The Hain Celestial Group Inc. (HAIN), which distributes, markets and sells various natural and organic foods as well as personal care products, posted better-than-expected fourth-quarter 2011 financial results.
The quarterly earnings of 35 cents a share beat the Zacks Consensus Estimate of 33 cents, and climbed 40% from 25 cents delivered in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 28 cents compared with 16 cents a share earned in the year-ago quarter.
Quarterly Performance
Revenue in the quarter increased by 31.1% to $292 million from $222.8 million delivered in the prior-year quarter, and also came well ahead of the Zacks Consensus Estimate of $270 million. Hain Celestial was able to post healthy sales aided by United States, Canadian and European operations as well as recent acquisitions.
The company registered robust contribution from Grocery, Natural, Celestial Seasonings, Club, mass and dot-com channels. Hain Celestial also experienced solid sales across recently acquired brands, Sensible Portions snacks and The Greek Gods yogurt.
Despite a rise of 28.1% in cost of sales, gross profit soared 39.5% to $81.4 million in the quarter, whereas gross profit margin expanded 168 basis points to 27.9%, reflecting favorable product mix and efficiency savings, partly offset by higher input costs. On a reported basis, including one-time items, gross profit margin increased 186 basis points to 27.9%.
Financial Aspects
Hain Celestial generated operating free cash flow of $47.2 million in fiscal 2011. The company ended the quarter with cash and cash equivalents of $27.5 million and total long-term debt of $230.2 million, which is 26.6% of shareholders’ equity of $866.7 million.
Guidance
Hain Celestial forecasts revenue between $1.23 billion to $1.26 billion, representing a growth range of 9.0% to 11.0% and earnings in the range of $1.50 to $1.60 per share, reflecting a growth range of 11% to 19% for fiscal 2012.
Why to Invest?
Hain Celestial provides the underpinning for an excellent investment through its robust sales and earnings growth. The company registered a growth of 23% in its top line in fiscal 2011 with net income surging 43% over the prior year. Moreover, the company reduced its debt by $58 million during fiscal year 2011.
Hain Celestial’s strategic initiatives to enhance its portfolio of global brands by acquiring Danival, the manufacturer of certified organic food products with facilities in France, and GG UniqueFiber, the manufacturer of all natural high fiber crackers in Norway, is paying off well.
Acquisitions have been a key part of Hain Celestial’s strategy to build market share. These acquisitions have not only widened the company’s geographical presence, but have also provided opportunities to cross-sell products in the U.S., Canadian, and European markets.
Moreover, Hain Celestial has undertaken a number of initiatives to improve its performance and put itself on the growth trajectory. The company’s Stock Keeping Unit (“SKU”) rationalization program has helped to eliminate SKUs, which had lower sales volume or weak margins. Management focuses on improving profitability through new product introductions and reducing costs.
However, the company faces strong competition in the natural and organic foods market and the personal care products segment. Competition is encountered on several attributes – product quality, brand recognition and loyalty, price, product innovation and promotion. This may dent the company’s sales and margins.
Currently, we have a long-term ‘Neutral’ rating on the stock. Hain Celestial, which competes with General Mills Inc. (GIS) and Kraft Foods Inc. (KFT), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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