Thursday Diversified Food Wrap-Up: HAIN Rises on Earnings; UL Slumps on Data

By Maxwell Kirchhoff - February 2, 2012 | Tickers: HAIN, UL | 0 Comments

• Email
• Print

Diversified food stocks slightly edged the S&P 500 index +0.14% to +0.11% in today's session.  Industry leaders included Hain Celestial (NASDAQ: HAIN) and Sara Lee (NYSE: SLE), both of which reported earnings recently.  These stocks rose 5.55% and 4.42% on volumes of 1.07M and 13.91M, respectively.  Industry laggards included Unilever Plc. (NYSE: UL) and Treehouse Foods Inc. (NYSE: THS).  These securities fell 3.57% and 2.30% on volumes of 3.46M and 688.01K, respectively.

Sector-wide news included a commentary that held that major corporations need to tap into technological customer-centricity (utilizing Kraft Foods' 'Innovate with Kraft' as an example); the T. Marzetti company (a Lancaster Colony subsidiary) announcing a new and healthy salad dressing; and Safeway and Kraft donating 3 million meals and 362,000 bags of food to fight hunger across America.

Hain Celestial announced earnings of $0.52 a share after close yesterday beating the $0.49 consensus estimate from 11 analysts covering the company for a positive earnings surprise of 6.78%.  Selected highlights included record net sales, up 32.1% YoY; record GAAP net income, up 23.2%; and an operating free cash flow improvement of 21.3%.  

Irwin D. Simon, founder, president and CEO of Hain Celestial, was enthusiastic about his company's prospects and stated, "at a time when many consumer packaged goods companies are experiencing one to two percent consumption growth in the grocery channel, we are achieving consumption growth at more than three times that rate. In the United States, we continue to drive sales growth in our core distribution channels. We are pleased and delighted to see that consumers continue to be attracted to our more healthful food and personal care products."  

S&P analysts concurred with a consumer trend toward organic or natural foods but lowered their opinion on Hain Celestial today from hold to sell.  S&P made its decision due to the fact that, "the stock's premium P/E vs. other foods stocks more than adequately anticipates the above-average EPS growth [they] anticipate."  

In my view S&P's analysis is quite compelling.  For me, it is difficult to justify Hain Celestial's relative valuations (its gross margins, P/E, P/S, PEG, and P/B all lag industry averages) so this stock may be nothing more than a pure momentum play.

Unilever Plc saw its shares drop today on account of end-of-year numbers that demonstrated the slowest volume increase for the company in three years; a flat YoY net profit; and a stark 2012 outlook.  Rising commodity costs and consumer frugality in developed markets took their toll on Unilever, but I would not rush to sell shares of this company.  

I maintain this position because chiefly, Unilever is looking to increase its footprint in emerging markets.  In December Unilever acquired 82% of Russia's leading beauty company; last May Unilever acquired Alberto Culver (which has a presence in Latin America); and currently, Unilever is launching its TreSemme products in Brazil.  A continued focus in BRIC and other developing markets will boost Unilever's sales, and a resolution to Europe's current ailments would see these shares soar.  

All told, I believe Unilever's better than industry average gross margins (48.95%), operating margins (13.31%), ROE (33.14%), and dividend (3.80%), coupled with its sheer size and stock-price stability (its beta is 0.78), make it an attractive candidate for conservative buy-and-hold investors looking for exposure in the diversified food industry.

• Email
• Print
• Feedback