In its most recent quarter, Hain Celestial (NASDAQ:HAIN), the leading organic and natural foods producer, beat revenue and earnings estimates.
First, a brief recap of the quarterly results:
- Revenue rose 32.1% to $463.5 million
- Adjusted EPS rose 38.3% to $0.65, beating estimates of $0.62
- GAAP EPS increased 6% to $0.53
1. Don't be a fool, stick with The Fool!
I say this light-heartedly. However, I did just publish an article calling Hain an attractive investment. Additionally, the stock has a rating of five (out of five) stars on Motley Fool Caps, so many fellow Fools like it, too.
Much of the sentiment going into earnings was neutral, with many citing high commodity (input) costs and valuation as concerns. While commodity costs are a legitimate concern, Hain is one of the largest organic commodity purchasers. As such, it surely has more bargaining power than smaller players. Additionally, producers in the organic and natural niche are in a better position to push price increases along to consumers than conventional food producers. Consumers who purchase these products are generally less price-sensitive. Couple that with fewer brands choices, and you have a winning investment recipe.
2. Organic products remain a strong growth market
Organic food sales in the U.S. soared from $11 billion in 2004 to $27 billion in 2012, and grew at an annual rate of 7.4% in 2012. Given that organics account for less than 5% of overall grocery sales, there's still plenty of growth potential left.
Hain's organic growth rate (for existing brands, excludes acquisitions within the year) for the quarter was in the high single-digits. Furthermore, Hain's U.S. consumption, measured by Nielsen, was up 7.7% over the past four weeks, according to Founder & CEO Irwin Simon.
3. Hain is becoming a more international company
The company's acquisitions have been U.K.-heavy of late, which has considerably increased its Hain Daniels segment's sales. Here's the relevant info:
Sales F Q4 2013
% of Total
|Sales F Q4 2012||% of Total||Y-O-Y Sales Increase|
|Rest of World||$57.1||12||$51.5||15||10.8%|
Data from company's quarterly report
The company's objective is to get to a 50% U.S. to 50% all-other split, according to Simon.
4. Growth drivers include baby food, nut butters, greek yogurt & personal care products
Of the company's 30+ brands, these had double-digit sales growth:
- Earth's Best -- organic baby food
- MaraNatha -- seed and nut butters
- Spectrum -- organic and natural culinary and nutritional oils
- Greek Gods -- Greek yogurt
- Linda McCartney -- U.K.-based; vegetarian and vegan foods
- Danival -- French-based; wide range of organic products
- Alba Botanica and Jason – personal care products
Organic baby food -- especially in resealable pouches -- is becoming an increasingly popular product line. In addition to top-performing Earth's Best, Hain now has another organic baby food brand. In fiscal 2013, it acquired Ella's Kitchen, a leading brand sold primarily in the U.K., U.S., and Scandinavia.
MaraNatha's superior performance didn't surprise me, given my recent, "Profit From the Many Going Nuts Over All Things Almond." Global demand for almond butters and almond milk is sharply rising. WhiteWave (NYSE:WWAV) is also benefiting from consumers' growing preference for almond products. It produces the Silk line of non-dairy beverages, including almond and soy milks. WhiteWaves' almond milk sales were greater than its soy milk sales -- a first -- during its most recent quarter.
Hain bought Greek Gods three years ago, and, as Simon stated on the call, "it's approaching $100 million (in sales) worldwide." Yogurt is a $6.2 billion business in the U.S., and the fastest-growing dairy category, with Greek yogurt, in particular, experiencing tremendous growth. Given yogurt's growth dynamics, investors may want to put Lifeway Foods (NASDAQ:LWAY) on their watchlists. It's a $264 million market cap company focused on probiotic ("good bacteria") foods and beverages. Its flagship product is kefir, which is similar to yogurt, and it also produces a line of yogurts. French dairy giant Danone owns about a 20% stake, so a buyout is always a possibility.
Arrowhead Mills, an organic whole grains line, might have made this top performer list. There were supply constraints that limited production, as noted during the conference call. As the company grows, investors should monitor the supply situation, in general.
Two personal care brands were top performers. It bears mention that Hain's just-announced next CFO, Stephen Smith, is currently the CFO of cosmetics and personal care products company Elizabeth Arden. Smith, who starts September 3, replaces longtime CFO Ira Lamel, who is retiring.
5. Hain's eye for acquisitions remains sharp
"Juicing" has become quite popular. That term is often used synonymously with "juice cleansing," which involves drinking only cold-pressed juices for a certain number of days to detoxify one's system. Hain acquired BluePrint, a leader in cold-pressed and other juices in the U.S., so it now has a product line to address this growing market.
In addition to BluePrint and Ella's Kitchen, Hain made one other acquisition in fiscal 2013. It acquired the U.K.'s Premier Foods' jams and spreads brands, two of which are Hartley's (jams) and Sun-Pat (peanut butter).
6. Numbers remain solid and the company increased guidance
Here's are some key numbers compared to a few peer companies.
|Company||Trailing P/E||Fwd P/E||5-Yr PEG||1-Yr Rev Growth||1-Yr EPS Growth||Net Margin (ttm)||ROE (ttm)||
Yahoo! Finance & Morningstar; annual numbers are for last full fiscal year; *net income. Data to Aug. 22.
Given Hain upped fiscal year 2014 guidance, its forward P/E and PEG have decreased from pre-earnings levels of nearly 25 and 1.8, respectively. So, based upon these valuation metrics, it's a "better buy" now than it was pre-earnings, despite the jump in its stock price.
As to guidance, the company provided a sales range of $2.025 to $2.050 billion, an increase of about 17% over fiscal 2013; and an EPS range of $2.95 to $3.05, an increase of 16% to 20%. So, Hain is expecting margins to remain the same or slightly increase.
Organic food sales are projected to grow at about an 8% annual rate for at least the next five years. That growth rate increases if the more ambiguous "natural" and "healthy" foods are included.
Hain Celestial remains an attractive investment in this niche as it's Whole Foods' largest supplier, has product lines in the fastest-growing sub-categories, continues to post solid numbers, and just increased guidance. The other companies noted above also bear watching, given the growth dynamics of this niche.
BA McKenna has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial. The Motley Fool owns shares of Hain Celestial and WhiteWave Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.