Hain Celestial has forecast that the first half of its upcoming financial year will be impacted by ongoing efforts to streamline its product offerings and address supply challenges within its infant formula sector. According to Chief Financial Officer Lee Boyce, during a call with analysts on August 27, the owner of the Earth’s Best brand anticipates a “pivot to growth in fiscal 2025”; however, both the initial quarters are likely to underperform compared to the latter half of the year.
Boyce highlighted expectations for the initial quarter, predicting “negative organic net sales growth at a similar rate of decline year-over-year as in the fourth quarter of fiscal 2024.” Specifically, in the fourth quarter that concluded in June, Hain Celestial recorded a 2% decline in net sales on an organic basis.
The second quarter is expected to see growth at a “flattish” rate as the company progresses with its Hain Reimagined 2027 strategy. Boyce mentioned that “promotional activity in snacks” that was initially slated for the first quarter has shifted to the third quarter, presenting a headwind for the first quarter while leaving the full year unaffected.
In terms of the company’s future strategy, Hain Celestial’s portfolio simplification initiatives will primarily influence the first half of the year. CEO Wendy Davidson noted that supply within infant formula will experience recovery throughout this period, supporting the Earth’s Best brand growth in the latter half.
For fiscal 2025, Hain Celestial is anticipating net sales growth to trend “flat or better.” Furthermore, adjusted EBITDA is projected to increase by mid-single digits, and gross margin is expected to grow by “at least 125 basis points.”
In the twelve months ending June 30, 2024, the company reported a 3% decline in year-on-year net sales, amounting to $1.74 billion, while the fourth quarter alone saw a 6% decrease at $419 million. Davidson referred to the infant formula division as a “pain point” since her appointment in 2023, though she expressed optimism regarding supply availability. “We do, across our formula, have multiple supply options and toddler formula, and we’ve got some redundancy in our infant formula locations,” she stated.
Additionally, the company is currently holding extra inventory of its core SKUs in infant formula to create a buffer as supply becomes available. Hain Celestial’s baby food division faced a 11% decline in full-year organic net sales, attributed predominantly to challenges in infant formula supply.
This segment struggled significantly in North America, where it reported poorer performance compared to its international division. For fiscal 2024, organic net sales in North America fell by 6% from the previous year, totaling $1.06 billion, while adjusted EBITDA decreased from $123 million to $99 million. The company indicates that its infant formula and personal care divisions have been detrimental to performance, prompting ongoing efforts to streamline operations in the latter segment.
Earlier this year, Davidson outlined plans to further consolidate the portfolio as part of ongoing brand maintenance. This latest initiative encompasses baby food, meal preparation, snacks, and beverages, all aimed at establishing a “winning portfolio of brands” while simplifying the company’s operational footprint.
Internationally, Hain Celestial’s net sales dipped 4.2% in the fourth quarter, contrasting a 7.8% decline in the U.S. market. Analyst Alexia Howard from AllianceBernstein noted signs of recovery in the private label oat milk business across Europe but projected that any EBITDA growth in fiscal 2025 would primarily stem from improvements in North America throughout the year.
Total net losses for Hain Celestial improved from $117 million to $75 million this year, while adjusted EBITDA decreased from $167 million to $155 million. Adjusted earnings per share fell to $0.33 from $0.50 the previous year. Mizuho Securities analyst John Baumgartner commented that given the tough challenges faced in fiscal 2024, the initial fiscal 2025 forecasts are achievable but will require careful execution to restore investor confidence in sustainable growth and to position Hain as a promising growth story.
In summary, Hain Celestial is navigating through supply challenges and portfolio restructuring to align with shifting food and beverage industry trends. Their focus remains on improving sales, increasing market share, and becoming responsive to evolving food and drink consumer trends as they move forward into fiscal 2025.
