Hain Celestial Rationalizes SKUs, Adds Poultry Firm, Drops Kosher Line
The Hain Celestial Group, Inc. (Melville, N.Y.), a leading natural and organic food and personal care products company, on June 27 announced the final implementation of its previously announced Stock Keeping Unit (SKU) rationalization program. The Company has identified approximately 500 SKUs, with approximate annual sales of $15 million, that will be discontinued in this program. As a result, Hain Celestial's results for the fourth quarter and fiscal year ending June 30, 2005, will include a non-cash charge to operations of approximately $8 million to $11 million for the completion of the SKU rationalization program.
"During the past year, we have streamlined our business to further focus on the highest value opportunities in our core natural and organic business. As a result, we have placed a priority on margin enhancement, leading to the SKU rationalization program, as well as efficiencies through the consolidation of our suppliers and turnkey operations," said Irwin D. Simon, president and CEO. "Implementing these actions now and other future growth initiatives will enable us to concentrate on areas of profitable growth for our business and should enhance our margins. These initiatives will be accretive to earnings."
SKU Rationalization Program
Hain Celestial said that among the SKUs being eliminated from the Company's active product list are the Carb Fit low-carbohydrate brand of products, which have been impacted by the recent decline in demand for low-carb products across the food sector, as well as other items competitively disadvantaged as a result of small production runs and low volumes of sales. Additionally, the Company will eliminate the duplication of products across several brands resulting from its acquisitions dating back to 2001.
The Company said that over the next 12 to 18 months, the decrease in sales volume of the discontinued products is expected to be offset by the introduction of new products and brand extensions to improve sales and margins and to maintain shelf presence for the Company's products. During this time, the Company expects the SKU rationalization program will be accretive to earnings, as its benefits are realized through future cost savings of approximately $2 million annually. These benefits include expected increases in the Company's gross margin by 0.50% with improvements coming from reduced spoilage, warehouse and procurement costs, consolidation of co-packers and other efficiencies. The completion of this program will achieve a reduction in working capital through inventory reductions and an improvement in the Company's Cash Conversion Cycle.
"The key to our SKU rationalization program is to maintain our valuable space at retail, by replacing discontinued SKUs with new products and faster selling products. This program will also give us the opportunity to consolidate our co-packers," said Irwin Simon.
The non-cash charge announced today results substantially from the cost of the disposal of finished goods and raw ingredients inventories and the disposal of packaging related to the discontinued products. The Company is also in the midst of a consolidation of co-packers, a process that will be enhanced under the SKU rationalization program.
Sale of Certain Non-Core Brands
The Company also announced it had reached an understanding to sell its Kineret and Kosherific brands with an anticipated closing date of June 30, 2005. Terms of the transaction were not disclosed. The Company is also exploring the sale of other non-core brands, specifically Estee and Featherweight medically-directed, weight management products.
Acquisition of College Hill Poultry
Additionally, the Company announced that it has reached an understanding with Pegasus Capital Advisors, LP, a private equity firm, to establish a joint venture, Hain Pure Protein Corporation, to purchase the poultry processing facility assets of College Hill Poultry of Fredericksburg, PA. The terms of the agreement include certain rights to use the Raised Right brand of natural and organic, free range chicken, which is grown without antibiotics or animal or protein by-products. The Company will control 50.1% of the joint venture, which is expected to close on July 1, 2005. Joseph A. DePippo, an industry veteran and president of College Hill Poultry, will become the president of Hain Pure Protein Corporation.
"We are excited about entering the specialty poultry business with naturally raised chickens, a fast growing category in the natural and organic marketplace," said Simon. "This investment with Pegasus provides us with the ability to expand both our fresh, refrigerated and frozen chicken offerings to meet the increasing consumer demand for natural foods of all varieties. We are pleased to have a seasoned industry team led by Joe DePippo join us in developing our natural meat product offerings including Raised Right chicken tenders, nuggets and wings under the Hain Pure Protein name and in conjunction with some of our other established brands like Earth's Best. Additionally, Dave Wiggins of Pegasus, who will serve on the Board of Hain Pure Protein Corporation, provides us with great industry experience as a veteran of Empire Kosher Poultry and ConAgra."
Hain Celestial participates in almost all natural food categories with such brands as Celestial Seasonings, Terra Chips, Garden of Eatin', Health Valley, WestSoy, Earth's Best, Arrowhead Mills, Hain Pure Foods, Hollywood, Walnut Acres Organic, Imagine Foods, Rice Dream, Soy Dream, Rosetto, Ethnic Gourmet, Kineret, and Yves Veggie Cuisine. For more information, visit www.hain-celestial.com.