiscal 2018 outlook. In fourth-quarter fiscal 2017, the company expects net sales in the range of $715-$735 million, compared with $737.5 million. However, the company expects net sales to increased 4% year over year on a constant currency basis. Adjusted earnings are anticipated in the range of 40-43 cents. The Zacks Consensus Estimate for the quarter is currently pegged at 59 cents.
For fiscal 2017, Hain Celestial anticipates net sales between $2.84 billion and $2.86 billion, while adjusted earnings per share are expected in the range of $1.19-$1.22.
For fiscal 2018, the company expects net sales to grow by 4-6% on a year over year. Growth in the U.S is projected to be in the range of low to mid-single digit. Profits in fiscal 2018 are expected to be robust with adjusted EBITDA to be between $350 million and $375 million. Cash flow from operation is anticipated to be between $235 million and $270 million, while capital expenditure the range of $65-$75 million.
Zacks Rank & Stocks to Consider
Hain Celestial currently carries a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same sector include Aramark ARMK , B&G Foods, Inc. BGS and MGP Ingredients, Inc. MGPI . All these three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Aramark has reported better-than-expected earnings in the trailing four quarters, with an average beat of 4.5%.
B&G Foods has an impressive long-term earnings growth rate of 10% and has also surpassed the Zacks Consensus Estimate in the preceding three out of four quarters, with an average earnings beat of 2%.
MGP Ingredients has an impressive long-term earnings growth rate of 15%.
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