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Hain Celestial Reports First Quarter Results (FY 2014)



November 05, 2013 – Comments (3) | RELATED TICKERS: HAIN

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: 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. 

David K

3 Comments – Post Your Own

#1) On November 05, 2013 at 8:50 PM, greeneggsandkam (< 20) wrote:

How did you calculate the eps and p/e from those figures? And gross margin is lower though, does that matter as much? Why does the stock did not bulge after market when earnings and revenue both up and beat street expectation. I went back to your last article where you calculated what the stock price would be in 5 years, how do you get those numbers? I would like to learn how so i can do it to other stock too. Thanks



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#2) On November 08, 2013 at 8:57 AM, TMFPencils (99.92) wrote:

Hi greeneggsandkam,

I updated the trailing-twelve-months (ttm) EPS based on the latest quarter's results. Since the EPS increased by $0.11 in this quarter compared to last year's quarter, I added $0.11 to the overall EPS for the updated EPS number. Sites like Yahoo! and Google Finance will update EPS numbers eventually, but there can be a delay, so I like to calculate the updated number once the quarerly results are released. Once you have the updated EPS, all you need to do is divide the current price by the updated EPS (Price/EPS) to get the updated P/E ratio. 

The stock ended up getting a boost on Wednesday by several percent, reaching a new 52 week high. However, as I mentioned in my analysis, I do not place much weight on analyst projections or after-market numbers. Sometimes companies will beat all analyst expectations and projections and still get hammered by the market (this happened to Netflix 5-6 years ago on at least one occasion). The market will do some irrational things, especially in the short-term, which is why it is important to not let short-term swings dictate our investing decisions in quality businesses.

The Future Value Evaluation formula is a simple tool, but it can be an effective way to gauge what a business needs to do over the long-term to be a solid and worthwhile investment. TMF1000 uses this formula as well - I learned it from him. I will try to write a blog post going into it in more depth, but the basic formula is this:

Current EPS x (Expected Annual Earnings Growth Rate ^ Number of years) * Expected Future P/E Ratio = Future Expected Price/Share

Let's say a company has a current EPS of $1.00 and is trading at a P/E of 20 - meaning that the current stock price is $20. Let's also assume that the company has consistent earnings growth figures, and you anticipate the company will be able to grow earnings annually at a rate of 15%. Taking these decisions into consideration, let's assume that the company can be trading at a P/E ratio of 18 in five years. You can run the calculations like this: 

1.00 * (1.15^5) * 18 = $36.20

Thus, given these expectations of the company's earnings growth and anticipating how the market will price the stock in five years, we could expect the stock to be trading at $36.20 in five years. This would represent a near double from the stock's current price of $20. A near double on an investment in five years isn't bad! 

It can also be helpful to run conservative and aggressive future value evaluations, to get an idea of the potential range of the stock's future price. For instance, ith this example, you could run the calculations with a 10% growth rate and a P/E of 13 for a conservative estimate, and a 20% growth rate and a P/E of 25 for an aggressive or "rosy" estimate. 

I hope this helps, and I will try to write a blog post on future value soon as well. Let me know if you have any other questions!


David K 

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#3) On November 08, 2013 at 11:01 AM, TMFPencils (99.92) wrote:

Regarding your question about the margins, it would certainly be preferable for all margins to increase, but in this case the profit margin increased while the general margin decreased. The general margin decreased because of a higher cost of sales in proportion to sales revenue, essentially implying that the cost per unit of revenue slightly increased for Hain. 

In calculating the profit margin for the 1Q 2013 (last year), I neglected to exclude the short-term loss on discontinued operations. Even excluding this, however, the profit margin increased year-over-year. A variety of items determine the profit margin; one of the main causes I can identify for the increase for Hain this year is a gain on "equity method investees," essentially meaning that the value of Hain's equity investments increased compared to last year.


David K  

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