What happened
Shares of Hain Celestial Group (HAIN 3.78%), a maker of organic and natural consumer-goods products, fell more than 15% in early trading on Jan. 18. The reason for the drop was a company news release outlining a CFO transition. Only that bit of the release probably wasn't what got investors so upset. In this case, the subtext matters.
So what
Current CFO Javier Idrovo has announced his intention to leave Hain Celestial on Feb. 4 so he can pursue another opportunity. He will be replaced by Chris Bellairs, who has held leadership positions at a number of consumer-products companies in the past. His previous experience includes operating in the role of CFO. This news probably isn't material enough to result in a double-digit price decline but was conveniently used as the headline of the company's news release. The second bit of news, relegated to a third subhead in the release, was an update on the company's fiscal second-quarter 2022 results. This is most likely what spooked investors.
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The company expects adjusted net sales to be down between 1% and 3% year over year in the second quarter of fiscal 2022 when it reports its full results on Feb. 3. That will push first-half 2022 sales lower by between 0.5% and 1.5%. Given the unusual demand dynamics driven by the pandemic, that's not particularly shocking. In fact, it is largely in line with the company's previous guidance for a low single-digit decrease. The problem is that adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is expected to fall between 4% and 6% in the fiscal second quarter, with adjusted EBITDA for the first half of fiscal 2022 now projected to be off by 8.5% to 9.5%. That's below previous guidance of a mid-single digit drop and is related to the impact of inflation, supply chain constraints, and challenging labor conditions. The takeaway: Hain Celestial appears to have been hit harder than management expected by these headwinds. That does not bode well for the rest of fiscal 2022, and investors reacted accordingly.
Now what
There is almost always a timing mismatch between the rising costs that impact consumer-goods companies and the price increases that are needed to offset that impact. While companies like Hain Celestial work to raise prices, their profit margins are squeezed. Eventually, it gets worked out. Long-term investors probably shouldn't get too upset by this update, even though it is certainly not a desirable bit of news. That said, given the still material headwinds faced by consumer-products companies like Hain Celestial, near-term business performance, and by extension stock moves, could be a little turbulent.
