The Hain Celestial Group, Inc. HAIN wrapped up third-quarter fiscal 2018 on a dismal note. Marking the second straight quarter of a miss, both earnings and sales lagged estimates but improved year over year.
The company reported adjusted earnings per share of 37 cents, missing the Zacks Consensus Estimate of 47 cents. However, bottom-line results improved 5.7% year over year.
Net sales from continuing operations, excluding Hain Pure Protein, increased 8% year over year to $632.7 million, missing the Zacks Consensus Estimate of $751.8 million. The rise in sales can primarily be attributable to mid- to high single-digit increase in the United Kingdom and Rest of World, including the Canada and Europe operating segments. This was partially negated by low-single-digit decline in the United States. The company’s sales increased 2% on a constant currency basis.
Following the dismal results, the stock declined 4.2% on May 8 and also touched 52-week low.Moreover, the company’s shares have tanked 9.9% in a month, wider than the industry’s decline of 2.1%.
Let’s Delve Deep
In the reported quarter, net sales at the United States segment dropped 3% year over year to $281.1 million. Net sales in United Kingdom and Rest of the World segments rose 19% and 15%, respectively, to $238.3 million and $113.3 million.
The company also announced that the divestment of Hain Pure Protein business is expected to close in the first half of fiscal 2019.
Gross profits were down 4.4% year over year to $133 million. Adjusted operating income dropped 4.9% to $56 million, while adjusted operating margin contracted 110 basis points to 8.9%.
The company ended the quarter with cash and cash equivalents of $117.2 million, long-term debt (excluding current maturities) of nearly $723.5 million and shareholders’ equity of $1,875.8 million. Cash flow from operating activities totaled $39 million in the quarter, compared with $44.8 million in the prior-year quarter. Capital expenditures were roughly $23.7 million. The company generated operating free cash flow of $15.3 million in third-quarter fiscal 2018, compared with $31.9 million in the prior-year quarter.
Hain Celestial is committed to its four-point strategic plan. The strategies include investment in top brands and grow globally; delivering on Terra cost savings and productivity; enhancing leadership to deliver on strategic goals; and returning value to shareholders.
Following the third-quarter results, the company adjusted guidance ranges for EBITDA and earnings per share for fiscal 2018, while reiterating net sales projections. For fiscal 2018, the company expects net sales between $2.43 billion and $2.50 billion. Net sales in the United States is expected to remain flat or decline slightly. Meanwhile, United Kingdom and the Rest of World segments are projected to witness growth of high-single digits to low-double digits, compared with the prior estimate of low to mid-single-digit.
Adjusted EBITDA is now projected in the range of $250-$260 million versus the previous $292 million to $307 million.
Cash flow from operation is anticipated in the range of $105-$125 million, the earlier band being $200-$235 million. Meanwhile, management continues to anticipate capital expenditure of approximately $75 million for fiscal 2018.
This Zacks Rank #4 (Sell) company now projects adjusted earnings per share in the range of $1.11-$1.18, compared with the earlier view of $1.39-$1.50, including 8-9 cents of gain from the latest tax reform. The Zacks Consensus Estimate of $1.66 is way above the company’s guided range and is likely to move south in the coming days.
Stocks to Consider
Conagra Brands, Inc. CAG has a long-term earnings growth rate of 8% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Medifast, Inc. MED has a long-term earnings growth rate of 15% and a Zacks Rank #1.
United Natural Foods, Inc. UNFI has a long-term earnings growth rate of 8.2% and a Zacks Rank #1.
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