Hearthside reports steep Q2 earnings decline and issues going concern warning

Rachel Butt

29 August 2024•2 min read

Hearthside Food Solutions reported Q2 24 earnings yesterday showing widening losses and warned that its ability to continue as a going concern depended on the company’s efforts to address a raft of near-term debt maturities, according to 9fin sources.

The Charlesbank-backed company reported an operating loss of $34m for the quarter, compared to a loss of $6.2m in the same period last year, sources said.

A major packaged snacks producer, Hearthside has been grappling with weak financial performance and the fallout from allegations surrounding its use of underage migrant workers. The company also faces nearly $2bn of debt coming due in the next 11 months, led by a revolver due on 23 November this year.

In its Q2 filings, the company said the upcoming maturities created “substantial doubt” over its ability to continue as a going concern in the next 12 months. Hearthside said it is actively exploring options with prospective and current lenders over refinancing or extending the debt.

Its secured loan due May 2025 has been lingering in the low 70s, while its unsecured notes due 2026 are quoted around 8.5 cents.

Hearthside and certain creditors have started confidential negotiations, and holders are unlikely to be willing to extend debt maturities unless sponsor Charlesbank injects new equity into the company, as previously reported.

As of Q2, Hearthside’s net revenue came in at $833.4m, down 14% year-over-year from $969.8m, partly due to the impact of asset sales during Q1, sources said. Excluding the impact of the asset sales, the company's net revenue dropped approximately 4% YoY, on lower consumer demand and product mix, they said.

Lower net revenue and higher costs drove its gross profit to $18m, down around 66% year-over-year from $52.8m, sources said.

Liquidity totaled approximately $433m, consisting of $311.4m of cash on hand and $122m of revolver availability. S&P expects Hearthside to burn about $230m to $240m of cash for the full year, hampering its ability to cover its annual interest costs. The rating agency said that a default is “inevitable” over the next six months, according to a note in June.

Hearthside is being advised by Evercore, Alvarez & Marsal and Ropes & Gray (see 9fin’s restructuring database for full advisor assignments). Apollo has built a sizable position in the company’s loans and is steering an ad hoc group that organized with Gibson Dunn and PJT Partners.

Representatives at Hearthside and Charlesbank couldn’t be reached for comment.

Explore our news and analysis for our latest scoops and in-depth analysis.