Will Hain Celestial Efforts Lift the Stock's Performance?
Shares of The Hain Celestial Group, Inc. HAIN declined 6.8% in the past three months against the industry’s growth of 6.5%. In fact, the stock declined further to the tune of 9.7% in the past month. It came under pressure in spite of better-than-expected third-quarter fiscal 2019 results.
The stock’s dismal run on the bourses can be attributable to the declining year-over-year performance of both top and bottom lines during third-quarter fiscal 2019 along with management’s retained unimpressive view for fiscal 2019.
We note that the company’s adjusted earnings of 21 cents a share plunged 43.2% year over year, owing to soft sales and margins. Net sales dropped 5% year over year to $599.8 million. The top line was hurt by sluggish performance in the United States, the United Kingdom and Rest of World.
Also, management continues to expect adjusted earnings per share for fiscal 2019 to be 60-70 cents, indicating a decline of 40-48% from the figure reported in fiscal 2018. Also, net sales in fiscal 2019 are still projected to decline 4-6% to $2.32-$2.35 billion.
Further, this Zacks Rank #3 (Hold) company witnessed adjusted gross margin contraction of 140 bps to 21.6% in the third quarter of fiscal 2019, following a decline of 250 bps and 240 bps in the first and second quarters, respectively. Increased trade and supply-chain expenses in the United States, and elevated commodity expenses hurt margins in the third quarter. Persistence of such a trend is likely to hurt the company’s bottom line in the near term.
Definitely, aforementioned hurdles raise concerns but management is looking every nook cranny to enhance the company’s performance. The company is poised on its transformation strategy for the United States. The strategy is aimed at simplifying portfolio, solidifying key capacities, enhancing margins, reviving top-line growth, and improving cash flows and ROIC.
Efforts to Aid the Stock
Project Terra — a Key Growth Driver
Hain Celestial is well on track with Project Terra, which is aimed at cutting costs and complexity alongside aiding sales growth. The project was announced in fiscal 2016, with the intention of generating worldwide cost savings worth $350 million through fiscal 2020 (comprising annual productivity). In doing so, the company intends to optimize plants, co-packers and procurement along with rationalizing product portfolio.
Notably, the company generated cost savings of $27 million from Project Terra during the third quarter of fiscal 2019. Going ahead, management expects total savings for fiscal 2019 to be roughly $90 million.
Acquisitions Bode Well
Additionally, Hain Celestial has actively pursued acquisitions to gain market share and expand customer base. Further, it plans to expand in regions such as India, Middle East and China. In this regard, one of its wholly-owned subsidiaries acquired Clarks UK Ltd., the leading maple syrup and a natural sweetener brand in the United Kingdom.
Other notable buyouts include Tilda Limited, a renowned name in Basmati rice, and Rudi's Organic Bakery, one of the leading organic and gluten-free company. Hain Celestial also acquired some leading packaged grocery brands — Hartley’s, Gale’s Robertson’s, Frank Cooper’s and Sun-Pat — from Premier Foods plc. The company also acquired Ella's Kitchen Group Limited that offers organic baby food products.
These apart, the company is on track to simplify portfolio in a bid to focus on areas with higher growth potential. In this regard, Hain Celestial concluded the sale of a significant chunk of assets related to the Plainville Farms business, and also divested WestSoy tofu, seitan and tempeh businesses. Moreover, the company inked a deal to sell its entire equity stake in Hain Pure Protein Corporation, which incorporates the FreeBird and Empire Kosher businesses.
Although we believe that the company is surely on track with the aforementioned initiatives, it has a long way to go to see a substantial turnaround.
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