Hain Celestial (HAIN) Up 68% in a Year on Transformation Gains

The Hain Celestial Group, Inc. HAIN appears solid on the back of its robust transformation endeavors. The transformation plan is aimed at simplifying portfolio, identifying additional areas of productivity, driving top-line growth and improving cash flow. Meanwhile, well-chalked innovation, marketing and assortment optimization efforts have been driving revenues.

Accordingly, this natural and organic foods company’s shares have surged 67.5% over the course of a year, outperforming its industry’s 28.6% rally. Also, the Zacks Rank #2 (Buy) stock has outshone the broader Consumer Staples sector’s 24% rise and the S&P 500 Index’s 52.8% growth. A VGM Score of A further speaks in favor of the company.

Let’s Delve Deeper

As mentioned above, Hain Celestial has been smoothly progressing with its transformation strategy to reap sustainable profits. The company is focused on boosting automation capabilities in plants to lower costs, rightsize infrastructure and optimize pricing. Moreover, the company is benefiting from its supply-chain productivity endeavors and higher product mix. In addition, management targets acquisition opportunities, which are likely to result in incremental sales along with providing the company with a strong foothold in the packaged food and grocery space.

Although Hain Celestial has been making strategic investments in key brands, it simultaneously divests non-strategic brands to simplify business and boost profits. Over the past 20 months, the company sold or shut down 17 non-strategic businesses, resulting in collective sales of more than $900 million and EBITDA of less than $15 million.

Effective Jan 13, 2021, the company divested its U.K. fruit business, including the Orchard House Foods Limited business and associated brands, to a U.K.-based private equity company Elaghmore. Management cited that by divesting this business, the go-forward company-wide gross margins will expand nearly 150 basis points (bps) and EBITDA margins will increase by about 100 bps.

Performance & Outlook

Buoyed by such aforesaid strengths, Hain Celestial delivered the fourth consecutive quarter of sales growth in second-quarter fiscal 2021. Also, the bottom line in the reported quarter improved year over year and surpassed the Zacks Consensus Estimate for the sixth straight time. While higher sales and margins coupled with a lower adjusted effective tax rate fueled the bottom line, increased sales in the North America and International segments aided the top line. Also, currency acted as a tailwind.

We note that the company’s North America segment is performing well, buoyed by continued strength in the Get Bigger brands. During the fiscal second quarter, the Get Bigger brands accounted for nearly two-thirds of sales in North America and registered growth of more than 10% for the fourth straight quarter. International sales growth was backed by strength in non-dairy brands like Joya and Natumi in Europe along with Ella's UK business. Management cited that in both the North America and International segments, the company has identified nearly $150 million of additional cost savings, which is likely to continue in the years ahead.

A robust second-quarter fiscal 2021 performance helped management to reaffirm view for fiscal 2021. Hence, it continues to anticipate gross margin and adjusted EBITDA margin expansion along with double-digit adjusted EBITDA and operating free cash flow improvement for the same fiscal. With respect to the second half, management assumes foreign exchange translation to be a tailwind compared with the year-ago period. Management projects a decline in inventory levels throughout second-half fiscal 2021.

That said, Hain Celestial is likely to maintain momentum given its sound fundamentals and transformation strategy.

More Solid Food Stocks

United Natural Foods, Inc. UNFI has delivered a trailing four-quarter average earnings surprise of 13.6% and presently has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The J. M. Smucker Company SJM has an earnings surprise of 17.7% for the past four quarters, on average. It carries a Zacks Rank #2.

Celsius Holdings, Inc. CELH, also a Zacks Rank #2 stock, has delivered an earnings surprise of 241.7% in the past four quarters, on average.

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