What happened?
The tea cup is half-empty or half-full, depending on your disposition. Natural-foods purveyor Hain Celestial Group (HAIN 6.54%) has released its quarterly guidance and updated its annual guidance. For its current Q2 2016, the company now expects net sales to come in at $740 million to $760 million, with net profit of $0.53 to $0.56 per diluted share. Both ranges are lower than analyst expectations, which were for a top-line of $767 million, and EPS of $0.57.
Meanwhile, Hain Celestial shaved its guidance for the entirety of fiscal 2016, saying it now anticipates net sales of $2.90 billion to $3.04 billion for the year, with EPS of $1.95 to $2.10. The company's prior expectation was for $2.97 billion to $3.11 billion, and $2.11 to $2.26, respectively.
Does it matter?
Nobody particularly likes a guidance cut, and not surprisingly, Hain Celestial's share price dipped in the wake of the Monday announcement. Yet even if it meets those diminished expectations, it will still have shown growth. Those new annual projections shake out to 7% to 12% growth on the top line, and a 4% to 12% improvement in EPS.
Hain Celestial was a growth superstar for quite some time; it managed to increase its sales at double-digit percentage rates for a highly impressive 20 quarters in a row. But no company is made of magic fairy dust, and sooner or later, most settle into a more mature stage.
What's helping this process along is intensified competition, particularly among manufacturers. Every old-line food producer, it seems, is piling into the natural/organics segment, and these competitors are tough. Hormel (HRL 0.92%), to name but one, found it worthwhile to pay $775 million for a "healthy food" manufacturer, in this case, organic processed-meats company Applegate Farms. That doesn't quite make Hormel a direct competitor to Hain Celestial, at least not yet, but it shows that the segment is too juicy and appealing for hungry incumbents to ignore.
In the pure-play natural/organic segment, Hain Celestial is one of the best companies on the market, in my opinion. It will probably continue to post encouraging growth numbers, guidance cuts notwithstanding. But competition will only intensify. There are more than a few companies like Hormel out there, and they're more than happy to eat Hain Celestial's lunch.
