Shares of Hain Celestial (HAIN), whose brands include Celestial Seasonings and Earth's Best, plunged after the company's earnings and revenue for the second quarter disappointed the Street. The company's new CEO also predicted the weakness would continue. Shares were briefly halted prior to the earnings report.
EARNINGS AND GUIDANCE: Hain Celestial reported second quarter adjusted earnings per share of 14c on revenue of $584.2M, both missing analysts' estimates of 26c and $613.5M, respectively. Looking ahead, it forecast fiscal 2019 adjusted EPS of 60c-70c, well below the $1.14 consensus. Revenue guidance for the fiscal year of $2.32B-$2.35B, a decrease of approximately 4%-6% compared to fiscal 2018, was also below the consensus of $2.45B.
EXECUTIVE COMMENTARY: In the company's earnings statement, Chief Executive Officer Mark Schiller said the company is "not satisfied" with its near-term performance, though he said Hain is starting to see sequential improvement in its numbers and is "working diligently to restore profitable growth in the U.S., while continuing our profit momentum in the United Kingdom and Europe." On the company earnings conference call, Schiller reiterated that the Q2 results were "truly disappointing."
WHAT'S NOTABLE: Hain competes in the snacking and natural food industry with big-name manufacturers like PepsiCo (PEP) and other private label rivals. Additionally, food companies are facing increasing pressures from commodities and transport costs. In this morning's earnings report, Hain called out increased freight and commodity costs in the U.S., which impacted its gross margin. The company said adjusted gross margin for Q2 fell 240 basis points year-over-year to 20.3%.
Last year, founder Irwin Simon stepped down as the company's CEO, news that followed pressure from activist investor Engaged Capital. Engaged subsequently reached a pact with Hain for significant board changes and an exploration of strategic alternatives. Hain's investors bid up the stock last summer on talks of a possible sale. At the time, Jefferies analyst Akshay Jagdale said he believed there would be "significant strategic interest" in Hain and that management "is a willing seller" at the right price. A deal for Hain makes the most sense for Pinnacle Foods , Jagdale told investors in a research note last year, though Pinnacle was later acquired by ConAgra (CAG). In the Fall of 2017, the roster of potential buyers for Hain grew when Bloomberg reported that Nestle (NSRGY) is among the companies exploring a purchase of the health food marketer. Simon hinted that the company may be bought earlier this month, Bloomberg reported. Hain didn't clarify Simon's comments, but said it was planning to simplify the business to focus more resources toward higher margin brands with "mainstream potential."
Earlier this week, JPMorgan analyst Ken Goldman cut his estimates for Hain Celestial "well below the Street" to account for "poor" Nielsen trends and the potential for an earnings rebase by new CEO Mark Schiller. He forecast Q2 earnings per share of 23c and fiscal 2019 earnings per share of 93c. Goldman also dropped his price target for Hain shares to $17 from $19 and kept a Neutral rating on the name ahead of the company's Q2 results.
PRICE ACTION: In early trading, shares of Hain Celestial are down over 16% to $14.90.
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