Food & Beverage

Hain Celestial investors hope Friday event yields clues about outlook amid accounting probe

Irwin Simon, president and chief executive officer of Hain Celestial Group Inc.
Francis Specker | Bloomberg | Getty Images

Natural products company Hain Celestial could ease investor skittishness about its outlook when it meets Friday with analysts at a major trade show in California.

The embattled company's accounting probe remains unresolved after seven months of waiting and some sales trends in its business are weak too. Hain has missed filing financial results for three quarters and its stock price is down more than 30 percent in value since the accounting issues were first disclosed in August 2016.

Hain CEO Irwin Simon is scheduled to meet with industry analysts Friday at the Natural Products Expo West show in Anaheim, California. The natural and organic products company is an exhibitor at the annual trade show and typically holds an investor gathering.

"This is the big show and all the customers are there," Mitchell Pinheiro, an analyst at Wunderlich Securities, told CNBC in an interview.

But the analyst said the likelihood of management providing a major update on the accounting issue is slim at best since he believes it would be "a distraction" from the mostly product-focused event.

That said, he expects the meeting might provide "some color" about management's view of opportunities going forward and the overall industry. Such clarity maybe particularly helpful since the last time Hain reported financial results was back in May 2016.

CNBC reached out the company for comment.

Hain's accounting probe led the SEC to open an investigation. The Lake Success, New York-based company previously indicated that the agency issued a subpoena for documents.

Hain also is the subject of class action lawsuits in connection with the accounting issues and stock decline.

Analysts say there's a chance the Friday meeting could move the stock price.

"If there's a sense that U.S. business is really improving, that could move the stock higher," said the Wunderlich analyst. Yet he expects there's also a risk of the stock going lower if there's a sense the audit might take longer. He said he expects management will avoid going there.

On Monday, Hain issued a press release disclosing it had received a letter from the Nasdaq Stock Market indicating that it still hasn't regained compliance with the exchange's listing rule requirement since it has failed to "timely file" reports with the SEC.

Hain said it plans to request a hearing before the Nasdaq "to present its plan for regaining compliance with the rule and request continued listing pending its return to compliance."

When Hain first disclosed the accounting issue, it said there was a review under way by an audit committee and indicated it has retained independent counsel to assist in that review. The audit review is believed to focus on the timing of revenue associated with distributor concessions.

Susquehanna stock analyst Pablo Zuanic said in a report Thursday that uncertainties still lie ahead for the company and "significant inherent risks," including a possible restatement of financial results due to the ongoing audit. That risk does "warrant some form of 'options protection,'" he said, although he added that "we see value in the company franchise."

Zuanic expects Hain might benefit from "major portfolio pruning" and also cited a recent management change in the North America business as a positive development.

Hain has a large stable of organic and natural products brands, including Celestial Seasonings, Earth's Best, Ella's Kitchen as well snacks sold under Terra and Garden of Eatin' brands. Besides food, the company also sells personal care products.

In a research note this week, SunTrust analyst William Chappell said new Nielsen data shows slowing sales trends for Hain's top seven categories, which represent just over 70 percent of its total sales. He said the data shows the categories down 5.9 percent for the four-week period ended Feb. 25, compared with a drop of 1.6 percent in prior month.

Chappell singled out the salty snack business as one area that had been doing well previously.

"We are particularly concerned about the salty snack business, which had been a bright spot for over a year," he said. The category posted a 4.4 percent decline in the four-week period compared with the growth it enjoyed previously, Chappell added.

"Overall, we believe some of the company-wide weakness could be the result of ongoing SKU rationalization, something the company talked about doing about six months ago. We expect Hain to provide more clarity at Expo West later this week when it discusses new 2017 products," he said.

Some consumer products companies have resorted to using SKU (or stock-keeping unit) rationalization inventory management techniques as a way to fine-tune product portfolios as well as enhance sales and profit growth.