The Road Ahead For Hain Investors 'Will Be Worse Than Many Expect'

Following an inkling from the SEC that an investigation into Hain Celestial Group Inc HAIN is on, Probes Reporter said it believes that the road ahead for investors in the shares of the company will be worse than many expect.

The Background

In mid-August, Hain Celestial said in an 8-K filing that it has unearthed some accounting issues with respect to the timing of revenue recognition. While looking into whether the revenue associated with the concessions granted to some distributors was accounted for in the correct period, the company also said it is evaluating its internal control and financial reporting. The matter was referred to the Audit Committee of its board for investigation.

Related Link: Jefferies Attempts To Frame The Risk To Hain Celestial From Accounting Issues

Consequently, the company sought a 15-day extension for the filing of Form 10-K and also indicated that it will not be in a position to release financial results until the completion of the review by the Audit Committee. However, since then, two months have elapsed without any further update from the company.

SEC Confirms Undisclosed Investigation

Probes Reporter believes the accounting issues won't be resolved near term, going by the confirmation it has received from the SEC on the undisclosed investigation. If the company comes out confirming it, the firm expects mass exodus by out of the shares by investors.

Given the fact that it has been two months since the company made revelations about the accounting issue and the matter is still unresolved, Probes Reporter believes the issue may be much more serious than what investors recognize and the company revealed. Investigations could now be long drawn.

Strong Fallout Expected

Probes Reporter also sees a hit to bottom line, as the company mends its way, giving up on it previously used accounting conventions and reins in its wayward ways. The firm also looked at the possibility of restatement, as restatement and revenue recognition issues are distant cousins.

The firm's assessment of the accounting issues suggests channel stuffing, offering its perishable commodity food items at a discount. Probes Reporter feels the company's contention that the timing of revenue recognition will not impact the total amount of revenue ultimately recognized is debatable.

At last check, Hain Celestial shares were down 0.25 percent at $35.41.

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