The Hain Celestial Group (NASDAQ: HAIN) reported fiscal first-quarter results on Monday that showed sharply better margins but a weaker cash position. Meanwhile, the planned sale of its International business is stuck. The PRISM Wellness Index company received the final regulatory approvals for the sale to private equity firm AURELIUS, but it missed an October 12 deadline to amend its credit agreement, so the deal’s completion is no longer certain.

Key Points

• Net sales fell 29% to $260.3 million, with about 22 points of the drop coming from divestitures, discontinued brands and exited categories. Organic net sales fell 7%.
• Gross margin rose 330 basis points to 21.8%, and the net loss narrowed to $11.3 million, or $0.12 per share, from $20.6 million a year earlier.
• Free cash flow was negative $22.8 million. Total debt rose to $586.2 million, and net secured leverage reached 5.3x.
• Hain is still in talks with AURELIUS and its lenders, and it gave no financial guidance.

A Smaller, Higher-Margin Hain

The quarter shows the turnaround plan at work. After selling its North American Snacks business, Hain’s North America segment posted $110.8 million in net sales, down 45.7% as reported and 5.7% organically. However, adjusted EBITDA held flat at $17.3 million, and the segment’s margin nearly doubled to 15.6% from 8.3%. Adjusted gross margin there reached 33.5%.

Across the company, adjusted gross margin rose 320 basis points to 22.8%. “We remain focused on simplifying our operating model and creating a stronger go-forward Hain,” said President and CEO Alison Lewis.

Category Trends Stay Mixed

Even so, demand stayed soft in several categories. Meal Prep, Hain’s largest category at $134.1 million, fell 10.3% organically as spreads and soup weakened overseas, although yogurt grew in North America. Beverages slipped 1.4% to $58.1 million on lower tea sales. Baby & Kids held almost flat at $52.6 million, as growth in North American snacks nearly offset weaker purees.

International Sale Waits on Lenders

The International segment, which Hain plans to sell, posted $149.5 million in net sales, down 8.8%. Its adjusted EBITDA fell 28.6% to $9.0 million. Hain now has every regulatory approval it needs for the AURELIUS deal. But the sale also required Hain to amend its credit agreement with lenders by October 12, and that didn’t happen. As a result, the company is negotiating with both AURELIUS and its lenders, and it says completion is not assured.

Debt Takes Center Stage

That makes the balance sheet the main story for PRISM Wellness Index investors watching Hain. Operating cash flow was negative $18.9 million, compared with negative $8.5 million a year earlier. Net debt rose to $523.2 million from $499.8 million at the end of June, and Hain ended the quarter with $63.0 million in cash. Because it gave no outlook, the lender talks and the AURELIUS deal are now the catalysts to watch.

For more on PRISM Wellness Index companies, see PRISM Mid-Day Movers: Wellness and NextGen Tech & AI are Today’s Leaders.

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