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Summary

  • Hain Celestial delivered record results recently as its brands gained traction across several end markets.
  • Hain Celestial's acquisition of Tilda and the introduction of new products will allow it to benefit from the organic food market's growth.
  • Hain's focus on productivity savings will enable it to sustain its strong earnings growth going forward.

It was no surprise that organic food company Hain Celestial's (NASDAQ:HAIN) shares shot up after the company released its fourth-quarter results. The company delivered a robust performance during the fourth quarter, with better than expected sales and profits. In fact, Hain announced its best ever quarterly and fiscal year sales in its latest report. The company's growth was driven by the fast-growing snack category, tea, and personal care products.

As a result, Hain reported net sales of $583.8 million during the quarter, representing a 26% increase year over year. Its earnings also rose 17% year over year. Both these metrics were better than analysts' expectations, who were expecting a profit of $0.89 per share on sales of $578.3 million.

Impressive growth should continue

The company has seen fourteen consecutive quarters of double-digit sales and earnings growth. Looking ahead, Hain should be able to sustain this momentum. Management sees strong potential in categories such as yogurt and meat-free going forward. Moreover, the company's smart acquisition moves are also driving sales. Last fiscal year, Hain acquired two companies -- Tilda and Rudi's Organic Bakery. These two have proved to be good investments for the organic food maker.

Tilda, which specializes in Basmati rice, performed well last quarter, especially in the Middle East, driven by Ramadan. With Tilda, Hain plans to introduce new rice and grain products in the U.S. and the U.K. Additionally, the company has also rolled out more than 200 new products globally that would boost its sales in the future.

In my opinion, Tilda's acquisition is a smart move by Hain. The acquisition gives Hain access to a number of markets across the globe. As per Bloomberg:

The Tilda brand offers more than 60 dry rice and ready-to-heat products to consumers in more than 40 countries including the U.K., Middle East, north Africa, continental Europe, North America and India, Hain said.

The acquisition "expands our worldwide better-for-you product portfolio into the premium Basmati rice category along with other specialty rice products," Hain Chief Executive Officer Irwin Simon said in the statement.

Moving ahead with its expansion plans, Hain recently opened new offices in India and the Middle East, and has also entered into a joint venture with Hutchison Whampoa in Asia. In addition, the company is also expanding its distribution channel by partnering with retailers such as Target (NYSE:TGT) and Costco (NASDAQ:COST). The company has also partnered with Sainsbury, where it launched more than 40 new products.

End-market growth and productivity saving will drive results

Going forward the Hain is positive about its prospects. According to reports, the U.S. food market is expected to be worth $800 billion in the next two to three years, opening up a big opportunity for the company. It aims to get just 1% of this amount, which will be worth $800 million, and the company is confident of achieving this target. Moreover, grocers such as Whole Foods (NASDAQ:WFM) are planning to open around 1,200 stores in the coming years, which will benefit Hain by increasing its distribution channel further.

Management is also focusing on productivity initiatives, which include optimizing its beverage plants and distribution network, higher internal production of baby food pouches, and spending on global procurement and logistics.

The company's productivity improvements have already delivered results, as Hain saw $30 million in productivity savings in the U.S. in the last fiscal year. This helped it more than offset the $20 million in price inflation that it witnessed. This year, the company expects to improve on this count by way of initiatives outlined above.

Fundamentals and conclusion

Apart from having bright prospects, Hain is also impressively valued. Currently, it has a trailing P/E ratio of 36.13, which is above the industry average P/E of 22.61. But, its forward P/E of 21.92 looks impressive, and indicates that the bottom line should continue improving. Moreover, over the next five years, Hain's bottom line is expected to grow at a robust pace of 16.6%.

So, the stock is decently valued, and at the same time, it seems to have a bright future due to the opportunity in the organic food market. Thus, keeping in mind all the above factors, investors can consider adding Hain Celestial to their portfolio.

Source: Hain Celestial: Record Results Set The Tone For More Improvements