The Hain Celestial Group, Inc. (HAIN) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a strategic shift with a positive outlook. The divestiture of the snacks portfolio is expected to improve financial health, focusing on higher-margin categories. The company plans to reinvest in innovation and marketing, with a focus on demand fulfillment categories like tea and yogurt, which are showing growth. The reduction in net debt and positive free cash flow expectations are also favorable. Although some concerns were raised in the Q&A, the overall sentiment is positive, with strategic plans likely to enhance financial performance and shareholder value.
Key Financial Performance
Organic Net Sales Declined 7% year-over-year, driven by a 9-point decrease in volume mix and a 2-point increase in price. The decline was attributed to lower sales in both North America and International segments.
Adjusted Gross Margin 19.5% in the second quarter, a decrease of approximately 340 basis points year-over-year. The decline was due to cost inflation, lower volume mix, and unfavorable fixed cost absorption, partially offset by productivity and pricing.
SG&A Expenses Decreased 13% year-over-year to $61 million, driven by a reduction in employee-related expenses and non-people cost discipline. Represented 15.9% of net sales compared to 17% in the prior year.
Adjusted EBITDA $24 million in the second quarter, down from $38 million a year ago. The decrease was primarily due to lower gross margins, partially offset by a reduction in SG&A expenses. Adjusted EBITDA margin was 6.3%.
North America Organic Net Sales Declined 10% year-over-year, primarily due to lower volume in snacks and baby formula, partially offset by growth in beverages. Excluding snacks, the decline would have been 3%.
North America Adjusted Gross Margin 20.8%, a 440 basis point decrease year-over-year. The decline was driven by lower volume mix, cost inflation, and unfavorable fixed cost absorption, partially offset by productivity savings and pricing.
International Organic Net Sales Declined 3% year-over-year, primarily due to lower sales in baby and kids. This was an improvement from the 4% decline in the first quarter.
International Adjusted Gross Margin 18.1%, a 200 basis point decrease year-over-year. The decline was driven by cost inflation, unfavorable fixed cost absorption, and lower volume mix, partially offset by productivity savings and pricing.
Free Cash Flow $30 million in the second quarter, an increase of 22% compared to $25 million in the prior year. The improvement was driven by inventory delivery, higher cash earnings, and improved payables.
Net Debt Reduced by $32 million to $637 million. Over the last 10 quarters, net debt has been reduced by $140 million.
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Operating Highlights
Tea: Continued growth in North America tea, with Celestial Seasonings bagged tea showing dollar sales growth due to wellness innovation.
Yogurt: Growth in North America, with Greek Gods yogurt showing high teens percent growth in dollar and unit sales.
Baby and Kids: Growth in Earth's Best finger foods and cereal in North America, and Ella's Kitchen finger food showing high teens growth year-over-year.
North American Snacks Divestiture: Sold to Snackruptors for $115 million in cash, representing 22% of fiscal 2025 net sales but negligible EBITDA contribution. Proceeds to reduce debt and strengthen financial position.
International Business: Sequential improvement in top and bottom line trends, with stabilization in wet baby food category in the U.K.
Forecast Accuracy: Improved by 4 points quarter-over-quarter, reaching the highest level in several years.
Inventory Management: 4-day improvement in days inventory outstanding in North America and 9 days internationally, driving improved cash flow.
Service Levels: North America achieved over 96% service levels, the best in recent history.
SG&A Reduction: 13% year-over-year improvement, contributing to operational efficiency.
Portfolio Simplification: Focused on tea, yogurt, and baby and kids categories, while developing the meal prep platform.
Debt Reduction: Proceeds from North American snacks sale to reduce debt, with leverage expected to fall from 4.9x to approximately 4x.
Operational Discipline: Enhanced processes in forecast accuracy, inventory management, and service levels to establish a foundation for long-term growth.
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Risk or Challenges
Strategic Review and Portfolio Simplification: The company is undergoing a strategic review to simplify its portfolio, which includes divesting its North American snacks business. While this aims to strengthen financial flexibility and reduce debt, it also poses risks of losing market share and revenue from the divested segment, which represented 22% of net sales in fiscal 2025.
Volume-Driven Deleverage: The company faces near-term pressures from volume-driven deleverage in certain parts of its portfolio, particularly in North America snacks and baby formula. This has negatively impacted gross margins and EBITDA.
Cost Inflation and Fixed Cost Absorption: Cost inflation and unfavorable fixed cost absorption have led to a decrease in gross margins, particularly in North America and International segments. This poses a challenge to profitability.
Debt and Financial Leverage: The company has a high debt level, with net debt at $637 million and leverage at 4.9x. While steps are being taken to reduce debt, the upcoming credit agreement maturity in December 2026 adds financial risk.
Decline in Key Categories: Organic net sales have declined in key categories such as snacks (down 20%) and baby and kids (down 14%), driven by distribution losses, velocity challenges, and industry-wide softness in wet baby food.
Restructuring Costs: The company has incurred $103 million in restructuring charges to date, with total charges expected to rise to $115-$125 million. This adds to financial strain in the short term.
Regulatory and Market Uncertainties: The company operates in a highly regulated industry and faces market uncertainties, which could impact its ability to execute its turnaround strategy effectively.
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Guidance & Outlook
Revenue and Margin Projections: The divestiture of the North American snacks business is expected to be gross margin and EBITDA accretive. The go-forward North American portfolio is projected to have a gross margin above 30% and EBITDA margin in the low double digits.
Debt Reduction and Financial Flexibility: Proceeds from the North American snacks business sale will be used to reduce debt, lowering leverage from 4.9x to approximately 4x. Additional asset sales and operational improvements are planned to further enhance financial flexibility and address upcoming credit agreement maturity.
Second Half Fiscal 2026 Performance: Stronger top and bottom line performance is expected in the second half of fiscal 2026, driven by cost management, productivity, and execution of strategic initiatives. Positive free cash flow is anticipated for the full year.
Operational Improvements: Actions such as SKU simplification, revenue growth management, targeted pricing, and productivity initiatives are expected to improve margins in the second half of fiscal 2026.
Strategic Review and Portfolio Simplification: The company is advancing a multistage plan to simplify its portfolio, focusing on fewer categories, brands, and SKUs. This includes further asset sales to enhance financial flexibility and support long-term growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What led to the decision to divest the snacks portfolio, given its previous focus as a growth category?
A:The decision to divest the snacks portfolio was driven by the need to simplify the portfolio and focus on areas with higher growth potential. Snacks, being an impulse category, required heavy innovation, strong marketing investment, and DSD-like merchandising, which were not core strengths of the company. Additionally, the snacks business had become financially challenging, with overreliance on the club channel and lower gross margins. By divesting snacks, the company aims to focus on higher-margin categories and improve its financial profile.
Q:How will the divestiture of the snacks portfolio impact innovation and resource allocation in the remaining categories?
A:The divestiture will free up $20-25 million in stranded costs, which the company plans to mitigate within 6-12 months. This will allow for increased investment in innovation and marketing for the remaining categories. The company is doubling down on innovation in areas like single-serve yogurt, wellness tea, and Earth's Best snacks, which are driving share growth and incrementality.
Q:Was the snacks divestiture influenced by pressure from the bank group?
A:No, the divestiture was not pressured by the bank group. It was a strategic decision made after a review of the portfolio to focus on areas where the company has a stronger right to win.
Q:What is the financial impact of the snacks divestiture on cash generation and leverage?
A:The snacks business was not a significant cash-generating business due to its lower margin profile. The divestiture will improve the company's leverage, reducing it from 4.9x to 4x on a pro forma basis. The company also highlighted strong cash delivery in Q2 and plans to continue focusing on inventory reductions and payables.
Q:What are the characteristics of categories the company plans to focus on post-divestiture?
A:The company plans to focus on demand fulfillment categories with less competitive intensity. Key areas include tea, yogurt, and Earth's Best baby and kids products, where the company has strong market positions and growth potential. For example, the tea business is a top 3 player, yogurt is experiencing double-digit growth, and Earth's Best snacks and cereals are also growing.
Q:What is the company's plan for meal prep, and how does it fit into the growth strategy?
A:The company sees meal prep as an exciting growth area and plans to focus on innovation in this category. Examples include launching liquid coconut oil under the Spectrum brand and expanding the MaraNatha product line. The divestiture of snacks will allow the company to allocate more resources to meal prep and other growth opportunities.
Q:What is the outlook for the baby and kids business, considering current challenges?
A:The baby and kids business is expected to return to growth after cycling transitory challenges. In the U.K., the Ella's brand will cycle the impact of a BBC documentary by Q4. In North America, the company is focusing on double-digit growth in snacks and mid-single-digit growth in cereals, while working to stabilize the formula and pouch segments. Innovation and targeted marketing are key strategies.
Q:What is the expected timeline for mitigating stranded costs from the snacks divestiture?
A:The company plans to mitigate the $20-25 million in stranded costs within 6-12 months. These costs are primarily in SG&A and distribution, and the company has detailed action plans to address them.
Q:What is the expected financial performance of the North America business post-divestiture?
A:Post-divestiture, the North America business is expected to have gross margins above 30% and EBITDA margins in the low double digits, after mitigating stranded costs.
Q:What is the company's strategy for driving sequential improvement in the second half of the fiscal year?
A:The company plans to drive sequential improvement through innovation, pricing actions, and improved promo efficiency. Key initiatives include expanding single-serve Greek Gods yogurt, launching new Earth's Best snacks, and introducing liquid coconut oil. The company also expects margin improvements from better manufacturing absorption and waste reduction.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the question about whether the snacks divestiture was influenced by pressure from the bank group. While they stated it was a strategic decision, they did not provide detailed clarity on the role of the bank group in the timing or necessity of the sale.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Earth finger
Snackruptors
absorption productivity
agreement snack
baby kid
cash delivery
cost absorption
debt maturity
decrease reduction
delivery cash
discipline
divestiture
eve margin
finger food
flexibility
food cereal
forma
formula
improvement SGA
increase
inflation cost
leverage profile
liquidity
margin digit
market strength
multistage plan
percent
phase review
position
pricing productivity
proceeds
profile portfolio
return market
service level
simplification pricing
snack eve
snack sale
snack step
tea yogurt
transaction
turnaround
HAIN Transcript
The Hain Celestial Group, Inc. (HAIN) Q2 2026 Earnings Call Transcript
Positive2-9
The earnings call reflects a strategic shift with a positive outlook. The divestiture of the snacks portfolio is expected to improve financial health, focusing on higher-margin categories. The company plans to reinvest in innovation and marketing, with a focus on demand fulfillment categories like tea and yogurt, which are showing growth. The reduction in net debt and positive free cash flow expectations are also favorable. Although some concerns were raised in the Q&A, the overall sentiment is positive, with strategic plans likely to enhance financial performance and shareholder value.
The Hain Celestial Group, Inc. (HAIN) Q1 2026 Earnings Call Transcript
Unknown11-7
The earnings call reflects mixed signals: a decline in net sales and adjusted EBITDA, coupled with cost inflation, negatively impact sentiment. However, the company is implementing cost reductions and restructuring, which may improve future performance. The Q&A indicates some optimism for improvement in the second half of the year and stable pricing elasticities. Despite the financial challenges, there is no strong negative sentiment from analysts. The strategic execution risks and financial challenges temper any positive impact from the restructuring efforts, leading to a neutral sentiment overall.
The Hain Celestial Group, Inc. (HAIN) Q4 2025 Earnings Call Transcript
Unknown9-15
The earnings call summary indicates several concerns: a lack of specific guidance on key metrics, ongoing strategic reviews without updates, and expected leverage increases in the short term. Despite initiatives like SKU rationalization and cost reduction, these are offset by distribution losses and restructuring efforts. The Q&A highlights management's avoidance of specifics, contributing to uncertainty. Overall, the sentiment leans negative due to the uncertainties and short-term financial pressures.
The Hain Celestial Group, Inc. (HAIN) Q3 2025 Earnings Call Transcript
Unknown5-7
The earnings call indicates several challenges: declining sales, underperformance in key segments, unresolved execution issues, and leadership transition. Despite some strategic initiatives and debt reduction efforts, the lack of clear guidance and unresolved supply chain and inflation issues weigh negatively. The Q&A reveals further execution weaknesses and management's inability to provide clear future guidance, exacerbating uncertainty. Overall, the negative aspects outweigh any positives, leading to a predicted stock price movement of -2% to -8%.
HAIN Slides
HAIN Report
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