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Why Did Analysts Revise Their Estimates for Hain Celestial?

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Delay in 4Q16 earnings release

Hain Celestial (HAIN) mentioned in the press release on August 15 that it identified concessions granted to certain distributors in the US during fiscal 4Q16. The company’s audit committee set up an independent review to evaluate whether the revenues associated with the concessions were accounted for in the correct period. The company’s internal control over financial reporting is also being evaluated.

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The company also mentioned that it doesn’t expect to achieve its previously mentioned guidance for fiscal 2016. The earlier guidance stated that total net sales were expected to be $2.94 billion–$2.96 billion—a rise of 9%–10% compared to fiscal 2015. For 4Q16, management expected revenue to be ~$756 million–$776 million—a rise of 8%–11% compared to fiscal 4Q15.

Underlying issue

Hain Celestial mentioned that the changes in the timing of the recognition of revenue related to the concessions transactions granted to a certain distributor shouldn’t impact the total amount of revenue ultimately recognized by the company for the fiscal year. The company didn’t specify the distributor’s name. United Natural Foods accounted for 12% and Walmart and its affiliates accounted for 10% of the company’s net sales in fiscal 2015. The evaluation focuses on whether the revenue related to the concessions granted should have been recognized at the time the products were sold to the end customers. Is this issue related to this quarter or could it continue in upcoming quarters?

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Analysts’ revisions for sales

Whether this is a one-off case or not has certainly raised concerns regarding the expectations for the upcoming quarter. Analysts revised the sales estimate for 4Q16 and fiscal 2016. For 4Q16, sales are now expected to be ~$758 million—down from the earlier estimate of $769 million. It represents a rise of 9% YoY (year-over-year). For fiscal 2016, analysts project sales of $2.95 billion—slightly down from $2.96 billion.

Revised earnings estimates

Analysts also revised the company’s earnings estimates. The 4Q16 adjusted EPS (earnings per share) is now expected to be $0.57—down from $0.60. For fiscal 2016, the EPS is projected to be $2.00—lower than the earlier estimate of $2.03. The sales and earnings estimates are also lower for fiscal 1Q17 and 2Q17.

The company projected that fiscal 2016 EPS will be $2.00–$2.04—an increase of ~6%–9% YoY. The adjusted EPS for the fourth quarter was estimated to be $0.57–$0.61—a rise of 4%–11% YoY. Now, the company doesn’t expect to achieve these estimates.

Hain Celestial’s peers in the food industry like Kraft Heinz (KHC) and J.M. Smucker’s (SJM) earnings are expected to rise by 70% and 31% for their next quarter, respectively. The iShares Morningstar Mid Growth ETF (JKH) and the PowerShares DWA Momentum Portfolio (PDP) invest in Hain Celestial.

In the next part, we’ll see which firms downgraded Hain Celestial after the announcement.

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