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The Hain Celestial Group, Inc. (HAIN), Jamba, Inc. (JMBA): Is This Consumer Product Company an Investment Made in Heaven?

The Hain Celestial Group, Inc. (NASDAQ:HAIN) is on a buying spree. The company focuses on natural and organic food, beverage, snack and personal care products in the United States, United Kingdom, Canada, Ireland and what they term as “the rest of the world.” You might recognize some of their brands such as Celestial Seasonings, Garden of Eatin’ and Linda McCartney. The organic food market is growing at a healthy rate in the United States and should reach nearly $105 billion in 2015, that’s double from 2010. The Hain Celestial Group, Inc. (NASDAQ:HAIN) is well positioned through its acquisition strategy to take advantage of this growth.
The Hain Celestial Group, Inc. (NASDAQ:HAIN)

Going green while growing the company

The Hain Celestial Group, Inc. (NASDAQ:HAIN) acquired Premier Foods plc’ in November of 2012, BluePrint Juices in late December 2012 and Ella’s Kitchen in May of 2013.  Premier Foods produces jams, jellies, honey, peanut butter and chocolate with sales of $250 million.  BluePrint Juices generated about $20 million per year in sales, while Ella’s kitchen, manufacturer of organic baby food, sold $70 million worth of products in 2012.

Given the above it’s no secret that growth by acquisition is an important strategy for the company as explained in the 2012 Annual Report:

We consider the acquisition of natural and organic food and personal care products companies or product lines to be an integral part of our business strategy.”

The company goes on to say that integrating all the different brands under one management team with cohesive marketing efforts is critical to the success of the company. And that does make sense since The Hain Celestial Group, Inc. (NASDAQ:HAIN) focuses on natural organic products.

Customer challenges

The challenge for The Hain Celestial Group, Inc. (NASDAQ:HAIN) will be to see if juice consumers are willing to pay a significantly higher price, nearly double that of non-organic, pasteurized juices. And that is the challenge for the company as a whole. Organic produce costs about 50% more than non-organic. So when a shopper sees the Ella’s Kitchen baby food on a shelf next to a more recognizable brand at a cheaper price, will she be willing to dig deeper into her wallet? Or will she decide to buy the organic veggies and fruits and make the baby food herself?

Well it seems the answer is yes: she and other shoppers like her will buy the organic label. The Hain Celestial Group, Inc. (NASDAQ:HAIN) reported a record third quarter 2013.  Sales were up a staggering 21.4%  — keep in mind those acquisitions — for a total of $456.1 million. Not to be outdone, net income increased 68.9% to $40.7. Third quarter 2012 results had an income tax provision of $12 million which isn’t required for 2013. This accounted for much of the profit improvement.  Cost of goods sold held steady at 72%.

Hain has a multi-tiered approach to sales using their own sales force, an outside commissioned sales force, and food brokers. The brokers buy the product from Hain, mark it up and sell it to grocery stores, drug stores, and other food outlets. Hain uses its own internal sales force to sell to natural food stores. If consumer resistance to price were to stiffen, the company does have the option of discontinuing selling to food brokers and selling directly to the stores to keep prices competitive.

Hain projects revenue of $1.7 billion for the full year, a 26% improvement compared to 2012.

Hain is not alone

Jamba, Inc. (NASDAQ:JMBA) announced its first net income since becoming a public company in 2006. It was marginal — $.3 million– but a major improvement from the previous year’s loss of $8.3 million. Jamba Juice serves up juices, smoothies and healthy salads, snacks and sandwiches.

Comparable store sales were up 5% year over year. The company’s growth strategy is opening franchised locations rather than company-owned stores. The company did exactly that with 26 new franchised stores this fiscal year and 125 more stores projected in California over the next few years.

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