This morning, worse than expected Q2 earnings and tepid guidance along with news that the company would explore the divestiture of its Pure Protein business has shares of organic product company Hain Celestial (HAIN 35.37, -0.99 -2.7%) moving modestly lower.
Interestingly, on the conference call following earnings, HAIN management commented that the company has received “a tremendous amount of interest in [Pure Protein] business.” The company announced plans this morning for exploring the divestiture of its Hain Pure Protein business as it attempts to simplify its brand portfolio. Management didn’t make much further comments to the business divestiture but highlighted that the Pure Protein business saw net sale increase 4% in Q2 to about $159.0 million. Further, segment operating income increased to $5.3 million or 50% from the prior year period of $3.5 million, and adjusted operating income increased 256% to $12.6 million due to improvements in operating expenses across the business.
Switching gears back to earnings, HAIN reported worse than expected Q2 earnings of $0.41 per share on mostly in-line revenues of $775.2 million. Revenues were up 4.8% in the quarter, or 2% on a constant currency basis, primarily reflecting mid-single digit net sales increases from the company’s United Kingdom, Canada and Europe and Hain Pure Protein operating segments, partially offset by a low single digit decrease from the United States segment. Further, gross margin were 18.6% and adjusted gross margin were 20.2%.
Investors scrutinized the U.S. business the most in Q2. Net sales at the U.S. business were down 3% compared to last year to $270.3 million; net sales adjusted for acquisitions, divestitures and certain other items decreased 5%. Growth from the Tea, Pure Personal Care and Better-For-You Baby platforms including Celestial Seasonings, Terra, Garden of Eatin, Alba Botanica, Avalon Organics, Live Clean and Earth's Best brands was offset by declines from Sensible Portions, Spectrum and The Greek Gods brands in Better-For-You Snacking, Better-For-You Pantry and Fresh Living platforms, despite growth from MaraNatha and Arrowhead Mills brands.
In addition, the declines in the U.S. were being driven by the strategic decision to no longer support certain lower margin stock keeping units (SKUs) in order to reduce complexity and increase gross margins as the company continues its focus on its top 500 SKUs in the United States.
In the UK, net sales were up 12% to $238.2 million compared to last year, reflecting 13% growth from Tilda, 15% growth from Ella's Kitchen and 12% growth from Hain Daniels. Net sales for Hain Celestial UK, on a consolidated basis, were up 5% compared to last year, adjusted for both foreign exchange and acquisitions and divestitures.
HAIN’s net sales for its Rest of World segment grew 12% to $107.7 million compared to last year, or by 6% on a constant currency basis. Net sales for Hain Celestial Canada grew 6%, driven by strong performance from Yves Veggie Cuisine, Sensible Portions and Live Clean brands. Net sales for Hain Celestial Europe grew 5%, driven by the Joya and Natumi brands as well as own-label products.
As to guidance, HAIN gave expectations for in-line FY18 earnings of $1.64-1.75, including a $0.08-0.09 benefit from tax reform (from the previous $1.63-1.80 expectation). Revenues are still expected between $2.967-3.036 billion. Further, management sees low to mid singly digit growth in the U.S. in fiscal 2018 and sees the online business tripling in the next few years as the company ramps up investment in that area.
Into the print, shares of HAIN had been down about 6.0% during the last 52 weeks.