Hain Celestial's (HAIN) Transformation Strategy Bodes Well

The Hain Celestial Group, Inc. HAIN appears strong on its sturdy transformational efforts. Its transformation strategy is aimed at simplifying portfolio, identifying additional areas of productivity savings, enhancing margins and improving cash flow. Strength in the company’s Project Terra and Stock Keeping Unit (“SKU”) rationalization also bodes well. Impressively, the natural and organic foods company’s shares have appreciated 42.4% in a year, against its industry’s 3.7% decline. A VGM Score of B further speaks of potentials of this Zacks Rank #3 (Hold) stock. 

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As part of its transformation efforts, Hain Celestial remains on track to simplify its business to focus on high-growth areas like core packaged-foods business. The company’s transformation strategy is adding to its solid quarterly performance, and such efforts are expected to help the company continue delivering robust margin performances.

In the third quarter of fiscal 2020, adjusted gross margin expanded 282 basis points (“bps”) to 24.3%, thanks to productivity efforts that resulted in lower supply-chain expenses. While adjusted operating margin rose 120 bps to 5.8%, adjusted EBITDA margin expanded 199 bps to 11%.

Additionally, Hain Celestial is on track with Project Terra, which is aimed at identifying global cost savings and cutting complexity. It expects to generate total cost savings worth $350 million through fiscal 2020 and remove complexity from business. To achieve these savings, the company intends to optimize plants, co-packers and procurement, along with rationalizing product portfolio. Meanwhile, the SKU rationalization has helped eliminate SKUs based on lower sales volume or weak margins.

Coming to Hain Celestial’s quarterly performance, the company put up a stellar third-quarter fiscal 2020 performance with a raised view for the fiscal year. In fiscal third quarter, the company delivered its third straight earnings beat and second consecutive positive sales surprise. For fiscal 2020, Hain Celestial expects adjusted EBITDA growth of 15-21% to $190-$200 million compared with the earlier projection of 7-16% growth to $177-$192 million.

Additionally, Hain Celestial envisions adjusted earnings per share of 75-82 cents, which suggests growth of 25-37% from fiscal 2019. Previously, management projected earnings per share of 62-72 cents, which suggested growth of 3-20%. The Zacks Consensus Estimate for fiscal currently stands at 79 cents.

Given the strong aforesaid factors, we expect Hain Celestial to continue with its robust show in the future.

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