Hain Celestial Deal To Buy U.K. Brands To See Healthy Gains

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Hain Celestial ( HAIN ) kept up its hearty appetite for overseas buys last month with a deal that should boost its presence in the United Kingdom.

Hain Celestial Group kept up its hearty appetite for overseas buys last month with a deal that should boost its presence in the United Kingdom, where the natural and organic foods powerhouse recently has stepped up expansion.

Hain agreed to buy Britain's Premier Foods' portfolio of jams and spreads in a stock and cash deal valued at roughly the equivalent of $320 million, the company said Aug. 22. That same day, Hain served up fourth-quarter results that topped views for the seventh straight quarter and gave an upbeat forecast for the new fiscal year.

Investors cheered the news. On Aug. 23, Hain's shares surged 19%.

The Melville, N.Y.-based Hain is the largest manufacturer and marketer of natural and organic food and personal care products in the U.S., which it also sells in roughly 50 other countries. Its well-known brands include Celestial Seasonings teas, Earth's Best baby food, Health Valley soups and cereal bars, and Terra Chips.

Founder and Chief Executive Irwin Simon has kept Hain on a steady diet of acquisitions with close to 30 buys since its start in 1993. His strategy? Acquire smaller entrepreneurial companies that are a strategic fit with Hain's business, but need to be taken to the next level, put them together under one umbrella company, and use Hain's wherewithal and expertise to manage and build their brands, Simon told IBD.

Healthy Financials

The deal to buy Premier's market-leading packaged grocery brands, such as Hartley's jams and Sun-Pat peanut butter, should add to Hain's already healthy financial prospects.

The acquired business posted $250 million in sales in its last fiscal year. Hain estimates the deal, expected to close by the end of October or early November, should post sales near $180 million during the eight-month period from closing to June 30, 2013, the end of Hain's fiscal year. Hain expects the deal to add 25 cents to EPS before acquisition-related charges. The estimates will be updated upon closing.

The acquired business should bring a lot to the table as Hain moves to build muscle in the U.K.

"There's a big opportunity in the U.K. to do what we did in the U.S.," said Simon. "We felt the Premier business would give us the infrastructure to take some of Hain's products into the U.K. in a bigger way. This gives us scale."

He says the buy would position Hain among the 40 largest food and beverage companies in the U.K. Hain has a European business based in Belgium that sells into Europe. Simon expects to use this operation to expand some of Premier's U.K. grocery products into the rest of Europe.

On the product front, the acquired Premier brands may not be the healthiest products, but they're well known. And Hain will work to change some of the ingredients to make them healthier so they'll fit into Hain's mix, says Simon.

The proposed buy would mark Hain's third acquisition in the U.K. in the past several months.

In November, it acquired Daniels Group, a marketer and manufacturer of chilled natural foods in the U.K. Hain paid $230 million in cash plus an unspecified earn-out for the Leeds, England-based company, which had annual sales of $280 million at the time of the buy.

At the time Daniels caught Simon's eye, Hain was struggling in the U.K., without a lot of brands and no scale, says Simon.

"Then came along this great acquisition -- Daniels," he said.

Why was it great? Its sales were substantial, and its products fit into Hain's sweet spot, he says. Daniels' lineup of fresh and natural foods includes the Johnson Juice Co., the No. 1 fresh-squeezed orange juice brand in the U.K. and the New Covent Garden Soup Co., the No. 1 fresh chilled soup brand.

In May, Hain acquired Ireland's Cully & Sully for an unspecified amount. The firm manufactures and markets chilled soups, savory pies and hot pots.

Piper Jaffray analyst Sean Naughton says Hain's strategy of acquiring natural and organic brands has worked to the company's advantage.

"The company has often times been able to purchase smaller brands and use its scale and relationships with retailers at the distribution level to expand the growth of these brands more quickly than if they stayed as independent companies," he said.

This strategy has enabled Hain to continue to grow organically at a very healthy rate, he adds.

Hain has posted eight straight quarters of double-digit sales and earnings growth. Sales have grown by double-digits in all but two quarters during the same period. In the most recent fourth quarter, earnings climbed 31% to 47 cents a share. Sales rose 22% to $350.8 million.

"Our consumption was up tremendously," said Simon.

Hain Celestial U.S. saw its consumption rate rise 10%, vs. a year ago.

Naughton says Hain, the largest pure-play organic and natural products company in the U.S., is capitalizing on the secular trend of more people going in for this product category.

Big Customers

Hain enjoys very wide product distribution at a number of retailers, including giant natural and organic foods grocerWhole Foods Market ( WFM ), its largest customer, discounters such asTarget ( TGT ), warehouse clubCostco Wholesale ( COST ) as well as supermarket chains and independent grocers.

Simon says while Hain has the financial ability to do more acquisitions, his No. 1 priority is running the current business rather than looking for buys. He sees potential for a lot of expansion and distribution growth for Hain's current product line in the U.S. Healthy eating, he says, is not a fad. And it will become a bigger part of life as retailers, such as Whole Foods,Wal-Mart ( WMT ), Costco and conventional supermarkets carry more and more natural products.

Analysts surveyed by Thomson Reuters expect Hain's fiscal 2013 earnings to rise 31% to $2.43 a share. They see a 16% increase in fiscal 2014.

"We feel very bullish about the case for continued growth in organic and natural foods and products," said Naughton.

Naughton's recent survey work shows consumers want to continue to spend on organic and natural products.

In a June survey, Hain's biggest customer, Whole Foods, was voted the No. 1 destination for organic foods. Grocer Trader Joe's and supermarket chainsSafeway (SWY) andKroger (KR) also offer large assortments of Hain's food and household products.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: COST , HAIN , TGT , WFM , WMT

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