Hain Celestial Group (HAIN)

Headquartered in Melville, NY, The Hain Celestial Group, Inc. (HAIN) produces, distributes, markets, and sells various natural and organic food, as well as personal care products. The company offers popular "better-for-you" products in grocery, snacks, and frozen/refrigerated categories, including sugar-free and kosher foods, low-fat fruit, vegetable, and potato chips as well as meat and alternative products, like soy protein, aseptic soups, non-dairy drinks, and herb teas. Hain also provides personal care items under the JASON Natural, Avalon Organics, Alba Botanica, Earth's Best, Red Elements, and Temptations brands. The company ranks itself as the leader in 13 out of 15 natural food categories, despite stiff and growing competition. Roughly 65% of the company's products is outsourced, while the remaining 35% is manufactured at its own facilities.

Hain Celestial Group is the largest manufacturer in the natural foods segment, with brands, such as Celestial Seasonings Tea, Imagine, Hain Pure Foods, Westbrae Natural, WestSoy, Rice Dream, Walnut Acres, Arrowhead Mills, Health Valley, Garden of Eatin', Terra Chips, Harry's Premium Snacks, Boston's, Gaston's Lima, Biomarche, Yves Veggie Cuisine, Earth's Best, and Nile Spice. The company's specialty products include Hollywood cooking oils, Estee sugar-free products, Kineret kosher foods, Boston Better Snacks, and Alba Foods. Two of the brands, Celestial Seasonings and Imagine, are $100 million business lines. The products are primarily sold to specialty and natural food distributors and are marketed nationally to supermarkets, natural food stores, and other retailers, including mass-market stores, food service channels, and club stores. Other than the U.S., which generated 80.7% of the company's net sales in fiscal 2006, Hain also has an international presence (19.3% of net sales) in Europe and Canada. India and Thailand are considered other potential markets. The company has grown both organically and through acquisitions.

Hain holds a leading position in a growth industry. The $42.8 billion Natural Products sector is growing 10% versus 2% for the overall grocery industry. The company is leveraging growing consumer awareness about health and wellness trends for growth.

Acquisitions have been a key part of the company's strategy to build market share. Acquisitions have not only expanded the company's geographical presence but also provided opportunities to cross-sell products among the U.S., Canadian, and European markets. For example, in February 2004, Hain acquired Natumi, AG, a producer of non-dairy beverages and desserts, which extended Hain's presence among retail channels in Europe. Subsequently, in May, Hain announced the acquisition of the Ethnic Gourmet and Rosetto frozen foods lines from Heinz, which have added scale and will contribute about $30 million in sales. In early June of 2004, Hain acquired JASON Natural Products, a company focused on the fast growing natural health and body care segment. The overall health and body care segment has been growing at approximately 14%, with JASON growing by 30%, well above the trend. Management utilized the existing distribution network to launch a host of new products under the JASON name in fiscal 2006, including new body washes and the Red Element line. Furthermore, Hain will seek to expand the JASON brand into Canada and Europe. In April, 2005, the company acquired Zia Natural Skincare, which complements the value-priced natural and organic personal care lines of JASON. Management also intends to expand the Zia product line by launching new products through the existing the distribution network during fiscal 2007. All four acquisitions were integrated with existing operations during fiscal 2005. In August 2005, a joint venture with Yeo Hiap Seng Limited, a Singapore-based food and beverage company, was signed. Each company made approximately an $8 million equity investment in the other. Hain also acquired Spectrum Organic Products in December 2005.

The pace of acquisitions has increased during the last two fiscal years. In 2006, the company acquired Para Laboratories, H. J. Heinz's fresh prepared foods business based in Luton, England, and the Linda McCarty frozen meat-free business (including a manufacturing facility based in Fakenham, England). In fiscal 2007, Hain Celestial acquired Avalon Natural Products, which bolstered the company s natural and organic personal care product line with the premier brands of Avalon Organics and Alba Botanica . In June 2007, the company bought the tofu and meat-alternative business of WhiteWave Foods Company, a subsidiary of Dean Foods Company (NYSE: DF). The acquired product lines include baked and grilled tofu, seitan, tempeh and other traditional tofu items which complement Hain's existing meat alternative product offerings in Canada and the United States. Near the end of the fiscal year, the company announced the intention to acquire two additional companies: Plainville Turkey Farm and TenderCare International Inc. Plainville Turkey Farm is a leading supplier of natural and antibiotic-free whole turkeys and deli turkey products, primarily serving the natural and grocery channels in the Northeast and Mid-Atlantic regions. Plainville Turkey Farm generates about $30 million in annual sales. TenderCare International is a Wisconsin-based marketer and distributor of chlorine-free and gel-free natural diapers and baby wipes under the Tushies and TenderCare brand names.

As company continues to expand through an acquisition strategy, management also continues to focus on improving the company's operating performance, specifically accelerating product improvements, rationalizing stock keeping units (SKUs) in the core grocery business, negotiating more favorable co-packing relationships, and rolling out new products. For example, the company underwent a major SKU rationalization program that eliminated approximately 400 Grocery and Snacks SKUs in fiscal 2005. Another SKU Rationalization Program, announced in May 2008, will focus on the personal care operations of Avalon Organics, Alba Botanica, JASON, Queen Helene, and Zia Natural Skincare. Also, cost-containment initiatives are underway, and management is looking at ways to improve working capital management and the supply chain network. The various initiatives should boost the company's profitability going forward. In addition, management plans to spend more wisely on marketing and promotional activities. Lastly, management has divested the non-core brands of Kineret, Kosherific, CarbFit, and Bio March , which helps to streamline Hain Celestial Group's product portfolio.

Hain Celestial was one of the first food companies that was able to implement price increases after the last period of price weakness. Effective July 1, 2004, Hain increased prices by 4% across the line of grocery products. By November the price increases were broadly accepted. Management increased prices again by 3.0% effective June 1, 2005. Price increases in the range of 3% to 4% were again implemented in October 2005 and July 2006. The company implemented another 3% price increase effective in September 2006. Year-over-year revenue growth of 21.9% in fiscal year 2007 was bolstered by these price increases, which contributed significantly the top-line growth. Management raised prices by 3.5% at Celestial effective October 1, 2007 and implemented a 4% price increase across other product lines effective January 1, 2008. Since 2004, the company has implemented over eight price increases and another slated for May 2008.

Over the last five years, H. J. Heinz assisted Hain Celestial Group in the implementation of both cost savings programs and models for measuring performance metrics. Flowing from a strategic alliance announced in September 1999, Hain and Heinz began collaborative initiatives, which included identifying specific opportunities for savings in the cost of market research and in freight/transportation and co-packing. In addition, Hain implemented Heinz's Operating Free Cash Flow and Cash Conversion Cycle models. During the period of collaboration, Heinz acquired a 16% interest in Hain Celestial Group when Hain's acquired Earth's Baby Food from Heinz however, Heinz sold the position in December, 2005 through a secondary offering.

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