4 Takeaways From Hain Celestial's Quarterly Results

Leading organic and natural food producer Hain Celestial (HAIN -0.16%) slightly beat revenue and earnings estimates when it released its fiscal first-quarter 2014 results on Nov. 5.

Hain joins WhiteWave Foods (WWAV) in an exclusive club -- the organic and natural food players that topped both revenue and earnings estimates. It's been a mixed earnings season for the group, most of which reported last week. Annie's (NYSE: BNNY) beat on revenue but slightly missed on earnings, while Whole Foods Market not only fell short on revenue but also lowered guidance.

Before we learn what Hain's doing right, here are highlights of the quarterly results: 

• Revenue rose 32.7% to $$477.5 million, topping estimates of $470 million.
• Adjusted earnings per share rose 26.8% to $0.52, beating estimates of $0.51. 
• Adjusted operating income rose 30.7% to $43.0 million.
• Guidance for fiscal year 2014 was reaffirmed with a sales range of $2.025 billion to $2.050 billion, representing a year-over-year increase of about 17%, and an EPS range of $2.95 to $3.05, representing growth of 16% to 20%.

Takeaways

1. Hain is leveraging its brands in both directions across the Atlantic.
Hain has its sights set on becoming a more international company. Founder and CEO Irwin Simon stated during the previous quarter's conference call that the company's objective is to get to a 50% U.S. to 50% all-other split. 

The company's U.K. segment, Hain Daniel, continues to account for a larger portion of the company's revenue. There are two reasons for this: Hain's more recent acquisitions have been U.K.-heavy and it's been rolling out its U.S. brands to the U.K. market. 

Source: Company's quarterly report.

You may have noticed from my earnings highlights that margins slightly contracted, since revenue grew faster than earnings. I don't view this as a concern as the primary reason was the change in revenue mix, as Hain's U.K. segment has slimmer margins than its U.S. business. Slimmer margins are to be expected in the early stages of entering and growing a business in a new market. 

2. Hain is juiced about BluePrint's and Ella's Kitchen's potential as "lifestyle brands."
BluePrint and Ella's Kitchen are acquisitions Hain made in fiscal 2013. The company intends to leverage the popularity of these brands by making them into "lifestyle brands," which entails offering diverse products under these brand names.

BluePrint is the leading producer of cold-pressed juices in the U.S. These products are used for "juicing" or "juice cleansing" -- which involves drinking only cold-pressed juices for a certain number of days to detoxify one's system. A 16-ounce bottle of BluePrint sells for about $9.99 at my local Whole Foods.  At this price point, it's easy to see why Hain envisions this brand giving it entry into what Simon termed the "super-premium" market on the conference call.

Starbucks -- which also has a management team with a keen eye for acquisitions -- also entered this hot market when it acquired Evolution Fresh in late 2011. 

Hain also plans to give the very junior set – babies and infants – their own lifestyle brand with Ella's Kitchen, the best-selling organic baby food brand in the U.K., which Hain is now rolling out to the U.S. market. 

3. Growth drivers include nut butters, baby food, and Greek yogurt.
The company's organic sales growth (growth in brands it's owned for at least one year) in its U.S. segment was a solid 9%.

Of Hain's 30-plus brands, 15 had double-digit growth, which shows strong bench strength. The notable growth drivers include MaraNatha (seed and nut butters), Earth's Best (organic baby food), and The Greek Gods (Greek yogurt). 

MaraNatha's superior performance isn't a surprise, given the global demand for almond-based products, especially milk, is soaring. WhiteWave Foods -- which produces the Silk brand of plant-based non-dairy beverages -- is also benefiting from consumers' growing love affair with all things almond. WhiteWave's almond milk sales surpassed its soy milk sales for the first time in the company's previous quarter, and increased 60% in the U.S. in its most recent quarter.

Hain's Earth's Best organic baby food brand is its best-selling brand among its entire 30-plus brand portfolio. Organic baby food, especially in resealable pouches, is a strong product category. 

Hain entered the Greek yogurt business when it brought The Greek Gods three years ago. Yogurt is a $6.2 billion business in the U.S. and the fastest-growing dairy category, thanks largely to Greek yogurt's torrid growth.

4. Numbers remain solid compared to peers WhiteWave Foods and Annie's.
Hain's basic metrics stack up well against a couple of peers. 

Yahoo! Finance & YCharts. TTM = trailing 12 months; MRQ = most recent quarter.

While this isn't meant to be an in-depth quantitative analysis, these basic numbers point to Hain being an attractive investment. Hain not only has the strongest revenue growth, it also essentially ties (with Annie's) for the best margin. It's quite reasonably valued on a forward P/E and five-year price-to-earnings-to-growth, or PEG, basis. The PEG could prove to be overstated, given that Hain regularly beats earnings estimates.

WhiteWave and Annie's -- both of which have only been public companies since 2012 -- are worth putting on your watchlist. I'd like to see more revenue growth from WhiteWave, while Annie's still seems a bit richly valued for my taste. 

The Foolish last bite
Hain Celestial is in the right business, as consumers' appetites for organic and natural foods remain voracious. Organic food sales are projected to grow at about an 8% annual rate for at least the next five years.