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Shares of Hain Celestial Group Inc. (HAIN - Analyst Report) recently hit a new 52-week high after reporting solid fourth-quarter results, which included a 4.4% earnings surprise. In fact, Hain, a distributor of organic food and personal care products, has surpassed the Zacks Consensus Estimate for seven straight quarters with an average surprise of 5.6%.
Hain Celestial Group Inc. became a Zacks #1 Rank (Strong Buy) on August 25, 2012 due to rising earnings momentum. With a solid year-to-date return of 88.6% and a history of beating quarterly earnings estimates, this stock offers an attractive investment opportunity.
The Rank Driver
Robust fourth-quarter results, highest ever operating income and net income in the company’s history, strong operating free cash flow and key acquisitions are the major rank drivers for this stock.
On August 22, 2012, Hain Celestial Group posted robust fourth-quarter with quarterly earnings of 47 cents a share, beating the Zacks Consensus by couple of cents. Quarterly earnings reflected a year-over-year growth of 30.6% from 36 cents reported in the comparable prior-year quarter on account of rise in consumption, expanded distribution and productivity savings along with pricing.
Net sales grew 22.3% to $350.7 million, reflecting high demand for natural organic products in spite of a weaker economy.
Management affirmed that Hain has posted the highest adjusted operating income in its 19-year history. Adjusted operating income jumped 26.6% year-over-year to $36.2 million in the quarter, while adjusted operating margin expanded 36 basis points to 10.3%, indicating a 210 basis points decline in SG&A as a percentage of sales.
Operating free cash flow for the fourth quarter came in at $36.8 million, a year-over-year growth of 152.3% compared with the prior-year quarter. This reflected the management’s continued focus on improving the company’s cash flows in order to invest in upcoming growth opportunities.
Acquisitions have played a key part in Hain’s strategy of building market share. These acquisitions have not only widened the company’s geographical presence, but also provided opportunities to cross-sell products in the U.S., Canadian, and European markets.
Adding to the series, the company announced the acquisition of leading packaged grocery brands from Premier Foods plc's, including Hartley's, Gale's Robertson's, Frank Cooper's and Sun-Pat. The £200 million ($316 million) cash and stock deal is expected to close by the end of October.
(Read full earnings report on: Hain Delivers Strong 4Q)
The company expects to sustain strong momentum across all business segments as it remains well-positioned to capitalize on the growing global demand for organic products.
The company now expects sales to be in the range of $1.600 - $1.615 billion in fiscal 2013 (excluding results for the discontinued operations of private label chilled ready meals). Earnings are expected to be in the range of $2.10 - $2.20 a share. Moreover, the company anticipated gross margin to lie between 27.75% - 28% and SG&A as a percentage of sales is forecasted to be 17.25%.
Going forward, we believe that the company will be able to mitigate the cost pressures through increased productivity and efficient pricing.
Earnings Estimate Revisions
For fiscal 2013, Zacks Consensus Estimate increased 23.7% year over year to $2.30, reflecting 10 upward revisions out of 12 estimates over the last 30 days.
For the first-quarter of fiscal 2013, out of 12 estimates, four estimates went up while one of the estimates was trimmed over the same time frame, reflecting 41.4% increase to 41 cents.
Hain Celestial Group currently trades at a forward P/E of 29.85x, a 59.1% premium to the peer group average of 18.76x. Also, on a price-to-book basis, the shares are trading at 3.18x, a 64.8% premium to the peer group average of 1.93x. Given the company's strong fundamentals, the premium valuation is justified.
Hain has a trailing 12-month Return on Investment (ROI) of 6.4% compared with the peer group average of 6.3%.
About the Company
Incorporated in 1993 and headquartered in Melville, New York, Hain Celestial produces, distributes, markets, and sells various natural and organic foods as well as personal care products in the United States, Canada and Europe. The company has a market capitalization of roughly $3.07 billion.
Other Zacks #1 Rank retail stocks include Dillards Inc. (DDS - Analyst Report) and Urban Outfitters Inc. (URBN - Analyst Report).