CPG giant Hain Celestial’s efforts to turnaround a “reimagined” version of its better-for-you baby food, beverage and yogurt business is off to a rocky start, although leadership is optimistic the recently announced sale of its snack business will lead to sequential improvements in the back half of the year.
The company yesterday reported a 7% decline in organic sales in its second quarter ending Dec. 31 over the same period last year. The drop was driven by a 20% year-over-year decline in its snack segment, a 14% decline in baby and kids’ food and a 1% dip in meal prep, partially offset by growth in beverages.
The sales pressure, combined with cost inflation and lower volume mix, squeezed the adjusted gross margin to 19.5% for the quarter, down 340 basis points year over year.
The results come at a time when the company is conducting a “comprehensive strategic review” of its business with the “goal of simplifying our portfolio, enhancing our financial flexibility, reducing our leverage profile and maximizing shareholder value,” CEO Alison Lewis told investment analysts Feb. 9 during the company’s quarterly call.
The company dubbed the undertaking “Hain Reimagined,” which centers on five strategies to get the company back on track, including streamlining the portfolio; accelerating brand renovation and innovation; implementing strategic revenue growth management and pricing; driving productivity and working capital efficiency; and strengthening the company’s digital capabilities.
Lewis said the “first visible step” in the company’s reboot is a definitive agreement to sell its North American snacks business to Snackrupters, announced last week.
“This divestiture marks a pivotal moment for Hain as we focus to regrow. The simplified portfolio that emerges in North America following the divestiture is stronger financially with a more robust margin and cash flow profile to drive growth,” she said.
“The financial profile of the remaining portfolio in North America is meaningfully stronger and expected to deliver EBITDA margin in the low double digits, underpinned by gross margins above 30%,” she projected, adding: “Our North America business will be healthier financially and more focused as we concentrate on three flagship categories: tea, yogurt, and baby and kids, while we continue to develop our meal prep platform. This portfolio remains diverse across life stages, is aligned with better-for-you trends, and is quite GLP-1 resistant, meeting evolving consumer needs.”
Despite her optimism, the company declined to offer numeric financial guidance for the remainder of fiscal 2026, “given the uncertainty around the outcome and timing of the completion of our strategic review,” CFO Lee Boyce said on the call.
However, he stressed, the strategic review and related actions are “enhancing our flexibility and improving performance through initiatives to stabilize sales, improve profitability, optimize cash and reduce debt.”
Boyce and Lewis also suggested the sale of the North American snack business is just the beginning.
“We are engaging in ruthless focus, fewer categories, fewer brands and fewer SKUs, enabling concentration on areas that better align with our strengths and core capabilities. We are making tangible progress in improving our operational health and enhancing cash delivery. The actions we have taken will drive a structural reset of our margins. And we continue to identify and remove costs from the business, freeing up fuel to invest,” Lewis stressed.
Analysts question snack exit
Hain Celestial’s divestment of its snack business raised questions by some investment analysts given its prior emphasis on snacks as a growth engine.
“If we go back to the Investor Day in 2023, you guys called out a couple of different categories to focus on as you grow. Snacks was one,” and then “over the preceding years, there has been a lot of focus on innovation in the snacks portfolio – getting better placement and away from home, things like,” Jim Salera, an equity research analyst at Stephens, said during the quarterly call.
“Clearly, something has changed,” he added, asking for help to “bridge” the about-face.
Lewis said the impulse nature of the snack category required “a lot of capabilities” that “are more difficult for us to develop.”
She explained, “impulse categories are fundamentally demand creation categories, and you need to have really heavy and intense innovation. You need to have strong marketing investment consistently. You need to have DSD-like merchandising to drive again, kind of that impulse purchase.”
She also noted that Hain had become “over-reliant on the club channel” for its snack business, which is “really great when you have that business, really challenging when you don’t.”
These requirements are different from the remaining categories in Hain’s portfolio, she argued.
“If you look at sort of the rest of our portfolio, it tends to be more center of store in North America and center of store categories are fundamentally demand fulfillment. Demand’s already there, and it’s not quite as competitively intense,” she said,
Could other categories face a similar fate?
Analysts also pressed management on the baby and kids’ food segment, which posted a 14% organic sales decline — not far behind snacks.
Lewis noted the decline in baby and kids was driven primarily by industry-wide softness in wet baby food in the UK and formula in North America, but finger food and cereal in North America grew low double digits in dollar sales in the quarter year over year.
She added that innovation in the company’s remaining categories also are “driving incrementality” and share growth. Although similar claims were made about snacks prior to its divestiture.
Lewis acknowledged that SKU rationalization is likely within baby and kids’ food, particularly in pouches, but suggested a targeted approach rather than a full exit.
The underlying concern for investors appeared to be whether Hain’s reversal on snacks reflects a broader pattern – committing capital and innovation to categories only to exit them.
