Hain Celestial's Transformation Plan & Project Terra Bode Well

The Hain Celestial Group, Inc.’s (NASDAQ:HAIN) transformation strategy, which is aimed at simplifying portfolio, enhancing margins and improving cash flows, bode well. The company’s Project Terra, targeting at identifying global cost savings, is an added positive.

Let’s Delve Deeper

Speaking of Hain Celestial’s transformation endeavors, the company is progressing well with simplifying its business to focus on areas with higher growth potential such as core packaged-food. Since the onset of the transformation strategy, the company has divested loss-making brands worth almost $750 million in fiscal 2019. It sold two brands — SunSpire and Arrowhead Mills — for $15 million in the second quarter of fiscal 2020. Divestiture of such underperforming businesses is likely to help company deploy resources in core operations and enhance overall profits.

Hain Celestial, which shares space with US Foods Holding Corp. (NYSE:USFD) , Campbell Soup Company (NYSE:CPB) and Lamb Weston Holdings, Inc. (NYSE:LW) , began a strategic review under Project Terra in fiscal 2016. Impressively, it expects to generate cost savings worth $350 million through the fiscal and remove complexity from business. To achieve these savings, the company intends to optimize plants, co-packers and procurement along with rationalizing product portfolio. Consequently, it plans to reinvest the additional savings in brand development and household penetration.

We note that the company has undertaken several initiatives to improve performance. Its Stock Keeping Unit (“SKU”) rationalization program has helped eliminate SKUs based on lower sales volume or weak margins, and identified 700 SKUs. Encouragingly, in fiscal 2019, management initiated a SKU rationalization, including the elimination of approximately 350 low velocity SKUs. It has also discontinued roughly 500 SKUs in order to expand margins and drive cash flow. Moving along, Hain Celestial carries out acquisitions to gain prominence in the packaged food and grocery market.

Despite the efforts, Hain Celestial has been witnessing a year-over-year decline in its top line for a while now. Also, the company faces headwinds related to foreign currency translations, which have been marring sales growth. Nonetheless, management projects that the rate of sales decline in the second half of fiscal 2020 will improve in comparison with the first half.

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