The Hain Celestial Group Inc (NASDAQ:HAIN), a leader in natural food and personal care products categories, provides an underpinning for an excellent investment through its sturdy portfolio of globally recognized brands. The stock is poised to rise as the economy gradually revives and demand for healthier and natural food improves.
The company witnessed a growth in U.S. consumption for natural organic foods during second-quarter 2011. The company posted better-than-expected second-quarter 2011 financial results. The quarterly earnings of 39 cents climbed 39.3% from 28 cents delivered in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 37 cents per share, up 37.0% from 27 cents earned in the year-ago quarter.
The company also announced a couple of 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.
The acquisitions are aimed toward expanding the presence of its global brands by leveraging the production, promotion and sales infrastructure of both the companies. Moreover, these acquisitions will be accretive to the earnings of fiscal 2012.
Prior to it, Hain Celestial added World Gourmet Marketing including its Sensible Portions brand of Garden Veggie Straws, Pita Bites and other snack products. The company also acquired Churchill Food Products Limited that manufactures and distributes food-to-go products in the United Kingdom. The company purchased The Greek Gods brand as well.
Acquisitions have always been a key part of the company’s policy to amplify its market share by expanding the company’s geographical presence and providing opportunities to cross-sell products in the U.S., Canada and Europe. Hain Celestial leverages its healthy balance sheet to make strategic acquisitions.
The company balances its acquisitive streak with a number of operational measures to boost its performance for placing itself on the growth trajectory. Hain Celestial’s Stock Keeping Unit (SKU) rationalization program has helped to eliminate SKUs on the basis of lower sales volume or weak margins. Moreover, management is always on its toes for improving profitability through new product introductions and cost cuts.
However, sluggish economic recovery and persistently high unemployment levels may dampen consumers’ confidence and spending behavior.
The company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively affect their disposable income triggering a shift in focus from higher priced organic products to cheaper private label brands. This may adversely affect Hain’s top-line growth.
At present, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Hain Celestial, which competes with General Mills Inc. (NYSE:GIS) and Kraft Foods Inc (KFT), holds a Zacks #3 Rank, which translates into a short-term Hold rating and correlates with our long-term view.