When a company’s share price tumbles more than 50% in the wake of a stock-exchange filing, it’s fair to say investor sentiment is less than positive. And there are a lot of questions hanging over US food and drinks group Hain Celestial.
The maker of Terra snacks and Celestial Seasonings teas saw its share price slide yesterday (it ended the day down more than 47%) after making a multifaceted announcement that, in some ways, may not have a been too much of a surprise but would have left Wall Street wondering what comes next.
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Hain Celestial, which has seen sales and profits come under pressure in recent quarters, said it would start a “comprehensive review” of its portfolio “in light of recent performance”.
The company, which is also home to brands including Earth Best’s baby food, Linda McCartney vegetarian foods and Natumi plant-based drinks, is working with Goldman Sachs to “consider a broad range of strategic options to enhance value”.
However, the announcement didn’t end there. Hain Celestial said president and CEO Wendy Davidson was leaving the business “effective this morning”.
Davidson took the helm in 2023, setting about to make Hain Celestial a “bigger player” in the better-for-you category and centre resources on areas including snacks, kids’-focused products, meal prep and beverages.
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By GlobalDataUnder Davidson, the company also sought to cut “lower margin” SKUs and sold brands including ParmCrisps and Thinsters.
However, so far, Hain Celestial’s efforts to focus its investment on fewer areas haven’t paid off.
The news of the review and Davidson’s departure came alongside the publication of the group’s third-quarter and nine-month financial results, a set of numbers that included lower sales and worsening profitability.
Third-quarter net sales, covering the period to the end of March, fell 11% to $390m. Organic net sales, excluding M&A, assets held for sale, categories exited and foreign exchange, decreased 5%.
Nine-month sales were down 9.2% at $1.20bn.
Hain Celestial booked a third-quarter operating loss of $121.1m, versus one of $27.9m a year earlier. Over the first nine months of the financial year, that meant an operating loss of $209.9m, against one of $31m in the corresponding period of the previous financial year.
The group posted a third-quarter net loss of $134.6m. A year earlier, it reported a net loss of $48.2m. Nine-month net losses were $258.2m, compared to $72.1m a year ago.
Hain Celestial said the third-quarter net loss included pre-tax, non-cash, impairment charges of $133m related to its US and Canada reporting units and assets held for sale.
Those figures follow a challenging 12 months up to the end of last June.
In Hain Celestial’s last full financial year, net sales were down and the company ran up a net loss of $75m, albeit lower than the $116.5m loss filed a year earlier.
As well as another set of less-than-impressive results, the company changed its forecasts for its full-year net sales (on an organic basis) and for “adjusted” EBITDA.
Hain Celestial now sees its organic net sales falling 5-6% year-on-year (versus its previous forecast of a 2-4% decline) and an adjusted EBITDA of around $125m (it had projected it would be “flat” on the $155m booked a year earlier).
The company, meanwhile, announced a change to its credit agreement “to provide for increased operational flexibility”.
“We are disappointed with our third-quarter results, which fell far short of our expectations, primarily due to worse-than-expected performance in North America,” interim president and CEO Alison Lewis said yesterday. Lewis, who has been on the Hain Celestial board since September, has been in the FMCG sector for three decades, with roles at Kimberly-Clark, Johnson & Johnson and The Coca-Cola Company.
Board chair Dawn Zier said Hain Celestial’s directors believed it was “the right time to transition to new leadership”.
Zier added Lewis – who she described as “a seasoned executive with vast industry and leadership experience” – would lead the business “while we execute our succession plan”, although no further details were given.
In a statement, Lewis set out “five key drivers for improving value: simplifying our business and reducing overhead spending; accelerating renovation and innovation in our brands; implementing strategic revenue growth management and pricing actions; driving operational productivity and working capital reduction; and strengthening our digital capabilities”.
While Lewis and Hain Celestial’s management team try to get the company’s sales – and profitability – moving in the right direction (no mean task), the group’s leadership team and board will be weighing up the future of the various parts of its business. There’s plenty on their plate.
Under Davidson, product ranges were trimmed and a couple of brands sold but industry watchers say the Hain Celestial business is still complicated – and there are suggestions the company should think about focusing on North America.
“Hain’s portfolio remains complex in part due to the diversity of categories and geographies the company operates in and we believe the company would benefit from further portfolio simplification,” Stifel analyst Matthew Smith says. “The personal care business is likely to be divested, currently accounted for as held for sale. We also believe the international business should be considered for divestiture to reduce complexity and provide greater focus on the core North America business where we believe growth opportunity exists.”
Hain Celestial, set up in 1993, has been operating in Europe since 2001 and entered the UK five years later. Outside North America, the company’s principal market is the UK, where it sells brands including Ella’s Kitchen, New Covent Garden soup and Hartley’s jam. On the European continent, Hain Celestial’s business centres around three brands: Natumi, dairy-alt brand Joya and Lima, which markets products from soy sauce and pasta to plant-based drinks.
The Hain Reimagined strategy set out by Davidson included plans to “simplify” the company’s “footprint” and maintain a “direct presence in five key markets” – the US, Canada, the UK, Ireland and western Europe. The company’s sales also reach into the Middle East and Africa.
The third-quarter numbers Hain Celestial issued yesterday underlined the troubles the company is having in North America but the company did manage to eke out sales growth from its other reporting unit, the international division.
Nonetheless, the variety of products in Hain Celestial’s basket outside North America – from jam and soup to baby food and veggie burgers – means it’s easy to understand why some would call on the company to pull back and try to divert more management time and resources to its home market. The question is how many willing buyers there might be for brands in stagnant categories like meat alternatives and jam.
Moreover, challenges abound for Hain Celestial in North America. It’s been clear for a while the company has been suffering domestically. Yesterday’s cuts to forecasts weren’t the first time the group had revised its expectations. It was in February when Hain Celestial first projected its organic net sales this year would decline after a set of second-quarter numbers – which included a 9% fall in sales in North America – that missed expectations.
“We had previously believed that the return of growth in profitable organic baby formula following ingredient shortages, combined with the lapping of SKU rationalisation in personal care, the timing shift of a major promotion, plus better shelf positioning and efforts to improve the effectiveness of marketing and promotions in snacks would lead to a sustained recovery in the top and bottom lines,” Bernstein analyst Alexia Howard says.
“Instead, we are seeing an ongoing low teen level decline in snacks, which seems to be linked to ongoing issues with promotional effectiveness plus perhaps the general weakness in salty snacks as GLP-1 weight-loss drug uptake increases. We also wonder whether the health and wellness credentials of the Garden Veggies brand is being questioned by consumers since it is essentially a potato chip with some vegetable extracts.”
For now, a cloud of uncertainty hangs over Hain Celestial, with an interim CEO in place, the start of a wide-ranging business review, weak growth outside North America and competitive dynamics in the company’s domestic market it seems to be struggling to meet.
“Despite management change and the portfolio review, it is difficult to see a path for organic revenue recovery for Hain,” Mizuho Securities analyst John Baumgartner says. “Internal expectations are high that regulatory shifts favouring health and wellness are positive but we view any changes as a negative. More stringent ingredients guidelines for non-natural-and-organic peers are only likely to narrow the quality advantages that Hain has held.”
Bernstein’s Howard adds: “It will be some time before the company is on a firmer footing.”
