Rise in consumption coupled with expanded distribution facilitated The Hain Celestial Group Inc. (HAIN), which distributes, markets and sells various natural and organic foods as well as personal care products, to post third-quarter 2012 earnings per share of 54 cents, surpassing the Zacks Consensus Estimate of 50 cents. The reported earnings jumped 50% from 36 cents per share delivered in the prior-year quarter.
However, on a reported basis, including one-time items, earnings came in at 52 cents compared with 38 cents a share earned in the year-ago quarter.
Key Numbers
Rise in demand for natural organic products proves to be a boon for the company as revenue in the quarter rose 31.5% year over year to $379.4 million. However, including sales of the United Kingdom private label chilled ready meals operations (discontinued business), revenue came in at $400.3 million, up 39% year over year. The Zacks Consensus Estimate was $405 million for the quarter.
The company noted that consumption in the U.S.grew 9%, with an 11% growth witnessed in sales.
The company registered increased consumption in core categories with robust contribution from Earth's Best, Celestial Seasonings, MaraNatha and The Greek Gods to name a few.
Adjusted gross profit rose 26.2% year over year to $104.3 million in the quarter. Adjusted gross margin contracted almost 120 basis points during the quarter to 27.5% as favorable product mix and productivity savings were more than offset by higher input costs. Cost of sales as a percentage of revenue increased approximately 120 basis points, thus taking a toll on gross margin numbers.
Adjusted operating profit jumped 42% to $41.1 million in the quarter, while adjusted operating margin expanded 80 basis points to 10.8%, reflecting 190 basis points decline in SG&A as a percentage of sales.
Financial Aspects
The company ended the quarter with cash and cash equivalents of $41.2 million, long-term debt of $430.4 million and shareholders’ equity of $942.5 million. Operating free cash flow increased 30.1% year over year to $79.3 million for 12 months ended March 31, 2012.
Guidance Raised
Hain Celestial raised its fiscal 2012 earnings guidance in the range of $1.76 to $1.80 a share from its previous guidance of $1.63 to $1.73. The company now expects sales to be in the range of $1.40 billion to $1.41 billion, reflecting adjustment for the discontinued operations of private label chilled ready meals.
The company expects to sustain strong momentum across entire business segments as it remains well positioned to capitalize on the growing global demand for organic products.
Acquisitions have been a key part of Hain Celestial’s strategy of building 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.
Adding to the string, the company announced the acquisiton ofCully & Sully Limited in Ireland. The acquisition is expected to amplify the sales of the company as it provides a gateway to a sturdy food and grocery market that is swiftly gaining ground.
Going forward, we believe that the company will be able to mitigate the cost pressures through increased productivity and efficient pricing.
Moreover, Hain Celestial has undertaken a number of initiatives to improve its performance and has 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 while reducing costs.
Currently, we have a long-term ‘Outperform’ 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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