Hain Celestial Group Inc. Earnings: 3 Key Takeaways

By Jason HallFool.com

Source: Hain Celestial Group.

Organic and natural-packaged-foods purveyorHain Celestial Group reported second-quarter financial results on Feb. 4. While the results were mostly positive, management lowered its guidance for the remainder of the year. The highlights:

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  • Adjusted sales of $701.7 million -- 31% increase from 2014.
  • Adjusted earnings per share of $0.54 -- up 26% from 2014.
  • Sales for the year expected to be between $2.65 billion and $2.675 billion -- a reduction of $125 million from prior guidance.
  • Earnings per share of $1.85-$1.89 -- a 3% reduction from prior guidance.

As of this writing, the stock is down a little bit, probably because sales came in a little below analyst estimates, and the slightly lowered guidance. However, the bigger picture still looks pretty solid for Hain. Let's take a closer look at three keys from the earnings report.

Continued strength in core brandsAs I wrote in the earnings preview, the company's strategy of acquiring brands that fit within its portfolio, investing in them for growth, and leveraging the company's growing scale, is working. According to the earnings release, 16 of Hain's brands grew by double digits in the quarter, while newly acquired Rudi's Organic Bakery, Plainville Farms, and Freebird, all of which were acquired more recently, are also contributing strongly to growth.

However, the release last quarter reported double-digit growth at 23 brands. What's the takeaway? Honestly, it's hard to say, because one quarter doesn't make a trend. Because the company doesn't give a brand-by-brand breakdown, we don't know exactly how much the growth rate changed, or at which brands. There's a good chance that the nut-butter recall affected at least two brands' growth results, so at least part of the drop is a one-time event.

Integration of brands driving operating margins upHain's execution on its acquisition strategy typically leads to improved margins when it integrates new products into the company, and last quarter was no exception. Operating margins at the consolidated business improved from the first quarter, to 12.5%, similar to historical levels, versus the 9.2% from Q1. There were gains across the board, but there were improvements in the recently expanded U.K. business, and at Hain Pure Protein -- both of which feature significant acquisitions and are still being fully integrated with Hain's other businesses.

While there is some seasonality to its business -- especially Hain Pure Protein during the Thanksgiving and Christmas holidays -- the investing thesis for Hain is at least partly based on its ability to leverage scale to increase margins when it acquires a new business.

International expansion bears watchingThe U.K. business is growing quickly, with net sales up 37% in the quarter, largely driven by the acquisition of the Tilda brand. However, the Europe and Canada business actually declined almost 10% during the quarter. I'm not particularly worried about this, as it's largely a product of the company's focus on its U.K. acquisition of Tilda, the purchase of the stake of Hain Pure Protein it didn't already own, and integrating Rudi's and its other recent U.S. acquisitions.

However, at some point, the company will probably need to start finding ways to expand its business in those markets, as well. In the interim, however, there's plenty of opportunity to grow in markets where its brands are already established, and to use its established brands as leverage to introduce newly acquired ones -- like Tilda rice products -- into new markets.

Looking aheadManagement revised its guidance for sales for the full year down as much as $125 million, and earnings per share down a few percent; but those revisions still represent 20%-plus growth in revenues and 17%-19% earnings growth. The company also has a history of conservative guidance, so it's possible that the actual results come in above guidance.

Either way, one or two quarters don't tell the whole story. Founder and CEO Irwin Simon continues to lead a great company with a fantastic track record of acquiring new brands and growing them quickly and profitably. Instead of worrying too much at this point about minor revisions, keep an eye on the longer-term trends. For Hain, that means more consumers worldwide demanding better quality and healthier packaged foods -- exactly what Hain's business is built on.

If Simon and his team can continue to execute as they have, the future -- looking years ahead -- looks very good from here.

The article Hain Celestial Group Inc. Earnings: 3 Key Takeaways originally appeared on Fool.com.

Jason Hall owns shares of Hain Celestial. The Motley Fool recommends Hain Celestial. The Motley Fool owns shares of Hain Celestial. 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.

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