Hain Celestial open to acquisitions in plant-based, immunity-boosting, stress-reducing & snack categories

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Source: Hain Celestial

Hain Celestial is in the market for acquisitions to “bulk up in the categories that we prioritize,” even as it continues to shed underperforming brands and those with less mainstream consumer appeal, CEO Mark Schiller told analysts this week.

“We continue to reshape the portfolio with” an eye towards “things we think have mainstream potential, that have leading market share, [and] that are responsive to marketing and innovation,” Schiller said during the company’s second quarter call Feb. 9.

He explained this could include acquisitions in North America “in the categories that we think have the most growth potential and where we have a significant presence” with leadership brands, including the 13 “get bigger” brands in which Hain Celestial has been heavily investing to make more competitive in the mainstream market and which it has seen strong sales growth over the last year

These include brands in the immunity-boosting and stress-reduction space, such as Celestial Seasonings, which saw a 50% surge in the fourth quarter of 2020 and 20% growth overall, and The Greek Gods yogurt, sales of which grew double digits in the last quarter and gained significant market share. Other categories include at home cooking, at home snacking, plant-based diets and hygiene.

Overall, the “Get Bigger” brands “have shown strong momentum with volume growth and share gains accelerating. Household penetration and buying rate grew close to 10% in the second quarter, that’s the third straight quarter of growth, as we continue to see new households trying our Get Bigger brands and repeating at high rate,” Schiller said.

Internationally, Schiller added, “there is potential to acquire capacity” in the non-dairy and meat-free businesses, where Hain Celestial already is a strong player.

More divestitures loom as Hain reshapes portfolio

While Schiller set an optimistic tone for acquisitions, he also reiterated there will be more divestitures going forward following more than a dozen sales it has brokered in the past two years – the most recent of which was its UK fruit business, Orchard House Foods Limited, to a private equity firm in a deal that did not disclose details.

Schiller described the fruit business as a “drag on growth due to its foodservice exposure” and which was very complex and delivered no profit. Indeed, he noted sales had drop 25-35% during the pandemic.

The sale of Orchard House Fruit was the last in a string of 17 non-strategic businesses that Hain sold or shut down over the past 20 months, including Arrowhead Mills, Tilda, Rudi’s Organic Bakery, West Soy and others.

By shedding these brands, Schiller said the company generated $430m in proceeds, which it has used to reduce debt to under two times and buy back some stock, which could help better position it for acquisitions.

While Schiller confirmed more divestments are in the future, he cautioned analysts not to be “distracted” by rumors of what the company might put on the chopping block, such as those swirling around a potential sale of Earth’s Best.

“We’re not going to comment on specific rumors, and I wouldn’t be distracted by them. If there is something that we are actively trying to sell, we will tell you. We did it with [Orchard House], we did with [Hain Pure Protein]. The fact that there are some rumors swirling around things in our portfolio, we get contacted all the time and there’s interest in lots of things that we have,” Schiller said.

Stopping short of naming names, Schiller added “we would be more interested in selling off the tail outside of” the company’s core 13 “Get Bigger” brands.

Innovation opens doors to mainstream shoppers

As Hain reshapes its portfolio, it continues to invest heavily in its “Get Bigger” brands as part of an effort to expand its footprint in mainstream retailers.

To this end, the company has launched several new products, including Sensible Portions Screamin’ Hot Veggie Straws “that brough the young males into healthier snacking,” and the launch of Celestial Seasoning Tea functional products featuring energy, probiotics, melatonin and gut health, as well as new formats like K-Cups and trial packs, Schiller said.

Looking forward, the company also is launching Sensible Portions Veggie Puffs, more tea, yogurt and personal care items next quarter.

“While this work is still ongoing, the results so far have been terrific,” he said, noting that sales of the Get Bigger brands as a whole grew more than 10% in the second quarter for the fourth straight quarter.

Schiller also predicted that upcoming innovations as well as recent launches will gain shelf space as retailers begin resetting their shelves again, starting with snacks and baby food later this quarter.

Overall, Schiller said he is happy with the company’s transformation progress and strong second quarter results, which included consolidated net sales increasing 4% year-over-year to $528m, a 25.4% gross margin improvement and an operating income of $13m compared to $9.2m during the same time last year.