Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Hain Celestial Group Inc (HAIN, Financial) delivered on its updated guidance with organic net sales growth ahead of expectations and adjusted EBITDA at the upper end of guidance.
- Approximately 85% of the business grew in fiscal year 2024 with organic net sales growth of over 3%.
- The company achieved $65 million in savings from operational efficiency initiatives, surpassing the $61 million target.
- Strong progress in the Hain Reimagined strategy, including consolidation of the global manufacturing footprint and exiting nonstrategic categories.
- Significant improvements in free cash flow, enabling debt reduction and leverage improvement.
Negative Points
- Organic net sales growth was negative 4% year over year in the fourth quarter, driven by lower sales in both North America and International segments.
- Adjusted EBITDA for the fourth quarter was $40 million, down from $44 million a year ago.
- SG&A expenses increased by 8% year over year, primarily due to legal expenses and personnel costs.
- The personal care category saw a 20% organic net sales decline in fiscal 2024.
- The company faced persistent supply disruptions in infant formula, impacting sales and requiring recovery efforts.
Q & A Highlights
Q: Can you walk through what incremental outperformance might come from sales in snacks and formula in the back half of fiscal 2025?
A: (Lee Boyce, CFO) The second half will see growth driven by formula recovery, promotional shifts in Garden Veggie snacks, and broader geographic distribution expansion for Greek Gods. (Wendy Davidson, CEO) We are back in inventory for most formulations of infant formula and are aggressively working to regain distribution. Additionally, we have picked up incremental distribution in our snacks portfolio, particularly in C-stores.
Q: Are you able to see incremental purchases in traditional mass channels where you're getting distribution in C-stores?
A: (Wendy Davidson, CEO) Having our brands available in more places raises brand awareness and drives trial in other shopping locations. Garden Veggie and Terra were the fastest-moving better-for-you snack products in the C-store channel, indicating strong consumer demand.
Q: Can you elaborate on the path to 2027 and whether the underlying drivers from the Investor Day are being reiterated?
A: (Lee Boyce, CFO) We remain committed to the 3% CAGR on organic sales, 400-500 basis points of gross margin expansion, and an adjusted EBITDA margin of 12%-plus by fiscal 2027. The basis for growth will be adjusted to fiscal 2024 organic net sales due to portfolio simplifications and divestitures.
Q: How will the SKU rationalization and business exits impact organic sales growth in the upcoming year?
A: (Wendy Davidson, CEO) Portfolio simplification includes category exits that impact organic sales. Regular portfolio maintenance also plays a role, particularly in the front half of the year, which is why we've provided tempered guidance for that period.
Q: Will you start breaking out price and volume independently in fiscal 2025?
A: (Lee Boyce, CFO) Yes, we will break out price, volume, and mix starting in Q1. The growth in 2025 will be primarily driven by volume and mix, with some wrap-around pricing from fiscal 2024.
Q: How are you addressing the supply issues in organic lactose for infant formula?
A: (Wendy Davidson, CEO) We have multiple supply options and location redundancy. We are also holding more inventory of core SKUs to ensure consistent supply and are investing in brand awareness to regain retail distribution.
Q: Can you provide commentary on the cadence of the year for North America and International segments?
A: (Wendy Davidson, CEO) North America will see softness in the front half due to promotional timing and formula supply build-up, with tailwinds in the back half. International will also have some front-half softness, particularly in the meat-free category, but will see growth in the back half from new contracts and promotional strategies.
Q: How do you view the scale and positioning of your salty snacks portfolio in North America?
A: (Wendy Davidson, CEO) We feel good about our snacks portfolio, particularly Garden Veggie, Terra, and Garden of Eatin. We are focused on right products in the right place and promoting effectively. We have picked up significant incremental ACV with large retail partners and are launching a Masterbrand campaign for Garden Veggie.
Q: What are the potential pressure points that could cause a deviation from the planned ramp in snacks distribution?
A: (Wendy Davidson, CEO) The underperformance last year was due to our own execution issues, not competitive challenges. We are now focused on having the right products in the right places and promoting effectively. We are also partnering with retailers to create awareness and drive trial.
Q: Can you elaborate on the retail takeaway and merchandising plans for the tea business in fiscal 2025?
A: (Wendy Davidson, CEO) We converted all packaging to remove the overwrap, which caused some short-term challenges. We pulled back promotion spend in Q4 to focus on a Masterbrand campaign launching in October and new innovations. We expect these efforts to drive growth in the back half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
