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Hain Celestial (HAIN) Q3 Earnings in Line, Revenues Beat

Shares of The Hain Celestial Group, Inc. HAIN have jumped 9.3% following the company’s solid third-quarter fiscal 2016 results, wherein both top and bottom lines surged year over year, and sales also exceeded our estimate.

The company’s quarterly adjusted earnings of 49 cents per share came in line with the Zacks Consensus Estimate and jumped about 9% year over year. On a reported basis, the company’s earnings came in at 47 cents per share, up 47% from the year-ago period. This included a negative impact from unfavorable currency movements of approximately a penny.

Net sales advanced 13% to $750 million and also surpassed the Zacks Consensus Estimate of $732 million, benefiting from the company’s diverse brand portfolio and strength noted across all businesses. However, adverse foreign currency fluctuations impacted net sales by $13.9 million. On a constant currency basis, sales grew 15% year over year.

The company remains particularly pleased with its U.S. segment results, which reverted to the growth trajectory in the quarter. Net sales at this segment rose 2.4% year over year to $351.9 million in the quarter, while net sales in the U.K. surged 17% to $208.4 million. Further, operations in the Rest of World segment witnessed a 31.5% increase in net sales to $75.9 million, while Hain Pure Protein Corporation (“HPPC”), which was acquired in Jul 2014, saw a spectacular 36.6% upside in net sales to roughly $113.6 million.

During the quarter, the company registered strong year-over-year growth on a constant currency basis from brands like Plainville Farms, Terra, Tilda, Yves, FreeBird, Imagine, Garden of Eatin', The Greek Gods, Sensible Portions and Spectrum, along with Alba Botanica and Jason – its personal care brands. Also, the top line received robust contributions from Joya and Orchard House Foods, purchased after third-quarter fiscal 2015.

Gross profit rose 9.8% year over year to $173.2 million in the reported quarter. Adjusted operating income jumped 3.8% to $80.5 million, while adjusted operating margin contracted 100 basis points to 10.7%.

Financials

The company ended the quarter with cash and cash equivalents of $125.4 million, long-term debt (excluding current maturities) of nearly $879.6 million, and shareholders’ equity of $1,838.9 million. Cash flow from operating activities for the nine months period was $131.9 million, while capital expenditures were roughly $58 million. The company generated operating free cash flow of $73.8 million during the first three quarters.

Other Developments

Management unveiled a host of strategic initiatives aimed at driving the company’s growth. Firstly, the company began a strategic review under Project Terra, and expects to generate worldwide cost savings worth $100 million from fiscal 2017 through fiscal 2019. To achieve these savings, the company intends to optimize plants, co-packers and procurement, along with rationalizing its product portfolio, and thereby reinvesting the additional savings through brand development and household penetration. To oversee these actions, management named James R. Meiers as Hain Celestial’s Chief Operations Officer, taking effect immediately.

Further, in an attempt to augment sales and margin growth, the company plans to create five strategic platforms in its U.S. segment, including Fresh Living, Better-for-You Baby, Better-for-You Snacking, Better-for-You Pantry and Pure Personal Care.

Additionally, Hain Celestial is on track to launch Cultivate Ventures or “Cultivate”, which is a unit focused on three main ideas – investing in the company’s small yet high potential brands, making small acquisitions, and investing in products, concepts and technology, committed to health and wellness.  

Finally, management revealed plans to sell some brands, which account for about $30 million in sales, but do not form part of the company’s key growth plans anymore.     

Guidance

The company’s performance remains impressive, marked by sturdy sales and earnings growth, along with its focus on productivity enhancement, which led to profitable global expansion.

Going forward, Hain Celestial is likely to sustain its strong momentum and appears favorably positioned to capitalize on the growing global demand for organic products, given its diversified portfolio, solid consumer base and efforts to make constant brand investments.

Following its third-quarter results, the Zacks Rank #3 (Hold) company narrowed its fiscal 2016 outlook, by raising the lower end and lowering the upper end of its previously issued guidance. It now anticipates net sales in the band of $2.946–$2.966 billion, up 9%–10% year over year, compared with the previous projection of $2.90–$3.04 billion, reflecting 7%–12% growth.

Further, earnings per share are now envisioned in the range of $2.00–$2.04, representing 6%–9% year-over-year growth. Earlier, management projected earnings per share to lie in a band of $1.95–$2.10, an increase of 4%–12% from fiscal 2015. The current Zacks Consensus Estimate for the fiscal stands at $2.01 per share.

Stocks to Consider

Better-ranked stocks in the same industry include Campbell Soup Company CPB, with a Zacks Rank #1 (Strong Buy), B&G Foods Inc. BGS and Amplify Snack Brands, Inc. BETR, both carrying a Zacks Rank #2 (Buy).

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HAIN CELESTIAL (HAIN): Free Stock Analysis Report
 
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B&G FOODS CL-A (BGS): Free Stock Analysis Report
 
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