Hain Celestial misses targets as it drops smaller products
- Hain Celestial posted global net sales of $632.7 million, an increase of 7.5% from $588.7 million a year earlier, according to the company's most recent earnings report. The natural and organic manufacturer said strong sales outside of the U.S. helped offset challenges domestically where net sales actually decreased 3%.
- Despite the sales increases, Hain Celestial missed analysts' earnings estimates by a wide margin. Earnings before interest, taxes, depreciation and amortization were estimated at $92.8 million. They came in at $73.4 million.
- Irwin Simon, Hain Celestial's founder and CEO, said in the report that the company is determined to turn the results around. "We are taking aggressive action to address the challenging environment, including optimizing our pricing to offset these higher costs," he said. "In addition, we are making targeted strategic brand building investments in our top 500 SKUs, where we have gained significant points of distribution, which we expect will result in a higher rate of growth in future periods."
It seems that Hain Celestial anticipated a slower quarter, especially in the U.S. After all, the company noted in its earnings report that it expected to see a drop in U.S. sales as it continues Project Terra — the manufacturer's name for its SKU rationalization project. Hain Celestial is hoping to concentrate on its top 500 products in the U.S., a move intended to increase its margins in the long run, the report states.
It also seems like a good idea to streamline the company's offerings. Hain Celestial has an extensive range of products, including teas, baby food, chips and shampoos. The diverse portfolio also generates a diverse set of results. During the most recent quarter, the company's tea and personal care segments posted sales growth, while slower sales of items under the Better-For-You Living, Better-For-You Baby, Better-For-You Pantry and Fresh Living platform more than canceled them out.
Operating income in the U.S. was $25 million, a decrease of 44% from the year-ago period. The drop mostly came from an increase in spending on marketing, as well as higher freight and commodity costs.
But the top issue swirling around Hain these days has little to do with stock, earnings or sales. The manufacturer and its 55-brand suite of natural products has been rumored as a takeover target for years. The company worked its way through financial difficulties without finding a buyer, but about a year ago, activist investor Engaged Capital took a 9.9% stake in the company. Its goal was to reinvigorate top line growth and bring its margins more in line with its peers.
While that hasn't happened, there continues to be talk about a sale of Hain. But the company's biggest weakness, sources told The New York Post, has been the large stable of diverse brands and its likely asking price. Food brands, for example, would not be of interest to a beauty products company during a sale. Nestlé was rumored to be in talks to buy the company last year, on the condition that its chicken and turkey division were divested first.
While this earnings report — and a precipitous drop in the company's stock price to a 52-week low of $25.80 on Tuesday — may not seem like good news, it could help get an acquisition deal rolling. Fewer and more streamlined products are lowering earnings, but they also could be giving potential buyers of the larger company what they want to see.
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