Hain Celestial Group Inc 2026 Q4 Earnings Call

Alexis, please go ahead. Good morning, and thank you for joining us for a review of our fiscal fourth quarter and full year 2026 results.

I am joined this morning by Alison Lewis, our President and Chief Executive Officer, and Lee Boyce, our Chief Financial Officer. Slide 2 shows our forward-looking statements disclaimer. As you are aware, during the course of this call, we will make forward-looking statements within the meaning of federal securities law. These include expectations and assumptions regarding this company's future operation and financial performance and condition. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations.

Please refer to our most recent annual report on Form 10-K, our annual report on Form 10-K expected to be filed today, our quarterly reports on Form 10-Q, and our other reports filed from time to time with the SEC, as well as the press release issued this morning for a detailed discussion of the risks. We have also prepared a presentation inclusive of additional supplemental financial information, which is posted on our website at hain.com under the Investors heading. As we discuss our results today, unless noted as reported, our remarks will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying this call. This call is being webcast and an archive will be made available on the website. Now I'd like to turn the call over to Alison.

Thank you, Alexis. Good morning, everyone, and thank you all for joining the call today. Fiscal 2026 was a pivotal year for Hain. Over the past 12 months, we took decisive actions to simplify our portfolio, pay down debt, improve execution, drive greater cost discipline, and sharpen our strategic focus. While there is more work ahead, we are exiting the year with improving momentum, stronger cash generation, and a clear plan to drive growth and profitability in the go-forward business. Earlier today, we announced that we reached a definitive agreement to sell our international business to a private equity firm, Aurelius, for $323 million in cash. This transaction would represent an important step in the evolution of Hain, and when coupled with the fiscal Q3 divestiture of our North American snacks business, would mark a significant milestone in the simplification and strengthening of our portfolio.

We believe we found a strong home for our international business in Aurelius, and I want to thank our international employees for their dedication, passion, and contributions to Hain over many years. They have built remarkable brands, which we are confident will thrive under the new ownership. The sale is expected to be completed in our fiscal second quarter, and proceeds from the transaction would be used to further reduce debt. As noted in our announcement, the transaction is conditioned upon securing an amendment for our credit agreement to extend the maturity, and we remain in active discussions with our lenders regarding that amendment. Once the transaction is closed, the resulting portfolio would be a North American business comprised of leading brands in attractive categories with a more streamlined operating model and a greater focus on core growth opportunities.

Importantly, the strength of this portfolio was demonstrated in our fourth quarter results. North America returned to organic sales growth, expanded gross margin by nearly 1,200 basis points, and increased adjusted EBITDA by 55% year-over-year. These results reflect the benefits of a streamlined portfolio, stronger execution, productivity initiatives, and disciplined cost management. Looking forward, the simplified portfolio will allow us to concentrate our resources and management attention on the areas where we see the greatest potential to create value. Fiscal 2026 also marked a year of substantial balance sheet improvement. We reduced net debt by $151 million through a combination of actions resulting from our strategic review and strong free cash flow generation of $58 million. This free cash flow improvement was driven by a number of factors, including tighter working capital management, meaningful inventory reduction, productivity initiatives, and disciplined cost control.

These factors not only drove cash generation in the year but strengthened our operational foundation. The international transaction would further reduce debt significantly and position us to continue the ongoing transformation of our portfolio and capital structure. Our focus will now shift to simplifying the organization and aligning our cost structure with the scale of the future North America business to drive growth and profitability. Turning now to our performance. As I mentioned earlier, we exited fiscal 2026 with improved momentum across many areas of the business. Additionally, we made significant progress against our strategic priorities, including portfolio simplification, debt reduction, cash generation, and operational improvement. During the quarter, we delivered sequential improvement in organic net sales growth across the business as our five actions to win continued to gain traction across the organization.

These actions include simplifying our portfolio, accelerating renovation and innovation, implementing strategic revenue growth management, driving productivity and working capital efficiency, and strengthening our digital capabilities. Importantly, we see measurable results from these initiatives. Our innovation renewal rate, or IRR, expanded year-over-year in both North America and international to a high single digit and low teen percentage, respectively, for fiscal 2026. IRR is a measure of the percent of net sales coming from new or relaunched SKUs in the last three years and a strong validation that our innovation is delivering results. E-commerce sales delivered strong double-digit growth in Q4 year-over-year with our largest pure-play and omni-channel customers in North America, reflecting the progress of our digital transformation initiatives. Productivity efforts in supply chain continue to deliver substantial COGS reduction.

While the environment remains dynamic and challenges persist in certain categories, these results reinforce our confidence that the actions we are taking are beginning to strengthen the business and build the foundation for future growth. In North America, organic net sales returned to growth in Q4, increasing 2% year-over-year. For the full fiscal year, North America organic net sales were effectively flat, representing a meaningful improvement from prior years. Our yogurt business remained a standout performer. The Greek Gods delivered strong double-digit growth along with share gains and remains an excellent example of how innovation, brand investment, and disciplined commercial execution can drive sustained results. We are seeing emerging strength across the rest of our core business, including Celestial Seasonings Tea, which delivered growth in both the quarter and the year, driven in part by the success of our wellness tea innovation.

Earth's Best Finger Foods, the largest piece of our Earth's Best business, with strong double-digit growth supported by the continued success of our self-feeding platform. More broadly, the quarter reinforced our confidence in the potential of our go-forward North American portfolio. Within our International segment, while organic net sales for Q4 declined 4% year-over-year, the decline moderated sequentially by roughly 400 basis points relative to the third quarter trends. We saw improved performance sequentially across meal prep, beverages, and baby and kids. While spreads and drizzles remains a challenge category, we are encouraged by the early response to our Hartley's renovation and innovation launched in the fourth quarter. Combined with the improvements we are seeing across the broader portfolio, the International business is positioned well for its new ownership. We were also pleased with the improvement in profit margins delivered during the quarter.

Gross margin and adjusted EBITDA margin both expanded year-over-year, driven by improvement in North America. As expected, following the Snacks divestiture, North America delivered significant improvement in profitability, reinforcing our confidence in the earnings power of the underlying portfolio and the benefits of a more focused business model. Consistent with trends throughout fiscal 2026, the vast majority of the year's gross margin and adjusted EBITDA pressure remain concentrated within International, where inflation, productivity shortfalls, and unfavorable mix continued to weigh on profitability. More broadly, fiscal 2026 demonstrated that the actions we have taken are producing early tangible results. Exiting 2026, we see indications that the business is stabilizing, profit margins are improving, and we have a stronger operating foundation.

As we enter fiscal 2027, our focus is on building on the progress made over the past year while completing the work required to establish a focused, appropriately scaled North American Hain. Following the completion of the International transaction, our portfolio would be concentrated on leading better-for-you brands in attractive categories, including The Greek Gods yogurt, Celestial Seasonings tea, and Earth's Best finger foods and cereal. Completion of the International transaction would be an important milestone, but it would not be the end of our work. Our priorities for fiscal 2027 are clear and supported by detailed plans already underway. First, we will aggressively align our organization and cost structure with the scale and needs of the future North American business. This summer, we completed a rigorous bottoms-up, zero-based budgeting review across the organization.

That work identified specific actions to align cost structure with the size of our go-forward North American business. These actions are expected to simplify our operating model and deliver more than $16 million of annual run rate cost improvement. In addition, this exercise identified opportunities to optimize our marketing budget, driving greater impact for our key growth brands. Importantly, we expect to increase marketing investment year-over-year on both an absolute basis as well as percentage of net sales. These actions, the majority of which are expected to be implemented in fiscal 2027, support a pro forma gross margin of approximately 30-plus percent and adjusted EBITDA margin of low double-digit percentage. We have clear ownership, timing, and implementation plans and are moving with urgency to deliver these savings.