HAIN CELESTIAL GROUP INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Wendy discussed key messages including second quarter results, category performance, progress on Hain Reimagine strategy, and building blocks for growth in the back half of fiscal 2025.
• Segments saw mixed performance: snacks hindered by in-store marketing and promotion issues; baby and kids showed sequential improvement with infant formula supply recovery; beverage had short-term service issues but resolved; meal prep saw sequential improvement with strong soup growth; personal care is being explored for strategic options.
• Actions taken include improving in-store marketing activation, adding production capacity, reorganizing supply chain, and shifting marketing spend to social for better engagement.

Segment Performance

• North America: Organic net sales declined 9% year over year. Adjusted gross margin was 25.2%, a 40 basis point increase versus the prior year, driven by productivity partially offset by pricing due to trade spend. Adjusted EBITDA in North America was $25 million as compared to $31 million in the year-ago period. The year-over-year decline resulted primarily from pricing and deleverage on lower volume partially offset by productivity. Adjusted EBITDA margin was 11%, a 60 basis point increase year over year.
• International: Organic net sales declined 4% in the quarter, driven primarily by lower sales in meal prep and short-term service challenges. International adjusted gross margin was 20%, approximately 160 basis points below the prior year period, driven by inflation and deleverage on lower volume and mix, partially offset by productivity. International adjusted EBITDA was $23 million, a decrease of 13% compared to the prior year period, as deleverage on lower volume and product mix more than offset productivity. Adjusted EBITDA margin was 12.4%, down approximately 160 basis points year over year.

Guidance

• For fiscal 2025, organic net sales are expected to be down 2% to 4%.
• Adjusted EBITDA is expected to be flat year over year.
• Gross margin is expected to expand by at least 90 basis points year over year.
• Free cash flow is expected to be at least $60 million.
• The company expects gross margin and adjusted EBITDA to improve sequentially with a material step up in Q4.

Risks

• Short-term supply challenges in the international segment.
• Soft in-store performance in snacks due to marketing and promotion ineffectiveness.
• Macro-economic volatility impacting consumer sentiment and market conditions.
• Potential issues with the effectiveness of marketing spend shifts in the snack segment.

Question and Answer

• Q: Jim Salera asked about poor in-store performance in snacks and confidence in back half promo effectiveness. A: Wendy responded that awareness was strong but needed conversion-driven marketing, with distribution gains and shifted marketing to social and lower funnel activities.
• Q: Andrew Lazar asked about unforeseen challenges in the back half and cadence of organic sales growth. A: Wendy and Lee discussed built-in caution due to macro environment, with sequential improvement expected, particularly in Q4.
• Q: Kaumil Gajrawala asked about P&L and margin management with promo shift. A: Wendy said they shifted to more effective marketing within the normal spend envelope, focusing on conversion-driven activities.
• Q: Matt Smith asked about broad-based growth in second half. A: Wendy and Lee highlighted drivers like infant formula recovery, snack distribution gains, beverage marketing, and soup growth.
• Q: Alexia Howard asked about marketing pivot effectiveness in snacks and distribution center impact. A: Wendy said improved consumption trends seen, distribution center improves speed to shelf and productivity; Lee mentioned back half margin expansion tied to pipeline.
• Q: Andrew Wolf asked about Celestial Seasonings ingredient shortage and personal care strategic review. A: Wendy explained ingredient shortage was internal execution mistake resolved, personal care strategic review begun with bank engagement.