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2019-10-09 16:35:54

Dive Brief:Hain Celestial sold its Arrowhead Mills and SunSpire brands to Hometown Foods, a portfolio company owned by private equity firm Brynwood Partners, for $15 million. The deal includes better-for-you breakfast, baking and chocolate products. The sale also includes a manufacturing facility in Hereford, Texas and its employees.Hain Celestial has been focusing on trimming its unwieldy brand portfolio and improving the profitability of its business, selling off four of its other brands earlier this year.

Dive Insight:

With a product portfolio that spans everything from self-care to snacks, Hain Celestial has been dogged by the knowledge that although there is interest in individual brands, the better-for-you company’s overall portfolio is not an attractive agglomeration.

Hain Celestial's earnings have been wanting. This most recent quarter, reported in August, saw a net sales decrease of 10% to $557.7 million compared to the prior year period.

The company is aware that something needs to change and has been working diligently on its Project Terra SKU rationalization effort since 2015, shedding brands and streamlining its product offerings. The last three quarters, as a result, have seen improved adjusted margins, indicating simplification is bringing positive change.

Still, the change has not been fast enough. Share value tumbled almost a fifth on a single day when it had a disappointing earnings report in February, which CEO Mark Schiller told analysts was truly disappointing. The company's stock price has ticked back up since then, but most recently cratered on the August earnings report. It's been slowly building back value since then. 

The sale of Arrowhead Mills and SunSpire marks the fifth and sixth brands the company has divested in the last six months. Hain Celestial has also offloaded Tilda rice, Plainville Farms turkey, WestSoy and poultry brand Pure Protein. The sale of Plainville and Pure Protein mark the company’s freedom from poultry, rumored to be a barrier to a speculated 2017 sale to Nestlé.

This slimming down of the portfolio is likely to make the natural food company more attractive to buyers. It’s worth noting that the CEO Mark Schiller, who took over a year ago from the company’s founder, previously worked as a turnaround architect at Pinnacle Foods. That company was purchased by Conagra Brands last year for $10.9 billion in cash and stock.

Even if Hain Celestial remains independent, the loss of these brands furthers the work of Project Terra and could put the company closer to holding steady, rather than registering losses. It is also unlikely that this is the final divestiture from a company that has held many diverse brands.

In any case, ridding itself of breakfast and baking brands — even better-for-you ones — may be a wise move in a market in which consumers seek convenience and are no longer keen to spend time baking from scratch or eating cold cereal.

Brynwood Partners has demonstrated a growing interest in investing in the food space and oversees brands including Sunny Delight, Juicy Juice, Little Hug juices, and Daily's Cocktail through its spun-off division Harvest Hill Beverage Company. In 2018, the private equity firm spun off Hometown Food following its $375 million acquisition of JM Smucker's baking brands portfolio, including Pillsbury, Funfetti, Hungry Jack, White Lily, Jim Dandy and Martha White.

Arrowhead Mills and SunSpire will likely be integrated into Hometown Food as Brynwood Partners looks to reinvigorate the brands. Although a risky move, Brynwood has the opportunity to operate this business privately and quietly build the brands, an advantage the publicly traded Hain Celestial did not have. The brands also fit more neatly into Hometown Food's portfolio, offering Hain Celestial more of chance to build on the teas and natural products that make up its core.

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