A pioneer in the organic food business is learning that keeping sales and profits healthy is a bit more challenging now than in years past.
Hain Celestial (HAIN) - Get Report , which hawks organic food under multiple brands such as Blueprint juice and Celestial Seasonings tea, warned on Monday that sales and profits for the year would fall short of its prior estimates. Net sales for the fiscal year ended June 30 are now seen at $2.9 billion to $3.04 billion, an increase of 7% to 12% year over year, versus estimates in November for a rise of 10% to 15%. Earnings are expected to be between $1.95 and $2.10 a share, sharply lower than prior forecasts for $2.11 to $2.26 a share.
Hain executives pinned the shortfall in sales and profits on several factors while presenting at the ICR Conference Tuesday afternoon.
Walmart -- which Hain relies on for about 10% of its annual sales -- has decluttered its aisles to improve the shopping experience for customers. For Hain, that has meant the removal of certain product displays that were in place a year earlier.
Further, the company lost customers for its Celestial Seasonings tea brand following a redesign of its well-known packaging, which may have confused or turned off shoppers. To get customers back, Hain said it will offer more compelling prices in upcoming quarters, at the expense of profits.
A larger issue working against the industry heavyweight is simply that more companies want to cash in on the lucrative organic food market. "Competition has definitely increased. The environment has changed," said Hain Celestial founder and CEO Irwin Simon to TheStreet.
Hain's new competition isn't too hard to find.
Grocer Kroger (KR) - Get Report has found success with its relatively cheap private label Simple Truth organic food brand. The Simple Truth line now spans multiple product categories that Hain sells, including snacks, soups and beverages. Annie's, an organic food brand acquired by packaged food giant General Mills (GIS) - Get Report for over $800 million in 2014, continues to expand into new categories such as soup and yogurt.
Campbell Soup (CPB) - Get Report spent an undisclosed sum in 2013 to purchase Plum Organics, and has since debuted enhanced offerings in the organic baby food segment, where Hain offers its Ella's Kitchen line.
Investors have noticed the more competitive environment for organics and Hain's slowing growth. Over the past year, shares have declined roughly 26%, worse than the S&P 500's (SPY) - Get Report 3.6% decline.
"We see Hain's growth story at risk from rising competition within the health & wellness arena -- such pressure may arise from both new entrants (private label and big brands) and from rising price competition to attract more price-sensitive, mainstream consumers," wrote Wells Fargo analyst John Baumgartner in a Jan. 7 note to clients. Baumgartner, who rates Hain shares market-perform, added, "we cannot shake our concerns that the [organic food] environment is changing."
In order to alleviate some of the pressure on profits, Simon hinted at a major cost reduction plan totaling about $100 million. Simon did not commit to a timeline for the cost reductions. Instead he said there are significant opportunities to more efficiently run a business that has grown aggressively via numerous acquisitions through the years.
The company also did not rule out making additional acquisitions of up-and-coming organic brands, although valuations have gotten slightly rich in the organic food space of late.
Nevertheless, the long-term outlook for Hain and the broader organic food sector remains solid as consumers continue to seek out healthier foods. According to a recent report from TechSci Research, the global organic food market is projected to register a compound annual sales growth rate of more than 16% from 2015 to 2020.