If you've spent much time following Wall Street, you know that
a company's strong financial performance isn't always rewarded
with an upwardly mobile stock price, especially if the company
operates in a sector that has fallen out of favor with
Hain Celestial Group (
) is a case in point.
Hain is the nation's top supplier of natural and organic food
and personal care products. Its lineup includes well-known brands
such as Celestial Seasonings teas, Earth's Best baby food, Health
Valley soups and cereal bars and Terra Chips.
The company sells its goods in roughly 50 countries worldwide,
though more than 60% of its revenue comes from the U.S.
Business has been good. Over the last nine quarters, Hain has
grown earnings at least 12% and sales at least 19%. Seven times
during that stretch, earnings have risen by at least 31% year
But the company's stock price has largely gone sideways over
the last seven months, even as IBD's Packaged Food group has
risen more than 20% during the same time frame.
That disparity has raised eyebrows among some industry
"Despite healthy earnings recently, (Hain's) stock has
underperformed the food group," JPMorgan analyst Ken Goldman
noted in a recent report.
Part of the problem, he says, has been "the underperformance
of better-for-you food stocks as a whole."
Goldman didn't mention specific stocks. However, Hain's share
price might have been hurt by the performances of organic and
natural foods retailers likeWhole Foods Market (
) andThe Fresh Market (
Both of those companies have seen their stock prices decline
over the last few months even as they, like Hain, continue to
produce solid financial growth.
Those issues notwithstanding, Goldman still sees plenty of
growth potential in the natural and organic foods segment.
Among other things, he points to attendance at the Natural
Products Expo West trade show that took place in early March in
The event was "by all accounts the best attended in years,"
Goldman noted. In addition, large traditional grocery store
operators likeKroger (
) andSafeway (
) "have stated their desire" to expand space for natural and
organic shelf stable foods.
"Better-for-you eating remains a very strong category in
general," Goldman said. "When the 'reversion to the mean' trade
in food eventually abates, growth-oriented companies like Hain
will be positioned to outperform again in our view."
Citigroup analyst Gregory Badishkanian sounds a similar
refrain. In a report following Hain's second-quarter earnings
announcement, Badishkanian said the natural/organic category in
general, and Hain in particular, are primed for solid growth in
"Our confidence in Hain's ability to achieve our estimates is
based on decent top-line growth, driven by continued consumer
demand for natural/organic products," he said. "Hain's organic
sales should grow substantially faster than the conventional food
Hain is already on a pretty good roll. Over the last five
quarters it has grown earnings at least 31% and sales at least
The company is due to report fiscal third-quarter results on
Tuesday. Analysts polled by Thomson Reuters expect profit to come
in at 72 cents a share, a gain of 33% from the prior year.
During its fiscal second quarter, which ended in December,
Hain logged earnings of 72 cents a share excluding items. That
was up 36% from a year earlier and 3 cents above consensus
Operating free cash flow rose 47.6% to $106.8 million for the
trailing 12 months ended Dec. 31. Adjusted EBITDA was $205.9
million for the trailing 12 months ended Dec. 31, an increase of
31.8% year over year.
Second-quarter revenue climbed 25% to $455.3 million. That was
below the $473 million expected by analysts, in part because of
the negative impact Hurricane Sandy had on business.
Hain's top line did get a boost from its October buyout of the
U.K.'s Premier Foods, which brought aboard Hartley's jams, among
other brands. The stock and cash deal was valued at around $320
million. Hain said the buyout helped its second-quarter revenue
more than double in the U.K.
The company has made nearly 30 acquisitions since it was
founded in 1993. Its strategy is to buy smaller entrepreneurial
companies that are a good fit with Hain's business. It then uses
its resources and expertise to manage and build the brands into
Hain has also benefited from recent strength in many of its
core product categories, analysts say.
"The category strength is being driven by higher end consumer
spending and the secular growth of organic food," Badishkanian
noted. "Solid sales at Hain are a positive read through to the
rest of the sector."