The company reported a slight net sales increase of +1.4% to $457m for Q4 2022 (ended June 30, 2022) compared to Q4 2021. When adjusted for foreign exchange, acquisitions, divestitures (such as its UK-based fruit business Orchard House), and discontinued brands, net sales decreased -0.6% compared to the prior year period.
The company attributed the decline to continued ongoing supply chain issues, softness in its UK and European businesses, and weaker performance in its plant-based categories.
In North America, net sales in the fourth quarter were $296.9m, a +17% increase compared to the prior year period mainly due to stronger sales in snacks, baby, and personal care categories.
"Without a doubt, it was certainly a difficult business environment. The year began with continued COVID challenges and progressed with extremely high inflation, substantial supply disruptions, and a war that materially impacted the global food industry, especially in Europe," said Mark Schiller, president and CEO of Hain Celestial, on the company's Q4 2022 and FY2022 earnings call.
The challenging circumstances stalled the 'Hain 3.0' long-term growth strategy laid out at the beginning of the year as the company had to quickly pivot to address macro issues and unforeseen obstacles.
"I also want to reiterate that despite the short-term volatility, we remain confident in our Hain 3.0 strategy, our brands, and our team," said Schiller.
Category focus: snacks, tea, baby, yogurt, plant-based, and personal care
Moving forward, Schiller said the company is focused on six key categories that drive 80% of sales and profits: snacks (e.g. Terra chips, Parm Crisps, Thinsters Veggie Straws, Garden of Eatin'), tea, baby, yogurt, plant-based, and personal care
"In Q4, these growth brands in these categories in the US delivered dollar consumption growth of 15% versus a year ago. Velocities for these brands were up 18% in Q4, and we continue to gain significant share on top of share growth last year," said Schiller noting how household penetration across the segments grew 5% in the quarter compared to the past year, "a very important metric given the size of our brands."
"Our most loyal consumers of these brands who purchase more than 3x per year grew 11% in the past quarter. Importantly, buying rate also increased 12%, indicating that as we bring in more consumers to our brands, they're also repeating at a very high rate," added Schiller.
Many of the supply issues previously impacting these categories have been resolved, noted Schiller, and any remaining material shortages will be fully resolved by the end of Q1 2023.
To help catch up with the inflationary environment, another round of additional pricing is set to hit in Q1 2023, added Schiller.
"In summary, we believe that North America is positioned for a stronger 2023, with continued top-line growth and improving profitability as more pricing hits the market in Q1, supply disruptions abate, and our renewed productivity agenda comes to fruition," said Schiller.
In 2023, the company expects mid-single digit growth for its North America business driven by anticipated strong growth in its snacks portfolio and other high-velocity categories.
Schiller added that consumer loyalty towards natural and organic products even in economically challenging times has remained strong.
"If you've made the decision to buy organic and pay the 30% premium, and you have a six-figure income, the likelihood that you're going to say, 'I've decided I don't want to eat organic anymore' would be lower than other tradeoffs that people are going to make," he said.
Challenges in plant-based meat: 'It's been a soft category for a while'
Hain Celestial's plant-based meat (sold and distributed in the UK market) and non-dairy beverage brands (sold in the UK and mainland Europe) are struggling, admitted Schiller.
"It's obviously been a soft category for a while, and that's well-publicized. Whether that is a phenomena of kind of the ups and downs of COVID and recession is something we're analyzing. But we're performing in line with the category which has been struggling," he said.
"We still have confidence in the category."