3 Great Reasons To Buy This Organic Food Company

Organic and natural foods company Hain Celestial (NASDAQ: HAIN  ) has improved the health of its shareholders' portfolio by 50% this year. Its growth rate has been fantastic despite some inconsistent performances  over the past few quarters when Hain failed to satisfy consensus estimates.

But the company finally managed to top Street expectations in the fourth quarter. In addition, Hain's outlook turned out to be better than expected, and this sent shares soaring.

Solid growth with more to come
Hain witnessed terrific revenue growth of 32% in the previous quarter, while net income and operating margin both improved. With the global organic food market expected to be worth around $105 billion by 2015, there is enough room for Hain to grow further. 

Hain Celestial has grown on the back of acquisitions so far, but its own brands have also been doing well. Its in-house brands were up in the high single digits in the previous quarter, and Hain expects many of its brands, which are currently worth $100 million and $50 million annually, to double in size going forward.

Hain's private label brands in the U.K., a market that accounts for a fourth of its revenue, are gaining traction and contributed 51% of overall food sales in the nation. The company is planning to introduce more private label products and kicked off the initiative by launching eight products in May. Hain has 10 brands in the U.K. that are in the top two in their respective categories.

Hain is still integrating the three acquisitions it made last year. Management is optimistic about BluePrint and Ella's Kitchen, two of these acquisitions. With BluePrint, Hain expanded its product portfolio to include the juice category, while with Ella's Kitchen it formed a global infant, toddler and kids division.

In the U.S., Hain saw robust gains with revenue up almost 18% from the year-ago period. More importantly, product sales in the U.S. are up an impressive 36% this year, and Hain credits its innovation for this terrific performance. The company has launched 150 new products this year, including the MaraNatha coconut almond butter, organic veggie and protein pouches, barbecued chicken nuggets, etc. 

It expects these products to continue to gain traction and lead to better revenue in the future. Apart from new product launches, Hain is also focused on trimming down costs and driving productivity savings. Through initiatives such as producing Earth's Best pouches internally and increasing throughput at certain manufacturing facilities, Hain was able to achieve $30 million in productivity savings in fiscal 2013. 

Savings and more
Looking ahead, the company aims to record $40 million to $50 million in productivity savings in the current fiscal year. Hain was able to record an improvement of 40 basis points in gross margin in the previous quarter. With higher productivity savings expected in the future, margins might expand further. 

Another advantage for Hain Celestial is the ever expanding network of its distributors such as United Natural Foods and grocers such as Whole Foods Market (NASDAQ: WFM  ) .

Whole Foods recently expanded into three markets and sees demand for 1,000 stores in the U.S., up from 355 stores at present. Moreover, Whole Foods has signed 50 new leases over the past year, taking total signed leases to 94. What this essentially means is that Whole Foods has got enough sites to open stores going forward and also signifies the company's ambition to grow. To be more precise, Whole Foods states that it has "nearly a three-year supply of new stores." 

Such expansions on the part of carriers of Hain's products should undoubtedly help the company grow. What's even more enticing is that at a forward P/E of 23, Hain Celestial looks like a good bet given that its earnings are expected to grow 20% this year and 14% in the next fiscal year. But these estimates might move higher in the future considering the opportunity in the industry, Hain's cost control measures, and expansion across the globe.

A better play
On a trailing P/E basis as well, Hain's multiple of 33x is well below peer Annie's (NYSE: BNNY  ) 72x. On a forward basis, Annie's multiple comes down to 38, still more expensive than Hain. Moreover, Annie's performance wasn't great in the previous quarter. It missed estimates on both top and bottom lines as revenue grew just 14% from the year-ago period to $39 million and earnings were flat.

However, Annie's expects sales to grow 18% to 20% this fiscal year. This looks impressive, but given Annie's rich valuation, Hain has a better risk-return profile since it is geographically diversified and has well-established brands.

Hain Celestial's performance has been outstanding this year and looking at the company's initiatives and expected growth in the organic food market, it should continue to perform well.

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