Hain Celestial's Earnings Climb - Analyst Blog

The Hain Celestial Group Inc. (HAIN), which distributes, markets and sells various natural and organic foods as well as personal care products,  has posted first-quarter 2011 financial results.

Quarterly earnings of 25 cents a share remained in line with the Zacks Consensus Estimate, but climbed 13.6% from 22 cents delivered in the prior-year quarter. On a reported basis, including one-time items, earnings came in at 21 cents a share compared with 20 cents earned in the year-ago quarter.

Quarterly Performance

Revenue in the quarter increased 11.9% to $258 million from $230.5 million delivered in the prior-year quarter, and also came well ahead of the Zacks Consensus Estimate of $250 million. Management hinted that despite a challenging economy, the company was able to post healthy sales aided by United States, Canadian and Continental European operations as well as recent acquisitions.

Hain Celestial has acquired World Gourmet Marketing, including its Sensible Portions brand of Garden Veggie Straws, Pita Bites and other snack products. The company has also acquired Churchill Food Products Limited that manufactures and distributes food-to-go products in the United Kingdom. Additionally, the company purchased The Greek Gods brand.

Acquisitions have been a key part of Hain Celestial's strategy to build market share. Acquisitions have not only enhanced its geographical presence but have also provided opportunities to cross-sell products in the U.S., Canadian, and European markets.

We believe that with an extensive portfolio of well-known brands, Hain Celestial offers investors one of the strongest growth profiles in the industry. The stock is poised to rise once the economy rebounds and demand for healthier and natural food improves. The quarter witnessed growth in U.S. consumption for natural organic foods.

Despite an 11.4% rise in cost of sales, gross profit soared 13.4% to $70.1 million in the quarter, whereas gross profit margin expanded to 27.2% from 26.8% in the prior-year quarter. On an adjusted basis, gross profit margin increased 52 basis points to 27.3%, reflecting sales of higher margins products and cost-containment efforts.  

Financial Aspects

Hain Celestial generated free cash flow of $55.9 million for the 12-month period ended September 30, 2010. The company ended the quarter with cash and cash equivalents of $20.9 million and long-term debt of $257.7 million, with debt being 32.8% of shareholders' equity of $786.4 million. Capital expenditures for the quarter were $2.6 million.

Guidance

Hain Celestial expects fiscal 2011 earnings in the range of $1.24 to $1.31 per share and revenue between $1,025 million and $1,050 million. The current Zacks Consensus Estimate for fiscal 2011 is $1.27 per share, which is supported by 11 analysts, and dovetails with the company's guidance range.

Currently, we have an 'Outperform' rating on Hain Celestial. However, the stock holds the Zacks #3 Rank, which translates into a short-term ‘Hold' rating.