Hain Celestial Group Inc. Works Through Challenges, Holds Firm on 2016 Outlook

By Jason HallFool.com

Well, so much for that streak.

After 20 consecutive quarters of double-digit sales growth,Hain Celestial Group Inc. reported a 9% increase in revenue in the first quarter, as the company deals with weakness in its core U.S. grocery business, driven by factors including a still-rebounding nut-butter business, following last year's major recall.

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And while there's reason to pay closer attention to this part of Hain's business, the company continues to execute well on many of its other growth initiatives. Let's dig into the company's first-quarter financial results.

The numbers

For context, I've included adjusted EPS in the table to reflect the impact of last year's nut-butter recall on earnings in Q1 of 2015. So normalized for this one-time event, adjusted earnings roughly tracked revenue growth.

What happened in the quarterHain's U.S. segment reported disappointing results, with sales in this segment falling 5% versus the year-ago period. There is some concern that Hain's results in the U.S. grocery market, which makes up about half of sales, may be heading into a decline.

One of the company's biggest customers,Whole Foods Market, reported a somewhat disappointing quarter itself recently. While revenue was up 6% overall, the high-end grocer reported a slight decline in same-store sales. However, this single point of data probably doesn't really tell the full story -- after all, Whole Foods' struggles aren't as much a product of weak demand as much as increased competition.

More detail on Hain's quarter:

  • On the earnings call, management identified four areas where U.S. sales were affected: slow recovery of the nut-butter business, including some private-label business it's working to regain, some warehouse-club business it chose not to continue, currency exchange on Ella's Kitchen UK, and softness in the natural-foods sales channel. This last is the one that bears watching, as it's market driven.
  • Hain Pure Protein (up 75%) and Rest of World (mainly Europe, up 27%) showed strong growth.
  • UK segment revenue was down 4%, but entirely because of currency exchange. On a constant currency basis, sales in the region were up moderately.
  • Sales, general, and administrative expenses were down $4.7 million as the company further integrated recent acquisitions and reduced overhead.
  • Management held firm on its guidance for 10% to 15% sales growth and 12% to 20% earnings-per-share growth for 2016.

What management saidThere is real concern after the company's decline in U.S. sales, but founder and CEO Irwin Simon pointed out that the nut-butter recall is still affecting the results:

In other words, Hain has already recaptured some private-label business it had to give up last year, but it will take another quarter or so for that business to come back.

Simon on the expansion of demand for the kinds of products Hain makes:

Simon on further opportunities to reduce costs and increase cost efficiencies:

Looking aheadThere's some concern with the U.S. grocery business, but it seems to be less of a weak demand environment, and more a combination of the still-recovering nut-butter business and some seasonality. Nonetheless, it probably bears watching, as many of the company's acquisitions over the past few years contribute to that segment. But again, this looks a lot more like seasonality and circumstances than a bigger trend taking hold.

Even with the struggles, Simon and CFO John Carroll continue to keep an eye on cost containment, as evidenced by the $4.7 million reduction in expenses even as sales grow and the company makes acquisitions. This relentless focus on operating costs has served the company well for years, and that's likely to continue to be the case.

The article Hain Celestial Group Inc. Works Through Challenges, Holds Firm on 2016 Outlook 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 Hain Celestial and Whole Foods Market. The Motley Fool owns shares of and recommends 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.

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