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Hain Announces 3rd Quarter Results, Major Reorganization

Jeff Klineman

Natural foods giant Hain Celestial announced a major reorganization today, informing shareholders that the company planned to take its sprawling family of brands and classify them under five different headings. Company CEO Irwin Simon also announced that a sixth group would act as a venture capital shop, although with part of its mission to incubate some of Hain’s own holdings.

The company also announced it would seek to spin off about $30 million in brands that no longer fit its operating footprint.

The move comes as many food companies are seeking to re-orient their brand portfolios to meet with shifts in consumer demand. Recently major conglomerates like Campbell Soups and General Mills have undergone similar grooming of their brands’ family trees.

Company CEO Irwin Simon said that Hain had a strong third quarter but that a strategic review, called “Project Terra,” had identified nearly $100 million in global cost savings that could be achieved over a three-year period. That will be headed by newly-appointed COO James R. Meiers.

The full release can be found below:

LAKE SUCCESS, N.Y., May 4, 2016 — The Hain Celestial Group, Inc. (NASDAQ: HAIN), a leading organic and natural products company with operations in North America, Europe and India providing consumers with A Healthier Way of Life™, today reported results for its third quarter ended March 31, 2016.

Third Quarter Performance Highlights

  • Net sales of $750.0 million, a 13% increase, or 15% on a constant currency basis, over prior year period net sales of $662.7 million. Net sales were impacted by $13.9 million of foreign exchange rate movements versus a year ago.
  • Hain Celestial US net sales increased by 2.7% on a constant currency basis over the prior year period.
  • Earnings per diluted share of $0.47, a 47% increase over the prior year period, or on an adjusted basis$0.49, a 9% increase over the prior year period. Foreign currencies impacted reported results by $0.01 per diluted share.
  • Operating income of $69.0 million, or 9.2% of net sales; adjusted operating income of $80.4 million, or 10.7% of net sales.
  • Strong nine month operating cash flow of $131 million, an increase of 87% over the prior year period.

“Our net sales reflect the strong performance across our businesses led by Hain Celestial United States, Hain Pure Protein, Hain Celestial United Kingdom and Hain Celestial Europe as well as Hain Celestial Canada,” saidIrwin D. Simon, Founder, President and Chief Executive Officer of Hain Celestial. “The diversification of our product portfolio with leading organic, natural and better-for-you brands around the world, combined with our team’s solid execution of our operational initiatives fueled our financial performance. We are extremely pleased with our US results where we returned to growth in the third quarter and expect these trends to continue.”

Third Quarter 2016 The United States segment reported third quarter net sales of $351.9 million. In the United Kingdom segment, net sales were $208.4 million. Hain Pure Protein reported net sales of $113.6 million, and the Rest of World segment reported net sales of $75.9 million. The Company had strong branded sales in constant currency led by Imagine®, Plainville Farms®, Terra®, Garden of Eatin’®, Tilda®, Yves®, FreeBird®, The Greek Gods®, Spectrum® and Sensible Portions® brands as well as its personal care brands, Alba Botanica® and Jason®. Net sales of Joya® brand and the Orchard House Foods business, both acquired after the third quarter of fiscal year 2015 also contributed to the net sales growth.

The Company earned net income of $49.0 million, a 47% increase, and adjusted net income of $50.6 million, a 9% increase, compared to the prior year period. Earnings per diluted share for the third quarter were $0.47, a 47% increase compared to the prior year period. On an adjusted basis earnings per diluted share for the third quarter were $0.49, a 9% increase compared to the prior year period. Refer to “Non-GAAP Financial Measures” section in this press release for reconciliations.

Project Terra As previously communicated, the Company commenced a strategic review under Project Terra and has identified approximately $100 million in global cost savings, which it expects to achieve during fiscal years 2017 through 2019. These initiatives are expected to include optimizing plants, co-packers and procurement and rationalizing the Company’s product portfolio, and reinvesting these incremental savings into the business to further brand building efforts and household penetration. Effective immediately, James R. Meiers has been appointed to the newly-created position of Chief Operations Officer for Hain Celestial reporting to Irwin Simon, with responsibility for achieving the cost savings across the Company’s worldwide operations.

The strategic review has also resulted in the Company redefining its core platforms for future growth based upon consumer trends to create and inspire A Healthier Way of Life™. The core platforms are now defined by common consumer need, route-to-market or internal advantage and are aligned with the Company’s strategic roadmap to continue its leadership position in the organic and natural, better-for-you industry.

Beginning in fiscal year 2017, the Company plans to establish five strategic platforms within Hain Celestial US with the purpose to drive accelerated net sales and margin growth. The platforms will be:

  • Fresh Living—includes poultry, yogurt, plant-based proteins and other refrigerated products;
  • Better-for-You Baby—includes infant foods, infant formula, diapers and wipe products that nurture and care for babies and toddlers;
  • Better-for-You Snacking—wholesome products for in-between meals;
  • Better-for-You Pantry—core consumer staples; and
  • Pure Personal Care—personal care products focused on providing consumers with cleaner and gentler ingredients.

In addition, the Company will launch Cultivate Ventures (“Cultivate”), a venture unit whose purpose is threefold: (i) to strategically invest in the Company’s smaller brands in high potential categories such as SunSpire® chocolates and DeBoles® pasta by giving them a dedicated, creative focus for refresh and relaunch; (ii) to incubate small acquisitions until they reach the scale for the Company’s core platforms; and (iii) to invest in concepts, products and technology, which focus on health and wellness.

The Company has also identified certain brands representing approximately $30 million in sales, which no longer fit into its core strategy for future growth, and it intends to sell these as a group.

“We are excited about the launch of our new platforms in fiscal year 2017, which are uniquely aligned with consumer eating habits and usage needs,” commented Irwin Simon. “We believe our platforms represent distinct opportunities for incremental growth and margin improvement. We expect this new approach will enable us to define more distinct channel strategies for our branded product offerings, and ensure that we continue to extend our organic and natural industry leadership position.”

Fiscal Year 2016 Guidance The Company updated its fiscal year 2016 guidance expectations:

  • Total net sales range of $2.946 billion to $2.966 billion, an increase of approximately 9% to 10% as compared to fiscal year 2015, and
  • Earnings per diluted share range of $2.00 to $2.04, an increase of approximately 6% to 9% as compared to fiscal year 2015.

Guidance is provided on a non-GAAP basis and excludes acquisition-related expenses, integration and restructuring charges, start-up costs, unrealized net foreign currency gains or losses, reserves for litigation matters and other non-recurring items, including any product recalls or market withdrawals, that have been or may be incurred during the Company’s fiscal year 2016, which the Company will continue to identify as it reports its future financial results. Guidance excludes the impact of any future acquisitions.

The Hain Celestial Group, Inc. The Hain Celestial Group (NASDAQ: HAIN), headquartered in Lake Success, NY, is a leading organic and natural products company with operations in North America, Europe and India. Hain Celestial participates in many natural categories with well-known brands that include Celestial Seasonings®, Earth’s Best®, Ella’s Kitchen®, Terra®, Garden of Eatin’®, Sensible Portions®, Health Valley®, Arrowhead Mills®, MaraNatha®, SunSpire®, DeBoles®, Casbah®, Rudi’s Organic Bakery®, Gluten Free Café™, Hain Pure Foods®, Spectrum®, Spectrum Essentials®, Walnut Acres Organic®, Imagine®, Almond Dream®, Rice Dream®, Soy Dream®, WestSoy®, The Greek Gods®, BluePrint®, FreeBird®, Plainville Farms®, Empire®, Kosher Valley®, Yves Veggie Cuisine®,Europe’s Best®, Cully & Sully®, New Covent Garden Soup Co.®, Johnson’s Juice Co.®, Farmhouse Fare®, Hartley’s®, Sun-Pat®, Gale’s®, Robertson’s®, Frank Cooper’s®, Linda McCartney®, Lima®, Danival®, Joya®, Natumi®, GG UniqueFiber®, Tilda®, JASON®, Avalon Organics®, Alba Botanica®, Live Clean® and Queen Helene®. Hain Celestial has been providing A Healthier Way of Life™ since 1993. For more information, visitwww.hain.com.

Safe Harbor Statement Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictions based on expectations and projections about future events, and are not statements of historical fact. You can identify forward-looking statements by the use of forward-looking terminology such as “plan”, “continue”, “expect”, “anticipate”, “intend”, “predict”, “project”, “estimate”, “likely”, “believe”, “might”, “seek”, “may”, “remain”, “potential”, “can”, “should”, “could”, “future” and similar expressions, or the negative of those expressions. These forward-looking statements include the Company’s beliefs or expectations relating to (i) the Company’s growth trends, initiatives and strategies with respect to Project Terra and its strategic platforms; (ii) the Company’s ability to achieve approximately $100 million in global cost savings; and (iii) the Company’s guidance for net sales and earnings per diluted share for fiscal year 2016. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, levels of activity, performance or achievements of the Company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, general economic and financial market conditions; competition; our ability to respond to changes and trends in customer and consumer demand, preferences and consumption; our reliance on third party distributors, manufacturers and suppliers; the consolidation or loss of a significant customer; our ability to introduce new products and improve existing products; availability and retention of key personnel; our ability to effectively integrate our acquisitions; our ability to successfully consummate any proposed divestitures; liabilities arising from potential product recalls, market withdrawals or product liability claims; outbreaks of diseases or food-borne illnesses; potential litigation; the availability of organic and natural ingredients; our ability to manage our supply chain effectively; changes in fuel, raw material and commodity costs; effects of climate change on our business and operations; our ability to offset input cost increases; the interruption, disruption or loss of operations at one or more of our manufacturing facilities; the loss of one or more of our independent co-packers; the disruption of our transportation systems; risks associated with expansion into countries in which we have no prior operating experience; risks associated with our international sales and operations, including foreign currency risks; impairment in the carrying value of our goodwill or other intangible assets; our ability to use our trademarks; reputational damage; changes in, or the failure to comply with, government laws and regulations; liabilities or claims with respect to environmental matters; our reliance on independent certification for our products; a breach of security measures; our reliance on our information technology systems; effects of general global capital and credit market issues on our liquidity and cost of borrowing; potential liabilities not covered by insurance; the ability of joint venture investments to successfully execute business plans; dilution in the value of our common shares; and the other risks detailed from time-to-time in the Company’s reports filed with the Securities and Exchange Commission, including the annual report on Form 10-K for the fiscal year ended June 30, 2015. As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity and achievements of the Company, and neither the Company nor any person assumes responsibility for the accuracy and completeness of these statements.

Non-GAAP Financial Measures: This press release and the accompanying tables include non-GAAP financial measures, including adjusted operating income, adjusted net income, adjusted earnings per diluted share, adjusted EBITDA (defined below) and operating free cash flow. The reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures are presented in the tables “Reconciliation of GAAP Results to Non-GAAP Measures” for the three months and nine months ended March 31, 2016 and 2015 and in the paragraphs below. Management believes that the non-GAAP financial measures presented provide useful additional information to investors about current trends in the Company’s operations and are useful for period-over-period comparisons of operations. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded. They should be read only in connection with the Company’s Consolidated Statements of Income presented in accordance with GAAP.

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