Food for thought…Hain Celestial and Whole Food Markets

Tony Edwards Everything Else, Food, My Published Articles

In the last issue of The Word, I profiled an investment that most people would find appropriate for a ‘socially responsible’ portfolio. The Clean Energy Income Fund is a well-regarded income trust holding a variety of alternative energy providers. This trust currently returns an income of approximately 9% a year to investors. In future columns we can examine other clean energy investment opportunities but for now, what’s really getting my juices flowing is the subject of food.

My wife of 20 years long ago convinced me of the benefits of a more healthy and humane diet. I make a very decent tofu burger. I know at least 101 ways to make a tasty meal out of textured soy protein. When you’re in my profession, this is the stuff of which investment ideas are born. While I prefer to make my epicurean creations from scratch, time is not always on my side, so I’ve found that Yves Cuisine has a number of products that are pretty good substitutes. I also like the preparations sold under the Casbah Natural Foods label and the herbal tea concoctions from Celestial Seasonings. Guess what? All of these companies are part of the Hain Celestial Group, which trades on the NASDAQ exchange in New York. Here’s a closer look.

The Hain Celestial Group, Inc. manufactures, markets, distributes and sells natural, specialty, organic and snack food products. The company is a supplier in many of the top natural food categories, with such natural food brands as Celestial Seasonings teas, Hain Pure Foods, Westbrae, Westsoy, Arrowhead Mills, Health Valley, Breadshop’s, Casbah, Garden of Eatin’, Terra Chips, Gastons, Yves Veggie Cuisine, DeBoles, Earth’s Best and Nile Spice. The Company’s principal specialty product lines include Hollywood cooking oils, Estee sugar-free products, Weight Watchers dry products, Kineret kosher foods, Boston Better Snacks and Alba Foods. For the six months ended 12/31/01, net sales rose 10% to $229.6 million. Net income fell 36% to $10.6 million. For the 3 months ended 03/31/2002, revenues were $105.6 million; after tax earnings were $5.1 million. Hain Celestial’s balance sheet continues to be strong, with working capital totaling approximately $76 million, a current ratio of 2.3:1; debt to equity at 3.2%; and total equity of $415 million. The company also announced that it has signed a letter of intent to enter into a joint venture agreement with Shin-shin, a major Japanese food manufacturer and distributor, to distribute and sell Hain Celestial’s Yves Veggie Cuisine products, as well as other brands, in Japan. The agreement will be the company’s first major expansion into the Asia-Pacific region. What all this means is that Hain Celestial continues to grow (with the performance of Yves Veggie contributing significantly), and that they are actually earning a profit while carrying little debt. At a recent price of US$16 per share, this stock is quite expensive relative to the company’s earnings, but could make a decent long-term investment if you believe more and more people will be exposed to, and enjoy their cuisine. By the way, Yves has a factory in Vancouver, so their success translates into more jobs for British Columbians. This is a double bonus for socially responsible investors.

Unfortunately, my local grocer doesn’t stock many of the ingredients that I use in my TVP Shepherd’s Pie, so a trip to the Edible Island Market in Courtenay is a must. Great store, wish I could buy their stock but there is no public market for that. So if I’m a believer (which I am) in the future growth of natural foods stores, I have to look elsewhere for an investment.

Whole Foods Market, Inc. owns and operates a chain of natural and organic foods supermarkets. The categories of products that the Company offers include: produce, grocery, meat and poultry, seafood, bakery, prepared foods, specialty (beer/wine/cheese), nutritional supplements, body care, pet products, floral, household products and educational products such as books. The Company has a broad product selection with a heavy emphasis on perishable foods designed to appeal to natural foods shoppers. Last week the Company opened two stores in Toronto, the Company’s first locations outside of the United States.

For the 16 weeks ended 1/20/02, net sales rose 21% to $780.8 million. Net income rose 34% to $20.1 million. Results reflect an increase in square footage, a 9.4% increase in comparable store sales and lower interest expense due to lower interest rates. Whole Foods Market is another example of a company with strong growth, a healthy balance sheet and an encouraging future. Much of this potential is already priced into the stock so it’s not cheap at US$45 per share, but just like Hain Celestial, attractive if you believe in the long-term growth prospects of this sector.

Anyway all this talk of food is making me hungry. I’m off to the kitchen.