We recently upgraded our recommendation on The Hain Celestial Group Inc. (HAIN) – which distributes, markets, and sells various natural and organic foods as well as personal care products – to Outperform with a price target of $37.00. Earlier, we had a Neutral view.
What Triggers the Move?
Hain Celestial’s better-than-expected first-quarter 2012 results and an improved outlook compelled us to revisit our recommendation. The quarterly earnings of 29 cents a share beat the Zacks Consensus Estimate by a penny, and climbed 16% from 25 cents delivered in the prior-year quarter.
The company’s strategic investments, and sustained efforts to contain costs, increase productivity and enhance cash flows and margins, have enabled it to deliver healthy results.
Total revenue in the quarter rose 13.3% to $292.4 million from the prior-year quarter, and was also ahead of the Zacks Consensus Estimate of $288 million. The improvement in the top line was aided by healthy performances across United States, Canadian and European operations as well as its 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.
Hain Celestial, which competes with General Mills Inc. (GIS) and Kraft Foods Inc. (KFT), now projects revenue between $1,455 million and $1,480 million and earnings in the range of $1.63 to $1.73 per share for fiscal 2012. Earlier, management had forecast revenue in the range of $1,230 million to $1,260 million, and earnings between $1.50 and $1.60 per share.
Hain Celestial has undertaken a number of initiatives to improve performance and to put itself on the growth trajectory. The company’s Stock Keeping Unit (SKU) rationalization program has helped eliminate SKUs based on lower sales volume or weak margins. Management focuses on improving profitability through new product introductions and cutting costs.
Acquisitions Playing Key Role
Acquisitions have been also a key part of the company’s strategy to build market share, which have not only expanded its geographical presence but have also provided opportunities to cross-sell products in the U.S., Canadian, and European markets. A healthy balance sheet enables the company to target strategic acquisition opportunities.
Following its growth plan, Hain Celestial recently announced the acquisition of Daniels Group, the U.K. based marketer and manufacturer of fresh and frozen foods. The acquisition offers Hain Celestial a gateway to a sturdy food and grocery market that is swiftly gaining ground. Currently, the frozen category represents more than 50% of food sales in U.K.
Further, the company’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.
Uphill Consensus Estimates
Clearly, a positive sentiment is palpable among analysts, who remain optimistic on Hain Celestial’s performance. Following the earnings release, the Zacks Consensus Estimate has been on the rise with analysts remaining bullish on the stock. The better-than-expected results, and strong earnings and sales outlook bolstered analysts’ confidence.
In the last 30 days, all the 10 analysts following the stock raised their estimates for the second and the third quarters of 2012. For fiscal 2012 and 2013, 9 and 7 analysts, respectively, moved their estimates upward. None of the analysts revised their estimates downward.
The Zacks Consensus Estimates jumped by 4 cents to 49 cents a share for the second quarter and by 7 cents to 49 cents for the third quarter of 2012, in the last 30 days. For fiscal 2012, the Zacks Consensus Estimate jumped by 13 cents to $1.69, and for fiscal 2013, it surged 20 cents to $1.95.
Let’s Conclude
With an extensive portfolio of well-known brands, Hain Celestial offers investors one of the strongest growth profiles in the industry. The company’s strong fundamentals and favorable outlook are compelling. We thus, have a bullish stance on the stock even in a volatile market, which is well defined by our Zacks #1 Rank that translates into a short-term ‘Strong Buy’ rating.
GENL MILLS (GIS): Free Stock Analysis Report
HAIN CELESTIAL (HAIN): Free Stock Analysis Report
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