lake success, n.y. — Like other consumer packaged goods companies reporting earnings this period, the Hain Celestial Group found strength in international markets. In the United States, the company’s largest market, the manufacturer of specialty foods remains challenged.
Key corporate initiatives outlined this past June to improve corporate performance included focusing on products and brands that represent 90% of the company’s business, stock-keeping unit (s.k.u.) rationalization and cost elimination through its Project Terra program.
“While the U.S. business is not yet growing at the level of our international business or my expectations, we expect these investments to pay significant returns in the future periods,” said Irwin D. Simon, chairman, president and chief executive officer, during a Feb. 7 conference call with financial analysts to discuss results.
Net income for the quarter ended Dec. 31, 2017, totaled $47,103,000, equal to 45c per share on the common stock, an increase compared with the same period of the previous year when the company earned $27,185,000, or 26c per share.
Sales for the quarter rose slightly to $775,204,000 during the quarter from $739,999,000.
“We believe we’re making the right strategic changes and investments in our go-to-market strategy with particular emphasis in the U.S. to support the shift in consumer purchasing dynamics and evolving retail landscape,” Mr. Simon said. “We acknowledge these efforts will take some time to yield results, but we are encouraged with what we are seeing in our business.
“As I mentioned earlier, a key piece of creating stronger and more profitable Hain Celestial is simplifying our business. Part of this strategy requires us to walk away from overly complex and low-margin s.k.u.s (stock-keeping units). As a result, our team remains intensely focused on the growth and investment behind our top 11 brands and our top 500 s.k.u.s in the U.S.”
Sales in the company’s U.S. business group fell to $270.3 million from $278.6 million the year prior. Brands that were challenged during the quarter included Sensible Portions, Spectrum and Rudi’s Organic Bakery.
“Firstly, Sensible Portions was down $6.5 million year-on-year,” said Gary W. Tickle, c.e.o. of Hain’s North American business. “We experienced supply issues related to one copacker and we continued to cycle through the loss of distribution at one large mass customer.
“Secondly, Spectrum net sales were down double digits around $2 million, driven primarily by the category decline in coconut oil, which is declining around 23%. However, we continue to grow share in coconut oil as we cycle extensive changes from our rebranding initiatives for the total Spectrum oil offering.
“Thirdly, Rudi's Organic Bakery net sales were down double digits, around $2.8 million as a result of lower velocities and some distribution losses. Our team continued to work on regaining distribution including the development of a new D.S.D. model for Rudi’s in fresh bread with a new product formulation commencing in late Q3 for the Northeast region.”
To strengthen the company’s business in North America Hain Celestial has added 120 s.k.u.s to its rationalization program. The added s.k.u.s bring the company’s total to over 700, and they are all expected to be phased out by the first quarter of 2019. Stock-keeping unit rationalization represented a $4.4 million drag to North American segment net sales versus the prior year and $1.7 million of which was from the incremental s.k.u.s added during the quarter, according to the company.
The company also announced plans to divest its Hain Pure Protein meat business.
“The category for fresh, organic, antibiotic-free protein remains strong,” Mr. Simon said. “While we continue to believe this is a highly attractive business with very good growth potential as you saw in our numbers last quarter, we have determined it is not core to our go-forward strategy. We have received a tremendous amount of interest in this business. We believe the strategic move will enhance shareholder value as we position Hain for future growth.”
During the second quarter Hain Pure Protein generated sales of $159 million, reflecting a 15% sales increase from Plainville Farms, 17% from FreeBird and 7% from Empire Kosher brands, partially offset by a decrease in private label sales, according to the company. Segment operating income increased to $5.3 million.
Sales in the company’s United Kingdom and Rest of the World business segments were $238.2 million and $107.7 million, respectively. They reflected increases of 12.2% and 12.1% over the previous year.