Hain Celestial sales fall 29% as lender condition blocks sale

By Rebecca Stone

Hain Celestial reported first-quarter net sales of $260 million for the three months ended Sept. 30, down 29% from the prior year, as sales and earnings stayed under pressure. The U.S. food-and-beverage group, owner of Greek Gods yogurt and Earth's Best, posted adjusted EBITDA of $18 million, compared with $20 million a year earlier.

Its net loss narrowed to $11 million from $21 million. Adjusted net loss improved to $6.6 million from $7.2 million. The bottom line improved. The operating earnings line did not.

What drove the 29% sales decline?

Asset sales, discontinued product lines and category exits accounted for 22 percentage points of the reported decline. On an organic basis, which removes those portfolio changes, net sales fell 7% because of lower “volume/mix” (the combined effect of unit sales and product mix).

Lower meal prep sales were only partly offset by growth in kids and beverages. The portfolio did most of the shrinking. The remaining business still lost ground. A higher gross margin cannot offset a smaller sales base by itself.

President and CEO Alison Lewis said:

“During the first quarter, we made progress on our strategic actions to realign our cost structure, drive productivity and improve our commercial and innovation capabilities.

“We saw our gross margin improve meaningfully year over year, reflecting progress on both our commercial and portfolio actions. We remain focused on simplifying our operating model and creating a stronger go-forward Hain.”

What did margins and costs actually show?

Gross margin (the share of sales remaining after cost of goods sold) reached 21.8%, up 330 basis points from the prior year. The gain helped narrow losses. The company also cited lower interest and plant-closure costs as benefits.

Adjusted EBITDA, a company-adjusted measure of earnings before interest, taxes, depreciation and amortization, still slipped to $18 million from $20 million. The higher gross margin did not prevent that decline. Sales pressure, not margin erosion, drove the operating earnings weakness.

Can the $323 million Aurelius sale close?

In September, Hain Celestial agreed to sell its international operations to private-equity firm Aurelius for $323 million in cash. The deal offered a smaller portfolio and a route to lower debt.

An Oct. 15 filing with the Securities and Exchange Commission (SEC) said the sale had not met all necessary conditions. Hain and its lenders had to amend the company's credit agreement by Oct. 12. The filing said the condition remained unsatisfied.

As of Nov. 9, Hain said it had secured all regulatory approvals required for the transaction. The lending condition remained unmet. Hain remained in discussions with Aurelius and was pursuing a path to complete the sale.

Lewis said:

“Receiving the final required regulatory approvals is an important step toward completing the sale of our international business.

“We remain in discussions with our lenders regarding our capital structure and with Aurelius regarding a path forward for the transaction.

“If completed, the international sale would allow us to reduce debt and create a more focused North America business with strong brands in attractive categories.

“We will provide updates as material developments occur.”

What remains unresolved?

Last month, reports said Hain was considering potential Chapter 11 protection. The Nov. 9 results statement, issued at 07:00 ET, did not mention the prospect. The omission does not amount to a resolution.

Until lenders satisfy the amendment condition, the $323 million sale remains incomplete. Completion would reduce debt and create a more focused North America business. A delayed close would keep that debt-reduction path unfinished while sales remain under pressure.

The next material update will show whether final regulatory approval becomes a completed transaction. Until then, debt reduction remains conditional.