Natural and organic foods are all the rage, which should lead to continued top-line growth for Hain Celestial (HAIN 0.20%), Annie's (NYSE: BNNY), and Whole Foods (WFM +0.00%). All three of these companies should benefit from the current natural and organic food trend, but in different ways. Hain Celestial popular brands combined with exposure in 50 countries leads to tremendous long-term potential. Annie's only operates in the United States and Canada, but high demand for its products has led to leading market share positions in several natural and organic food categories. As a grocery store, Whole Foods targets health-conscious consumers in a different way, but demand has remained high, and the company is expanding.
Continuous growth
Thanks to consistent demand, Hain Celestial has grown faster than both Annie's and Whole Foods, which says a lot:
WFM Revenue (TTM) data by YCharts
Hain Celestial manufactures and markets natural and organic foods, and it does so very well.
Hain Celestial recently delivered an impressive first quarter, with net sales jumping 33% to $477.5 million year over year. GAAP-diluted earnings per share increased 36% to $0.57. Hain Celestial saw strong sales for many of its brands, including Ella's Kitchen and BluePrint (both acquired last year), Earth's Best, Sensible Portions, Spectrum, Greek Gods, Imagine, and Arrowhead Mills. Looking ahead, Hain Celestial expects its 2014 net sales to grow at a 17% clip, and for EPS to improve 16%-20%.
Hain Celestial is the most impressive of the three on the top line. It's also trading at 23 times forward earnings, whereas Annie's and Whole Foods trade at 37 and 28 times forward earnings, respectively. At the same time, Hain Celestial is slightly leveraged, carrying $625.53 million in long-term debt. It has a $65.07 million cash position, and it generated $147.41 million in operating cash flow over the past twelve months. It doesn't pay a dividend, but this is a positive since levered free cash flow only totaled $28 million for the same time frame. The company's growth should offset any debt concerns.
High quality at low prices
High quality at low prices is a common theme for many companies throughout various industries, but Annie's is one of the few companies that actually manages to pull it off effectively. For example, Annie's Homegrown Organic Classic Mac and Cheese (6 oz.) retails for $2.45, cheaper than Back to Nature's Organic Mac and Cheese (6 oz.), which retails for $3.09. Annie's Homegrown Organic Ketchup (24 oz) retails for $5.09, cheaper than Organicville Organic Ketchup (24 oz), which retails for $6.19. These are only a couple of examples, and keep in mind that you can buy all the above products for cheaper at many physical and online locations, based on everyday discounted prices or promotional sales.
Annie's produces, markets, and distributes natural and organic foods that have no artificial flavors, synthetics, or preservatives. In total, it has 135 products, which are sold to 26,500 retailers throughout the United States and Canada.
Currently, Annie's holds the No. 1 market positions in natural and organic foods for mac and cheese, snack crackers, fruit snacks, and graham crackers. The company has a loyal and growing following, and that following is likely to increase given recent innovations which include new microwavable mac and cheese and family size frozen entrees. Annie's is also looking to take advantage of an under-penetrated natural and organic snack business. Annie's recently took a strategic step in this regard by purchasing a manufacturing plant from Safeway. The plant is located in Joplin, Missouri. This acquisition is expected to lead to increased innovation and distribution for snacks.
For fiscal year 2014, Annie's expects adjusted net sales growth coming in at the high end of 18%-20%. This would lead to Annie's growing slightly faster than Hain Celestial.
A more popular option
Whole Foods' FY 2013 net sales jumped 10.4% to $12.9 billion year over year. You wouldn't be able to tell considering the way the stock has acted over the past month. It seems as though investors (and traders) are overreacting. Unfortunately, momentum is a powerful force, and it can last for a significant amount of time. However, if you're looking to invest in a quality underlying company that's in-line with consumer trends, then Whole Foods should be considered.
Whole Foods generated $1.01 billion in operating cash flow over the past year, $537 million of which was used for capex, and $339 million of which was used for new locations. With its ability to generate strong cash flow, Whole Foods also has potential to further increase its dividend payments and/or stock buybacks.
Looking ahead to FY 2014, Whole Foods expects sales to increase 11%-13%, with comps growing 5.5%-7%. Diluted EPS is expected to come in between $1.65 and $1.69, which would indicate a 12%-15% improvement year over year.
The bottom line
All three aforementioned companies present strong long-term potential. Hain Celestial is growing the fastest of the three right now. However if Annie's projections are accurate, then Annie's will be the fastest growing company of the three at this time next year. If you're looking for shareholder rewards in the form of stock buybacks and dividend payments without sacrificing growth potential, then you might want to look at Whole Foods. The simple version is that all three companies are part of the major trends toward eating healthier by targeting the health-conscious consumer. This trend is still in its early stages.
