Rise in consumption, expanded distribution and productivity savings along with pricing facilitated The Hain Celestial Group Inc. (HAIN), to post strong fourth-quarter 2012 results. The company reported adjusted earnings of 47 cents a share, which surpassed the Zacks Consensus Estimate by couple of cents and jumped 30.6% from 36 cents earned in the prior-year quarter.

Including one-time items, earnings came in at 50 cents compared with 28 cents a share earned in the year-ago quarter.

Key Numbers

Revenue for the quarter rose 22.3% year over year to $350.7 million, reflecting rise in demand for natural organic products. The company noted that consumption in the U.S. grew 14%. Including sales of the United Kingdom private label chilled ready meals operations (discontinued business), revenue came in at $373.8 million, up 28% year over year. The Zacks Consensus Estimate was $366 million for the quarter.

The company registered increased consumption in core categories with robust contribution from Earth’s Best, MaraNatha, Garden of Eatin, The Greek Gods, Imagine, Linda McCartney, Spectrum, Health Valley and Avalon Organics. Hain Celestial also experienced solid sales across recently-acquired brands.

Gross profit ascended 14.7% year over year to $93.4 million in the quarter. However, gross margin contracted 180 basis points during the quarter to 26.6% as productivity savings were more than offset by input costs.

Adjusted operating profit jumped 26.6% to $36.2 million in the quarter, while adjusted operating margin expanded 36 basis points to 10.3%, indicating a 210 basis points decline in SG&A as a percentage of sales.

The company ended the quarter with cash and cash equivalents of $29.9 million, long-term debt of $390.3 million and shareholders’ equity of $964.6 million. Operating free cash flow shot up 152.3% year over year to $36.8 million.

Acquisitions Driving Growth

Acquisitions have played a key part in Hain Celestial’s strategy of building market share. These acquisitions have not only widened the company’s geographical presence, but have also provided opportunities to cross-sell products in the U.S., Canadian, and European markets.

Adding to the series, the company announced the acquisition of leading packaged grocery brands from Premier Foods plc’s, including Hartley’s, Gale’s Robertson’s, Frank Cooper’s and Sun-Pat. The 200 million pounds ($316 million) cash and stock deal is expected to close by the end of October.

The acquisition is expected to be accretive to its earnings upon completion. Moreover, it is expected to bring in incremental sales as it provides a strong foothold to the company in the packaged food and grocery market that is swiftly gaining ground.

Further, the company stated that it has completed the sale of its private label chilled ready meals business and also entered into a letter of intent to sell the Daily Bread sandwich business.

Guidance

The company expects to sustain strong momentum across entire business segments as it remains well positioned to capitalize on the growing global demand for organic products.

The company now expects sales to be in the range of $1.600 billion to $1.615 billion in fiscal 2013 (excluding results for the discontinued operations of private label chilled ready meals). Earnings are expected to be in the range of $2.10 to $2.20 a share.

Going forward, we believe that the company will be able to mitigate the cost pressures through increased productivity and efficient pricing.

Moreover, Hain Celestial has undertaken a number of initiatives to improve its performance and has put itself on the growth trajectory. The company’s Stock Keeping Unit (“SKU”) rationalization program has helped eliminate SKUs, which had lower sales volume or weak margins. Management remains focused on improving profitability through new product introductions while reducing costs.

Currently, we have a long-term ‘Outperform’ rating on the stock. Hain Celestial, which competes with General Mills Inc. (GIS) and Kraft Foods Inc. (KFT), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

To read this article on Zacks.com click here.

Zacks Investment Research