Hain Celestial is entering a new phase of its turnaround strategy that is focused on innovation-led growth grounded in on-trend functional benefits – signaling a shift from years of cutting costs, rationalizing SKUs and shedding underperforming businesses, including most recently its snack segment in February.
“The work we have accelerated in innovation is a clear differentiator in our turnaround. We have significantly stronger renovation and innovation pipelines, meaningful new news to re-energize core categories, recent launches delivering early share gains and a clear focus on continuing to scale these wins to drive sustainable growth,” CEO Alison Lewis said yesterday during the company’s third quarter earnings call.
The breadth, speed and ongoing support of innovation is possible in part thanks to the divestiture of the snacks business, which included a line-up of well-known, better-for-you brands, including Garden Veggie Snacks, Terra chips and Garden of Eatin’ snacks.
“We are looking to take some of the benefit of the simplification actions that we’ve taken in North America, not only from the sale of snacks, but also the SKU rationalization and use that more productive portfolio and gross margin profile to invest a little bit back into the business,” she said, adding: “We are going to be balanced in doing that, but we believe that investment is an important part of our growth story to support that innovation.”
Early innovation wins
Early returns from this strategic shift include a 2.5 percentage point increase in the percent of net sales from SKUs launched or relaunched in the last three years to 12% in the third quarter from a year ago, Lewis said.
Dollar sales gains in the high single digits and segment share gains in the quarter for wellness teas were a “bright spot” within the company’s performance and reflect the potential of Hain’s refocus on innovation, Lewis said.
“Building upon this momentum, Celestial Seasonings is expanding its wellness platform with innovation launching beginning this month in gut health and throat support, further broadening its presence in these high-growth segments. This builds upon the successful wellness launches this year in emerging benefit areas of detox, energy and women’s wellness,” she said.
Other early innovation wins include a new high-protein offering under its Greek Gods yogurt brand that delivers 20 grams of protein per serving along with the brand’s expansion from mainly multi-serve packs to single-serving options.
Upcoming innovation
Looking forward, the company is “energized” by the upcoming launch of the baby and children’s food brand Earth’s Best Big Kid Finger Food, which will include protein and fiber for “high-density nutrition” that is “designed to extend the brand into new consumption occasion beyond baby and toddler into kids’ backpack territory,” Lewis said.
The company also plans to roll out “significant innovation, including clean label and protein offerings” in branded non-dairy beverages, added CFO Lee Boyce.
He also noted the company plans to “upgrade” its core jelly offerings internationally with a cleaner ingredient list and the addition of a protein collagen jelly that will deliver 10 grams of protein per serving.
Can marketing ensure sustainable gains?
Hain plans to support the new launches with substantial marketing and increased distribution over the next three years “to make sure that it sticks and is sustainable,” Lewis said.
“We have been able to increase our marketing investment in North America and we’re putting that investment against the innovation. We’ve worked out ways where we can get a halo on the base brand but also drive the innovation,” Lewis said.
She added the same will hold true for international marketing, which has been relatively flat year-over-year, but which Hain Celestial is looking to accelerate alongside innovation.
“As we continue to launch innovation, as we continue to keep the marketing investment on the business, we do expect that we’ll continue to see the results we’ve seen as we go forward,” she added.
How effective is Hain’s strategy?
But are those results, and other efforts that are part of Hain Celestial’s effort to “reimagine” its business enough?
The balance sheet offers mixed results and promise.
In the third quarter, revenue fell 13% year over year to $338 million – missing consensus estimates of $359.2 million. Organic net sales also were down 6% year-over-year and adjusted gross profit margin dropped 90 basis points to 21%.
Despite the declines, the company’s shares shot up 12% in premarket trading on Monday after it reported its third-quarter earnings, which came in ahead of analyst expectations.
The better-than-expected results suggests that Hain has figured out how to staunch its losses and offer investors a promising road map, even if this quarter’s losses follow a 7% decline in sales in pervious quarter.
Because the company’s strategic review is ongoing, executives declined to offer numeric guidance for the remaining year.
Nonetheless, Boyce said the company expects the divestiture of the North American snacks business to be gross margin and EBITDA accretive and the profile of the new portfolio to have a gross margin above 30% and EBITDA margin in the low double digits.
He added that in fiscal 2027, the company’s “fundamental priorities will be continuing to stabilize sales through its five actions to win, thereby setting the foundation for future growth, driving gross and EBITDA margin improvement versus fiscal 2026, generating cash and eliminating started costs.”
Lewis reinforced this, noting, “we are making tangible progress on our turnaround, strengthening our foundation through improved operating, strong cash generation and ongoing net debt reduction.”
