Hain Celestial Group reported fourth-quarter earnings this week, with net sales of $222.8 million and net income of $6.7 million. For the full fiscal year ended June 30, Hain earned $28.6 million on $917 million in sales. Irwin Simon, Hain’s President and CEO, attributed the company’s strong performance to sales momentum in North America and Europe, and improving consumption trends for healthy foods overall. According to company statements, Hain generated $18 million in sales from new products at Hain Celestial U.S., and recent acquisitions (Sensible Portions, Greek Gods Yogurt) position the company in high-growth categories with natural products complementary to core product offerings.

Wall Street responded favorably to the news, sending Hain’s stock up about 4%. Analysts also responded favorably to improved guidance from Hain for FY2011 by raising their estimates for sales and earnings per share. Hain upped its revenue guidance for FY2011 to $1.025-$1.05 billion, and earnings per share guidance to $1.24-$1.31.

NBJ spoke to Simon a few weeks ago in reporting our current issue on the finance & investment climate for nutrition companies. When asked about his company’s strategic response to the economic downturn, Simon said: “When the turndown hit a year and a half ago, we saw the consumer trading down and buying private label, so we knew we had to take our products to other classes of trade. Our model shifted to go out to more and more of the mass market. At the same time, we continued to work closely with Whole Foods on innovation, new products, and pricing to make sure there was value there. Whole Foods is our biggest retail customer today, so that was clearly important. There’s good growth among the mass market, good growth among club stores, and we are absolutely seeing growth come back in certain retail supermarkets.”

Two industry analysts would concur with this optimistic outlook. Scott Van Winkle of Canaccord Genuity sees reaccelerating growth for Hain. “I’m expecting much better sales and earnings performance over the next 12 months,” said Van Winkle. Andy Wolf of BB&T Capital Markets thinks the company’s recent moves in the U.K. will turn that business around to at least break-even status. “Hain is really well positioned to have a good turnaround in the next couple of years,” said Wolf. “The stock performance has lagged, but we think it could play catchup.”

Wolf also sees the investment in Hain by Carl Icahn—Icahn owns about 5.65 million shares representing about 14% of the company—as a way to bring more financial acumen to an already well-run company. We asked Simon about that investment from Icahn. “I think Carl Icahn is a smart guy,” said Simon. “He likes what we’re doing and likes our brands. I look at him as an opportunistic investor. This is one of his first forays into this category. I think he walked around Whole Foods, saw our presence there, and that’s what got him excited.”

NBJ tackles consumer research in our next issue, slated for publication in September. We’ll focus our critical eye on the modern wellness consumer, and strategies to best utilize research to meet a complex array of global consumer demands.

Related NBJ links:

The Hain Celestial Group’s Irwin Simon Talks Acquisitions with NBJ

2010 Healthy Foods Report

2010 Nutrition Industry Overview Archived Web Seminar

Catalina Lifesciences Inc. is a practitioner supplement firm that I’ve had my eye on this year—and apparently, I am not the only one impressed with the innovative business model behind the company’s brand Bariatric Advantage, a nutritional supplement line designed specifically for weight-loss surgery patients. On August 20, the leading practitioner supplement company Metagenics Inc. announced it was purchasing Catalina Lifesciences for an undisclosed amount.

Helping meet the unique nutritional needs of the 230,000 Americans who undergo weight-loss surgery each year was the impetus behind the creation of Bariatric Advantage in 2002. “After undergoing bariatric surgery, a patient requires special nutritional attention for the remainder of his or her life,” Thomas Kinder, president and CEO of Catalina Lifesciences, told Nutrition Business Journal earlier this year. Once a weight-loss surgeon introduces his or her patient to the Bariatric Advantage line of products, that person could ostensibly be a customer for decades, Kinder added. “The average age for [bariatric] surgery is 40, so it’s a relationship that we could maintain for many, many years.”

The Bariatric Advantage business is a “perfect fit” with Metegenics’ mission of using therapeutic nutrition to combat chronic illness, said Metagenics CEO Fred Howard. “Working together, Metagenics and Bariatric Advantage will shape the market in the rapidly growing bariatric nutrition field,” said Howard (who took over as CEO on August 16, when Metagenics Founder and CEO Jeff Katke became the company’s chairman). “We will continue to invest in scientific validation, new product development and distribution to support these programs.”

Both Metagenics and Bariatric Advantage have successfully sold conventional medical doctors on the benefits of nutritional supplementation—which I believe will play a key role in growing and strengthening the legitimacy of the dietary supplement market moving forward. In the case of Bariatric Advantage, Catalina Lifesciences has relied on practitioner education to bring the majority of bariatric surgeons operating in the United States on board with its supplement products.

“Even though they are doing these invasive procedures that can cause nutritional problems, bariatric surgeons don’t receive nutritional training or generally know much about nutrition,” said Jacqueline Jacques, ND, chief of scientific affairs for Bariatric Advantage. “The more we increase what we do with education and support services, the better our [surgeon] retention is and the more we continue to experience accelerated growth, even in a down economy.”

Bariatric Advantage also uses the Internet to support its surgeons’ sales. According to Kinder, the company has built e-stores for more than 500 of its bariatric surgeon customers, who typically sell Bariatric Advantage supplements as a value-added service for their patients. “Obviously, the e-commerce component helps with sales, but it also enables patients to stay in contact with their doctor and learn about changes to the nutrition protocol for this category,” Kinder told NBJ. Thanks to help from the Internet and customers who require specific nutritional supplements for the rest of their lives, nearly 60% of Bariatric Advantage’s sales are generated via auto-ship programs set up on the web, Kinder said.

Under the Metagenics’ umbrella, Bariatric Advantage will retain its branding and continue to be run by Kinder and his leadership team. Said Kinder, “The additional resources provided by Metagenics’ research, business systems and global presence will expand our ability to bring the advantages of our products to a much broader audience of bariatric patients and healthcare professionals worldwide.”

For more on recent M&A transactions within the nutrition industry, check out NBJ’s Finance and Investment issue (which is hitting subscriber mailboxes now).

Related NBJ links:

2010 Direct-to-Consumer Selling in the Nutrition Industry Report

2010 Archived Practitioner Supplement Sales Web Seminar

April 2010: MLM & Practitioner Sales in the Nutrition Industry

NBJ tackles the complex topic of finance & investment in the nutrition industry with our next issue, now on its way to the printer. As we digest all of the research and trending that surfaced in the reporting of that issue, expect some discussion in the coming weeks on the blog about such topics as holistic investing, moving upstream through the murky waters of deal flow, and the modern challenges of being a nutrition entrepreneur. Today, though, let’s talk about the equity markets.

I spoke to Scott Van Winkle of Canaccord Genuity and, on a separate call, Andy Wolf of BB&T Capital Markets to gain some visibility into smart money’s opinion of the road ahead for nutrition stocks. Excerpts from those conversations follow below.

NBJ: Let’s look at the major industry categories in nutrition and talk about year-to-date performance. How about natural & organic foods?

Scott Van Winkle: In general, healthy-living stocks have outperformed the market this year. Natural & organic has the best sector performance, up about 12%. These stocks didn’t start to come back until later in the cycle, but now they are beginning to reflect improved growth in the category.

Andy Wolf: Natural & organic is about 80-90% recovered, in terms of underlying growth trends. It’s really come back as a category. You can see it in the industry numbers and in the company numbers. There’s been a little bit of channel play, and you can still see some slack in demand at conventional stores, but that too is starting to show a rebound. The demand never went away for natural & organic, but in the recession, even dedicated users were worried about finances. Now most of them have made the budget allocation and returned to the category.

NBJ: And supplements?

SVW: Supplements are down about 12%, but the 40% move in NBTY improves that number dramatically. Supplements performed well last year with strong industry trends, and those trends persist, but investors lack faith. Strong category growth brings increased competition, and as we anniversary the jump in sales from swine flu, people expect a slow down. Vitamins were up 18% in October/November 2009. That kind of growth was obviously driven by the cold and flu season, in turn driven by swine flu.

AW: Supplements have had a multi-year run as consumers adopt these healthy lifestyle choices. People want to live better and feel better. Supplements also enjoy a countercyclical demand. As unemployment goes up and consumers lose more health-care benefits, more people use supplements as a substitute for doctor visits—which are down, by the way. It’s a prophylactic approach. Demand looks robust to me across all sales channels for supplements.

NBJ: What are you seeing for multi-level marketers (MLM) and ingredient suppliers?

SVW: Ingredients are up about 3% through the end of July. Last year, the farther down the supply chain you were from the consumer, the likelier you were to see your customers deload or reduce inventory. Ingredient suppliers had a tough time in 2009. There weren’t a lot of new product launches, and customers were cleaning out their inventories. There are signs of more aggressive ordering now, so the fundamental businesses are stronger than they were coming out of last year.

As for MLMs, they’re up about 5%. These stocks outperformed early, because their business was stronger on a relative basis. With weak economics, everybody buys less, but there’s more unemployment and more people looking for part-time work. In a weak economic cycle, more new distributors come online, even though their average sales level drops. Net-net, MLMs were less impacted by global economic issues.

NBJ: What about functional foods?

AW: Functional foods have really lagged. Why? Mix. Most functional products are sold through conventional stores, and demand hasn’t picked up as well in the mass market. I don’t see a real recovery for functional foods until the broader economic recovery is more firmly entrenched sometime in 2011.

NBJ: Looking ahead, where do you see the best performance and the biggest challenges?

AW: The big issue for 2011 is converts. For 20 years now, consumers have been moving, in one way or another, from conventional to organic. The demand curve is still there, but all of the core customers have already come back. Whole Foods Market and other retailers are seeing new customers come into the channel, but for that to continue, well, the economy will have something to say about that as well.

SVW: Retailers are in a very good position in general. They are demanding price concessions from suppliers, and suppliers are giving them. Whole Foods Market and Vitamin Shoppe are in good position, thanks to this competitive advantage over suppliers. Over the next six to 12 months, I think the MLM sector is going to perform quite well. Natural foods will perform well. Supplements will tread water due to Wall Street’s impression of decelerating growth.

Related links:

Quick Take on NBTY Acquisition

2010 Healthy Foods Report

2010 Direct-to-Consumer Selling in the Nutrition Industry Report

If you want the inside scoop on investment activity within the U.S. nutrition industry, turn to David Thibodeau. As a managing director in Canaccord Adams’ Investment Banking Group, Thibodeau focuses on mergers & acquisitions and public and private financings in Canaccord Adams’ Health, Wellness & Lifestyle franchise. Nutrition Business Journal recently sat down with Thibodeau to recap the significance of the big deals that transpired last year in the U.S. nutrition industry and discuss the general mood of investors as we move into 2010.

NBJ: How would you describe the overall mood in the financial/investment community right now?

David Thibodeau: We’re seeing investors start the year with guarded optimism. In the second half of 2009, we saw both the equity markets and the M&A markets come back to life. There were two very successful IPOs in the nutrition space last year: Vitamin Shoppe and Vitacost.com. In the fourth quarter of 2009, approximately 69 IPOs were filed with the SEC—this was a much more robust number than we saw during fourth quarter of 2008, when only seven companies filed to go public. The prevailing feeling is that the equity markets are open and will be open through at least the first half of 2010. We also saw renewed interest from private equity in the back half of 2009. Reasonable levels of leverage are creeping back into the market, and this is helping to support recent private-equity backed transactions.

NBJ: 2009 wasn’t a particularly active year for investment or M&A deals in the nutrition industry. Of the deals that did occur, what do you believe was most significant and why?

DT: 2009 was the year of the strategic deal. Any of the deals that were consummated could be considered significant: We saw a multi-level marketing company enter the healthcare practitioner space through the Alticor-Metagenics deal; big pharma re-entered the nutrition space through the Sanofi-Aventis purchase of Chattem; and an international supplement company predominantly focused on the healthcare practitioner channel, Atrium, entered the health food/specialty channel through its purchase of the supplement company Garden of Life. Taken as a whole, these transactions suggest a fundamental shift within the nutritional supplement playing field. These moves by large, well-financed acquirors point to a newfound acceptance of the health benefits and profit potential of the nutritional supplement space. I believe we will continue to see significant strategic moves in 2010.

NBJ Subscribers can read the full Q&A with Thibodeau in the upcoming Awards and Executive Review issue, which publishes later this month. Subscribe to NBJ or download a free sample issue via the NBJ Website.

Related NBJ links:

Atrium Solidifies Standing in Natural and Specialty Retail with Garden of Life Acquisition

Sanofi-Aventis Purchase of Chattem Puts Dexatrim, Garlique Brands in French Hands

M&A and Investment Activity Slows for U.S. Nutrition Industry

Metagenics CEO: We Need Alticor’s Backing to Make a Dent in Chronic Illness Epidemic

The Vitamin Shoppe’s better-than-expected initial public offering (IPO) on October 27 demonstrated that the public markets, which have been generally turned off by retail plays in recent years, see lots of opportunity in the dietary supplement and nutrition sector. The IPO was the first for a retail-based company in almost two years, and it raised about $150 million for the 434-store supplement chain. A week before The Vitamin Shoppe’s better-than-expected opening day, a group of 20 smaller nutrition-related companies convened in San Francisco for the fifth meeting of the Nutrition Capital Network (NCN). The purpose of the gathering was to network with private-equity and strategic investors and hopefully wow them with their 10-minute business pitches. Just as The Vitamin Shoppe’s successful opening day showed that the overall IPO market is beginning to thaw, the NCN meeting proved that innovation within the nutrition industry remains strong and that investors continue to see opportunities in the growing health and wellness market.

Chaired by Grant Ferrier and Thomas Aarts (who founded Nutrition Business Journal in 1996), NCN was created to help grease the financing wheels for entrepreneurs and introduce investors to the next generation of successful brands in the nutrition, natural and organic, and green product industries. More than 80 companies applied to present at NCN V. Ranging in scale from startups to a $100 million brand, the 20 chosen represented successful and growing businesses in the food and beverage, food service, supplements and nutrition, and skincare categories. “The level of sophistication in early-stage companies continues to grow, but the passion and drive of the individuals behind them has not subsided,” said Ferrier, who is NCN’s CEO and co-chairman. “We saw that in the 20 companies that presented last week but also in the 80-odd that applied during this cycle.”

Each company that presented represented an innovative technology or tapped into a growing trend within the overall nutrition industry. Below are a few highlights:

Cambridge Theranostics: Based in the United Kingdom, Cambridge Theranostics sells a lycopene-based supplement called Ateronon that is backed by a wealth of compelling research showing its ability to inhibit the oxidation of LDL (bad) cholesterol (oxidized LDL is what triggers heart attacks and other cardiac events). Ateronon is currently sold in 75% of all UK retail pharmacies, and the company is looking for capital to fund its expansion into the United States, the Middle East and China. Cambridge Theranostics is focused on educating practitioners and pharmacists on the benefits of Ateronon so that they will recommend it for their patients and customers.

Dale and Thomas Popcorn: What was interesting about this company is how successful it has been with both its retail brand (Popcorn, Indiana) and its direct-to-consumer brand (Dale and Thomas) without having made any real investment in advertising. Popcorn, Indiana is now the No. 2 popcorn behind Smart Food, and its better-for-you popcorn is selling well in alternative retail chains such as Bed Bath & Beyond and Best Buy.

Freshology: This Burbank, California-based company sells fresh, gourmet, portion-controlled meals directly to consumers, with the goal of taking on companies such as Nutrisystem and Jenny Craig. Freshology is also launching a line of frozen foods next year, and its business model taps into the growing consumer demand for healthy, customized meal solutions. With a production facility at the Burbank Airport, Freshology is able to send its fresh meals all over the country, and I see potential for the company partnering with gyms, wellness clubs and weight-loss clinics to offer fresh, portion-controlled meal solutions to their members.

Froozer: This Lake Mary, Florida-based company’s pitch was certainly the wackiest—and the best tasting. Froozer President Arnold Zweben wheeled in this machine that looked like a frozen yogurt maker. Into the machine went a bunch of frozen fruits and vegetables and out came this cold puree that looked and tasted a lot like soft serve ice cream—only it contained no added sugar, dairy or other ingredients. The machine is called a Transmogrification Unit, and it transforms frozen fruits and vegetables into a whole food frozen confection in seconds. The company said it has done a bunch of focus group research with kids, who like the product because it tastes and looks like soft serve ice cream. Froozer has developed a production system that is able to produce push up pops or other frozen confections made entirely of whole fruits and vegetables. The one I tasted was made with strawberries, bananas, turnips, tomatoes and cucumbers. It was really good and was something my two young boys would have loved.

Herbs of Mexico: Founded in 1948, Herbs of Mexico operates one health and wellness retail store dedicated to the Hispanic community in East Los Angeles, with a second store opening soon. The company wants to open more stores for the growing Hispanic population, which tends to be heavy users of herbal products and other complementary and alternative (CAM) therapies. In fact, Martin Lopez, Herbs of Mexico’s managing owner, said 80% of Hispanics use herbal products and 60% view herbs as medicine. The company also has an e-commerce model and is focused on first expanding its retail locations throughout the Southwest, where it hopes to open 35 to 40 stores in the next five to seven years.

Heritage Foods: Heritage Foods was founded by Patrick Martins, who founded Slow Food USA (he’s sort of a celebrity in the slow foods movement). Through a successful Internet/mail-order catalog model, Heritage Foods sells ethically raised heritage meats (such as Berkshire pork and Bourbon Red turkeys). With all of the recent meat safety scares and the backlash against factory farms, Heritage Foods could represent the future of meat production in the United States—at least for the growing segment of consumers who care about where their meat comes from and how it was raised. The company doesn’t appear to be going after the organic label, but in some ways what it is doing could do more to influence consumer purchasing habits.

Related links:

The Missing Link: NCN Connects Firms, Investors in Nutrition Industry

With Sales Thriving, Vitamin Shoppe Parent Files for IPO

M&A and Investment Activity Slows for U.S. Nutrition Industry