Dive Brief:
- Hain Celestial said net sales across all segments were up 5% to $775.2 million, missing analyst estimates of $776 million. U.S. sales dropped 3% to $270.3 million for the quarter ended Dec. 31, the company said in a statement. Adjusted net income was up 30% to $42.7 million.
-
The New York-based company said it is exploring selling its Hain Pure Protein business, which saw a 4% increase in revenue to $159 million during the quarter. The company reiterated its fiscal 2018 net sales outlook for between $2.967 billion to $3.036 billion, which is up approximately 4% to 6% from fiscal year 2017.
-
"Our team remains intently focused on generating the growth we believe we are capable of achieving from our brand building efforts," Irwin D. Simon, founder, president and CEO of Hain Celestial, said in a release. "Throughout our organization, we continue to make progress on our long-term strategic priorities and Project Terra cost savings initiatives."
Dive Insight:
Hain Celestial saw a mixed performance during the second quarter from its large portfolio of brands. The company's namesake Celestial Seasonings teas, along with its personal care and baby products, showed growth, but the snacking segment declined. Sales of its MaraNatha nut butters and Arrowhead Mills brands were a bright spot, the company noted. Overall, operating income margins during the second quarter fell to 4.7% from 5.6% a year earlier.
"While some bulls may point to Hain’s announcement to explore the divestiture of its Hain Pure Protein business, we think the magnitude of sales and profit declines in its key Hain US segment is likely to dominate the narrative this quarter and could continue to pressure shares in the near term," Barclays said in a report following the earnings release.
It's hard to tell how these latest quarterly results will impact Hain Celestial's ongoing efforts to sell itself. Nestle was reportedly in talks to acquire the company, but only if it sold its antibiotic-free chicken and turkey division first. It's possible that selling off the protein business is one way to slim down the portfolio and make itself more attractive to a potential buyer.
Hain Celestial has acquired more than 55 brands, including BluePrint juice, Celestial Seasonings teas and Garden of Eatin' snacks, since it was founded in 1993. There is concern that Hain Celestial has too many small brands, with none of them big enough to attract a buyer willing to pay what the company is asking.
It's likely that activist investor Engaged Capital is keeping a close eye on these developments. Engaged bought a 9.9% stake in Hain Celestial in June 2017 to help reinvigorate the company's top line growth and bring its margins more in line with its peers.
Hain Celestial has been considered an M&A target for some time because its portfolio contains the kinds of natural and organic products preferred by consumers who are concerned about the ingredients in the foods they eat and beverages they drink. In addition to Nestle, other companies rumored to be considering such an acquisition are General Mills, Kellogg, Danone, Mondelez, Coca-Cola and PepsiCo.
With a potential market cap of $3.7 billion, Hain Celestial would be a purchase these and other much larger food and beverage manufacturers could easily digest — if they were convinced it made sense and if experienced management could take over from Simon, who founded the company and has led it from the beginning.
With so many different brands spread across different areas, including food, it's possible that parts of the company could be sold off, starting with the protein business. With a number of food deals recently, highlighted by Hershey's purchase of SkinnyPop owner Amplify Snack Brands and Campbell Soup's acquisition of snack maker Snyder's-Lance for $4.87 billion, the merger frenzy in the food space could bode well for Hain Celestial.