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.
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%.
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.