Food and Beverage Business

Hain Celestial reduces organic growth forecast due to challenges from SKU streamlining

Hain Celestial reduces organic growth forecast due to challenges from SKU streamlining Hain Celestial Food and Beverage Business

Hain Celestial has revised its full-year organic growth guidance due to ongoing struggles in the company’s baby-formula segment. The downgrade to 1%, from a range of 2% to 4% in its second-quarter results, is a result of the challenges faced by president and CEO Wendy Davidson to reduce “lower-margin” SKUs under her Hain Reimagine transformation initiative.

The North America sales saw a decrease of 5.2% to $267.7M compared to the previous year, primarily due to lower sales in baby formula. Hain Celestial’s president and CEO, Davidson, mentioned that the baby-formula impact was short-term and expects a pivot to growth in the back half, despite the challenging macroeconomic environment.

Snacks, including Garden Veggie and Terra brands, also contributed to the sales decline in North America as Hain Celestial “shifted our promotional strategy and optimized our channel mix for improved trade efficiency and profitability”.

The company also lowered its guidance for adjusted EBITDA to $155-160m, and the free cash flow outlook to $40-45m, compared to $50-55m.

On the positive side, the baby and kids sector saw strength in baby food and purees, particularly in toddler snacks under Hain Celestial’s Ella’s Kitchen brand in the UK and Earth’s Best in the US.

The “Hain Reimagined” initiative is in its “foundational year”, according to Davidson, and we can expect to see “incremental investments in capabilities for the build pillar in the back half of the year to support accelerated growth”. The company is also “stepping up investment” in Q3, which will drive a “sequential improvement in volume”.

Analyst Jon Andersen sees the results as “early signs of progress” and the initiatives taken so far “point to an inflection to positive organic sales and EBITDA growth in the second half of the fiscal year”. However, other analysts have expressed disappointment over the guidance reduction and stock-keeping unit cuts.

Hain Celestial’s shares fell in the wake of the growth downgrade and reported second-quarter net loss of $13.5m, turning from a positive $11m in the prior year quarter. Adjusted EBITDA fell to $47.1m from $49.8m, while the margin took a 60-basis point hit to 10.4%.

The food and beverage industry is facing ongoing challenges, but with strategic initiatives and investment, Hain Celestial remains confident in its ability to achieve its multi-year financial objectives.

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