LAKE SUCCESS, NY — Executives of the Hain Celestial Group, Inc. refer to “get bigger brands” as those that have the most mainstream potential. Marketing support had sales of those brands growing by double-digit percentages in the second quarter ended Dec. 31, 2020.

“Starting before the pandemic and continuing for the last year, we've seen strong sales growth across the ‘get bigger’ portfolio, and there are clear indications that those trends are accelerating,” said Mark L. Schiller, president and chief executive officer, in a Feb. 9 earnings call. “In the most recent quarter, the ‘get bigger’ brands, which represent two-thirds of the sales in North America, grew more than 10% for the fourth straight quarter.”

Marketing support for the ‘get bigger’ brands in North America was nearly 7% of net sales in the second quarter, said Javier H. Idrovo, chief financial officer. He gave Celestial Seasonings, Sensible Portions and Greek Gods as brand examples.

Mr. Schiller said the Hain Celestial brands had a significant presence in the natural channel, with brands rating No. 1 or No. 2 in market share, but they were underdeveloped in mainstream channels.

“We needed to improve our marketing and focus our dollars on the ‘get bigger’ brands, which have the most growth potential,” Mr. Schiller said. “To accomplish this, we've consolidated marketing partners, revamped all our campaigns, refocused our spending on the channels that show the most potential, like e-commerce, and reallocated dollars from the ‘get better’ brands to ‘get bigger’ brands.”

Lake Success-based Hain Celestial in the quarter posted net income from continuing operations of $2.2 million, or 2¢ per share on the common stock, which was up 16% from $1.9 million, or 2¢ per share, in the previous year’s second quarter. Net sales rose 4% to $528.4 million from $506.8 million.

In North America, operating income increased 62% to $32.4 million from $20.1 million while net sales inched up 0.7% to $282.6 million from $280.7 million.

In International, an operating loss of $2.7 million compared with operating income of $12.9 million in the previous year’s second quarter. The operating loss included an impairment charge of $23.6 million related to the reserve recorded against the assets of a United Kingdom fruit business that Hain Celestial sold. The divestiture was completed on Jan. 13 of this year. International second-quarter net sales increased 9% to $245.8 million from $226.1 million.

Divesting the fruit business was an example of Hain Celestial becoming a leaner company by shedding brands. While the company owned 55 brands near the end of 2018, the number is under 40 now.

“So I wouldn't say that we're finished (with the divestitures), but importantly, I would also say we're now pivoting toward conversations around acquisitions and trying to bulk up in the categories that we prioritize,” Mr. Schiller said. “And in some cases, like in Europe, where we have a very strong non-dairy business and a very strong meat-free business, there's potential to acquire capacity so that we can continue to grow at the rate that we have been.”

He also spoke about recent challenges in distribution and the supply chain.

“We have freight costs that are escalating at a very rapid rate, and there are significant challenges getting anything from China right now,” Mr. Schiller said. “There's been a number of articles written on that. The ports are backlogged. Luckily for us, in preparation for the lockdown, we went long on things like packaging and raw materials that come out of China so that we would be ready for the surge. So we're in pretty good shape there, but if that endures for a much longer period of time, if the freight costs endure for a longer period of time, those could be headwinds as well.”

Companywide for the six months ended Dec. 31, Hain Celestial sustained a loss of $8.6 million, which compared with a loss of $3.1 million in the same period a year ago. Net sales of $1.03 billion were up 3.9% from $988.9 million.

Hain Celestial will not provide specific financial guidance for fiscal year 2021 due to the uncertainty around the duration and impact of COVID-19. The company expects double-digit adjusted EBITDA and operating free cash flow growth for the fiscal year. The company expects strong gross margin and EBITDA margin improvement and adjusted EBITDA growth near 10% in the third quarter.