Packaged foods maker Hain Celestial Group (NASDAQ:HAIN) reported another quarter of 20% growth on Aug. 18, taking its streak of double-digit quarterly growth to 20 in a row. That's a pretty big accomplishment for what is usually considered a slow-growth industry in packaged foods. However, the company's focus on the growing demand for organics and "better for you" foods -- certainly a growing market -- as well as expanding international sales, is driving the growth.

A few highlights from the just-reported fourth quarter and fiscal year:

  • Q4 sales up 20%; full-year sales up 25%. 
  • Earnings per share up 16% for the year.
  • Nine key brands are in top three of their respective category sales. 
  • Company completed several key acquisitions over the year. 

That last point -- acquisitions -- has been a major factor in Hain's success over the past several years, as the company has been incredibly successful at acquiring and integrating small food makers into the company, then leveraging Hain's distribution scale to grow those brands, both in the U.S. and abroad. Let's take a closer look at the key details. 

Acquisitions keep fueling growth, but there's more, too
Over the past decade or so, consumer demand for organic and natural packaged foods has steadily increased, and for the most part, small, independent food companies have met that demand. Hain founder and CEO Irwin Simon has taken advantage of the relatively slow moves taken by "big boys" like General MillsKraft Heinz Co and others entering the fray, and aggressively acquired more than a dozen of the best-sellers in multiple product categories. Just this past year, Hain made three significant acquisitions in Hain Pure Protein (of which it only had a partial stake before), EK Holdings (Empire Kosher and Kosher Valley brands), and the Live Clean brand, expanding the company's presence in personal care products. 

The company has continued to acquire heading into FY 2016, buying Mona Group in July. This move further expands Hain's international presence, especially in Western Europe, Mona's primary market. 

Hain isn't just counting on acquisitions for growth, either. The company continues to invest in new products within its existing brands, and there is still room for organic (forgive the pun) growth in almost all of the company's product categories as more consumers seek out healthier and all-natural packaged foods. Simon emphasized this on the Q3 earnings call, pointing out that the company had introduced more than 100 new products to distributors and retailers at a recent major natural foods convention. 

Working through challenges 
Hain Celestial had a couple of challenges in FY 2015, including a major voluntary recall of its Maranatha nut butters, which cost an estimated $4.9 million in lost profits, and a $900,000 loss from a fire at a Tilda production facility. The good news is it looks like the company has largely moved past these issues; the nut butter issue is in the rearview mirror, and a combination of third-party sourcing and returning the Tilda plant to operation are meeting demand for the products lost there. 

The recall had a measurable impact on the company's cash flows. In 2015, operating free cash flow was $134.3 million, down from $143.2 million in the year before. The company also said that higher capital expenditures -- think acquisitions and expansion here -- played a role in this decline, so it's part of the long game as well. 

Something to watch going forward 
Hain's acquisitive strategy (paired with Simon's so-far excellent execution) is key to the company's success. Besides paying reasonable prices for the acquisitions, the company's ability to integrate new brands into the fold while keeping cost increases in line (and preferably lower than revenue growth) is central to increased per-share returns. 

With this in mind, here are the percentage increases for a few key categories in 2015:

Category Percent Change YoY
Revenue 25%
Gross Profit Dollars 9%
SG&A Expenses 12%
Operating Income 4%
Net Income 20%

Source: Hain Celestial earnings release. 

Of the categories above, the first four are cash-based numbers, while net income can be affected by non-cash items. But before you jump to any conclusions as to what these results tell us, let's consider some context.

First, we know the nut butter recall and the fire at the Tilda plant each played a role in affecting the cash-generating results of operations. Management has also consistently described the Hain Pure Protein business as having lower margins than the other segments, but also having very low SG&A expenses. So it's fair to conclude that these two things affected -- to the negative -- gross margin dollar and operating income growth less than revenue growth, and that Hain Pure Protein -- to the positive -- helped keep SG&A expense growth lower than revenue growth. 

In short, digging into the business a little bit helps us to understand how the results were reached. Ideally, investors should expect that operating income and gross profit dollars should grow faster than revenue over time, and this should lead to strong per-share earnings growth. 

If they don't, then it could indicate that Hain isn't leveraging its scale and integrating acquisitions as well as it has historically done. 

Looking ahead 
Overall, it's hard to call FY 2015 anything other than another solid year of growth, even with the challenges of a fire and the biggest recall in the company's history. Looking at 2016, the company's guidance is for sales growth of 10% to 15%, which would push the company past the $3 billion sales mark. Management is projecting earnings to grow 12% to 20%, an accelerated rate versus revenue based on the benefits of fully integrating recent acquisitions over a full year's results. 

Looking at the even bigger picture, even at $3 billion in sales Hain is a "bit player" in feeding the world, and the company is aggressively expanding in the fastest-growing segments of the packaged foods business. Factor in a heavily invested founder still at the controls, and things look pretty good for Hain, both now and in the future.