Organic and natural products maker Hain Celestial Group Inc. has settled charges brought by the U.S. Securities and Exchange Commission over its revenue recognition practices, which had led to several quarters of delayed financial reports.
Hain violated books and records as well as accounting controls provisions of federal securities laws, the SEC said. The company had internal control failures and poor documentation because its end-of-quarter sales-incentives practices “were designed to help the company meet its internal sales targets,” the agency said in a press release Tuesday.
The SEC ordered Hain to cease and desist from further violations. Hain consented to the SEC’s order without admitting or denying the findings.
The SEC didn’t impose a monetary penalty on Hain, citing the company’s “extensive cooperation” with the investigation. Hain had self-reported the situation and made “significant changes” voluntarily, including hiring compliance staff and implementing changes to its revenue-recognition practices, the SEC said.
Representatives for Hain, whose brands including Celestial Seasonings tea, Earth’s Best baby food, Terra chips and Spectrum oils, didn’t immediately respond to requests for comment.
At the end of fiscal quarters, during a period spanning 2014 and 2016, Hain’s sales personnel offered incentives to its two largest distributors to purchase of inventory so that Hain would meet its sales targets, according to the SEC.
The incentives included the right to return products that spoiled or expired before they were sold to retailers, as well as cash incentives of up to $500,000, discounts and extended payment terms, the SEC said. Hain’s finance department wasn’t aware of the quarterly incentive practices until May 2016, the SEC said.
The SEC didn’t name the distributors in its release or the order, referring to them only as “Distributors 1 and 2.” About 30% of Hain’s net sales for its U.S. business segment from fiscal 2014 to fiscal 2016 were derived from the two distributors, the SEC order said.
According to Hain’s annual filings, distributor United Natural Foods Inc. as well as Walmart Inc. and its affiliates, Sam’s Club and ASDA, each account for more than 10% of sales.
“We were cleared of any implication in this matter,” an UNFI spokesman said in an email Tuesday.
In February 2017, Hain disclosed that it was being investigated by the SEC into whether revenue from certain U.S. distributors was recorded in the correct period. Hain had been recognizing revenue when products were shipped to distributors rather than when the products were sold through its distributors to customers.
The Lake Success, N.Y.-based company voluntarily notified the SEC in August 2016 that it was delaying the release of its financial results.
In June 2017, Hain released the delayed financial reports for fiscal 2016, ended June 30, 2016, as well as the financial reports for the quarters that ended Sept. 30, 2016; Dec. 31, 2016; and March 31, 2017.
In October 2018, Hain announced Mark Schiller will replace founder Irwin Simon as chief executive. Mr. Schiller started as Hain’s chief on Nov. 5 and was most recently chief commercial officer for Pinnacle Foods Inc.
Hain shares were up 0.5% on Tuesday to $19.28. The stock is down nearly 55% year to date.
Market Watch | December 11, 2018