Spectrum Canola and Olive oil and Maranatha peanut butter, Hain Celestial
Hain Celestial's top-line sales and income shortfall can be traced back to two brands: MaraNatha and Spectrum.

LAKE SUCCESS, N.Y. — Overall, fiscal 2016 got off to a good start for The Hain Celestial Group, as net income in the first quarter ended Sept. 30 increased 66% to $31,302,000, equal to 30c per share on the common stock, up from $18,855,000, or 19c per share, in the same period a year ago. Net sales also were higher, rising 9% to $687,188,000 from $631,257,000.

But looking inside the numbers, the first quarter was a disappointment for the company’s U.S. business, particularly Hain Grocery, company executives said. Net sales at Hain Celestial U.S. totaled $331.2 million in the first quarter, down nearly 5% from a year ago.

“The Q1 net sales shortfall was driven primarily by one, natural channel consumption softness; two, unprofitable year-ago baby and nut butter club programs that we chose not to repeat; three, lost sales and inventory from distributor and account shifts; and finally, currency on Ella’s Kitchen U.K.,” John Carroll, executive vice-president and chief executive officer of Hain Celestial North America, said in a Nov. 5 conference call with analysts. “These four factors cost us approximately $16 million in Q1 net sales.”

Mr. Carroll said adjusted operating income for Hain Celestial U.S. was $46.6 million in the first quarter, down 11% from a year ago, and adjusted operating income margin was 14.1%, down 100 b.p.s. versus a year ago.

The top-line sales and income shortfall, Mr. Carroll said, could be traced back to two brands: MaraNatha and Spectrum.

“The (MaraNatha) business is still recovering from last year’s voluntary recall, specifically in regards to the loss of almond butter sales velocity, peanut butter distribution and private label losses, which was a business that did total $20 million in annual sales for MaraNatha prior to the recall,” Mr. Carroll explained. “So we’re going to attack these issues by first, strategically reducing our products on shelf to eliminate or reduce competitive price deltas and increase MaraNatha sales velocity.

“We’re also going to be offsetting peanut butter losses with innovative new products like our new — and we’re going to be the first to the market with this — our new no-added sugar or added salt almond butter, which we’re going to be launching very shortly. And we’re also looking to recapture our lost private label customers, one of which we’ve already gotten back. They account for 20% of the pre-recall private label business and we’ll start shipping to in spring 2016.

“So these initiatives, coupled with our new see-through label on MaraNatha packaging, which highlights our quality, should restart our MaraNatha business and drive higher volumes through our plant and reduce our costs.”

Turning to Spectrum, Mr. Carroll said the brand is getting attacked by lower-priced competition in the coconut oil segment, which accounts for about 40% of Spectrum’s business.

“This is another category where we’re going to need to address this issue by strategically lowering prices on shelf at key customers to eliminate or significantly reduce competitive price deltas,” he said. “We also, though, are going to work to more strongly communicate particularly on shelf, Spectrum’s superior product quality. We clearly sell a superior quality coconut oil and we’re not leveraging that strongly enough. So those MaraNatha and Spectrum growth initiatives will be implemented this month to drive accelerated second-half growth.”

Looking to the balance of the year, Mr. Carroll said Hain is optimistic that the programs in place for MaraNatha and Spectrum, along with other growth initiatives that have been put in place, including retail mix optimization, expanded distribution, a Celestial Seasonings restage, and improved retail merchandising in natural, should help the Hain Grocery business rebound.