During the company’s first quarter ending Sept. 30, net sales in North America climbed 9% to $288.4m year-over-year, or about 3% once adjusted for foreign exchange, acquisitions, divestitures and discontinued brands, helping to offset an expected 20% decline in international net sales, which eases to about a 7% drop after adjustments.
Despite an overall dip of 3% in net sales to $439.4m compared to the same time last year, company executives were upbeat about the remainder of the year in call with investment analysts yesterday and reaffirmed the business’ annual profit guidance with a few “continued caveats” that account for the unusually volatile environment.
“We live in a volatile world, and there are many sources of potential upside and downside based on things outside of our control. The challenge includes currency fluctuations, consumer behavior, recessions, inflation, the Russia-Ukraine war, just to name a few,” CEO Mark Schiller intoned during the company’s Q1 earnings call.
“That said,” he added, “we’re doing a good job controlling the controllables and now have more visibility than we did just a few months ago and are optimistic that we’ll begin to see some normalizing.”
Supply chain improvements, price increases bolster North American sales
He attributed much of the growth in the North American market to improvements in the supply chain for several brands, including Terra, which saw net sales climb 27% in the quarter – the highest for the brand in almost four years – after the resolution of extended supply disruptions. Sensible Portions consumption also grew double-digits, as it has for the past three years, despite some supply challenges in the quarter.
Improvements in Hain Celestial’s internal supply chain, streamlined factories that allow for higher throughput and less waste and more “productivity as resources are freed up from fighting supply issues,” also helped boost the company’s gross margins in North America to 22.7%, a 130-basis point increase from the prior year.
As with other aspects of the business, this helped soften the overall decline in Hain Celestial’s margin, which came in at 8.3%, representing a 210-basis point drop from the prior year.
Finally, Schiller attributed the success in North America to additional pricing during the first quarter and elasticities that “remain relatively low and in line with our planned assumptions.” He added that more pricing is coming across the company’s global portfolio, which should help further bolster the company’s results in the back half of the year.
Q2 could dip before improvements in back half of year
While Schiller is optimistic about the North American business for the full year, and pleased with the Q1 performance, he cautioned it could soften slightly in the second quarter as it laps high demands from the same period last year.
For example, the company expects continued shortages on baby formula with less inventory to sell in Q2 than it has had available in previous quarters, as well as a dip in tea sales due to warmer weather and overlapping the Omicron COVID surge from last year.
However, Schiller added, “we’re working with our retail partners on how to bet improve the shelf set and merchandise the category to optimize the upcoming season.”
Looking forward, Schiller said he expects additional improvements in the back half of the year as inflation eases slightly.
“The input costs are starting to crest, and while we expect second half inflation to still be up double digits, it should be lower than we experienced in the first half,” Schiller said. In addition, he said he expects fewer supply disruptions as global demand eases.
Given these improvements, Hain Celestial reaffirmed its full year guidance of adjusted net sales and adjusted EBITDA on a constant currency basis of -1% to +4% compared to last year.