In 1H18, Hain Celestial’s gross margin was 18.6%, up 110 basis points from 1H17, driven by a 4.4% sales increase. The company’s SG&A (selling, general, and administrative) expenses rose 6.4%. The SG&A expenses, along with acquisition-related charges, were offset by gross margin expansion and reduced accounting review and remediation costs, leading to 22.9% growth in operating income to $67.8 million.
In 1H18, Hain’s operating margin expanded by 70 basis points. On an adjusted basis, it expanded by 140 basis points to 6.9%. Hain’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 23.5% to $142.2 million.
The company’s margin gained from higher sales and strong cost-cutting measures. Under Project Terra, its global cost savings initiative, the company achieved $35 million in savings in fiscal 1H18.
Hain Celestial aims to achieve $350 million in savings by 2020 through portfolio rationalization and streamlining its manufacturing plants, co-packers, and supply chain processes. The company has targeted a savings goal for fiscal 2018 of $100 million.
Nonetheless, commodity inflation, brand marketing, and escalating freight costs continue to be a concern. The company is planning for $40.0 million–$50.0 million in brand investments in fiscal 2018, mainly in US markets. In fiscal 2018, Hain Celestial has guided for adjusted EBITDA of $340 million–$355 million, representing 24%–29% growth YoY.
Packaged food manufacturers impacted by rising costs
Whereas retailers are exercising extensive cost-cutting measures, rising costs have offset their benefits. Campbell Soup’s adjusted EBIT (earnings before interest and tax) are now expected to fall 5%–7% instead of 2%–4%. Conagra Brands expects its adjusted operating margin to be at the lower end of its guided range of 15.9%–16.3%.