Hain Celestial Group Inc. (NASDAQ:HAIN) reported third-quarter fiscal 2018 results on May 8, with a lot of adjustments based on planned asset sales, ongoing restructuring, and other items management says are non-recurring. In short, it wasn't a very great quarter -- at least not in Mr. Market's opinion, anyway. Following the earnings release, Hain shares fell to their lowest levels since early 2013, and are now down almost 60% from the peak in 2015.

Let's take a closer look at the numbers -- both adjusted for all the changes the company is undergoing and on a consolidated GAAP basis. With Hain in the midst of a major transformation, it's important to understand both the "real" numbers as well as the adjusted results.

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Sales growth continues to slow, expenses are weighing on cash flows and earnings

Last quarter, Hain announced that it was exploring the sale of Hain Pure Protein, its poultry business. To date, it hasn't reached a deal with anyone, but said it "expects to complete [the] divestiture of Hain Pure Protein during the first half of fiscal 2019." Based on this plan, the company reported "results from continuing operations," which excludes the poultry business. Here's a breakdown of these results:

Metric Q3 2018 Q3 2017 Year-Over-Year Change
Net sales $632.7 million $588.8 million 7.5%
Earnings per share $0.24 $0.31 (22.6%)
Adjusted EPS $0.37 $0.35 5.7%
Gross margin percent 21% 23.6% (11%)
Operating income $29.3 million $49.6 million (41%)
EBITDA $51.5 $65.8 (21.7%)

Source: Hain Celestial Group.

Hain's 7.5% revenue growth result was primarily due to positive gains from foreign exchange. Adjusted for this benefit, sales were only up about 2% as the company continues to struggle in North America. Hain's core U.S. sales fell 3% to $281 million, while its U.K. and Rest-of-World sales increased 18.6% and 15.3%, respectively.

On a constant currency basis, U.K sales were up 5% while Rest-of-World sales increased 6%. This matters because adjusting for currency changes helps measure volume of products sold, a better way to measure a company's "real" growth -- or lack thereof.

Looking beyond the top line, Hain's earnings and operating results were generally weaker, with double-digit declines in earnings, margins, operating income, and EBITDA -- or earnings before interest, taxes, depreciation, and amortization. The company said that a number of things caused its results to deteriorate in the quarter, including higher commodity and freight costs, increased spending on marketing, and an "unfavorable mix" of products sold, primarily in its U.S. business. 

Lowered guidance for full-year results

The company lowered its full-year guidance as part of the earnings release, in part because of its plan to sell Hain Pure Protein. But a close look at the lowered guidance -- which included a breakout of Hain Pure Protein -- shows that management anticipates higher expenses for the balance of the year, as well as an intention to invest more in marketing in the U.S. 

Hain's revenue guidance was essentially unchanged from a range of $2.97 billion to $3.03 billion before adjusting out $533 million in expected sales from Hain Pure Protein. However, adjusted EBITDA was lowered from $340 million-$355 million to $250 million-260 million, with only $48 million of that related to Hain Pure Protein. In other words, management is expecting higher costs to result in an additional $42 million to $47 million drag on EBITDA for the full year. This will flow through to adjusted EPS as well, which is expected to be $1.11 to $1.18 per share for the full year, down from $1.39 to $1.50 when excluding Hain Pure Protein. 

Looking ahead

It's been tough going for Hain investors, and weaker results aren't helping matters -- especially considering that management set much-higher expectations at the start of fiscal year 2018. Based on the latest guidance, management is now saying that adjusted earnings are expected to decline this year from 2017 levels. That does factor in selling off a major contributor to profits in Hain Pure Protein, and excludes any of the return the company will get when it sells this asset. 

Only time will tell if better days are ahead, but Hain is right in the midst of a very big transformation and the market has clearly lost patience. To me that seems like the worst time to sell, because any signs of a turnaround will likely bring investors flocking back in. Hain still owns a collection of great brands, and is making a serious effort to better-leverage those brands and its scale for profit. 

Jason Hall owns shares of Hain Celestial. The Motley Fool owns shares of and recommends Hain Celestial. The Motley Fool has a disclosure policy.