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Yesterday, The Hain Celestial Group, Inc. (HAIN - Analyst Report) posted improved financial results on a year-over-year basis for second-quarter fiscal 2014, with both the top and bottom lines registering double digit growth. Despite that, the share price of this natural food and personal care products retailer fell approximately 7.9% in yesterday’s after-hour trading session as its top and bottom lines both fell short of the Zacks Consensus Estimate. Moreover, investors remain concerned about the company’s margins that were hit hard by increased input costs.

The company’s adjusted earnings of 87 cents from continuing operations for the quarter registered a rise of 17.6% from the year-ago quarter figure of 74 cents. The year-over-year growth came primarily on the back of a rise in sales and leveraged selling, general and administrative (SG&A) expenses. However, quarterly earnings missed the Zacks Consensus Estimate by a penny. On a reported basis, the company’s earnings came in at 84 cents per share, up 25.4% from the year-ago quarter figure of 67 cents.

Management stated that a healthy industry trend, consumer demand and new products facilitated the company to post the strong quarterly sales of $534.9 million, up 17.5% from the prior-year quarter. However, the reported figure came below the Zacks Consensus Estimate of $544.0 million.

Net sales in the United States increased 16.9% year over year to $327.7 million in the quarter, while net sales in the United Kingdom increased 21.5% to $146.1 million. Operations in the Rest of World segment witnessed a 11.6% increase in net sales to $61.1 million.

The company witnessed strong performance across all of its brands with 19 brands registering double-digit year-over-year growth while 5 brands registered mid-to-high single-digit growth. Hain Celestial’s top line recorded robust contribution from Spectrum, MaraNatha, The Greek Gods, Garden of Eatin’, Arrowhead Mills, Celestial Seasonings, Jason, Alba Botanica, Linda McCartney, Cully & Sully, Danival and Europe's Best brands. The company also experienced solid sales across new brands acquired after first-quarter fiscal 2013 including Hartley's, Robertson's, Sun-Pat, Frank Cooper's, Gale's and BluePrint and Ella’s Kitchen.

Adjusted gross profit rose 11.1% year over year to $145.3 million in the quarter. However, as a percentage of sales, it contracted 150 basis points (bps) to 27.2% due to increased commodity costs, unfavorable product mix and negative impact from change in recording trade spending.

Adjusted operating income rose 21.5% to $66.9 million in the quarter. Moreover, adjusted operating margin expanded approximately 40 bps to 12.5% primarily driven by leveraged SG&A expenses which more than offset the negative impact of lower gross margin.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $67.5 million, long-term debt excluding current maturities of $627.5 million and shareholders’ equity of $1,351.1 million, reflecting a debt-to-capitalization of 31.7%.  Cash flow from operating activities in the first six months of fiscal 2014 was $52.7 million.

Outlook

We believe that the company will sustain the strong momentum across entire business segments and will be favorably poised to capitalize on the growing global demand for organic products.

Alongside, buoyed by improved quarterly results and taking into account the recent acquisition of Tilda Limited, a renowned name in Basmati rice, Hain Celestial raised its top and bottom-line outlook for fiscal 2014. The company now anticipates sales to come in the range of $2,115 – $$2,145 million, up from the previously forecasted range of $2,025 – $2,050 million, marking a year-over-year increase of 22% to 24%. Earnings per share are now expected to come between $3.07 and $3.15 against the earlier projection of $2.95 to $3.05. The Zacks Consensus Estimate for the fiscal year stands at $3.10 per share.

Other Stocks to Consider

Currently, Hain Celestial carries a Zacks Rank #2 (Buy). Some other stocks that look promising in the food industry include ConAgra Foods, Inc. (CAG - Analyst Report), Green Mountain Coffee Roasters, Inc. (GMCR - Analyst Report) and J&J Snack Foods Corp. (JJSF - Snapshot Report). All of these carry the same Zacks Rank as Hain Celestial.

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