Rising costs hit Hain Celestial earnings

Organic and natural products company Hain Celestial Group Inc. is blaming disappointing third-quarter results on increasing freight, commodity and labor costs, among other factors.

Following the Lake Success-based company’s release of its fiscal third-quarter earnings Tuesday morning, its shares slipped 9.9 percent to $25.80 — a low not seen since June 2012. They closed at $27.45, down more than 4 percent from their Monday close.  

“In the U.S., I’m disappointed with our results in the quarter,” Irwin D. Simon, founder and chief executive officer of the company, said during a conference call with analysts Tuesday.  The company is simplifying its business and boosting efficiencies to improve performance, he said.

Net sales rose 8 percent to $632.7 million in the fiscal third quarter that ended March 31, compared to the $588.8 million in the same period last year.  That figure doesn't include Hain Pure Protein, an organic poultry business that the company plans to sell.

Analysts surveyed by Bloomberg had projected that net sales would be $747.1 million.

While Hain’s international business performed well — sales in the United Kingdom increased 19 percent to $238.3 million — sales in the United States fell 3 percent to $281.1 million, Hain executives told analysts.

Net income was $12.7 million, or 12 cents a share, in the third quarter, a decline from the $31.3 million, or 30 cents, in the same period last year.

“We are doubling down on our efforts to firstly, simplify our portfolio; secondly, reduce costs and complexities to mitigate the costs of headwinds, and thirdly, focus on our core 11 brands and top 500" products, said Gary Tickle, CEO of Hain Celestial North America.

To offset increased freight, commodity and labor costs, the company raised prices on its products, which it expects will improve margins in future quarters, Simon said.

Also, Hain has cut more than 700 products and continues to streamline aggressively, the company said.

The price increases are a good step, but the product cuts should have been steeper earlier, said Zain Akbari, an equity analyst at Morningstar in Chicago.

“So, it appears they were insufficiently aggressive at the outset of the program, which could lengthen the recovery process,” he said.

In February, Hain announced that it was selling Hain Pure Protein as part of its plan to simplify its brand portfolio.

The sale is expected to be completed in the first half of fiscal 2019, Simon said.

The proceeds will be used to pay down debt, buy back stock or pay a special dividend, and make investments in the business.