Hain Celestial settles SEC charges over lax internal controls
- Hain Celestial settled with the U.S. Securities and Exchange Commission over its revenue recognition practices for sales at the end of each quarter "designed to help the company meet its internal sales targets," according to the financial regulator.
- Based on Hain's "extensive cooperation" with the SEC, the agency said it did not impose a penalty on the maker of natural and organic products. Hain consented to the SEC's order without admitting or denying the findings. In a statement, the SEC noted Hain not only self-reported the discovery of sales incentives but has since made improvements to its operations, including the retention of staff to help with compliance while making changes to its revenue recognition practices.
- The SEC found that Hain violated provisions of federal securities laws dealing with books and records and accounting controls. Between 2014 and 2016, the agency found that sales personnel for Hain offered the company's two largest distributors incentives at the end of each quarter to encourage the purchase of inventory to meet internal sales targets. The Wall Street Journal said Hain's financial records show United Natural Foods, Walmart and its affiliates each account for more than 10% of sales. Hain did not respond to a request seeking comment.
Hain's settlement with the SEC puts to rest one major challenge that has weighed on the company in recent years. Since major accounting errors were first disclosed in 2016, Hain has been on a tough path of trying to find growth and profitability amid growing competition in the natural and organic space — an increasingly popular segment the New York company once dominated.
Today, Hain is being plagued by other problems that have pushed its stock price to its lowest level in about six years. The company has purportedly been looking to sell itself, but its hodgepodge of more than 55 brands, including BluePrint juice, Celestial teas and Garden of Eatin snacks, have made finding a suitor difficult. Sales at Hain have also been mixed. During its most recent earnings report, revenues were at $616.6 million — an increase of 3% from a year ago on paper, but a decrease of 0.9% on a constant currency basis. U.S. sales dipped 6%.
It's uncertain if the SEC investigation played a role in delaying any sale. But even if the company maintains its independence going forward, it has a few things working to its advantage. For one, investor Engaged Capital, which has a record of success in prior activist efforts at other companies, took a nearly 10% stake in Hain last year and was instrumental in reshaping the company's board. Glenn Welling, founder and chief investment officer of Engaged Capital, was added in 2017 as a director following a deal with the company. He has been quiet in recent months.
In addition, Hain recently named Mark Schiller as its new president and CEO, succeeding founder Irwin Simon. Schiller was most recently executive vice president and chief commercial officer of Pinnacle Foods, which was purchased by Conagra Brands.
If Hain continues to struggle, the company — now worth roughly $2 billion compared to $4 billion a year ago — would make for a digestible acquisition for a major food company looking to bulk up its presence in natural and organic items that remain popular with consumers. Nestlé was reportedly looking to buy Hain, but only after its chicken and turkey division was sold.
Hain has an extensive range of products, including teas, baby food, chips and shampoos. If its diverse product line is holding up a sale, Hain would be wise to jettison some of its slower-growing brands that may not interest a food acquirer, assuming it can get a reasonable price for the asset. Tyson Foods or Pilgrim's Pride could buy its protein business while Unilever, Johnson & Johnson or Procter & Gamble could snap up its personal care operations. Without a pruning and an eventual sale of its food business, Hain could continue to flounder independently.
- U.S. Securities and Exchange Commission SEC Charges The Hain Celestial Group with Internal Controls Failures
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