How Hain Celestial's new CEO plans to take Terra chips, Sleepytime tea to the next level

From chicken nuggets to spices, cereal to chips, veteran food exec Wendy Davidson has done it all.

Now this CEO is tackling her biggest challenge yet — turning around flagging food and wellness company Hain Celestial (HAIN).

“Our goal now is to drive distribution everywhere the shoppers are shopping, where they would expect to find our products in the right pack size for that moment,” said Davidson.

The mother and marathoner, who took the helm at Hain’s in January 2023, outlined a plan last fall to drive long-term growth and shareholder returns. By fiscal 2027, she aims to deliver sustained revenue and profit growth with a reimagined end-to-end supply chain, modern digital infrastructure, and performance-driven culture.

However, skeptics on Wall Street are aplenty, after years of underperformance. Hain's shares have dropped more than 40% since the transformation strategy was announced, compared to the S&P 500's (^GSPC) 15% gain. The S&P Food & Beverage Select Industry Index is up 4% in the same time period.

The 'accidental executive'

“I said ‘I'm never gonna work in the meat industry and I'm never gonna live in Arkansas,’” Davidson recalled over a video call with Yahoo Finance.

The onetime aspiring lawyer got her start at her father’s workplace, Tyson Foods, taking a job to save money for law school. She ended up staying 17 years, mostly working in newly created roles that led to business expansion.

Eventually, she oversaw the company's prepared foods unit, which produced soups and sauces, pizza toppings, and crusts, among others.

She then left for spice company McCormick (MKC) before a seven-year stint at Kellogg’s, now known as Kellanova (K) and WK Kellogg (KLG).

There, she headed its Food Away from Home unit, where her team put brands like Rice Krispies and Eggo “within arm's reach of the consumer,” Davidson shared.

Mizuho Securities managing director John Baumgartner gave credit to Davidson for increasing distribution, branching out Kellogg’s products from grocery aisles “into universities ... [grades] K through 12, leisure and food service … that's her forte.”

Subsequently, Davidson served as president of Americas for Glanbia, an Irish dairy company known for brands like Think! and SlimFast, before taking the top gig at Hain, giving her a global business with multiple consumer categories.

“When I got the call for Hain, it was sort of the culmination of everything I've done,” she said.

Hain Celestial is entering 'prove it' mode

Davidson acknowledged that she "walked into" a company with a challenged balance sheet, a lack of integration across its portfolio, and limited distribution for its products.

Under Davidson’s predecessor, Mark Schiller, the company divested a number of brands between 2019 and 2022. The sales include Westbrae Natural, Orchard House, Danival, Casbah and Europe's Best Brands, Arrowhead Mills and SunSpire, Tilda, Hain Pure Protein, WestSoy, and Plainville Farms.

But Davidson rejects the notion that Hain needs to further slim its 37-product portfolio.

“Two-thirds of those [brands] are No. 1 or No. 2 in their category … Five categories is the focus, and that's a pretty simple operating mode,” she said. "There may be some shaping that we do within those five categories."

In early April, the company sold its Thinsters cookie business to J&J Snack Foods.

Hain Celestial, which went public in 1994, has seen its revenue decline each year since 2019. In 2023, total revenue dropped 5% to $1.8 billion. Margins have been under pressure too, with a net loss of $116.5 million last year compared to a net profit of $77.9 million in fiscal 2022.

For Q2 2024, the company posted lower-than-expected revenue, though earnings were in line with Wall Street estimates. As part of its turnaround plan, Hain plans to create $130 to $150 million in annualized savings by 2027 through restructuring.

Like many in the industry, Hain has been facing inflationary costs and supply chain issues. “This is a company that's trying to find its identity once again and at the same time … it's working to try and regain the trust of investors and analysts,” CFRA analyst Arun Sundaram told Yahoo Finance.

Investors are “reluctant to buy" into the company "before the proof is in the pudding and the results actually show up,” said Baumgartner. He also expressed concern that the company is focusing on distribution — going back to Davidson’s roots — instead of other areas like product innovation.

Davidson insisted that making Hain’s products more accessible is the way to go — but it will take time to see the results.

“Sometimes the market isn't as patient as we need them to be in a multiyear transformation,” Davidson said of Hain’s recent stock performance. “We will continue to deliver. Steady as she goes, progress made, progress needed.”

For Hain to turn around, getting snacks right will be the key. The category is “probably one of the highest-margin businesses," said Baumgartner, who is waiting to see if Hain would sell Terra Chips in single-serve packages at places like McDonald’s, Subway, or airport kiosks.

Davidson calls snacks one of the company’s greatest opportunities, and Hain can position itself as a healthier alternative with brands like Garden Veggie Straws and ParmaCrisps. She envisions distribution points like convenience stores, hotels, airports, and college campuses.

In January 2024, Hain added 10,000-plus convenience stores to its distribution.

"They want healthy, but it has to taste good and it has to be convenient and available," she said of customers. “You will see most of our growth coming from snacks and beverage over the foreseeable future."

As part of the transformation strategy, Davidson also aims to simplify the business, focus on five key markets (US, Canada, UK, Ireland, and Europe), and accelerate product innovation.

Earlier this year, the company launched Garden Veggie Flavor Burst, which Davidson said will “get a huge splash” in Q3 with promotional activity.

But the competition is fierce. Per Ken Research, the global snack food market is expected to grow at an annual rate of 9% and reach $334.58 billion by 2026.

Behemoths like PepsiCo (PEP) and Coca-Cola (KO) reeled in $91.47 billion and $45.75 billion in 2023 sales, respectively, with high margins to boot. PepsiCo saw its margins grow 12%, while Coca-Cola's jumped 25%.

"Some of these larger brands just suck out all the oxygen in the room," Baumgartner said, making it difficult for smaller brands to stand out.

Medium competitor J.M. Smucker (SJM) also saw its margins grow 9%, while revenue came in at $8.5 billion for 2023.

Analysts say more product innovation is needed. Hain Celestial’s brands “don't have as much recognition, or pricing power, or recognition amongst consumers,” thereby affecting their ability to charge a premium, Sundaram said.

The company is scheduled to deliver its fiscal 2024 Q3 earnings on May 8. Sundaram expects the company will show positive sales growth for the quarter and good momentum for the rest of 2024.

"I think they'll return back to positive sales growth, which will be the first time in several years that they're returning to positive sales growth," Sundaram said of the upcoming earnings.

“Fiscal 2024 is expected to be the foundation year for this long-term strategy that [Hain] laid out towards the end of last year."

Wall Street expects Q3 revenue for its North America and International businesses to grow by 3.13% and 1.63%, respectively. Total Q3 revenue is estimated to come in at $467 million, with adjusted earnings of $0.08.

But the pressure is on.

“Next year, fiscal 2025, will be the real decider on whether this is the right management team in place,” Sundaram said.

Leading with empathy

Longtime friends and colleagues believe Davidson knows how to engineer a comeback — and can do it again.

Kat Cole, president and COO of AG1, first met Davidson through the Women’s Foodservice Forum when the latter was still at Tyson.

“She's led these innovations within big companies. She's led her share of turnarounds,” said Cole. Companies making “better-for-you” products like Hain Celestial have to time their evolution to the changing tastes of their customers, added Cole.

"She is still the young, humble woman who went to Luther College in Iowa. She is a homespun, down-to-earth, very self-deprecating leader, very family focused,” said David Cooper, who worked with Davidson in the past as Bain's head of Americas consumer products practice.

At Hain, Davidson has leaned into “healthier working,” allowing most employees to work remotely while coming together two or three times a month in person. Davidson herself works remotely from Chicago, but travels to Hain's headquarters in Hoboken, N.J.

"We have been able to recruit some phenomenal talent,” said Davidson. “I want the very best people; I don't care where you live.”

In the last 12 months, job applications at Hain are up 300%, applications among women are up 500%, engagement scores have increased by 8%, and turnover is below industry average in the single digits.

Despite the challenges ahead of her, Davidson seems confident in her ability to push through. "I thrive in environments where I have authority, autonomy, and impact ... I want to be able to make the decisions, drive the decision making, and make an impact on the people around me and on the business,” she said. "I think like an entrepreneur and I want the autonomy to move fast like an entrepreneur."

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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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