Hain Celestial(HAIN) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net sales for Q1 2022 were flat year-over-year, better than the guidance of a low- to mid-single-digit decline [7][25] - Adjusted EBITDA decreased by 14% year-over-year to $47 million, slightly better than the guidance of a mid to high-teens decline [28][39] - Adjusted gross margin saw a slight reduction due to industry-wide distribution and warehousing cost pressures, despite an overall gross margin increase of more than 300 basis points in September [26][27] Business Line Data and Key Metrics Changes - North America adjusted net sales decreased by 1% year-over-year, with a reported net sales decrease of 5% due to the lapping of elevated at-home food consumption and strong hand sanitizer sales in the prior year [8][30] - International adjusted net sales increased by 2% year-over-year, with a 14% increase compared to fiscal 2020, driven by strong performance in baby food and refrigerated soup brands [11][33] - Growth brands, which make up about 70% of North American sales, grew 1% year-over-year and 10% compared to two years ago, with strong double-digit consumption growth [9][13] Market Data and Key Metrics Changes - North American sales increased by 8% compared to Q1 2020 after adjusting for foreign exchange movements and divestitures [30] - International sales decreased by 13% on a reported basis but were up 2% when adjusted for currency movement and divestitures [33] - The turbocharged category in North America delivered close to 9% growth versus the prior year, driven by strong performance in the snacks business [31] Company Strategy and Development Direction - The company is focused on its Hain 3.0 strategy, aiming for consistent near double-digit growth in its growth brands [12][22] - Pricing actions have been implemented across virtually every brand in North America, with an average increase of about 6% to 10% [20][76] - The company plans to achieve close to$ 50 million in productivity savings this fiscal year through numerous active projects [21] Management Comments on Operating Environment and Future Outlook - Management expects to see accelerating sales momentum this fiscal year, supported by significant distribution gains and merchandising events [22][39] - The company anticipates additional inflation costs of $20 million to$ 25 million this year, with plans to take further pricing actions to offset these costs [15][39] - Management expressed confidence in the company's ability to deliver adjusted top-line and EBITDA growth despite macro challenges [39][40] Other Important Information - The company repurchased 4.5 million shares during the quarter, totaling $175.6 million, with$ 207 million remaining under the repurchase authorization [37] - Operating cash flow for Q1 was $38 million, a decrease of 8% year-over-year, but an improvement relative to the adjusted EBITDA decrease [35][36] Q&A Session Summary Question: Can you provide clarity on the EBIT margin in international for the second quarter? - Management expects gross margin improvement for international in Q2, but not to the same level as Q1 due to rising ingredient inflation [45][46] Question: How are you managing pricing and volume in light of inflation? - The company is successfully passing on pricing to retailers, with low elasticities observed, but additional inflation has been more than anticipated [54][76] Question: What is the current situation regarding freight costs? - Freight costs are a significant issue, with both inflation and ancillary costs impacting the business, but the company is making progress in filling trucks to reduce costs [66][70] Question: How is the company handling new product launches amid current challenges? - The company is successfully launching new products in North America, although Europe faces more challenges due to labor shortages and Brexit-related issues [78][79] Question: What percentage of sales is coming from new products in Q1? - New products accounted for about 6.5% of sales in Q1, up from 1% in FY'20 and 3.5% in FY'21 [82] Question: How is the labor situation evolving? - The company has filled about two-thirds of open positions and has made significant progress in staffing distribution and manufacturing facilities [86][87]