Hain Celestial Group Inc. Earnings Preview: 3 Things To Watch For

By Markets Fool.com

The Hain Celestial Group has grown at an enormous rate over the past decade:

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HAIN Chart

HAIN data by YCharts.

Growth remains strong, last year revenue and earnings per share both rose more than 24%, and in the first quarter that accelerated to 35% revenue and 31% adjusted EPS growth. With the company'sfresh earnings numbers due on Jan. 20what should investors expect? I'm paying the most attention to three things.

Growth of market share for core brands
Three things make Hain Celestial a compelling company to invest in: the number of its brands that are at or near the top in their categories, management's success in identifying new brands to add to the mix, and its track record of successfully integrating them into the Hain Celestial family.

Duringlast quarter's earnings call, founder and CEO Irwin Simon said 23 different brands grew at double-digit rates. The model of acquisition and integration Simon has pursued over the past decade continues to generate strong results.

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In the last reported quarter,$70.6 million in sales and $3.8 million in operating income came from the purchase of the stake of Hain Pure Protein the company didn't own. Tilda and Rudi's Organic Bakery -- two other recent purchases -- are now fully integrated into the company's sales and distribution channels, and Hain's position as a major supplier of healthy foods will mean expanded distribution of these new brands.

I'll be paying close attention to how this plays out, especially with Tilda, the specialty rice company that has predominantly been a British brand. Hain's ability to expand distribution of this brand into the U.S. will give some indication of its level of influence with retailers. That's important to the story.

Growth of sales
This might sound like a pretty obvious matter, but it's important that the company maintain its momentum. Simon had some great things to say on the last earnings call about how quickly the industry is growing:

As you heard me say before, wellness -- 20 years ago -- was known among 10% of consumers. If you step back today and it's just not Whole Foodsand Sprouts... you saw in the last Costcoearnings, that they sold over $3 billion of natural organic foods.

For context, Costco's $3 billion in natural foods sales over the past year is worth about 2% of the company's total sales, and equal to 21% of Whole Foods' total annual sales. Furthermore, Costco has more than doubled sales of natural and organics over the past two years, as consumer demand has grown.

Earnings per share growth rate
Why is this important? Simon and his team have done quite well in integrating newly acquired businesses into the company and continuing to grow earnings at a higher rate than sales. This is indicative of leveraging costs and finding more efficient ways to operate the combined businesses.

However, many of those acquisitions came at the cost of dilution to shareholders. Since 2002, the share count has increased by almost 50%, with the proceeds used to fund purchases. But since net income has grown faster than sales, the result is a net win for long-term shareholders:

HAIN Revenue (TTM) Chart

HAIN Revenue (TTM) data by YCharts.

If there is one "yellow flag" investors need to keep an eye on, it's that EPS growth for 2015 is projected to lag sales growth.Just to be clear: I'm not overly concerned about this year's lag. Hain Pure Protein -- which was fully acquired last year -- operates with lower margins than most of the packaged food businesses, and this will affect earnings growth in 2015. Furthermore, Simon made a point to stress on the last earnings call that it would take up to nine months to work out all of the cost benefits of rolling Hain Pure Protein fully into the business.

Looking ahead
Next week's earnings aren't make or break for any of these things, and they aren't the only things that matter. However, long-term investors would do well to keep an eye on the trends for these three critical metrics, which are central to what makes Hain Celestial Group a solid investment. If they start to trend in the wrong direction, the story could change.

The article Hain Celestial Group Inc. Earnings Preview: 3 Things To Watch For originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jason Hall owns shares of Apple, Costco Wholesale, Hain Celestial, and Whole Foods Market. He loves Terra sweet potato chips and uses Arrowhead Mills cornmeal to make cornbread. The Motley Fool recommends Apple, Costco Wholesale, Hain Celestial, and Whole Foods Market. The Motley Fool owns shares of Apple, Costco Wholesale, Hain Celestial, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.