Hain Investigation Will, At A Minimum, Require Restatement

On February 10, the U.S. Securities and Exchange Commission initiated an investigation into the accounting practices at Hain Celestial Group Inc HAIN. “We expect that the investigation will, at a minimum, require Hain to issue restated financials,” Argus analysts said in a report.

The analysts downgraded the rating on the company from Buy to Hold. Investor sentiments have been positive after Hain said on November 16, 2016, that an independent auditor had completed an accounting review and had found no evidence of wrongdoing. The company has still not provided any information on its fourth-quarter 2016 earnings or an outlook for FY 2017.

Restatement Likely

"We believe that Hain’s current difficulties may reflect inadequate spending on accounting and IT systems, and that the cost of addressing these problems may pressure earnings in the coming quarters," Argus stated.

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Hain issued an earnings warning in August 2016. Citing this and the current financial and legal challenges, the analysts reduced the EPS estimates for FY 2016 and 2017 from $2.00 to $1.95 and from $2.30 to $2.10, respectively.

“If the SEC investigation finds no legal violations and 4Q16 revenue and earnings meet our expectations, we would consider an upgrade,” the analysts wrote. Meanwhile, they recommended SYSCO Corporation SYY, which delivered a quarterly beat, to investors interested in the consumer staples sector.