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Business

Hain Celestial can blame their stock flop on themselves

By
Lisa Fickenscher
Published Aug. 20, 2016, 8:28 p.m. ET

The king of the supermarket health food aisle is under attack — again.

And this time the company’s wounds are somewhat self-inflicted.

Hain Celestial Group, which for 23 years has been the virtuous packaged food company, selling fare that doesn’t contain trans-fats, GMOs, artificial colors or high-fructose corn syrup, saw its stock get hammered last week after it announced on Aug. 15 that it will delay its annual report because of accounting issues.

The company — maker of Earth’s Best baby foods, Terra chips and Health Valley products, among many other brands — said it was looking into the timing of when certain sales were booked.

The news, which also included Hain saying it didn’t expect to hit 2016 sales and profit targets, knocked its shares down 30 percent this week, to $38.90 at Friday’s close.

The stumble helped shine a light on its recent performance — which shows that the company may be losing its long-held edge as rivals pick off shelf space.

“Hain is in a dogfight now with larger, well capitalized food companies,” said Piper Jaffray analyst Sean Naughton, who downgraded Hain to underweight from neutral last week. “We think the risks from traditional competitors and internal financial control risk make the stock difficult to own,” Naughton wrote in a note.

Those traditional rivals, like Campbell Soup Co., General Mills and Hormel, have been bingeing on smaller companies producing organic and natural products and expanding their turf in supermarket food aisles.

Stores are turning away from Hain’s because of price. Campbell’s recently acquired Plum Organics, a baby food and products company whose prices are lower than Hain’s Earth’s Best and Ella’s Kitchen lines.

General Mills is stealing other shelf space after buying Annie’s, a line of organic cereals, pastas, snacks and yogurts.

Price and increased competition has seen Costco, Walmart and Target cut back on the number of Hain items they stock, from an average of 202 in 2014 to 191 this year, according to an analysis by Piper Jaffray’s Naughton.

Excluding revenues from acquisitions, its sales gains have shrunk to the low single digits from the mid-to-high single digits over the past four quarters, according to an analysis by Piper Jaffray.

For decades, Hain grew alongside its No. 1 distributor, Whole Foods. But as rival food makers jumped into the sector, its sales gains at Whole Foods slowed.

“Natural and organic used to be Whole Foods’ and Hain’s exclusive domain,” said Morningstar analyst Zain Akbari.

Despite the headwinds, Hain remains optimistic.

“We see [competition] as a validation of our business model and expect to remain an industry leader by leveraging our decades of experience,” it said in a statement.