EUR 850.00 For Business Accounts Only

Morningstar | No-Moat Hain Focused on U.S. Turnaround in Highly Competitive Health and Wellness Space

Hain Celestial has struggled with intense competitive pressures and its own executional missteps. In the United States, the no-moat company’s complex network of 50-plus brands, overproliferation of stock-keeping units, disparate categories, and numerous channels have spread resources thin, resulting in underinvestment in brands. Hain has spent about 1.0% of revenue on marketing and 0.4% on research and development compared with peer averages of 4.5% and 1%, respectively. We believe this has led to limited brand awareness, pricing power, and market share, despite the firm operating in the fast-growing health and wellness space. As a result, we believe Hain has not secured a moat, either via brand equity, entrenched retail relationships, or a cost advantage. While its international markets have reported strong revenue growth and share positions, lackluster margins there lead us to believe the firm also lacks a competitive edge abroad.We think the recently announced strategy to turnaround the U.S. business will help improve Hain’s revenue growth and profitability, although we expect the process will take a few years and require investor patience. The firm plans to focus most of its resources on the 11 brands that represent 50% of segment revenue and 90% of profits. There are many opportunities to expand distribution of these high-growth, profitable products, as only 20% of these SKUs have more than 50% all-commodity volume distribution. On the other end of the spectrum, the firm is opting to eliminate 14% of SKUs that are unprofitable, which should boost margins. Furthermore, the company intends to take a more strategic approach to allocating marketing and R&D investments and will increase the level of these investments to be more in line with peers, which we view favorably. We believe these efforts should revitalize revenue growth, helping to stabilize share in the U.S. natural and organic market, where Hain has been losing ground. However, we think it will be difficult for Hain to gain share, as large food conglomerates with well-known, powerful brands and significant resources are also aggressively targeting this market.