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Hain Celestial Group Inc. shares slid 8% Tuesday to their lowest level since January of 2013, after the company’s fiscal third-quarter earnings fell far short of estimates as it grappled with commodity inflation and higher freight costs.
The organic and natural products company known for its herbal teas, is the latest this earnings season to highlight inflationary pressures, coming after similar comments from the likes of PepsiCo Inc., Hershey Co. and UPS, among others.
Hain said it had net income of $12.7 million, or 12 cents a share, in the quarter, down from $31.3 million, or 30 cents a share, in the year-earlier period. Adjusted per-share earnings came to 37 cents, well below the 47 cents FactSet consensus.
Sales rose 8% to $632.7 million, below the $746 million FactSet consensus.
The company said mid to high single digit sales increases in the U.K and the rest of the world, which includes Canada and Europe partially offset a low single digit sales decline in the U.S.
“Our performance in the United States reflects the ongoing efforts to reduce business complexities and drive greater efficiencies in light of higher freight and commodity inflation,” Chief Executive Irwin Simon said in a statement. “We are taking aggressive action to address the challenging environment, including optimizing our pricing to offset these higher costs.”
Jefferies analysts said the miss was even worse that it appeared, as the company is treating its Hain Pure Protein (HPP) business as discontinued, as it is planning to sell it. That business contributed a net loss of 12 cents a share, which would reduce the 37 cents adjusted EPS number to 25 cents.
“Relative to our estimates, the miss was primarily driven by significantly higher-than-expected corporate expense ($0.13/share drag) and the US ($0.10/share drag),” analysts led by Akshay Jagdale wrote in a note.
The company’s guidance was another disappointment, said Jefferies, which rates the stock a buy with a price target of $40, which is now 46% above its trading level.
Hain adjusted its guidance to exclude HPP, and updated its adjusted EPS guidance to reflect “the results of current operations, continued higher investment in marketing and brand awareness,” mostly in the U.S., as well as the previously mentioned freight and commodity price headwinds.
The company is now expecting fiscal 2018 sales of $2.434 billion to $2.503 billion, down from previous guidance of $2.967 billion to $3.036 billion. It expects adjusted EPS of $1.39 to $1.50, down from earlier guidance of $1.64 to $1.75. The FactSet consensus is for 2018 sales of $2.992 billion and EPS of $1.65.
Hain also revised its adjusted EBITDA guidance, which it defines as EBITDA (earnings before interest, taxes, depreciation and amortization) before acquisition-related expenses, including integration and restructuring charges, and other nonrecurring items. It expects fiscal 2018 adjusted EBITDA of $292 million to $307 million, down from earlier guidance of $340 million to $355 million.
Jefferies said that adding back HPP EBITDA suggests that management’s new EBITDA guidance is about $303 million, compared with its estimate of $344 million and consensus of $334 million, which is lower by about $45 million or 13%.
Shares have fallen 28% in the last 12 months, while the S&P 500 has gained 11% and the Dow Jones Industrial Average has gained 16%.