Good afternoon. My name is Misty, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Hain Celestial Third Quarter Fiscal Year 2012 Conference Call. [Operator Instructions] Thank you. Ms. Mary Anthes, Senior Vice President, Corporate Relations, you may begin your conference, ma'am.

Thank you, Misty. Good afternoon. Thank you all for joining us today and welcome to the review of our Third Quarter Fiscal Year 2012 results. We have several members of our management team here today to discuss the results: Irwin Simon, President and Chief Executive Officer; Ira Lamel, Executive Vice President and Chief Financial Officer; John Carroll, Executive Vice President and Chief Executive Officer, Hain Celestial United States; and Rob Burnett, Chief Executive Officer, Hain Daniels Group. Our discussion today will include forward-looking statements, which are current as of today's date. We do not undertake any obligation to update forward-looking statements, either as a result of new information, future events or otherwise. Our actual results may differ materially from those projected, and some of the factors which may cause results to differ are listed on our publicly-filed documents, including our 2011 Form 10-K filed with the SEC. This conference call is being webcast, and an archive of the webcast will be available on our website at www.hain-celestial.com under Investor Relations. [Operator Instructions] Now let me turn the call over to Irwin Simon, our President and Chief Executive Officer. Irwin?

Thank you, Mary, and good afternoon. I hope everybody had an opportunity to see our 2 press releases that we released today, one on our third quarter earnings and the second on an acquisition that we did in Ireland. I'm proud to sit here today and give you our earnings, which is a record for us, our highest sales ever in the history of Hain of 19 years, and our highest earnings. And I'm proud to be sitting here to do this. So our sales for the quarter, including our ICL business, which is our U.K. ready meals, which is complete -- our private label business, was $400.3 million versus $288.3 million a year ago. Without the ICL business, our business was up 31.5%. With the ICL business, our business was up 39%. So it's our first time ever doing over $400 million in sales in the quarter within Hain. Our gross margin for the quarter, 27.5 versus 28.6, and as we talked about it with our U.K. business, our margin's actually, considering commodity costs and everything, have done quite well. And John will take you through how these gross margins are up in his North American business. Our operating income, which gross margin and SG&A translates to, 41.1 on an adjusted basis versus 28.9, up 42% versus a year ago. EBITDA on an adjusted basis, $51 million versus $38.8 million, up 31.3%. Earnings per share adjusted $0.54 versus $0.36, up 50% versus a year ago. And Ira will take you through our share count, where our shares were up versus a year ago. So let's talk about the quarter, what happened. Our consumption is strong, and John will take you through consumption, up high single digits. Our overall organic growth is strong, and we're overlapping almost a 13%, 14%…

Thank you, Irwin. Good afternoon. For Hain Celestial U.S., Q3 was a strong quarter with accelerating momentum. We had many highlights in the quarter, starting with our 11% U.S. sales growth. This was 2 percentage points higher than our Q2 sales growth of 9%. It was driven by strong gains across all units, Grocery and Snacks, Personal Care and Celestial Seasonings. We also saw accelerating momentum in our Q3 consumption growth, which was up 9%, or again, 2 percentage points higher than the last quarter's growth. This was driven by gains across the portfolio, including 13 brands with double-digit or high single-digit increases. The difference between our consumption growth of 9% and our sales growth of 11% reflects additional growth from customers where we cannot measure their consumption, i.e. Amazon, Trader Joe's and others like that. Importantly, our U.S. grocery channel consumption was up 9% versus a year ago, marking 7 consecutive quarters of growth in this important channel. Also in Q3, our U.S. gross margin was up 20 bps despite absorbing over 5% in commodity and fuel-driven inflation. We were able to offset this inflation with productivity savings and our July 1 price increase. In addition, our Q3 G&A as a percent of sales was down 50 bps, reflecting a sales increase and headcount synergies from consolidating the Sensible Portions business into Melville. And finally, U.S. inventory was down $500,000 versus a year ago and Q2, while supporting the 11% sales growth. This increased U.S. inventory turns by 0.7 of a turn versus a year ago. By contrast, at the same time we were reducing our inventories, increasing turns with growing consumption, 5 U.S. CPG companies announced plans to slow production to realign their inventories with soft consumption. So Hain Celestial U.S. is clearly in a good space. Now…

Thanks, John. Good afternoon, everybody. As we said in our press release, we had a record quarter with our results, the highest in the company's history. Net income in the third quarter this year was a record $24.1 million compared to $16.8 million in last year's quarter. We earned a record $0.52 per diluted share on a GAAP basis this year compared to $0.38 per diluted share in last year's third quarter. Adjusted net income was $24.9 million compared to $16.2 million, improving by 53.6%. Adjusted earnings were $0.54 per diluted share compared to $0.36 per share in last year's quarter, improving by 50%. Our adjustments to net earnings from continuing operations include acquisition-related expenses of $515,000 and discrete tax adjustments for a reduction in tax reserves due to a lapse in the statute of limitations, offset by the tax effect of nondeductible acquisition-related expenses, which had a net effect of $358,000. The net adjustments total $835,000 or $0.02 per diluted share net. Net earnings from discontinued operations had no impact on earnings per share. We had 45,989,000 diluted shares outstanding in this year's quarter, up almost 2% over last year's shares in the third quarter. This increase in shares had a $0.02 impact on our per share earnings. Net sales from continuing operations in the third quarter were $379.4 million, an increase of 31.5% compared to $288.4 million last year. Sales from continuing operations include our recent acquisitions of Daniels Group and Europe's Best for the full quarter. Sales for the private label chilled ready meals unit amounting to $21 million in the quarter are not included in the reported net sales of $379 million. Considering the reclassification of sales, our total sales, as Irwin mentioned, came in within our expectations when we announced to you what our sales…

[Operator Instructions] Your first question comes from the line of Jessica Schmidt with JPMorgan.

So given the level of interest in organic and natural products that we're seeing right now, especially from the more mainstream retailers, it looks like there's a lot more opportunity for you to expand distribution into these channels. Can you just talk a little bit about how maybe you're better positioned than some of your competitors to do this? And as a follow-up to that, how will diversifying your channel mix impact your gross margin structure, if at all?

Well, I come back on one thing, Jessica. Number one, being one of the largest, if not the largest natural organic food and personal care company in the U.S. and not in the world, with the depth and breadth of products that we have, we ought to have #1 and #2 brands in about 15, 16 categories. So walking in today to any retailer and being the category manager, and being able to be that one-stop shop, allows us, I think, to have a leg up on most other companies that are in the category. Number two is you heard John talk about, from his standpoint, the infrastructure and sales organization that they put in place in North America. Very similar in Canada with Beena Goldenberg and her group. Now with the acquisition of Daniels, we have scale and we're working on some things in Europe. So with infrastructure and sales, we're walking into these accounts today, and we have the ability to be their leader and show them what's going on, and show them why it's important to be in the category. And in regards to gross margin, I come back and say this here, as sales increase with productivity, there's a lot of efficiency in shipping. You saw us drop FSIs this quarter that were dropped among all classes of trade. And I think we're continuously looking for our gross margin to continuously improve. And we're going to look to spend back on our brands because we think that will drive growth.

Your next question comes from the line of Scott Mushkin with Jefferies & Co.

North American operations, John and Irwin and teams seem to be really hitting on all cylinders. But we haven't seen an acquisition, I think, in a while. And I was wondering if this is on purpose or has it just not been the right asset? And then I have a follow-up.

So come back, Scott, listen. You heard what I said before. We had 15 brands up over 10%. We had another 5 or 6 up mid- to high-single digits. I mean, listen, we've got the secret sauce on the shelf today, and we have a lot of great products, a lot of great categories. We will buy if it's right for us, strategic, and we can really do something with it. We're not just going to do an acquisition for the sake of an acquisition. And I think there's a lot of growth in our current product lines and our brands. John, do you want to add...

Yes, the only other comment I'd make is there's also growth for us available from the acquisitions we've made in other parts of the world. And we've talked a lot about launching the new Covent Garden soup into the U.S., and we're pursuing that, as well as the -- some of the hot refrigerated desserts, hot eating desserts. So I think there's -- we'll find the acquisitions domestically, but also, we can leverage the ones we've done in other parts of the world.

Same with Europe's Best. I mean, good introduction, that's only in Canada today. So we're going to look how we become global brands, Scott, and what else we can do with acquisitions that we do in Europe or U.K. or Canada and bring here. But I will say this here, you heard what I said before, where our leverage is, we have tremendous opportunity and a tremendous balance sheet to go out there and do the right acquisition.

And then my follow-up question has to do with kind of you guys' bullishness about your current portfolio and your current business, because I actually feel the exact same way. If I look at -- when I was out at Expo West, I mean I looked at them like eating like an imagined soup with the Tetra Pak that you guys are rolling out versus the can. It seems to me that the Street's bullish too. I mean, how do you feel about where numbers have gone for '13? And is all this bullishness about the business and things going forward? Or are we getting too carried away or -- let me just leave it there.

So I like your words stupendous, Scott, but listen. At the end of the day, we never want to get ahead of ourselves, and arrogance and business just do not connect, okay? And if you come back and look at other conventional companies, they're doing a great job on their brands, but they're not getting growth, okay? The consumer speaks with their pocketbook. The consumer goes out and spends. And we saw a few weeks ago, one of the biggest preventions towards cancer is obesity. And we continuously just hear pink slime and GMOs and BPA. So the consumer will continue to buy healthier products. You saw our Whole Foods numbers yesterday and the growth going on within Whole Foods as the consumers are walking in and knowing they're going to get healthy products within that store. We know what we're seeing across growth in other grocery retailers. You heard John talk about his consumption numbers, and we have not seen these consumption numbers across supermarkets before. So Scott, to step back, I've said this before, we're in early innings. We have great brands, a perfect example is Earth's Best baby food. Baby rates are down, the overall baby food category is down and we're growing. So it has to be the category and the demand what consumers want. And I think there is a lot of leg room there to grow. The other thing is within Hain today, and we've seen a lot of companies that are a one-product company, we're not a one-product company. And we're going to have quarters where there are up and down in products, and a perfect example is this past winter. It was a damn warm winter and we saw -- still saw great growth on our tea business. Our soup business was up over 12%, our tea business was up 11%, and they're good growth numbers with a real warm winter out there. So the consumer is the one that's speaking.

Have you ever felt like the opportunities for the company were better than now? Or is that not the right way to put it?

Well, I'll say this here, Scott. When you put up the best quarter ever in the history of the company, both on top line and bottom line, as a team, we feel good, but we feel there's a lot of other great quarters in front of us to do the same.

Your next question comes from the line of Ed Aaron with RBC Capital Markets.

Actually, just to start with maybe a clarification on the top line. It looks like the revision is maybe a little bit more than what I would -- than I think -- that it looks like the divestiture would account for. Is that the only thing involved in the sales change? Or are there any assumptions to the underlying business in addition to that?

No, the only other addition to the sales line is the small amount we're going to get out of Cully & Sully. I don't think we should expect more than a couple of million in the quarter. We're only going to have 2 months of their sales. But that's it. We pulled out of the ready meals business, and of course, looked at what we think our growth is for the quarter with the new acquisition.

And don't forget, Ed, this being our smallest quarter within our 4 quarters.

Right. Okay. And then just, I guess, kind of bigger question I wanted to maybe ask you. I mean the group has been just pretty well bid of late and kind of valuations has expanded. And for your business, one of the nice offsets in a low evaluation environment is that you have more M&A opportunities. And I just -- I'm sure you're looking at a lot of different deals all the time. And I'm just wondering if you think that there are acquisition candidates out there that make sense at the right price. Or if in the world of M&A, if the expectations have just gotten too high?

Well, I think there's 2 things. I think there's a time you create and grow within. If you come back and look at our Greek Gods Yogurt, and we've taken that into multiple categories and we'll do that. And when we bought that, it was a $12 million business, and today, between U.S., Canada and ultimately going into U.K., that's on a run rate at least to the $100 million and then some. So we're going to buy where it makes sense. And I think as you come back and look at a recent natural organic food company that just went public and the multiple they are, I mean, we will not go out and pay those multiples for companies, and we'll not go out and do deals like that. But Cully & Sully is a prime example. Two entrepreneurs, it helps us get into Ireland. It's ready-to-eat soup, fresh soups, what the consumer wants today, fresh meals, what the consumer wants. It's branded. It has the opportunity to expand through Europe, U.K., and has the opportunity, along with new Covent Garden, to come here. So we love small deals, $20 million, $30 million, $40 million, $50 million, that we really can put our infrastructure, our creativity, our distribution behind, Ed, and take them to a whole other level. I mean, same with Sensible Portions. Since we acquired that, we've doubled that and then some. Our Personal Care products, and some of the things that we're seeing with Daniels are already happening within the U.K. So that's the type of deals we like. And we've looked at some major deals at major size that just didn't fit, and concern with ingredients, concern with packaging, and concern where we could take it to. So I'd rather pioneer a lot what we have today than go out and buy something that's just going to stifle our growth.

Your next question comes from the line of Amit Sharma with BMO Capital Markets.

First of all, can you tell us what Daniel contribution was during the quarter x the private label part?

From a sales...

Yes.

What the sales were, Daniels contribution, I'm going to say approximately about $50 million.

Sales-wise. Hold on, we're going to get that [indiscernible] somewhere specific.

And the other thing is, when you made the acquisition, based on our model, we were looking for sort of lower double-digit EBITDA margin. Now that this private label, low margin private label business goes away, how does it impact margin from the Daniel business?

It's -- the private label business had very low margins, so it's certainly going to help margins going forward. You heard or you saw in the press release, we had about $21 million of sales from that business into the discontinued operations for the quarter. That is about its run rate through the year. And it operates at a gross margin that's under double-digits. So it will be a help to our margins going forward.

Just on your question before. It was about $55 million that came from Daniels, excluding ICL. And that's the reason why we decided -- I mean, as we owned ICL and we looked in there, and we have 2 major customers in the U.K., and we looked at when to get pricing with commodity costs, and it's kind of like you got no brand. If you don't match our price, somebody else will. And that's what kind of made the decision that, hey, look what this would do for our margins. This is ultimately what could we add in value, and there's a lot of good private label ready-to-eat meals manufacturers in the U.K. that could bring a lot of innovation. And that was our reason for deciding to divest it. And we've been approached by interested parties.

Great. And switching on to North America, U.S., John, on your report. I mean, we've talked about distribution gains and how opportunity is there to gain distribution. But I want to focus on within -- once you get into the store, are we seeing organic and natural getting more assimilated into mainstream aisles or is it still in the corner of the store where you have all the products out there? So if you think like that, I mean, the fittening [ph] of assimilation in mainstream in the early stages?

Amit, this is John. You know what, we've talked about this before. It depends on the customer. There are some customers that are doing an unbelievable job with a dedicated natural set. I mean I don't know if anybody's doing much better than Kroger is doing with a dedicated natural set. There are other guys who are doing a nice job with it integrated into their conventional set. I think we'll see more movement towards integration in the conventional set. And that's why it's important that you have a #1 or #2 brand in each category, because there, you'll have enough movement to compete in a conventional set.

Your next question comes from the line of Greg Badishkanian with Citi.

This is actually Alvin Concepcion in for Greg. You mentioned the consumption trends were pretty strong despite the warm winter weather. How much do you think winter weather impacted consumption?

Listen, I think absolutely. I mean you've seen other soup companies, where their consumption numbers were down into the negative numbers. But cold winters, snowy winters and good flu seasons help sales. So I don't have an exact number to put on it, but we've seen in other years when it's been cold up there and last year, and we're climbing over some pretty good consumption growth last year, where it's worth a few points at least.

It also points out a way that Hain's differentiated from the conventional CPG companies because we still have -- no matter what the quarter is, we still have distribution whitespace that we can fill. And that gives you year-on-year comparability benefit that some of the conventional guys can't have because their distribution is basically everywhere.

And again, I mean, you're not only drinking tea because it's cold out or you're not only eating soup, soup is for cooking, soup is an appetizer, soup is a meal. So you're ultimately using it for multiple occasions.

So did you see any changes in that growth rate into April? And then secondly, I apologize if I missed this, but what was your organic sales growth in the quarter?

Well, you can figure out our organic sales growth by just taking out Daniels. But if you come back and look at April, April continued to be strong. In regards to our soup business, in the U.K., our soup business in the U.K. was up 20%. It was much colder in the U.K. in April than it was in March. So you're seeing high single-digit growth in the month of April, low double-digit.

Great. And then I just wonder if you could talk about the long-term opportunity in fresh soups in the U.S. with Cully & Sully.

Well, with new Covent Gardens and Cully & Sully, we've got a lot masters or soup brewers to help us here. We think there's a big opportunity. One of the things we want to make sure is we have the proper shelf life, the proper production. And what we're trying to do is something different, so we're excited about the opportunity for fresh, ready-to-eat soups here in the U.S. and Canada.

Your next question comes from the line of Andrew Wolf with BB&T Capital Markets.

Just wanted to check some math, I guess, with Ira. On the guidance, the sales guidance, if you were to add back the $80 million, $85 million or so for the divested business in the U.K., it looks like you get to, on a pro forma basis, 1.48 to 1.49. And I looked at your old guidance, so you basically, if I'm understanding it right, you're taking it up on the old basis, which included this business, to the high-end and a little above the prior guidance on sales. Just checking that out. And secondly, if that's accurate, and you're taking up earnings per share guidance, at the midpoint, maybe $0.10, what accounts for a disproportionate increase in the earnings guidance versus going to the high-end of pro forma sales guidance? It sounds like given what's going on in the U.S., maybe it's the U.S. profitability is greater than expected. But could you help me connect the dots on where the profitability beat is coming?

It is the U.S., Andy. It is overachieving what our original expectations were. And combined, even though the winter was warm, Daniels is overachieving what our expectations were. So we're reflecting that in our guidance. We don't expect accretion in the fourth quarter coming from Cully & Sully, so don't count that as a positive on the bottom line. So it is coming from that. And we're getting a little bit, I'm not going to suggest it's big, but a little bit because the mix of our earnings around the world is positive. And therefore, we're getting a little bit better tax rate.

And Andy, Canada is performing well, up double digits. Europe is a little flatter than we would -- than budgeted, but still growing 3%. But North America is where 70% of our sales are, and we're seeing strong growth. And like I said before, we like what we're seeing coming out of Daniels. And with the divestiture of ICL, we'll see margins and opportunities there improve.

Okay. I wanted to follow up on what I thought was a statement you made. I may have misheard it. Did you say that you're also taking an evaluation of the sandwich business in the U.K. as well?

We're looking at it. I mean, we've got a -- we're looking at the sandwich business as there is branded with Daily Bread. There are other products that are sold into food service. The combination of our sandwich business, our soup business, our juice business, our fruit business, makes a lot of sense. But we have so many opportunities coming at us, and there are so many growth areas. And there's a lot of additional acquisitions being presented to us in the U.K. If we can't get sandwiches moving in the right direction, it doesn't make sense for us to continue there. And that's something we'll evaluate.

Your next question comes from the line of Sean Naughton with Piper Jaffray.

Can you guys quantify the benefits, maybe by category, and the pricing mix and productivity that you had to help offset that 5.3% inflation I think you mentioned earlier, Ira? And then just secondly, can you talk about any of your expectations for inflation for the balance of the year?

I'm sorry, did you say inflation that you heard was 9?

It was 5. I'm not sure I heard you correctly. 5.3.

Yes, 5.3. We did get pricing, we probably got a couple of points of pricing consolidated throughout the world. Remember, when we take pricing, it's not on every product throughout our portfolio throughout the world. So there's a blend that takes it down to a couple of points. And I'm not sure I heard the rest of your question there.

Just on the other 2, mix and productivity, I think, were the other 2 portions of the offset .

Yes, productivity took us -- offset inflation by about 35% to 40% of that inflation. And mix helps a little bit, but almost immeasurable.

Got it. So [indiscernible] I think I got it. And then, Irwin, I think you mentioned that you haven't -- you've realized $1 million of synergies with the Daniels acquisition. So how should we think about the potential for synergies once it's fully integrated? And then can you talk about your European operating margins in the quarter?

So in regards to Daniels, the big synergies are coming from procurement and distributions and some people. With Fakenham, we're looking to bringing a lot of additional business in the dessert business there, which will -- a lot more efficiency and bring our margins up in that plant. So we're -- as I've said before, over the next 4 quarters, we're looking for -- and total was about $5 million, $6 million in synergies from the Daniels acquisition. And we should continue to see it over the next 3 to 4 quarters.

I just want to make one comment about what Irwin said about new business in Fakenham. It's an example of growth synergies that come from acquiring the business in a market that gives us scale. The sales opportunities that are coming into our Fakenham plant are the direct result of having brought on Daniels and their contact base, and our going into customers and showing them what our scale is as opposed to what we were before Daniels. That's a true growth synergy coming from that deal.

And the opportunities, on top of that, is with gluten free, with Snacks, a lot of our Hain products, and that's something else we'll continue to do. In regards to our European margins, Europe being a tough market, and we're looking at things in Europe. We have a business, Grains Noirs, over there that does fresh products. But from our Lima business, our Natumi business, our Hain business there, we've taken pricing and will continue to do. And we think there's continuously opportunity to improve our margins in Europe and to improve our cost structure there, where there's also going to be some synergies in Europe with the U.K. that we never had the opportunity before to do that.

[Operator Instructions] Your next question comes from the line of Amit Sharma with BMO Capital Markets.

Ira, can you give us the tax rate for the year?

I'm sorry. Amit, did you say tax rate?

Yes, please.

Yes, well, probably be somewhere in the 34% area.

At this time, there are no further questions.

Thank you very much. Thank you, everybody, for participating in today's call. It feels good here to report a record quarter. As I sit back and look, we have tremendous brands. We have many diversified brands. We are in a great growth category with tremendous upside within the category. From a team at Hain, our 4,000 employees around the world, we're all rowing together, we're all moving in the right direction. In regards to our customer base, on our consumer base, eating healthy is not a fad, not a trend. Looking at lower sodium, looking at GMO, looking at gluten free, looking at products with no parabens, no thalides in them. And Personal Care, looking at antibiotic-free chicken, knowing what pink slime is, understanding what nondairy products are, almond milk, rice milk, coconut milk, all these different blends are different snacks today, Terra Chips, Garden of Eatin'. One of our fastest-growing brands, Earth's Best, Celestial Seasonings. So we really have a great diversified portfolio of products, brands that the consumer wants. And it's the consumer that is really focused on eating healthy. In regards to retailers, our growth is among retailers that are growing, not retailers that are declining, and a perfect example is our growth within Whole Foods. And a lot of you have seen the growth that Whole Foods posted yesterday, that shows when consumers go in there, they know they're only getting natural organic products. As a company today, as a young company, we're focused on growing internationally. We think there's a great growth track internationally. I think what happened to a lot of companies, they felt they'd only grow in the U.S. When the U.S. stopped, there was no international market. Not that the U.S. for us, and we're in early innings, I always suggest in the U.S., but I think there is great growth opportunities. And I'm seeing this just with gluten free products today within the U.K. market. I'm seeing this with soup coming over from U.K. coming here. So there is cross-borders where we learn a lot from being in different countries and creating global brands. And the same thing with what we're seeing with our Asia business. So I feel good where Hain is going. I feel very good about what we delivered today. And with 2 months left in our fiscal 2013, it's to -- 2012, sorry, I'm putting a year ahead. It's amazing how quick the year has gone and it's great to see what we've been able to accomplish. So thank you so much for listening today, and we'll speak to you All soon. Thank you.

This concludes today's Hain Celestial Third Quarter Fiscal Year 2012 Earnings Conference Call. You may now disconnect.