A SWOT Analysis of Hain Celestial
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hain Celestial (NASDAQ: HAIN) became a major player in the health food industry by growing its own brands and building on the brands it bought. International expansion has also taken on a prominent role in Hain's strategy recently. Hain's growth strategy has worked very well, although its frequent acquisitions do have some drawbacks. A Strengths, Weaknesses, Opportunities, and Threats analysis shows where Hain has performed well, and where it could improve.
Brands. Hain owns strong brands, especially Celestial Seasonings tea. Hain also owns Terra, known for its colorful Terra chips, and baby food brand Earth's Best. Licensing arrangements with Linda McCartney and Sesame Workshop, which lets Hain use the Sesame Street brand on its packaging, give Hain access to strong third party brands as well.
Founder Leadership. Hain lists its founder leadership as a potential risk factor in its annual reports, but for now CEO Irwin Simon's leadership is a major strength. This advantage could be compared to John Mackey's founder leadership of Whole Foods (NASDAQ: WFM). Irwin Simon has been with Hain since 1993, before Hain Foods merged with Celestial Seasonings in 2000.
International Knowledge. Irwin Simon graduated from Saint Mary's in Canada, and Hain has operations in Canada. Irwin Simon also sits on the board of directors of Singapore-based natural food company Yeo Hiap Seng, according to the Yeo Hiap Seng 2011 annual report.
International Growth. Hain's 2012 annual report states that it made 28.1% of its sales outside the United States in 2012, and international sales provided 18.9% of its total sales in 2010. These figures include sales from European health food companies that Hain bought, such as Danival and the Daniels Group.
Successful Acquisitions. Acquisitions have helped Hain grow very quickly, as the company reported 40% higher income last quarter. Hain's still actively buying up other health food companies and brands, as its 1Q 2013 BluePrint purchase announcement shows.
Acquisition-Based Growth. Hain's main weaknesses stem from its acquisition spree. Hain would grow slower without the acquisitions, although the company's long term growth strategy does include buying struggling natural food companies and fixing them up. If Hain can't find a suitable company to buy in the future, it might report disappointing quarterly growth figures that could lead to a sell off.
Goodwill. Hain reported total goodwill and other intangible assets figures of $715 million at the end of fiscal 2010, $789 million in 2011, and $1.01 billion in 2012 in its annual reports. Hain listed total assets of $1.67 billion on its balance sheet at the end of fiscal 2012, so goodwill and other intangibles make up most of its assets, although this asset category includes well-known brands like Celestial Seasonings.
Debt. Hain reported $390 million in long term debt at the end of fiscal 2012, which rose from $225 million at the end of fiscal 2010. Yahoo! Finance states that Hain has $36 million in cash, so major acquisitions mean even more debt.
Brand Extension. Hain already demonstrated that it can extend its Celestial Seasonings brand to develop new products, including K-Cups and energy shots. Hain could extend another brand, such as Terra or Spectrum, into a new food category.
Asian Markets. Hain could expand further into Asia, possibly through a partnership. Yang Ning, at China Daily, reported on May 26, 2011 that Hain and Hutchinson China MedTech set up a joint venture, Hutchinson Hain Organic. Hain's 2012 annual report shows that it still owned half of this joint venture, and it also owned less than 1% of Yeo Hiap Seng. These stakes give Hain a presence in China that it could grow with additional investment.
Labeling Laws. New federal labeling standards could give Hain a marketing advantage over other food manufacturers and consumer products companies. In Hain's 2011 annual report, the company mentioned that it favored a federal standard for organic personal care products, and it decided to follow the NSF/ANSI 305 standard in the meantime. California's GMO labeling law Proposition 37 didn't pass even with support from Hain and other health food companies, so Hain may need more help to get a law passed. Hain could work with other natural food companies that support the Just Label It Initiative to set up federal GMO labeling standards as well.
Distributors. United Natural Foods (NASDAQ: UNFI) also has a history of acquisitions, which increases its buying power as a distributor and weakens Hain's negotiating position. United Natural Foods may acquire more of the small health food distributors that buy Hain's products. Hain does state in its 2012 annual report that United Natural Foods provided 18% of its revenue in 2012, down from 21% a year earlier. Hain's recent acquisitions may have reduced its dependence on United Natural Foods. Small distributors lack some of United Natural Foods' negotiating advantages.
Supermarkets. Whole Foods can put pressure on United Natural Foods to offer better deals, indirectly pressuring Hain's margins. Whole Foods' 365 Everyday Value brand also offers an alternative to Hain's products that threatens Hain's margins. Safeway, Kroger, and some other large grocers share Whole Foods' negotiating advantages.
Discounters. Discounters like Wal-mart (NYSE: WMT) offer Hain access to end customers who don't visit health food stores, but Wal-mart also sells its own private label health food and a recent initiative made these products more price competitive. Wal-mart set up a program with health insurer HumanaVitality that offered 5% discounts on healthier products, including private label items, reported StoreBrandsDecisions. Target shares some of Walmart's negotiating advantages, although this health care discount partnership is unique to Wal-mart for now.
European Markets. Hain's European exposure increased in fiscal 2012, which made European economic problems a bigger risk factor for the company. In fiscal 2011, Hain earned 82% of its revenue from United States customers, which dropped to 72% in 2012 because of its acquisitions in Britain. Hain reported that 14% of its revenue came from the Rest of World segment in both fiscal 2011 and 2012. Hain doesn't break down the sales figures by nation for the Rest of the World segment, but it lists operations in Western Europe and Canada for this segment in its annual reports.
Hain has many opportunities to keep growing, whether it's through expansion into Asia and other international markets, or through new brands and products in the United States. The SWOT analysis did show some balance sheet weaknesses, although organic growth could help Hain clean up its balance sheet. Hain Celestial has strong brands and it's in a strong sector, and it looks like a good investment overall.
enovinson owns shares of Whole Foods Market. The Motley Fool owns shares of Hain Celestial and Whole Foods Market. Motley Fool newsletter services recommend Hain Celestial and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.