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Hain Celestial's (HAIN) Non-core Assets Sale Boosts Portfolio

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The Hain Celestial Group, Inc.’s (HAIN - Free Report) transformational initiative bodes well. The transformation strategy is aimed at simplifying portfolio, identifying additional areas of productivity, driving top-line growth and improving cash flow. While the company continues to make strategic investments in key brands, it simultaneously divests non-strategic brands to tap into areas with higher growth potential. Progressing along such lines, management concluded the divestment of its North America non-dairy beverages brands, including Dream and Westsoy to SunOpta Inc. (STKL - Free Report) , for $33 million.

Notably, the latest divestiture signifies the ongoing transformation of Hain Celestial’s brand portfolio, and aligns with portfolio simplification and prioritization efforts of its Get Bigger brands. The aforesaid non-dairy beverage business was considered to be non-core within its North American business, and hence the divestiture increases the company’s growth profile.

This apart, the company had earlier divested its U.K. fruit business, including the Orchard House Foods Limited business and associated brands to Elaghmore. We note that the company’s fruit business was adversely affected by the coronavirus pandemic. Management had earlier cited that by divesting this business, the go-forward company-wide gross margins will expand by nearly 150 basis points (bps) and EBITDA margins will increase by about 100 bps.

Through these strategic divestitures, Hain Celestial focuses on simplifying its portfolio and reinvigorating sales growth via discontinuing uneconomic investments, realigning resources, and minimizing unproductive stock-keeping units and brands. Over the past 20 months, Hain Celestial has sold or shut down 17 non-strategic businesses, resulting in collective sales of more than $900 million and EBITDA of less than $15 million. Consequently, the company generated $430 million in proceeds, which equates to nearly 30 times the EBITDA.

What’s More?

Hain Celestial is smoothly progressing on its transformation strategy to deliver sustainable profits. Also, well-chalked innovations, marketing, and assortment-optimization efforts have been supporting the company’s top line. Defining strategic efforts further, the company is focused on boosting automation capabilities in plants for lowering costs, rightsizing infrastructure and optimizing pricing. Moreover, this Zacks Rank #3 (Hold) company is benefiting out of supply-chain productivity endeavors and higher product mix. In addition, management targets strategic acquisition opportunities which are likely to result in incremental sales, along with providing the company a strong foothold in the packaged food and grocery space.


 

We note that the company’s North America segment is performing well, buoyed by continued strength in the Get Bigger brands. During the second quarter of fiscal 2021, the Get Bigger brands accounted for nearly two-thirds of sales in North America and registered growth of more than 10% for the fourth straight quarter. International sales growth was backed by strength in non-dairy brands like Joya and Natumi in Europe, along with Ella's U.K. business. Management cited that in both the North America and International segments, the company has identified nearly $150 million of additional cost savings, which are likely to continue in the years ahead. Incidentally, this natural and organic foods company’s shares increased 18.7% in the past six months versus its industry’s 11.3% rally.

Don’t Miss These Solid Bets

United Natural Foods (UNFI - Free Report) has delivered an earnings surprise of 13.6% in the past four quarters, on average. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The J. M. Smucker Company (SJM - Free Report) has delivered an earnings surprise of 17.7% in the past four quarters, on average. It carries a Zacks Rank #2.

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