Strange Brew: Hain Celestial Group (HAIN)

Strange Brew: Hain Celestial Group (HAIN)

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When walking into the local natural foods store these days, a barrage of familiar labels hits you. Many of these brands, once small independent businesses, have become part of the Hain Celestial Group. These include not only Celestial Seasonings® teas but also Spectrum Naturals® oils, Arrowhead Mills® grains, Garden of Eatin’® and Healthy Valley® snacks, Greek Gods® yogurt, West Soy®, Rice Dream®, Ethnic Gourmet®, as well as Jason® and Avalon Organics® skin products. The full list of Hain’s products is three times longer—the company has done a skillful job of acquiring a wide swath of the most popular organic product companies over the past ten years. Hain began with Hain Pure Foods and Hollywood Food merging in 1993, and the company’s subsequent purchases resulted in a frothy stock price in the late ’90s. Hain then acquired Celestial Seasonings in 2000, giving it a much broader reach. The company is not solely U.S. focused; it started expanding into Europe in 2001 and in the past year bought three more U.K.-based natural foods companies focused on prepackaged meals.

HAIN

Hain’s balance sheet is not typical of many companies in which Clean Yield invests, though it is not out of the ordinary for the food processing industry. The business has acquired a substantial amount of debt due to all of its acquisitions, something that we usually try to avoid for stocks in our universe. In addition, while the natural foods market soared in the past decade, Hain’s stock price surprisingly languished between 2000 and 2010. It isn’t entirely clear why the stock didn’t have greater success, but as a holding company of many brands, it didn’t seem as though management knew how to make the most of each product and at times made ill-fitting and costly acquisitions. More recently, however, both Hain management and the stock price have made quite the rebound. The company has slowed down and made more-targeted purchases, as well as some key divestitures (such as the Kosher Valley® line), maximizing its own brands and improving margins. Its international acquisitions and general growth in the natural foods business look promising, and the company is now planning price increases to offset higher commodity prices. The stock price has responded accordingly, tripling between July 2010 and July 2012. The past few months have brought a pullback in the stock price, likely due to profit taking, and the stock has even occasionally been back into reasonable value buying range.

Corporate Responsibility

Hain’s primary reason for being included in socially responsible portfolios is its natural foods product line, and one hot-button issue for all natural foods companies is GMO labeling. A few support labeling, but a surprising number have remained neutral or come out against it (often because they are part of larger conglomerates that use GMO products). Last fall, Hain was neutral for a while on California’s labeling referendum, but when called out by the pro-labeling group, Hain finally released a statement supporting mandatory GMO labeling. The company faces a lawsuit accusing it of improper use of the “organic” label on cosmetics for falling just short of the required 70% percent level of organic ingredients required to use that label. Hain’s Board includes one woman.

Revenues:     $1.45 Billion
EPS:
2014E   $2.85
2013E   $2.45
2012A   $1.82

Projected Annual Growth Rate:   14%
Dividend: 0%
52-Week High–Low:  $73.72–$38.42
Risk: Medium
Website: hain-celestial.com

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