It continues to project a 4 6 increase in net sales

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inflation headwinds as well as $40 million in marketing expenses. It continues to project a 4%-6% increase in net sales, to $2.434-$2.503 billion (unchanged after adjusting for HPP). However, management now expects EBITDA of $250- $260 million, down from its prior forecast of $292-$307 million, and adjusted EPS of $1.11-$1.18, down from its previous forecast of $1.39-$1.50. Management expects flat to slightly negative in the U.S., and high-single to low- double digit sales growth in the U.K. and Rest of World segments.
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M ARKET U PDATE - 12 - We are reducing our FY18 EPS estimate to $1.13 from $1.67 and reducing our FY19 estimate to $1.38 from $1.90. Our estimates assume higher expenses during the year and also assume that the company’s recent accounting and production issues have been resolved. The involvement of Engaged Capital and speculation of a potential acquisition may boost the stock price; we will continue to monitor the impact in FY18, if any. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for Hain is Medium-High. The company ended 3Q18 with $117.2 million in cash and cash equivalents, down from $137 million a year earlier. Long-term debt declined to $723 million from $740 million. The debt/capital ratio was 28.5%, down from 30.4% at the end of 3Q17. Operating income covered interest expense by a factor of 4.3. The company’s debt is not rated by Moody’s or S&P. Hain does not pay a dividend, and we do not expect this to change in the near term. The company has a $250 million stock buyback program. It had made no repurchases under this authorization as of September 30, 2017. MANAGEMENT & RISKS Irwin Simon founded Hain in 1993, and has served as CEO since its inception. Mr. Simon previously held marketing roles at Slim-Fast and Haagen-Dazs. James Langrock, previously Senior VP and Treasurer, became CFO in June 2017, succeeding Pasquale Conte. While the company has now released its delayed financial results, it continues to face financial, legal, and reputational risks from the SEC investigation into its accounting practices. Cost inflation is a major risk for Hain and its competitors. Going forward, Hain will likely face higher oil, dairy and fuel costs, though management believes that productivity initiatives and price increases will continue to offset inflation. Private-label competition is another risk, especially as Whole Foods, now being acquired by Amazon, increases marketing spending on its own private-label products. Still, CEO Simon believes that Amazon’s acquisition of WFM will benefit Hain by giving more consumers access to natural and organic products. United Natural Foods Inc., a large distributor, and Wal-Mart, including its affiliates, have each accounted for more than 10% of the company’s consolidated net sales over the past three years. Should Hain lose either business, its earnings and share price would suffer. While management has focused on diversifying its client base, this high client concentration remains a risk.
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