What's up with Hain?

Is anyone here following Hain? The Hain board here says virtually nothing.

Here’s the MF article:
http://www.fool.com/investing/2016/08/16/hain-celestial-grou…

The stock tanked on the 16th, after Hain announced this (quoted from the TMF article):

"During the fourth quarter, the Company identified concessions that were granted to certain distributors in the United States. The Company is currently evaluating whether the revenue associated with those concessions was accounted for in the correct period and is also currently evaluating its internal control over financial reporting. The Audit Committee of the Company’s Board of Directors is conducting an independent review of these matters and has retained independent counsel to assist in that review.

“Previously, the Company has recognized revenue pertaining to the sale of its products to certain distributors at the time the products are shipped to such distributors. The Company is evaluating whether the revenue associated with the concessions granted to certain distributors should instead have been recognized at the time the products sell through its distributors to the end customers. The Company expects that any potential changes in the timing of the recognition of revenue with respect to these transactions should not impact the total amount of revenue ultimately recognized by the Company with respect to such distributors and does not reflect on the validity of the underlying transactions with respect to such distributors.”

The news feed is now full of announcements by law firms looking into a class action suit.

I’m not sure what they mean by concessions. Is it a cash rebate, an offer of extra merchandise for buying at least a certain amount, or something else, or maybe more than one thing? It seems like something that would be fairly standard in this line of business, and the problem is just the timing of when the revenue is recorded. I would think that a concession to a distributor would mean a reduction in revenue.

But I don’t know enough to say for sure. Could this be a real problem? Or just a minor error that will now be corrected?

Here’s the full press release:

http://ir.hain.com/phoenix.zhtml?c=87078&p=irol-newsArti…

The market sees it as a catastrophe, but I do not think it is.

It is certainly bad as you never want a company to delay earnings, especially because of an accounting problem, but this seems to be more of a timing issue on when revenue and concessions are recognized. It sounds like the concessions were all accounted, but maybe not in the correct quarter.

If you subscribe to Stock Advisor, there has been a thorough discussion.

It is certainly bad as you never want a company to delay earnings, especially because of an accounting problem, but this seems to be more of a timing issue on when revenue and concessions are recognized. It sounds like the concessions were all accounted, but maybe not in the correct quarter.

It may not be just a timing issue. Almost all business that sell through some distribution model will have some kind of rebate incentive program. Those rebates always have to be accrued in the period that the revenue if recognized so that part of the problem has to be understood.

A few possibilities, programs are being run that the accounting team is not aware of and they only book it after the fact?

The pressure to make numbers in one particular quarter caused accounting not to book certain accruals?

It is not just a timing issue as it opens up and questions a lot of internal control issues of why it happened and you have to look through other programs.

Then there is a possibility, somebody screwed up. Maybe the calculated that targets weren’t made and didn’t do an accrual that should have.

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Reading the press release (http://ir.hain.com/phoenix.zhtml?c=87078&p=irol-newsArti…)

During the fourth quarter, the Company identified concessions that were granted to certain distributors in the United States.

Previously, the Company has recognized revenue pertaining to the sale of its products to certain distributors at the time the products are shipped to such distributors. The Company is evaluating whether the revenue associated with the concessions granted to certain distributors should instead have been recognized at the time the products sell through its distributors to the end customers.

Now that I have read this, I am not so sure this has anything to do with rebate programs but an overall question about the correct point in time to recognize revenue. A concession could have been a rebate program but it may also have been certain commitments or promises made, officially or un-officially.

For example, the end customer wants the product in the end of July. The Distributor then wants the order delivered in mid-july in order to deliver it to the customer. The company wants the revenue in June in order to achieve quarterly revenue or somebody to make their internal sales targets.

In order to entice the distributor to pull in the orders, certain concessions are made to the distributor. Maybe they are told they can return the product if the end user delays or cancels, maybe they are told that they can take the order now but you don’t have to pay for it until 30 days after you deliver it to the end customer.

Either way, certain obligations were given that align to the timing of the Distributor selling the product to the End Customer. What ever the obligation, it seems to have raised the question of when you can recognize revenue.

The possible impact is that they have to defer all revenue that is still sitting with the Distributors in question until the time the Distributor sells the product to the End User.

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They were stuffing the channel which is the same as distorting the real sales. Sell the stock, and ask questions later…

How do you know they were stuffing the channel? Have they done this before?