Hain Celestial under pressure in the U.S.

by Keith Nunes
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Hain Celestial is aiming to strengthen its snacks in the marketplace.

ORLANDO, FLA. — The widespread shift of such specialty items as sustainable, organic, non-G.M.O. and gluten-free to mainstream grocers is putting pressure on the Hain Celestial Group, Lake Success, N.Y. The company has been a leader in bringing specialty products to the traditional retail marketplace, but as companies like General Mills, Campbell Soup Co. and Pinnacle Foods continue to elbow their way into the market, Hain is facing an increasing level of competition that is challenging its U.S. results.

The company is no longer simply focused on growth in the United States. In addition to acquisitions, the company is looking at improving efficiencies and even divesting itself of some underperforming brands.

During the first quarter of fiscal 2016, ended Sept. 30, 2015, Hain’s U.S. business sales fell nearly 5% to $331.2 million. The business unit’s adjusted operating income fell 11% during the quarter to $46.6 million.

The U.S. results stand in stark contrast to the company’s overall first-quarter results, which saw net income rise 66% to $31,302,000, equal to 30c per share on the common stock. Company sales rose 9% to $687,188,000 during the quarter.

“ … We had some one-offs in the area of inventory in regard to the Wal-Mart clean floor policy, unprofitable programs that we chose not to repeat, and of course, coming back from our MaraNatha recall,” said John Carroll, chief executive officer of Hain Celestial North America, about the U.S. business on Jan. 12 during a presentation at the ICR Conference for investors.

When the one-offs are stripped away, it becomes clear where Hain Celestial is challenged in the marketplace, according to Mr. Carroll – tea and snacks.

“Those are things that we are addressing and in each instance we've got a pretty robust program to address it,” he said. “In Celestial (Seasonings), for example, we are, at this point it’s key to us that we get our users back and, more importantly, that we get our unit share so that it’s flat or up slightly by the end of the season. And so, as a result, we are going to promote our way through the season.

“In terms of snacks, we had a great program with Wal-Mart last year. With their clean floor policy they chose not to repeat it.”

Mr. Carroll said Hain Celestial has worked with Wal-Mart to address the issue and, starting Feb. 1, the company’s snack products will start showing up in some Wal-Mart stores.

“On each of these challenges we’ve put together initiatives that we are seeing starting to take hold and to turn some of the consumption declines around. And then from there … we’re going to start to invest more against the consumer on some of our key brands because (the) category is competitive.”

An issue raised during the ICR presentation is that with well-known companies like General Mills and Campbell striving to grow their share of the market, Hain may not have the brand name recognition needed to be competitive. But Mr. Carroll pushed back on that notion.

“ … Here’s what’s changing for the major C.P.G.s coming into the industry,” he said. “What they are doing is, instead of trying to use one of their core bands, they are actually buying a natural and organic brand. … (Those) brands are no stronger than the Hain brand. As a matter of fact, in many instances, our brands are stronger. At the end of the day, I would take Earth’s Best (baby food) over Plum (Organic) every day as a brand equity.”

Irwin Simon, president and chief executive officer, said improving productivity is becoming a focus for the company and that after an initial review Hain has the ability to take out a minimum of $100 million from its supply chain. He also would not rule out divesting some product lines.

“… We’re going through a complete relook at the business from our brands, our people, our supply chain, and how we can get better efficiencies,” Mr. Simon said. “And how there’s more money to spend back in the business. Listen, we’ve done over 50 acquisitions and when we would integrate these acquisitions, we would keep, whether it’s the jars, whether it’s the ingredients in place. Now, how do we simplify that?”

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