10-Minute Investment Autopsy No. 21: Hain Celestial (HAIN)
Turnarounds are always hard, but especially in the face of secular headwinds.
If you haven’t read the guide to the 10-Minute Investment Autopsy series, you can find it here.
The Original Thesis
Who: Glenn Welling
When: August 2019
What: Hain Celestial (ticker: HAIN)
The Thesis:
One of the pioneers of natural/organic food industry built through acquisition
Rollup strategy misfired due to lack of integration and innovation
Organic food business has become more mainstream and more competitive and the company wasn’t able to maintain its competitive advantage
Saw a lot of unrealized potential, launched a campaign and settled with the company in Q3 2017 to change the majority of the board
Brought in new directors with relevant experience and replaced the long-time CEO with the former Chief Commercial Officer at Pinnacle Foods which had gone through a similar turnaround
New CEO replaced most of his leadership team
The company’s new strategy is to simplify its business by focusing on advantaged categories, improve operations, expand margins/cash flow and restart sales growth
Some of these initiatives are starting to bear fruit, with EBITDA margins increasing for 3 straight quarters and are up 400bps from 6% to 10%
Glenn expects margins to continue to increase to the 13% to 16% range
A major component of management’s incentive plan is an equity grant that doesn’t vest unless the stock produces a 3-year annualized total return of 15%+
The implied $40/share price is consistent with where Glenn sees the value if management achieves 3%-6% organic sales growth and its margin targets
These are the highlights of Hain Celestial’s then-recent financials up to the point when Glenn was presenting his thesis:
This is the stock chart up to the time when Glenn presented his thesis:
Pause here. Think through the thesis and the facts and decide what you agree with, what you disagree with and whether you would invest based on the information available.
What Happened (Just the Facts)
Between August 2019 and now HAIN shareholders were nearly wiped out (-97% total return) vs. +183% for the S&P 500
There is a lot more to the case:
The Autopsy - the reasons for what happened
The Lessons that you can apply to your own investing
Discussion Questions for you to think about and discuss with other thoughtful investors in the weekly case thread