Don’t Throw The Hain Celestial Group, Inc. (HAIN), Stuff Your Portfolio With More of It

Natural and organic food company The Hain Celestial Group, Inc. (NASDAQ:HAIN) has witnessed solid growth in its top and bottom lines, but its shares have hit a rough patch of late. The stock has depreciated around 21% since it hit a 52-week high in early September last year, as there have been doubts as to whether Hain Celestial can sustain its momentum.

Positives vs. negatives

The company’s strategy of growing through acquisitions might also be a point of concern for potential investors, along with a rich P/E multiple of 32 times. Moreover, it missed its revenue estimate of $473 million in its recently-reported second-quarter by quite some margin. But the fact that Hain Celestial’s top line jumped 25% from the prior-year period to $455 million can’t be ignored.

The Hain Celestial Group, Inc. (NASDAQ:HAIN)Also, a 36% jump in adjusted earnings isn’t anything to be scoffed at. A downsized revenue outlook of $1.74 billion to $1.76 billion for the full year, as against the prior $1.78 billion-$1.8 billion range, still represents impressive year-over-year growth of 26%-27%.

High-margin endeavors

In addition, Hain Celestial’s productivity savings are another of its remarkable features that have consistently enabled it to improve earnings. Thus, even though the company reduced its revenue forecast, earnings projections went in the opposite direction. Hain Celestial expects to earn $2.40 to $2.47 per share this fiscal year, up from the previous $2.35 to $2.45 per share estimate and ahead of the $2.42 consensus at mid-point.

A reduced revenue outlook and a gaping top line miss might have left some bitter taste in the mouths of Hain Celestial investors as evidenced by a post earnings sell-off. But Hain didn’t come short on these points without reason. The company has decided to discontinue some unprofitable products and focus on high-margin sales. Also, Hain initiated a rollback of deep cut promotions in the jam category in order to extract more value out of it.

The company intends to carry on the exercise of eliminating low-margin products in order to further improve profitability. This could well be a reason for a more cautious outlook, but Hain still looks well-positioned to grow in the long run.

Casting a wide net

The company’s strategy of inorganic growth is one of its key drivers. Global organic food sales are expected to touch $105 billion in 2015, driven by demand in Europe, North America and Latin America. Hence, Hain Celestial intends to cast its net as wide as possible in order to tap the maximum juice out of the booming organic food industry.

Hain Celestial has gradually built its presence across these geographies and positioned itself well to enjoy further growth in the future. The company’s business recorded good growth across continents. Its North American business improved around 9%, Europe by 8% while Asia also performed commendably. On a broader note, Hain’s rest of world sales (excluding the U.S. and the U.K.) jumped 11.1% in the previous quarter.

While Hain Celestial’s presence in around 50 countries around the globe is a positive, so is its wide network of distributors. Distributors such as United Natural Foods, Inc. (NASDAQ:UNFI) and grocers in the league of Whole Foods Market, Inc. (NASDAQ:WFM) among others have supported Hain’s solid growth. Whole Foods, with its presence across key markets in Canada, the U.K. and the U.S., has been delivering solid same-store sale growth. Also, the company is looking to increase its store count from the current 335 stores in the U.S. Thus, expansion of distributor networks, supermarkets, and grocers would enable Hain to address a larger market.

Impressive cost savings

However, growth won’t come easily and Hain will have to counter rising input costs in the future. But the company seems to have a remedy for that as well. Its productivity process has delivered positive results in the past, as evidenced by a 25% jump in savings in the first half of the current fiscal year. Improved output, in-house production of pouches and optimization of the distribution network have helped Hain Celestial so far and they are expected to deliver in the future as well.

Also, it seems that Hain is able to pass on increased prices to consumers. The drawback of deep cuts in the jam category has been well-received by consumers according to management. They believe that customers aren’t shying away from paying higher prices for organic food.

A justified valuation

Thus, with such opportunity lying ahead, investors shouldn’t become myopic and base their decisions on just one year. Given the fact that Hain Celestial has been enjoying solid growth and has been improving its earnings aggressively, a rich valuation seems justified. Moreover, the stock is cheaper when compared to a smaller player such as Annies Inc (NYSE:BNNY).

Annie’s trades at an even more expensive P/E of 57 times, and doesn’t boast of Hain’s diversified array of products. It’s mainly famous for its organic mac and cheese while Hain had sixteen brands that grew in double digits in the previous quarter. Moreover, falling margins and insider sales have proved to be worrisome for Annie’s and that’s the reason why fellow blogger Adam Levy advises investors to exit the stock.

Final words

The growth of the organic food industry, Hain Celestial’s presence in several important markets, and a proven and effective productivity process are some of the reasons why it seems well-positioned to get better in the future. Hence, Hain investors shouldn’t be basing their decision on a short-term outlook, as the company seems poised for growth in the long run.

The article Don’t Throw This Stock, Stuff Your Portfolio With More of It originally appeared on Fool.com and is written by Harsh Chauhan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!