The Hain Celestial Group, Inc. (HAIN) Q1 2014 Earnings Report, Transcript and Summary

Good afternoon. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hain Celestial First Quarter Fiscal Year 2014 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mary Anthes, Senior Vice President of Corporate Relations. Please go ahead.

Good afternoon, Stephanie, and thank you, all, for joining us today. Welcome to Hain Celestial's First Quarter Fiscal Year 2014 Earnings Call. We have several members of our management team with us today to discuss our results: Irwin Simon, our Founder, President and Chief Executive Officer; Stephen Smith, our Executive Vice President and Chief Financial Officer; and John Carroll, our Executive Vice President and Chief Executive Officer, Hain Celestial U.S. 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 in our publicly filed documents, including our 2013 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.com under Investor Relations. Our call will last approximately 1 hour. [Operator Instructions] Now let me turn the call over to Irwin Simon, our Founder, President and Chief Executive Officer. Irwin?

Thank you, Mary, and good afternoon, everybody, and thank you for joining our Q1 overview of our quarter. I'll begin with a brief overview of the first quarter results, as well as an update on our strategic initiatives. As we approach our 20th anniversary as a public company later this month, you'll see through the strength of our financial results, as I always said, eating healthy is not a fad, not a trend, and it's definitely here to stay. It has become a major part of all of our lives, and it will continue to grow. These positive industry trends across the organic and natural industry help us report a record first quarter as we've achieved robust growth globally from numerous brands across our portfolio. We're very pleased to start our fiscal year off with such strong momentum. We feel good that this will continue throughout fiscal 2014. This was our largest first quarter ever in the company's history with $477.5 million of net sales, up 33%, 11 consecutive quarters of double-digit adjusted EPS growth. With thanks to John and his team, Hain Celestial U.S. net sales were up a record $312 million, up 24%. Rob and his team at Hain Daniels generated net sales of $114 million with growth across numerous brands, and the Rest of the World reported net sales of $51.5 million with good organic growth. Now I'll briefly discuss the key drivers that led to our impressive sales performance. Our organic growth was up high single digits, excluding currency. A record first quarter was driven by new distribution, new products and strong consumer demand. We know that there are many consumers in the U.S. and abroad that are still facing challenging economic times, but our strong sales momentum and consumption trends illustrate to us that one area consumers are spending money on is organic and natural packaged foods and personal care items. We're continuing see a trend of eating more and more at home, where you can control what you eat; and remember, you are what you eat. In addition, while I know I've mentioned this before, I think it's important to reiterate that over 90% of Americans have purchased organic or natural products. Yet only 25% of those purchase Hain products according to Nielsen. So while we've come a long way, there truly is a strong opportunity for increased growth across many channels, which gives us the ability to bring in new consumers and introduce our existing consumers to many new Hain products. Wherever there is food, beverage or personal care products, I want to sell a Hain product. Most recently, in the latest 12-week period, our consumption measured by Nielsen in the U.S. was up 11.1% and up 23% on a 2-year stack basis. What other consumer packaged good company today is delivering those numbers? We're pleased that organic and natural sales are helping to fuel the growth in AOC. The total channel grew 1% in the latest 12 weeks. Organic natural products, once again, are outpacing conventional products, growth at almost 10x conventional products. Interesting, the CEO of one of our major customers recently mentioned in a CNBC interview that years ago, he used to think about natural organic products as being a fad, but firmly believes it's here to stay, since consumers today want to be healthier and will be a big part of this retailer's growth. After 20 years of increasing consumer demand and sell-through organic and natural products and personal care products are definitely here to stay, and we are showing the results of that today. In addition, I have mentioned before, I'm very excited about BluePrint, a nationally recognized leader in cold-pressed juice and one of the first brands in the juicing category. This is literally a hot category, where we can gain tremendous distribution. And most recently, we have gained a few strong grocery wins for the brand and geographically across the U.S. Based on the early success of BluePrint since we acquired it last year, we increasingly believe BluePrint can be Hain's lifestyle brand. And we look to expand this brand into numerous other categories. In the U.K., Rob and his team made great progress to report a solid first quarter versus a year ago. In the quarter, we further executed on our strategy to drive higher-margin branded growth, the integration of our ambient grocery brands and the elimination of certain unprofitable private label and branded product sales, as we had previously discussed. Hartley's, Robertson, Sun-Pat and Gale's have now been part of our portfolio for just over a year. There's a lot of positive momentum around these brands in gaining distribution and a lot of new innovation that will be introduced over the next few months. We're also pleased to have won back some new business with Tesco Value Jam business, and we've recently signed a 5-year agreement to provide Sainsbury an extensive range of chilled desserts. I recently was at the new opening of this plant in Fakenham; and today, Sainsbury is one of our top 5 customers at Hain. As we mentioned before, importantly in the U.K., we've regained our soup listing at Tesco. This product began to ship in the middle of October. And together, we have agreed on an extensive business plan to grow the soup category with a lot of new products and a lot of new packaging. We are certainly improving the financial metrics in the U.K. business to make sure that we're increasingly well positioned for accelerating sales and long-term growth. In addition, as I said before, and one of the reasons for ambient business is to expand a lot of our U.S. brands, including Rice Dream, which we have there today; Greek Gods, which we have there today. We'll look to introduce Celestial Seasonings [ph] in a big way and a lot of gluten-free products and snacks with the free-from. We today have the #1 organic baby food product -- baby food company in the U.K. and parts of Europe. We recently have been named the #2 fastest-growing food company in the U.K., with Ella's last year growth coming at extreme numbers. And Ella's has been launched in major U.S. mass retailers with over 4,000 stores, which started to ship late September. We're also rolling out Ella's Kitchen into natural food stores in Continental Europe with a European sales team. Also there's a lot going on to do with Europe in our nondairy business. Specifically, we invested in a new nondairy facility in Cologne, Germany that opened up in May. This will help us further expand our nondairy business in the U.K. and across Europe. For example, we plan to roll out numerous coconut milks, nut milk blends, almond milks, rice milks under the Dream brand today, which is one of our strongest global brands across the world. We're pretty excited about it because we also have the ability to leverage this facility and expand our aseptic soup category across the U.K. and Europe. We continue to be focused on the consolidation of our sales organizations in the U.K. and Europe. We will focus on selling into natural food stores and supermarkets like we've done here in the U.S. Our Hain pure-protein business joint venture continues to do extremely well. Sales were up 19% in the first quarter. Consumers are increasingly looking for antibiotic-free and organic protein as consumers look to reduce their red meat intake and are eating more and more protein at home. With Thanksgiving fast approach us -- fast approaching us, don't forget to order your organic or antibiotic-free turkey. We will sell over 1.3 million turkeys during the Thanksgiving holiday. To wrap up on our brand performance, specifically in the quarter, our brand performance was strong. We had 15 brands up double digits, 4 up high single digits and 5 up in low single digits. Remember, our top 20 brands make up over 20% of our -- make up over 70% of our sales. Our strong brand contribution drove a record adjusted earnings per diluted share of $0.52 versus $0.41 a year ago, which is up over 20 -- up 27%. Touching on the specifics of this, Steve will do in a few minutes. In addition, we're still in the early process of reintegration of our 3 acquisitions completed in fiscal 2013. We continue to expect incremental synergy savings accretions and future growth, and there's still plenty of accretive acquisition and opportunities out there for us to do. Our balance sheet continues to provide us with the financial flexibility to pursue strategic acquisitions. Over the course of the year, you heard us talk about our productivity savings. We expect to generate $50 million in productivity savings worldwide for fiscal 2014 with the help of Jim Meiers and his team. This comes on top of the $30 million in productivity savings we generated last fiscal year. You heard me talk about our global supply team, and tremendous what they would allow us to source today globally around the world. And sourcing GMO organic products has become more and more difficult. But this team seems to be able to do it. We will continue to invest to support the growth of our brands across the world. As I've said before, we look to build global brands. Our team will continue to go after distribution whitespace, which is still available to us across our brands and channels. We really feel there's still exciting opportunities for increased sales in various channels of distribution over the next several years. So really, it is a fun time to be part of Hain with all our future growth. I want to take this moment to congratulate our team worldwide, and I mean we really have a strong team, for their hard work, dedication and officially welcome Steve as our new CFO. In September, it was pretty exciting for Hain to be recognized by Fortune as one of the 100 Fastest-Growing Companies. Specifically, we're #83. Watch out #1, because we're coming after it. So what is Hain today? Back when I started the company with my background being in consumer packaged goods, I looked at what was available in the food business and personal care business at the time. Ingredients have changed. The way we eat has changed, and it will continue to change; and Hain is well positioned. But the strategy was to create the leading organic and natural company in North America, and now we are that. So we continue to be optimistic about the organic and natural industry. We believe these trends, combined with the consistent strength of our core Hain U.S. business, as well as our prospects in U.K., Europe and Canada, support our strong outlook for future growth. And with that overview, I will now turn the call over to John, then Steve, who will make his debut today on our earnings call with a review of our key financial metrics and our guidance. Finally, I will provide you with some closing comments. John?

Thank you, Irwin. Good afternoon. Q1 was a very strong quarter for Hain Celestial U.S. Key highlights from the quarter included, as Irwin said, Q1 net sales of $312 million, which were up 24% versus year ago. But importantly, our net sales growth reflected a robust 9% growth from our core business, as well as strong performance from our 2 acquisitions: BluePrint and Ella's Kitchen. Our latest 12-week Nielsen all-outlet combined consumption growth, which was for the period ending October 26, was 11.1% which, as Irwin said, is more than 10x that of the AOC total channel growth of 1%. Our growth was achieved even as we lapped double-digit year-ago comp, resulting in a 2-year stack consumption growth of 23%. Here in the U.S., these results were driven by gains across the portfolio, including 14 brands with double or high single-digit increases. Now we leveraged our Q1 top line growth across the middle of the P&L so we could increase our operating income by 46 -- to $46.4 million, which was up 27% versus year ago. And our Q1 operating income margin was 14.9%, up 40 bps versus year ago. We offset over $6 million in inflation, improved mix, productivity and SG&A savings. And these are the headcount -- head-related SG&A savings to expand our operating margins. Now on our Q4 call, we talked about 5 key factors that made us optimistic about our FY '14 outlook. These 5 factors were: our consumption trends, our AOC distribution growth, our innovation, our productivity and our most recent acquisitions. Our Q1 results showed strong momentum across these businesses and across these key 5 factors here. So let's just take a look at them, starting first with our continued U.S. consumption momentum. Q1 was our 15th consecutive quarter of strong consumption growth. Importantly, our latest 12-week AOC year-ago comp was a double-digit growth quarter, and we still drove strong consumption gains. Remember, we don't run a business that is one-brand dominated or 2- or 3-brand dominated. We have 20 plus brands, and we still drove consumption growth 10x the category average. Our second key factor is our AOC distribution growth. Our top 13 brands, which account for over 80% of our AOC sales, saw distribution gains of 6% in Q1 versus year ago. We continue to fill in the distribution whitespace on our key brands and at our key customers. Brands experiencing strong distribution growth this quarter included The Greek Gods, Sensible Portions, Dream, MaraNatha, Garden of Eatin', Alba Botanica and Ella's Kitchen. The third factor fueling our optimism is our strong innovation results. Our FY '13 new product sales were up 36% versus year ago. This year's new product queue is just as strong, if not stronger, than what we have last year; and we expect to have over 50 new products launched before January 1. Importantly, we're seeing our innovation positively impact our consumption growth across all channels, not just in the natural channel. More and more conventional retailers are recognizing the importance of innovation and driving organic and natural sales, and they're increasing their speed-to-shelf execution on new organic and natural products. The fourth factor is our productivity program. As -- if you recall, Jim Meiers mentioned at our Analyst Day that almond and dairy pricing, and these are 2 of our leading commodities, was up significantly in Q1 versus year ago. When we announced price increases in Q4 on these products -- on the products affected by these higher commodity costs, these price increases yielded little relief [ph] in Q1. Key offsetting these cost increases was our productivity program and our SG&A savings. Q1 productivity savings were over $5 million. We realized significant productivity gains from increased efficiencies at our new snacks plant in Lancaster, Pennsylvania; internal production of Earth's Best pouches and hopefully soon, Ella's Kitchen pouches; and value engineering with raw material. The final key factor driving our optimism is our latest acquisitions' performance. Q1 saw our BluePrint and Ella's Kitchen acquisitions combined to meet both their top and bottom line budgets. Importantly, both businesses had strong consumption growth and expanded distribution. Ella's Kitchen, as Irwin mentioned, launched into a large U.S. mass merchandiser and a leading toy retailer, while BluePrint expanded distribution into test markets at some leading grocery accounts. Additionally, both businesses have accelerated development of their innovation queues, implemented productivity initiatives, contributed to our Q1 SG&A synergy savings, in part by moving on to the U.S. IT platform within 4 months of their acquisition. So to close, Q1 was a strong quarter for the U.S., highlighted by 24% top line growth, which included a robust 9% sales growth on our core businesses x acquisitions. We also had strong AOC consumption growth, highlighted by 2-year 23% stack comp, a 27% gain in operating income versus year ago and a 40 bps increase in operating income margin versus year ago. And we are optimistic about our go-forward prospects, given our strong consumption trends, our growing AOC distribution base, our innovation pipeline, our productivity function and our BluePrint and Ella's Kitchen acquisitions. Now I'll turn the call over to Steve Smith.

Thank you, John, and good afternoon, everyone. I'm excited to be joining you for my first earnings call at Hain. I appreciate all the congratulatory notes and well wishes sent to me. We have a great team here, and I am fortunate to be a part of this wonderful organization. I'm going to take you through the financial highlights of the first quarter, and then we'll have a few comments on guidance. Income from continuing operations in the first quarter this year was $27.7 million compared to $19.8 million from last year's first quarter. We earned $0.57 per diluted share from continuing operations on a GAAP basis, an increase of 36% when compared to $0.42 per diluted share last year. Adjusted income from continuing operations was $25.3 million this year compared to $19.2 million last year, improving by 32%. Our adjusted earnings from continuing operations was $0.52 per diluted share compared to $0.41 in last year's quarter, improving by 27%. Our adjustments to operating income of $3.2 million are principally from acquisition-related fees and expenses, including integration and restructuring charges. We also adjusted out for net unrealized foreign currency gains of approximately $2.3 million, principally on the translation of British pound sterling receivables related to our U.K. business. Our tax provision in the quarter this year was reduced by $3.2 million from a net discrete tax benefit principally for enacted tax rate reductions in the U.K. Turning to gross profit. Gross profit in the first quarter on a GAAP basis was 24.9% of net sales this year. On an adjusted basis, it was 25.1%. As mentioned during our Analyst Day, our expected decline in gross margin percentage in the quarter is mainly driven by the following: first, the impact from weighting of our acquisitions where our U.K. business was 24% of our net sales as compared to 16% in the prior year period; secondly, the sales mix for the quarter across all of our businesses; and third, the ramping up of the Sainsbury's dessert business. Further, the gross profit was impacted by input cost inflation amounting to approximately 3.4% in the first quarter this year, as measured against the first quarter last year, partially offset by some productivity initiatives and price increases that John talked about a few minutes ago. Our SG&A for the quarter, excluding acquisition-related expenses, integration and restructuring costs, was 15.4% of net sales as compared to 16.6% last year. Although SG&A expenses grew by 23% year-over-year, our rate of spend declined in the quarter, mainly from the aggregate impact of our acquisitions, as we achieved additional operating leverage on our infrastructure as a result of higher sales volume. Operating income for the quarter was $39.8 million or 8.3% of net sales on a GAAP basis. Operating income in the quarter was impacted by acquisition-related expenses and other charges when compared to last year. On an adjusted basis, operating income was 9% of sales at $43 million, increasing 31% from 31 -- from 32.9% -- from $32.9 million last year or 9.1% of net sales. Our effective income tax rate from continuing operations was 24.4% for the first quarter this year compared to 27.7% last year. And this reflected the discrete tax benefits recorded in the quarter. Our adjusted effective income tax rate from continuing operations was 33.1% of pretax income compared to 33.6% last year. Depreciation and amortization for this year's quarter was $10.5 million compared to $8 million in the prior year. The increase was primarily the capital spend in the prior year and the acquisitions. The stock compensation in the quarter was $3.2 million compared to $2.9 million last year. Our balance sheet continues to be very strong. Our working capital is $327 million with a current ratio of 2.1:1 at September 30. Stockholders' equity was $1.28 billion, our debt as a percentage of equity is at 51%, and debt to total capitalization is now at 34%. Total debt at the end of the quarter was $653 million and declined by $13.4 million in the quarter. Cash balance was $65 million, increasing about $24 million from year end. For the first quarter, operating free cash flow increased by 120% to $41.3 million this year as compared to $19 million for the prior year period, and the increase is coming from our improved earnings and better working capital management. And our cash conversion cycle improved 3 days down to 63 days. Turning to guidance. We reconfirm our guidance with net sales for the full fiscal year of 2014 expected to be in the range of $2,025,000,000 to $2,050,000,000. We anticipate earnings per diluted share from continuing operations for the first half will now be at $1.37 to $1.42 per share. In the year, it's still at $2.95 to $3.05. Some of the significant estimates we used in arriving at guidance include the gross margin estimate for the year, which is expected to be in the range of 28% to 28.2%. Our SG&A run rate, which includes amortization of acquired intangibles, and that's estimated at 16.25% to 16.35%. And the annual tax rate is estimated at 33.3%. And the last major assumption in our guidance is that share count will be 49.5 million shares for the year, and our estimates do not include any results of discontinued operations, restructurings or acquisition activity. And at this point, I'll turn it back to Irwin.

Thank you, Steve, and congratulations on your first call. I hope there's many, many more. Hello?

We're ready to take the questions.

[Operator Instructions] Your first question comes from the line of Greg Badishkanian with Citigroup.

I just wanted to follow up on 1 or 2 things. First, the 11% ACNielsen growth, how did your other channels do and how was Europe?

Go ahead, John.

In the -- Greg, this is John Carroll. In the U.S., we saw high single-digit growth in our natural side, and we also saw high single-digit growth in our e-tailers. Those are the 2 pieces that really aren't picked up very well by the Nielsen AOC.

Right, right.

And then Europe?

In regards to Europe, our main brands in Europe, Greg, were up mid-single digits. But I don't really have Nielsen's -- it's tracked differently over there. But actually, our soup numbers x Tesco have come back nicely. And we're in the midst of some transition with our Hartley's business and actually, Hartley's is flat considering what we discontinued. So I like what I see in Europe. I -- we're seeing some good things happening with Danival and Lima and our Rice Dream brand. In Canada, our brands were up mid-single digits. Our Europe's Best business, which is our frozen vegetable business and fruit business, was down; and that was self-inflicted because we got rid of some unprofitable business in Canada.

Right. So in Europe, would you say that of the businesses that you didn't touch, cut unprofitable business, which obviously makes sense, but of the ones that maybe you didn't touch you're seeing, is it mid-single-digit? Or would it be a little bit higher than that?

Both Danival, Lima and our nondairy business were up actually high-single digits.

Okay, good. Also just wanted to follow up on the BluePrint, what other types of categories were you thinking of getting into for that brand? Or if you can't say, just kind of generally where in the supermarket?

Listen, when we acquired BluePrint. We looked at it, number one, as a great category for the whole juice category, fresh, fresh juice. We think, number one, as a cleanse, as a juice, as a meal replacement but -- with the other categories. So there's a snacking category, other fresh products and spreads. The other thing is, Greg, we think some personal care products, there's some big opportunities. So it really is a lifestyle brand. And with our consumer base and what we see from a pricing standpoint, there's that resilience on paying anywhere from $6 to $11 for juice. So there's opportunity to sell products and get some good pricing for it. So we see it across many, many categories for us.

Your next question comes from the line of Bill Chappell with SunTrust.

This is Sarah Miller on for Bill. A couple questions from me. What -- I guess, for Steve, what -- can you kind of talk about what makes you more optimistic on 2Q, whether it's gross margin outlook, capturing some more synergies or on Ella's side or earlier-than-expected cost savings? Can you kind of talk about why you're seeing that shift and kind of frame the gross margin outlook for the balance of the year?

Sure. Well, with respect to Q2, so far, we continue to be encouraged by the sales so far in the quarter. We have good consumption numbers, which will continue to help productivity, which will drive gross margin. The seasonality of our business will be kicking in, both in terms of volume and the mix of the product. We have some of our product lines more geared towards the second and third quarter of our fiscal year. As John mentioned, the pricing actions that we've taken at the beginning of the year will begin to be more fully realized. All of our productivity initiatives are on track, and we'll start to get favorability on certain commodities that we buy. And the forecast that we're getting in from our business units continue to be robust. And one thing that -- 2 other comments that I want to make is that our operating margins are particularly strong both in the first quarter and going forward. And despite the gross margin compression that we experienced in the Q1, our operating margins are essentially flat to prior year, and that's a function of leverage, managing our costs while reinvesting in our business and the mix and seasonality. So we continue to feel good about our gross margins and seeing our gross margins playing out similar to last year, where margins improved over the course of the year.

And Sarah, the second quarter, being one of our -- it's our biggest quarter in mix and soups. In the middle of October, we started to ship our soups to Tesco. It's a big quarter for us in tea. It's a big quarter for us in hot soups in the U.S., in cereals. So just from a sales standpoint, it is one of our strongest quarters. And I think I did mention in my notes, we saw October sales to be quite strong and continue that. So we feel good, and it's consistent throughout other years, in fiscal '13, fiscal '12, where we see a lot of our margin coming from the back half.

Okay, perfect. And then one other question on commodity outlook. I understand that most of the almond pricing should be locked in by now. Is that correct? And do you kind of have full visibility on the back half of the year?

We are locked in through our third quarter, and we're still searching for our right price and the right quality for our fourth quarter on almonds.

It's price and supply because of demand. I mean, today, everything that we can get, we're selling on all our nut butter business and the same with almond milk. So almonds today, and the crop being small, and some -- Asia came in and bought a lot of crop. But we have, as John said, bought out until the third quarter. And -- but as you heard me say in my comments, today we have a global sourcing team that is sourcing all over the world and looking at almonds and where we're getting at the right price, where we're getting at the right size, and we buy a lot of different types of almonds. So that's what's important, too. But on the other hand, there's other commodities going down and we're looking for benefit for that, and fuel prices happen to be at 5-month low. So some things go up, and some things go down.

Your next question comes from the line of Ken Goldman with JPMorgan. Kenneth Goldman - JP Morgan Chase & Co, Research Division: Steve, just to confirm, your EPS guidance of $2.95 to $3.05, that considers 1Q to be $0.52 not $0.57, correct?

Right, correct. Kenneth Goldman - JP Morgan Chase & Co, Research Division: Irwin, I think most -- Irwin, I think most observers expected sales in the U.S. to be a bit less than what you reported and vice versa in the U.K., and it's, I guess, our misjudgment. You never actually gave guidance. But how should we think about the progression of sales growth, segment by segment, going forward? Was there anything unusual in the first quarter, for example, that may have driven U.S. sales growth faster than what 2Q might see and the opposite in the U.K.? I'm just trying to get some sense of how the cadence will be there. Because it was a little more difficult to model, I think, in the first quarter than what some of us expected.

I think, listen, and again, benefits where we saw some extreme growth from some of our snack business. In the U.K., some of our fruit and juice business, we saw some good sales on that. Our nondairy business, which -- even with our startup in demand. So it was across multiple categories, Ken. And if it was a few million here, that's what adds up. But it was just strong sales, strong demand. And as I said before, we've seen that continue into October. In the quarter, Sensible Portions had a great quarter. Our Garden of Eatin' had a good quarter. Our Earth's Best, one of our strongest quarters, and that is some new distribution going on at Target. So it was across a lot of different businesses. You heard what I said. It's 15 brands up double-digit numbers here, Ken. And we also -- to keep up with our demands, we still got some out of stocks on our nut butters and chia seed and making some product there. So -- and again, you heard what John said on consumption numbers, which will come out tomorrow, Ken, some strong retail consumption numbers out there.

In addition, Ken, in the U.K., there's a few different things that will help boost up sales over the course of the year. Obviously, as the Sainsbury desserts line business fully ramps up, that will benefit us over the course of the year. There's a lot of innovation that's coming at out of the Premier acquisition.

And there's just timing rollout -- timing on that, Ken. So -- but just on our branded business, I mean, 15 brands being up double digits, that's a good strong indication. Kenneth Goldman - JP Morgan Chase & Co, Research Division: But it seems that you've had to have had an acceleration, Irwin, to get -- I mean, your 2-year stack number in terms of growth in the U.S. was up 32%, and that's a big acceleration from the fourth quarter. So would you see an acceleration, a significant one, across the board? Or was there maybe some distribution gains you've got for Ella's Kitchen and Greek Gods? How do we think about all that?

Well, not Ella's Kitchen. They would -- you wouldn't see Ella's Kitchen yet but Greek Gods...

Yes, yes, and I think there's a key piece of this was The Greek Gods got a significant increase in its distribution. And it's -- and also, we saw Sensible Portions, not only get an increase in its distribution, but also fill out 2 shelves as opposed to 1...

In mass market.

In mass market. So these are some of the things we talked about in our Analyst Day. Those are -- those definitely accelerated our growth. But importantly, those are also going to stay with us for a period -- for a longer period of time because they're ongoing.

And Ken, what you're seeing today is, especially Sensible Portions, where it was not sold in grocery before. It was not sold, and John said, the second shelf of Walmart. The significant growth on Greek Gods Yogurt and its new Kefir products, and that's the whole thing with distribution whitespace. It's closing in on distribution here. The other significant thing is baby formula going into a lot more retails with the price that it is. Pouches, being a big part of our growth, where pouches today are $1.69, $1.79; where jars were $0.99. So you're seeing some price shifting also, Ken, of some higher-priced products out there.

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

Steve, did I calculate it right? You new first half guidance implies that your second quarter guidance remains unchanged from what you gave at the Analyst Day, right?

Basically, yes, we narrowed the range and raised the upper end of the range by...

Okay. So despite some of the positive things that you and John talked about, the second quarter guidance at this point remains unchanged, okay. The other thing is, when you were talking about Europe, Irwin, and Greg asked a question about what's happening and when you talk about the nondairy, you listed nut milk and other milk. Are we looking to stay in the float [ph] side of the business or perhaps there's opportunity on the yogurt or nondairy dessert or other categories as well?

Amit, I'm sorry. I'm not -- you said the slow side of...

Under the nondairy business in Europe that you were talking about.

Yes.

So you talked about fluid milk, so coconut milk or other nut milk.

Yes. Yes, I understand you now. I -- so we have opened up in May a new nondairy plant in Cologne -- outside of Cologne, Germany that makes all these nondairy aseptic milks and will also make nondairy aseptic soups. Our plan is to roll out nondairy products, plant-based products, all across U.K. and throughout Europe today that we have capacity to do that. So there is a big push on aseptic, not fresh. Now because of our fresh abilities, we will look to go into fresh, similar to what Silk does, maybe coconut milk, almond milk in the U.K. and put it through the Daniels distribution system.

Got it. That makes sense.

But we're not at all talking about regular milk.

No, I understand. I -- that's clear. And then the BluePrint, the new category, then the segments you're talking about, is that a 6-month type of time frame we should think about or is it longer?

It's 6 to 9 months, and there's a lot of product development because you're dealing with raw products, their shelf life stability testing. We've launched some new BluePrint drinks. We're working on new flavors. And with BluePrint, because it goes through -- it's the flavors going through the HPP process, their shelf life. But what I come back and see in a lot of our acquisitions we've done have been great acquisitions. But the brand acceptance and demand for BluePrint has been one that's exceptional out there.

Right, got it. And if I may ask one more, a slightly longer term, and then -- and John, you do a good job of laying out the ACV opportunities and the increase in ACV. But I wanted to look at this opportunity from a different angle, not so much from the penetration, but the width of distribution. So not necessarily number of doors, but you what you put in each of those doors. Are we getting to the point where the number of SKUs or number of shelf space that you have, that's going to be a driver of distribution as well?

I think you have -- Amit, you have both. When you think about -- let's go back to Sensible Portions. So Sensible Portions not only filled out its Walmart distribution but also went from 1 shelf to 2. So as we get a foothold in a key customer, we then look to add breadth of distribution as well. So I think both of these -- both driving for new doors, as well as increasing our breadth of distribution will continue to fill in our distribution whitespace and drive our gains.

Amit, remember, what I said. Wherever there is food sold and there's a cash register, I want to have some Hain products. So in the airport, in the convenience store, your office building, every food service account, every ball stadium, hockey arena, there's got to be healthy foods. College campuses, there's 30 million students out there who today are distribution drivers. Wherever there's a cash register and selling food, we want food there, whether it's Chipotle, whether it's Panera, et cetera. So that's the distribution we're going after.

Your next question comes from the line of Thilo Wrede with Jefferies.

Irwin, you laid out all the -- and John, you laid out how well all your top brands are doing. Are there any brands that are giving you headaches right now?

Listen, I have 4 kids, and you love all your 4 kids and there's definitely days they give you headaches. In the quarter, we were down on New Covent Garden Soup, and that's because of Tesco, and now going back in here. We were down on our meat-free brand, Yves, and that's because we lost some distribution both in Canada and the U.S. And there's some repackaging, some products that we got to work with. Our DeBoles pasta, we were down with that and that is just production. Rosetto and Ethnic Gourmet, we've talked about those brands before in regards to divesting them, selling them, where are we going to spend money. So we were down on those. So that's the big ones. We were down on WestSoy, which is predominantly soymilk business, and where we've taken it into nut blends, its growth. So they're the ones that were down. And in each case, there's certain reasons why and certain reasons what we're going to look at here. The other one was Grains Noirs, which is a fresh business in Europe. So not everything is perfect, but on the other hand, we know what our issues are with the ones that are not perfect.

Okay, that's helpful. And the other question I had was with Ella's now in all the doors of this mass customer of yours, I know it's early days, but are you seeing any signs of cannibalization for Earth's Best?

No. Actually, this customer obviously gives us weekly data that we look at, and we are not seeing any cannibalization of Earth's Best. And that was one of the things that attracted us to Ella's. It truly appealed to a customer different than the Earth's Best customer. And as a result, we thought the 2 brands could work well together.

And with that, what I must say, Earth's Best was up well in the double digits this quarter. Earth's Best today is our single, biggest brand within Hain and seeing good growth across numerous categories. And you talk about a brand and you look at it, that when we acquired it where it was and where it is today in the depth and breadth of products, it's pretty exciting as a brand to have as part of our portfolio.

Your next question comes from the line of Andrew Wolf with BB&T Capital Markets. Andrew P. Wolf - BB&T Capital Markets, Research Division: So Greg asked you about BluePrint, and I guess I'm going to sort of ask the same question, but you did say it could be a lifestyle brand and kind of...

It is a lifestyle brand, not could be. Andrew P. Wolf - BB&T Capital Markets, Research Division: Yes. True, and that it could extend to other offerings. So obviously, you can't give away what you're thinking about. But would that be kind of more functional food things or beverage within the supermarket or the natural food store? Or could that beyond food and beverage?

So go ahead, John, I'll let you...

No. I think, just when you think about what Irwin said before, it could not only be food and beverage, but it also could be personal care products. Because there are some attributes of the BluePrint brand that actually would be leveraged well over, perhaps superpremium personal care products.

So like I said, I think BluePrint's a great name and just when you come back and look at it, when I look at glasses, Warby Parker, and I look at other brands out there, which is a young brand that really can go after younger consumers across multiple channels, we think there's tremendous opportunities. And no different we look at Ella's today. Ella's today was predominantly pouches and had some little snacks. But whether it's going to go into formula, whether it's going to go into frozen foods, whether it's going to go into fresh foods, their brands -- and Ella's is a lifestyle brand for infants and toddlers. Andrew P. Wolf - BB&T Capital Markets, Research Division: That helps. And on the test you're doing in the -- at Wegmans and Safeway, is it -- have you got any sense of how it's doing in those stores, number one? And I guess, does it limit itself because of the price points to the more affluent stores, at let's say, a Safeway runs?

Andy, here's -- the best answer I can give is that Wegmans has expanded the test into double the amount of stores we started with. So Wegmans is very pleased with what we're seeing. It is early over in Safeway. But so far, we see the same sort of growth that happened with Wegmans. So we think that will work out well for us as well. And then there's a third major retailer that's about to put it into a test as well.

And Andy, with shelf life on a 20-plus days, you see if it's selling or not pretty quickly here. So it's not a long test to see what's happening and you see repeat here. So -- and listen, I think we're sensitive on pricing. We're sensitive on the category. We're sensitive on the opportunities with this product and how we roll it out and how we keep up with capacity. I mean -- and we're sourcing, I mean, sourcing organic pineapples out there today. We're sourcing organic kale and some spinach and other products. So plants on 2 coasts right now, I mean, we're running full out on capacity here. And as we look to get into other categories, the same thing. The one thing that Hain really has is a very stringent QC department. And from stability from testing and when you're dealing with raw products, as I said, we want to make sure that what you're buying is what you expect to get. So -- but we see such tremendous opportunities on our whole lifestyle brand here. Andrew P. Wolf - BB&T Capital Markets, Research Division: Moving on to Ella's, John, I think you said your hope is to get -- to bring the manufacturing of the pouches in-house. I don't know if I misheard you. It sounded like you were...

No, no, you heard exactly right, Andy. We -- as you know, last year, we opened up our 2 lines in West Chester, PA, and we brought in some of the Earth's Best pouch production. And the plan is that we will look for opportunities to bring in Ella's as well because we have capacity there, and we think that's a synergy that is going to be meaningful for us. Andrew P. Wolf - BB&T Capital Markets, Research Division: That's about capacity, okay. And lastly, on Ella's, if I'm still on is, how is that doing? It sounds like it's doing fine at Walmart. Could you just give us a quick broadbrush stroke how it's doing in conventional supermarkets?

They're -- they don't have a lot of distribution in conventional supermarkets. Their primary distribution was in Target and Kroger. Beyond that, there wasn't a lot. So we are actually now in the process of going through the reviews with key grocery customers to expand their distribution in that channel.

And Andy, it's alongside Earth's Best in Whole Foods, and both of them are doing extremely well within Whole Foods.

[Operator Instructions] Your next question comes from the line of Mitch Pinheiro with Imperial Capital.

Just a couple of quick questions. Did I calculate properly if Ella's and BluePrint contributed about $37 million in the quarter? Is that...

No, no, no. Of growth you mean?

Yes, I mean I sort of just -- no?

No, no, not close -- not even close. At least -- just half that.

Okay, all right. I'll follow up with you later on that. And then margins in the U.K. were a little lower than I had thought. I mean, I sort get the seasonality losing soup, high-margin revenue. I get that. Is there anything else? I mean, was that in line with your internal expectations? I mean, glad to see it turned positive, just was looking for a little more.

Well, a little more because of soup being in last year not being in this -- not having our Tesco soup. From a sales side, there were some mix, a little more fruit. But it was right in line with what our budget and our expectations were, Mitch.

Okay. So when I -- if you look just out to the next quarter, I mean, soup is coming back in, so that should look a little better there. Is there any other...

Well, October -- exactly, October, November, December, big soup months. October 15, our New Covent Garden Soup now goes into Tesco, which is a big part of our soup business, and then a lot more promotions than that with soups. So -- and also the other thing is our grocery business becomes a bigger part of the business with a better margin in our second quarter.

Okay. And then just last question is, if you mentioned it, I apologize. But how did personal care do for you in the quarter?

Personal care actually had good high single-digit top line growth and good -- very strong margins for us this quarter.

Your next question comes from the line of Scott Mushkin with Wolfe Research.

So just wanted to get, I guess, Irwin, your opinion, if I look out over the next, say, maybe 12 to 18 months, how do you look at where maybe better performance would come from in your business? Would it come from the U.K.? Would it come from distribution gains in the U.S. or maybe someplace else? I don't want to put words in your mouth, but I just kind of want to get your thoughts, as you kind of look over the next 12 to 18 months, where you think there's some upside.

So Scott, number one is growth. And a pretty clear example is today our SG&A. As you grow your sales and put acquisitions on top here, you get better operating margins, better efficiencies. The infrastructure is here. So number one is top line growth, and that's growth through distribution, operation whitespace, distribution whitespace, new products. Secondly is in regards to procurement. Next year, with $50 million of productivity, $30 million last year and then next year, looking for additional productivity. The team we have in place today on procurement, growing and procuring on a global basis. And just some of our growth business is just being able to keep up with demand on our nut butters and some of our other -- our chia products and our flax products and some of our baby cereals. There are a lot of lost sales as we get back in stock that we pick up those sales. The other thing is there's a lot of integration opportunities still with the last 3 acquisitions that we have done, and you heard me talk about that, that Ella's is still a standalone company. BluePrint is pretty well still a standalone company. We're in the a mix of integrating systems today in our Histon facility, and that's pretty well standalone. So there's a lot of opportunities to integrate those 3 acquisitions. And last, but not least, is other acquisitions, Scott, that we will look to acquire, integrate and grow. So the big one is, when you're green, you're growing, you're ripe, you rot, and sales is the big one. But there's just a lot of opportunities for us that pull the levers yet additional operating income.

That's great clarity, Irwin, and I appreciate it. Following on that, because it was a very interesting answer. As we look at the distribution gains, maybe sort of throw [ph] this over to John -- first of all, I'm curious, in October, you've mentioned that things remain strong. If I'm looking at kind of underlying growth outside of distribution, gains that you saw in October, do you think sales have accelerated, remained kind of strong or maybe decelerated?

Our sales are continuing along the same track we saw in the first quarter. They continue to be very strong.

Okay, and then looking at distribution, as you kind of look out, John, I know it's hard because these things come lumpy. Where would you say you are maybe vis-à-vis 3 or 4 months ago? Do you think there's more on your plate, there's less on your plate or it's the same?

In terms of distribution opportunities?

Yes.

I think there's -- look, there continues to be -- even though we're seeing 6% gain in our distribution, there's still a lot of -- whether it be the mass retailers, whether it be the grocery retailers or the club retailers, there's still a lot of room for us to drive distribution. To Irwin's point, look, there's a lot of places that sell food and have a cash register that we're nowhere near.

And Scott, if you were a retailer today and you got Nielsen numbers and you saw conventional foods are growing at 1%, and natural and organic are growing at 10%, you better be looking at your mix and portfolio and saying, "What the hell am I doing? I better get more natural organic foods in my store." Because that's what the consumer wants. It's -- and that's where the trends and that's what is selling out there. So from our standpoint, we think the opportunity is just grow and grow across many channels. But let's now step back for a second. Whole Foods, being our biggest customer, with over 350 stores, continue to open up more and more stores, will go to 1,000 stores. That will just drive the awareness to more and more retailers. Online -- a little company, Amazon, was in our top 10 customers today with online. So the purchasing today of food and personal care products has changed tremendously and will continue to change where the consumer is buying it today, and that's where the opportunity is for Hain.

I mean, I agree with your [indiscernible] and your pictures all the time of people that need to have merchandising better and have more of your product. But I don't want to put words in your mouth. I mean, I would think it's speeding up. But I didn't associate what you guys thought. I mean, versus like 4 or 6 months ago, do you think there's actually more opportunity or it's kind of the same or less?

I think there's way, way, way more opportunity because of the consumer wanting more and more healthy products. Listen, here we are today, voting on GMOs. There's 20-plus states out there that have it on a ballot or want to vote on it. Last year, there was not the awareness on genetically modified ingredients that there is today. There is not the research on organics and pesticides. And with that, the demand for GMO foods -- GMO-free foods, organic foods, gluten-free foods, free from on dairy is just growing tremendously. And that is across so many age groups. Listen, perfect example is baby rates are down in the U.S. today, but the growth among Earth's Best and Ella's is in double-digit numbers. Snack business, where you see a big moving from the fried snack category over to the baked snack healthier snacks, and we're seeing that across Sensible Portions, what John talked about Terra Chips, Garden of Eden, our Little Bear Bearitos, which we've introduced numerous new snacks in that category, today, one of our fastest-growing categories. Because we've come out with some innovative, GMO-free snack. So yes, we're seeing more and more opportunities today than we ever have.

Okay. And then Mary's going to cringe, but I have one last follow-up to your answer to my original question. You flagged acquisitions as part -- maybe part of -- could be accelerated growth. I think you talked about fresh. Any further thoughts? I know you talked about this on the last conference call. Obviously, BluePrint is a lever there. But any updated thoughts on maybe getting bigger and fresh kind of value-added fresh would be welcome.

Listen, the fresh category, if you come back and look at Whole Foods, today, it's over 60% of their sales. You heard about the consumer eating less and less red meat. You look at the U.K., and we're learning a lot from the U.K., and that's what we're studying, where 50% of sales in the U.K. today are fresh. What are we all starved for in the U.S. today is time. And we're seeing with frozen foods with our Rosetto and Ethnic gourmet, we're not seeing the growth in the whole frozen food category. So fresh is something we're focused on. And listen, Ella's -- our Ella's business, our soup business, our protein business and fresh, our Greek yogurt business, they're all fresh categories, and we're seeing some significant growth there.

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

So I might have missed commentary on MaraNatha numbers. I didn't see it as being one of the brands that's up double digits. I know that's been a very strong growth category for you. Just wondering if there's some out of stocks on that particular product. And how much do you think you're leaving on the table potentially here with this brand?

So Sean, this is John. We actually saw over 20% growth on MaraNatha, and here's the thing. We did run some pretty significant out of stocks on that line, which we're going to address with the bringing on a second line in our facility in probably Q4. But yes, it definitely had an impact. Our growth could have been 30-plus percent if we were able to fill our out of stock.

And then not only that, we can't take on any new business. And that's the other thing is just because of the demand for that product. And that plant today, John, I think is running 24/7.

24/7, absolutely.

And the other one is chia seeds and demand for that and cereal and infant, toddler. So that is, again, with the supply team just keeping up with demand and out there sourcing, and they're overcoming a lot of those things.

I guess the point is, you guys -- I mean, obviously, tremendous growth that you're having. But you're even being -- you are being held back even a little bit, given some of the supply constraints in some of these really strong categories for growth that you have at this point.

Yes.

Okay. And then just a second question on operation whitespace, I think you termed it. Interesting, I mean, how receptive is the food service channel at this point for your products? And do you have distribution set up there for those accounts? Just wondering if there's a particular bottleneck there or if the consumer maybe isn't asking for it there enough at this particular point in time. Just curious on your thoughts because I thought that was an interesting channel.

So that is one of my personal objectives is to get more and more into food service. And today, as we meet with different stadiums and we sell veggie burgers and snacks in certain stadiums. If you look at JetBlue, and we're one of their key vendors; our contract feeders in Cisco, ARAMARK, big opportunity for us in food service. The thing is with food service, it's a different pack, different price, and everybody wants cheap price. But food service is such a big opportunity for us in our snack category, single serve, our Blueprint juice, our pouches for Ella's and Earth's Best doing some applesauce pouches. And today, not a big focus on it, but it's something that is in our growth plan. The other one is convenient stores. Listen, 7-Eleven is now bringing in organic snacks into their stores. There's 8,000 7-Elevens. There's Hudson News around the country. Walk through Manhattan, there's a lot of bodegas and retailers, office buildings with retail shops. So the big thing is, and we're studying a lot of different ways right now of how to get distribution to those retailers. It's not going through the specialty foods distributors. It's going through up and down the street snack distributors. But that is something, Sean, that's all over our plans of how we get to up and down the street, how we get the food service. And what do we have to do on acquisitions is already in that category that we fold on top of it. But it's something that we're focused on and looking at today. Thank you. Thank you, everybody. That is our last question. So in our 20 years of growth, consumers have never had been more mindful on a global basis of healthy eating as they are today. One of the key continuing important areas around organic and natural products is to focus on non-GMOs, which I originally had mentioned. Today, voters in the state of Washington have the opportunity to vote on yes, on the Initiative 522 to require the labeling of products for GMOs. Hain believes strongly in product labeling and the use of non-GMO ingredients, so that consumers can make educated decisions when buying their packaged foods and personal care products. Today, close to 98% of Hain products today are non-GMO. We're proud to be a leader in compliance across food safety and package standards. Importantly, with over 5,000 products globally, over 2,000 certified organic. And today, which are verified by non-GMO products, we have over 500. Specifically, we estimate Hain invests 10% to 15% of margin to source, purchase GMO-free ingredients. And we will continue to make these investments as we strongly believe that consumer education and awareness of what is good and bad for their long-term health is only going to grow with non-GMO being increasingly important focus for consumers globally. Technology with the Internet digital marketing continue to play an important role in consumer education. It won't be long before you're scanning your products as you walk into the store and look at the ingredients and tell you what is good and what is not. In summary, we are extremely pleased with our results in the first quarter of fiscal 2014, and October gave us a good start to a second quarter as strong trends continue. Our global teams continue to focus on driving costs out of our business, as we further leverage our existing expense base and the capital investments we've made across our infrastructure in the last fiscal year. We believe these efforts will enable us to achieve incremental productivity savings in the second half of fiscal 2014. And we are excited about our future growth, given our strong brand portfolio, including the 3 recent acquisitions of our grocery brands in the U.K, BluePrint and Ella's. I can't emphasize enough that Hain is better positioned than it ever has after 20 years of success and focusing on acquiring and building brands, as well as developing innovative new products to help consumers eat healthy. And in my last call, we talked about childhood obesity declining for the first time, and I think Hain had a lot to do with that. Hain truly has the right people, brands, products and global infrastructure in place to capitalize on the tremendous growth in front of us for years to come. Now have a great Thanksgiving. Don't forget to buy a Plainville antibiotic-free turkey. Thank you.

Thank you. This concludes today's conference. You may now disconnect.