Hain Celestial Reports First Quarter Results (FY 2014)
Today Hain Celestial (HAIN) reported their first quarter results for fiscal year 2014. Here are some brief highlights along with some of my thoughts and analysis of the report.
1Q FY2014 Highlights (year-over-year from 1Q FY2013)
** Net sales increased 33% to $477.5 million from $359.8 million
** U.S. sales increased 23.5% to $311.99 million from $252.65 million
** United Kingdom sales increased 96.7% to $113.99 million from $57.95 million
** Rest of world sales increased 4.6% to $51.49 million from $49.21 million
** Gross margin 24.95% versus 26.46% in 1Q FY2013
** Adjusted EBITDA increased 42% to $57.83 million from $40.75 million
** Income from continuing operations increased 40% to $27.7 million from $19.8 million
** Adjusted net income increased 32% to $25.3 million from $19.2 million
** Profit margin 5.79% versus 4.6% in 1Q FY2013
** Diluted EPS increased 27% to $0.52 from $0.41
** Operating free cash flow increased 118.9% to $41.26 million from $18.85 million
** Cash and cash equivalents increased 57.69% to $65.07 million from $41.26 million in the previous quarter (4Q FY2013)
** Long-term debt decreased to $641.24 million from $653.46 million
** The following brands experienced double-digit sales growth year-over-year: Earth's Best®, Sensible Portions®, Spectrum®, The Greek Gods®, Imagine®, Arrowhead Mills®, Hain Pure Foods®, Bearitos®, Lima®, Danival®, Natumi® and Linda McCartney®.
For what it's worth, Hain managed to beat the average analyst estimates of $0.50 EPS. I don't lose sleep over analyst estimates, so I am not going to spend more time here diving into their estimates and reasoning.
I am very impressed that, despite acquisition costs and other factory start-up costs, Hain's profit margin managed to increase to 5.79%. This, coupled with the vast increase in the production of cash flow, signifies to me that management is doing a superb job balancing existing brands with new acquisitions. Within the past year Hain has engaged in various acquisitions, including the acquisition of the Hartley's, Sun-Pat, Gale's, Robertson's and Frank Cooper's brands. The 40% increase in net income from continuing operations also serves as a very good sign of continued success with Hain's existing brand portfolio.
Currently U.K. sales make up approximately 25% of Hain's overall sales, a number that appears slated to increase quite a bit in the coming year if U.K. sales continue on this trajectory. Down the road I see tremendous potential for Hain in other European countries, Canada, and other markets around the world. For now the U.K. market is providing a substantial boost to the company's sales figures. Hain's margins in the U.K., however, are not yet anywhere close to its U.S. figures (operating margin of 1.7% in the U.K. versus 14.9% in the U.S.), but they are improving compared to last year.
I expect a solid year from Hain, which also reiterated its earnings estimates for fiscal year 2014 (which I went over here: http://caps.fool.com/Blogs/hain-celestial-1q-2014/886871). I will be keeping an eye on the company's cash flow production and ability to maintain steady margins. I am also particularly interested to see how U.K. sales and margins play out this year; if Hain can boost margins in the U.K., we could see a sizable expansion of income production in the coming years.
Being someone who has Celiac Disease and must eat gluten-free, I appreciate the innovative nature of Hain's brands with alternative and healthy food and product offerings. Much of Hain's success is due to Irwin Simon, Founder, Chairman, and CEO of Hain, who has an innovative mind for product and service offerings and a keen mind for an expansive business.
If my calculations are correct, Hain's EPS now stands at $2.52. This means the stock is currently trading at a P/E of 33.08. In today's market I see this as fairly valued, and might consider adding to my position if the P/E falls below 20-25.
Glad to see another successful quarter under Hain's belt, and I look forward to the progress of Hain in the coming fiscal year.