The Hain Celestial Group (HAIN, Financial) is in the business of manufacturing, marketing, distribution, and selling organic and natural products in the United States, the United Kingdom, Canada, and Europe. Over the years, the company has mastered the art of acquiring companies and successfully integrating them into its business to power growth on a consistent basis. Year-to-date, the company has gained around 4.5%, having declined from its peak of around 66 to around 62. Let’s see if the pullback is an opportunity to warrant a buy.
Quarter at a glance
Hain posted third-quarter fiscal 2015 results this month and despite the currency headwinds, net sales registered double-digits sales growth for 18th consecutive quarter in a row. The growth was powered by strength in its core brands along with gains from acquisitions. Consolidated sales increased 18.9% year-over-year to clock $662.7 million, well ahead of analysts’ expectations.
The top-line was boosted due to robust year-over-year growth from brands like Sensible Portions, Tilda, Ella's Kitchen, The Greek Gods, Terra, Hain Pure Foods, DeBoles, Natumi, Jason, Avalon Organics, Rudi's Organic Bakery, Plainville Farms, FreeBird, Empire, Kosher Valley and Live Clean brands.
On constant currency basis, sales increased 24% year over year. However, on the flip side, the sales declined from 30.2% and 32.2% registered in the first- and second-quarter of fiscal 2015, respectively. This was enough to spook the investors and the stock price declined.
Though the company beat estimates on top-line, earnings just managed to be in line with expectations. Adjusted earnings grew 2.3% year-over-year and came in at $0.45 per share.
Hain exited the third-quarter quarter with cash and cash equivalents of $100.3 million, long-term debt of nearly $879 million, and shareholders’ equity of $1,627.8 million. Debt-to-capitalization ratio stood at 35.1%.
Growing organic products demand
The U.S. organic food market is expected to grow at a CAGR of 14% from 2013 to 2018.
The trends in the United Kingdom are also a tailwind for Hain. Helen Browning, Soil Association chief executive, said:
“Three years ago, commentators were writing off the organic market in the UK. Now, with a third year of steady growth, and against a falling overall food market, it’s clear that reports of organic food’s demise were premature to say the least. This reinvigoration may be partly related to an improving economy, but it’s also testament to the fact that retailers and manufacturers who continued to invest in organic lines have continued to thrive. Now, even the discounters are beginning to stock organic ranges.”
Shopping binge continues
In March 2015, Hain Celestial announced the acquisition of the remaining approximately 80% that it did not already own of EK Holdings, Inc. and its wholly-owned subsidiary, Empire Kosher Poultry, Inc. Empire generated over $100 million in net sales in calendar year 2014 and is expected to be accretive to Hain Celestial's earnings in fiscal year 2016.
In February 2015, Hain announced acquisition of Belvedere International, Inc., a leader in health and beauty care products including the Live Clean® brand with approximately 200 baby, body and hair care products as well as several mass market brands sold primarily in Canada and manufactured in a company facility in Mississauga, Ontario, Canada. In calendar year 2014, Belvedere had approximately $25 million in net sales and is expected to be accretive to Hain Celestial's earnings in fiscal year 2016.
Numbers ahead
Going forward, the company is confident of sustaining the growth momentum on the back of strong demand for organic and natural products and also spate of acquisitions that it keeps doing every now and then.
Hain now expects the fiscal 2015 sales to be in the range of $2,692–$2,700 million versus the earlier guided range of $2,650–$2,675 million. This marks year-over-year growth of 24% over fiscal 2014.
In addition, earnings are expected to be in the range of $1.86–$1.90 per share versus $1.85–$1.89 per share guided earlier. On the updated range, the year-over-year growth in earnings works out to be in the 17% to 20% range.
Final words
Hain Celestial has been delivering double-digit growth in revenue every fiscal year since 2010, despite the negative impact of forex translations. The company has mastered the art of acquiring and integrating businesses to drive organic growth in the long-term. In addition, the demand for organic and natural products is slated to grow.
Therefore, I see the recent pullback as a good buying opportunity.
