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The Hain Celestial Group, Inc.’s (HAIN - Analyst Report) third-quarter fiscal 2013 earnings of 72 cents a share came in line with the Zacks Consensus Estimate and surged 28.6% from 56 cents earned in the year-ago quarter.

Management cited that strong top-line growth, integration of acquired businesses, focus on high margin carrying brands, and elimination of underperforming private label brands facilitated the bottom-line growth of this Zacks Rank #2 (Buy) stock.

Including one-time items, earnings came in at 85 cents compared with 52 cents a share earned in the year-ago quarter.

Behind the Headline

Net sales rose 21.4% year over year to $456.1 million, reflecting rise in demand for natural organic products. However, reported revenues missed the Zacks Consensus Estimate of $484 million.

Net sales in the United States increased 8.3% year over year on a comparable basis to $277.6 million during the quarter, while net sales at United Kingdom surged 78.2% to $121.2 million. Rest of the World, which includes operations in Canada and Europe, witnessed an 11.3% increase in net sales to $57.3 million.

The company registered elevated consumption in core categories with robust contribution from Earth's Best, MaraNatha, Spectrum, The Greek Gods, Imagine, Health Valley, Westbrae, Hain Pure Foods, Jason, Europe's Best and Linda McCartney. Hain Celestial also experienced solid sales across recently-acquired brands including Cully & Sully, Hartley's and BluePrint.

Acquisitions have played a key role in the company’s strategy to build market share. Acquisitions have not only expanded the company’s geographical presence but have provided opportunities to cross-sell products in the U.S., Canadian, and European markets. A healthy balance sheet enables the company to target strategic acquisition opportunities.

Recently, Hain Celestial acquired Ella's Kitchen Group Limited that offers organic baby food products under approximately 80 brands and provides them in easy to carry pouches. Management believes the acquisition to be accretive to the company’s earnings by 5 cents to 8 cents a share in fiscal year 2014. Apart from this, the company formed Global Infant, Toddler & Kids Division under Hain Celestial US to be spearheaded by Paul Lindley, the founder of Ella's Kitchen. 

Adjusted gross profit ascended 22.6% year over year to $128.3 million during the quarter, whereas adjusted gross margin expanded 20 basis points to 28.1% driven by enhanced production capabilities, service efficiency and the elimination of SKUs that carry lower margin.

Adjusted operating income jumped 36.7% to $57.6 million in the quarter, while adjusted operating margin expanded approximately 140 basis points to 12.6%, indicating improved sales mix.

Other Financial Details

The company ended the quarter with cash and cash equivalents of $27.2 million, long-term debt of $620.3 million with debt-to-capitalization of 35.7% and shareholders’ equity of $1,115.8 million. Cash flow from operating activities for the trailing 12-months was $112.1 million and capital expenditures were $56.5 million, resulting in free cash flow of $55.6 million.

Outlook

We believe that the company would sustain strong momentum across entire business segments as it remains well positioned to capitalize on the growing global demand for organic products.

Alongside, Hain Celestial now anticipates sales in the range of $1,727 million to $1,734 million in fiscal 2013, reflecting a year-over-year increase of 26%. Earnings are projected in the range of $2.43 to $2.47 per share, up 31% to 33% year over year.

Other Stocks to Consider

Besides Hain Celestial, other stocks that are looking promising in the food industry include, Flowers Foods, Inc. (FLO - Snapshot Report) that holds a Zacks Rank #1 (Strong Buy), and Kellog Company (K - Analyst Report) and J&J Snack Foods Corp. (JJSF - Snapshot Report), both of which carry a Zacks Rank #2 (Buy). These stocks are expected to continue with their upbeat performances.

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