Q1 2027 The Hain Celestial Group Earnings Conference Call - HAIN CELESTIAL GROUP INC

Hello, everyone. Thank you for joining us and welcome to the Haines Celestial first quarter 2027 earnings call. I will now hand the conference over to Michael Kaiser. Michael, please go. Good morning and thank you for joing us for a review of our first quarter, 2027 results. I'm joined by Allison Lewis, President, Chief Executive Officer, and Lee Boyce, Chief Financial Officer. During the course of this call, management may make forward-looking statements within the meaning of federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance and condition. These statements are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially from such statements. Please refer to the company's annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed with the SEC, as well as the press release issued this morning for additional discussion of the risks. We have also prepared a presentation inclusive of additional supplemental financial information, which is posted on the companyís corporate website at haine.com under the Investors heading. today's remarks will focus on non-gap or adjusted financial measures unless noted as reported reconciliations of non-gaap financial measures to gap results are available in the earnings release and the slide presentation accompanying this call this call is being webcast and an archive will be made available on the website and now i'd like to turn the call over to allison Thank you, Mike. Good morning, and thanks for joining the call. Today, we will provide an update on our strategic review before discussing the results for the quarter. On our last earnings call, we announced that we reached a definitive agreement to sell our international business to global private equity firm Aurelius. Earlier this month, the final required regulatory approval were received, satisfying the regulatory approval condition to closing. However, as previously noted, the transaction is conditioned upon entering into an amendment of our credit agreement by October 12, 2026. While this condition was not satisfied, we remain in discussions with Aurelius and we continue to pursue a path forward for completing the transaction. If completed, the transaction would result in a more focused north america business allowing us to concentrate our resources behind our strongest brands and categories while using proceeds to reduce debt we also remain in discussions with our lenders regarding our capital structure and we continue to evaluate and pursue all available paths to manage our financial position we will provide an update as appropriate During the quarter, we took actions to align our organization and cost structure with the scale and needs of the future North America business. We implemented approximately half of the targeted $16 million annual run rate of SG&A cost improvements. We remain on track and expect the majority of these actions to be completed during fiscal 2027, with full realization by the first half of fiscal 2028. Turning now to our performance, the first quarter results demonstrate progress against our strategy to simplify our portfolio and create a more focused business with stronger underlying economics. Gross margin and adjusted gross margin improved by 330 basis points and 320 basis points respectively year over year, reflecting the benefits of portfolio simplification, including the sale of our North America snacks business. At the same time, we are concentrating our resources behind our core brands and the categories where we have the strongest positions and demonstrate the greatest potential. During the quarter, the performance in our core brand showed encouraging signs as our actions to accelerate renovation and innovation, implement strategic revenue growth management, and strengthen our digital capabilities gained traction. We saw continued growth in yogurt in North America and a return to growth for Ella's in international. These results provide tangible evidence of the progress we are making against our commercial priorities. Turning to North America, organic net sales declined 6% year over year, reflecting several headwinds that affected our reported results. These included a temporary supply disruption in yogurt, unseasonably warm weather impacting the hot tea category, and the cycling of prior year pricing and customer inventory builds in tea. Despite the supply disruption, Greek gods grew by a mid-single digit percent versus the year ago period, while gaining market share. Supplies and strengths are now behind us, and we expect Greek gods to return to its historical growth trajectory. With consumer demand continuing to increase, our focus is on driving strong commercial execution and advancing innovation to support sustained growth in the category. In T, broader category softness, warmer seasonal weather, and the comparison against prior year pricing customer inventory builds weighed on reported sales. improved as the quarter progressed while wellness t remained a standout building on last year's launches and three new wellness innovations this year we gained share to 18 of the category and continued to expand distribution in baby and kids share and distribution losses in certain segments remained challenged in a highly competitive category to address these challenges in our earth's best portfolio we will prioritize investment in cereals purees and finger foods where we have strong positions and see continued opportunities through innovation and improved execution we are also prioritizing marketing investment behind our core brands and proven avenues for growth marketing work in the first quarter focused on strengthening the foundation of our brands, including advancing comprehensive restages of Celestial Seasonings and Earth's Best. These efforts are intended to sharpen each brand's consumer proposition, modernize packaging and communications, and create a stronger platform for innovation and distribution growth. The commercial benefits of this work are expected to build in future quarters. Our digital transformation is also demonstrating potential as a proven avenue for growth. Across our largest pure play e-commerce customer, our core businesses are growing faster than their respective categories with sales in T and our priority earth's best baby and kids platforms growing more than 30% year over year. Turning to international, organic net sales declined 7% year over year reflecting weakness in certain parts of the portfolio specifically spreads and drizzles however a majority of our core brands maintained or grew market share in the quarter compared to the prior year period notably ella's kitchen returned to growth with net sales increasing by high single digit percent supported by innovation new distribution and improved wet food and finger food performance. We will look to build on this success through the remainder of the fiscal year. Innovation is making a measurable contribution. The international segment's innovation renewal rate, which is a measure of the percent of net sales coming from new or relaunched SKUs in the last three years, reached 14%, improving for the ninth consecutive quarter, with 27 new SKUs listed during the quarter. Launches included Hartley's high protein jelly and fruit spreads, Yorkshire Provender casseroles, and New Covent Garden's lunch pot. Retailer support for this innovation helped secure additional distribution. Inflation remains a challenge, with elevated energy, freight, and packaging costs continuing to pressure results energy costs in particular remain well above historical levels although timing and pace of normalization remain uncertain as we move forward we are prioritizing volume recovery while applying pricing selectively across our international brands for the remainder of the second quarter our priorities are straightforward address the upcoming debt maturities progress towards the anticipated close of our international sales, advance our SG&A cost realignment, and continue to improve execution behind our core brands. Our immediate priority remains our financial position and the December maturity of our credit facilities. As mentioned, we are engaged in discussions with our lenders regarding our capital structure and with Aurelius regarding international transactions. We will provide updates when we have material information to share. With that, I will turn the call over to Lee. Thank you, Alison. During the quarter, we made progress towards the realignment of our cost structure to match the size of our North American business. We took action to achieve $8 million of the targeted $16 million of annual run rate SG&A cost improvement, incurring one-time charges of $1.5 million to achieve them. As Alison mentioned, we remain on track with previously stated targets and timelines. These actions are being taken to simplify our operating model and strengthen the financial profile of our North American business, implying pro forma gross margin of approximately 30% plus and low double digit percent adjusted EBITDA margin once complete. We also completed all actions to remove the entirety of the $25 million in stranded overhead costs, resulting from the sale of the North American snacks business. These actions were completed well ahead of our previously anticipated schedule. Turning now to our performance. For the first quarter, organic mix sales declined 6.7% year-over-year, comprised of an approximately 7% decrease in volume mix, partially offset by an increase in pricing. Adjusted gross profit margin was 22.8% in the first-quarter. This represents a 320 basis point increase year- over-year. The year-over-year increase was driven primarily by the North American snacks divestiture, partially offset by high international energy costs, coupled with lower year- over-year sales of higher-margin meal prep brands. SG&A decreased 6% year-of-year to $62 million in the first quarter, primarily driven by a reduction in employee-related expenses. We delivered adjusted EBITDA of approximately $18 million in the first quarter, compared to $20 million a year ago. The decrease was driven primarily by lower volume mix and cost inflation, partially offset by productivity savings. EBITDA margin was 6.8%, a 140 basis point increase from the prior year. Interest and other financing expense decreased 21% year-over-year to $12 million in the quarter, reflecting higher financing fees in the prior-year period. Adjusted net loss, which excludes the effect of restructuring charges amongst other items, was approximately $7 million in the quarter, or $0.07 per diluted share, as compared to adjusted net loss of $7,000,000 or $.08 per dilute share in the prior year period. Turning now to our individual reporting segments, in North America, organic net sales declined six percent year over year primarily driven by lower sales in baby and kids beverages and meal prep first quarter adjusted gross margin in north america was 33.5 an increase of 1080 basis points versus the prior year period the increase was driven by the north american snacks transaction partially offset by lower volume mix. Adjusted EBITDA in North America was $17 million, representing 15.6% of net sales versus 8.3% of Net Sales a year ago. The increase resulted primarily from the reduction in SG&A, as well as productivity savings and pricing partially offset by lower volume mix in our international business organic net sales declined seven percent year over year driven by lower sales in meal prep partially offset by growth in baby and kids and beverages international adjusted gross margin was 14.9 percent and the 80 basis point decrease versus the prior year period the decrease was driven primarily by cost inflation and lower volume mix partially offset by productivity savings adjusted EBITDA and international was nine million dollars reflecting a decrease of 29 percent compared to the prior-year period and representing six percent of net sales The decrease was driven primarily by a decrease in gross profit associated with lower volume mix and cost inflation, partially offset by productivity savings. Now turning to category performance. In baby and kids, organic net sales were down one percent year over year, driven primarily buy purees in North America, partially offset buy growth in earth's best snacks. the beverages category organic net sales were down one percent year over year driven by tea in north america and international partially offset by growth in private label non-dairy beverage in international in meal prep organic net cells declined by 10 year over a year driven primarily by spreads and drizzles and soup in international partially upset by growth in yogurt in north america as a reminder following the sale of north american snacks business the snacks categories comprised solely of jellies in the international segment where organic net sales were down 16 year over year lastly we made the decision to wind down our personal care business the business had become increasingly subscale with a competitive position that no longer supported the level of investment required to drive attractive growth cash on hand at the end of the first quarter was 63 million dollars and net debt was 523 million dollars an increase of 23 million dollars of five percent since the beginning of the fiscal year driven by seasonality of working capital needs we remain in compliance with all credit agreement covenants net leverage was 5.3 times at the end of the quarter we continue to prioritize debt reduction and are evaluating all possible paths to do so as mentioned we remain in discussions with our lenders regarding our capital structure and we will provide an update when there is a material information to share looking ahead we remain focused on addressing our upcoming debt maturity completing the sale of our international business and advancing our cost reduction work given ongoing discussions with lenders and the pending international sale we will not be hosting a q a session this quarter the update we provided on today's call and in our sec filings is the extent of the detail that we are able to share publicly we will provide relevant updates as we are able. Finally, Alison and I wish to thank our employees, customers, consumers, and other stakeholders for their continued support. Thank you. A reminder, there will be no Q&A session today. This concludes today's call. Thank You for attending. You may now disconnect.