The Hain Celestial Group, Inc. (HAIN) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Hain Celestial Fourth Quarter and Fiscal Year 2015 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Ms. Mary Anthes. Ma'am, you may begin.

Thank you, Kelly. Good morning everyone and thank you for joining us today. Welcome to Hain Celestial's Fourth Quarter and Fiscal Year 2015 Earnings Call. Irwin Simon, our Founder, Chairman, President and CEO; John Carroll, Executive Vice President and Chief Executive Officer, Hain Celestial North America; and Steve Smith, Executive Vice President and Chief Financial Officer; are here with us today as well as several members of our Management Team. 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 what is described in these forward-looking statements. And some of the factors that may cause results to differ are listed in our publicly filed documents, including our 2014 Form 10-K filed with the SEC. A reconciliation of GAAP results to non-GAAP financial measures is available in our earnings release, which is posted on our website at www.hain.com under Investor Relations. This conference call is being webcast, and an archive of the webcast will be available on our website under Investor Relations. Our call will be brief so please limit yourself to one question. If time allows we will take additional questions and Management will be available after the call for further discussion. Now, let me turn the call over to Irwin Simon. Irwin?

Thank you, Mary. Good morning, everyone and welcome to our fourth quarter or fiscal year 2015 and our fiscal 2016 outlook. Work cited report of record sales and earnings for the fourth quarter in our fiscal year. The fourth quarter represents Hain’s 20th consecutive quarter of double digit net sales growth. We generated record net sales up 20% for the quarter and 25% for the fiscal to $2.7 million including the impact of foreign currency fluctuations. Adjusted earnings grew 22% for the quarter and 18% for the year. Highlights of our achievement in fiscal 2015 include our Team completed three great strategic acquisitions with Hain Pure Protein last July, Empire Kosher and the Live Clean Brand, Personal Care business up in Canada. Our worldwide sales reached $2.7 billion within reach of our $3.5 billion goal for 2018. We've introduced over 200 new innovative products around the world. U.S. Consumption of our top 20 SKUs was up 11% with distribution up 5%. We’ve achieved record adjusted EBITDA of $375 million a 14% increase and our SG&A was 13.6% or 13% on an adjusted basis. Productivity, which is a key remains a key strategic initiative for Hain. For fiscal 2015 we generated about $55 million in savings worldwide, in line with our expectations. We target around $60 million for productive in fiscal 2016. We hear a lot today about zero-base budgeting. It’s nothing new with Hain. We’ve been doing it for a long time and you can ask Pat Conte how we do it. These successful results were achieved despite the largest, toughest voluntary recall in our company’s history and along with that a fire that limit our capacity for one of our core brands Tilda. Strong demand for our portfolio of leading organic and natural products helped fuel our growth across 15 or 20 core product category, sales channels and geographies. Our portfolio is diverse across categories, brands, customers and geographies. For example in the U.S. natural channel we have 12 brands that are number one, two, or three and in the MULO channel where we have much more distribution wide space opportunities and John will talk about that later. We have brands over 100 million -- we have eight brands over $100 million and we have brands over $60 million and which is important is how Hain is diversified no one brand represents more than 10% of our net sales. In the U.S. Hain topped 200 SKUs are measured by Neilson grew 11% in consumption during fiscal 2015 and 5% in the distribution. That’s before 100,000 distributions points, which John will outline later. The strength of the U.S. Dollar reduced international sales by approximately $56 million with approximately 40% of our sales generated internationally our geographic footprint continues to growth in both new and existing markets. Sales and local currency were up in every segment of our business. Excluding the impact of our nut butter withdrawal, organic growth was in the high single digits. Distribution continue to grow across all sales channels and John will again talk about the U.S. At Hain we are a disruptor. Hain is well positioned in a growing segment with a channel agnostic go-to-market strategy. While our brands used to be primary in the natural channel, today you can also find organic natural products in grocery, mass, club, specialty retailers on eCommerce sites, QSR, sports debuts like City Field, Madison Square Garden just to name a few within food service. Natural and organic products that are better for you are now mainstream and will continue to go more and more mainstream. Practically, every retailer is expanding into the space including Dollars Stores. Our team has worked hard to built a strong well diversified global portfolio and a well -- a strong customer base. We heard today about Panera rolling out blueprint in 1,900 stores testing gluten-free breads in their stores on the West Coast. Hain has truly evolved over the years to ensure our products are available to meet whatever consumers choose to shop and as we all know, consumers shopping habits continue to change in today's global economy and we want our products to be wherever commerce is taking place and as I said a lot of times wherever there is a cash register I want Hain products. Today, we're probably one of the few companies who can claim that 99% of our products are non-GMO and 50% are certified organic or vague in they claim very few consumer package good companies can make. As I said before we made three great acquisition in 2015 acquiring the Plainville Farms, FreeBird, Empire Kosher Valley and Live Clean Brands. To start off fiscal 2016, we expanded our portfolio in Europe with our mono joy of brands a planned phase beverages. We’ve been disciplined and we will continue to be disciplined in our M&A and pay reasonable multiples. At the same time, we’ve invested behind our existing brands with new product innovation and new categories. In the quarter acquisitions contribute $130 million in sales which include $30 million of sales growth of the brands under our ownerships, which shows the power of our distribution system. Our global team did a tremendous job of successfully integrated acquisitions, achieving synergies including Rudi's Plant, SG&A, efficiencies and HPPC in the U.S. and Hain Daniels Grocery integration into the U.K. by leveraging our infrastructure, controlling expenses and improving productivity. We achieved the majority of these productivity benefits in the fourth quarter after working throughout the fiscal year to reap the benefits. SG&A as a percentage of net sales was 13.6% or 155 basis point improvement or adjusted 13% with 206 basis points improvement from leverage our base including outsourcing our natural merchandizing team as well as the benefits from Hain Pure Protein with its lower SG&A. Our SG&A benefit from accumulated efforts made throughout the year. Our record net sales and expense improvement drove our fourth quarter adjusted earnings to $0.55 and adjusted operating income of $90.4 million in the quarter or 12.9% of sales. Our EBITDA was $111.6 or 16% of sales. Next week we reported last week that increasingly food drive or close nick communities of people bound by not only nutritional health needs, but also personal value believes behaviors are influencing boarder consumers food shopping behaviors. Consumers read labels today. Read where the product is made and what it's made from. These groups and their heightened focus on food attributes are having a broad impact on the way consumers eat. Manufactures and retailers, and foods survey operator are being enforced to respond to this. According to nutritional business journal these self identified food drive members spend $92 billion in 2014 or 12.5% of U.S. food sales. That’s a big market for us to go after. This is just one small example as many of you are aware there are countless other worldwide that accelerate organic and natural industry growth is not slowing. Look at the fourth quarter more detail our brand performance was strong with broad-based increase. We had 18 brands up double digits. We had three brands up mid to high single digits. U.S. growth remains strong and we're also continuing to grow in 70 other countries around the world today including India and the Middle East through partner distributors. Now I’ll focus on the key drivers that led us to the strong sales performance for fiscal 2015. Personal care was up double digits led by the growth of our core brand, Avalon, Alba and Jason with some great new packing and great new products. I personally use them everyday myself. The baby category was up high single digits where we saw good growth from formula, our frozen products from Alba is the number one baby product brand in the U.K. In beverages Celestial Season is up mid single digits. We have high expectations for this year's growth with a new logo, new packaging, some new products are Chai Lattes and other aseptic beverage. Everybody we've shown or package to has been pretty excited our new logos and our new packaging that were roll out. BluePrint is our lifestyle brand. We’ve hired a new General Manager Alex Galindez who has a successful beverage background and just joined us from Facebook. We'll be rolling out more BluePrint juices in fruit service including what I just announced with Panera today. In grocery, Imagine Soup has a great new logo, great new packaging and most important a great tasting product. In the U.K. segment's net sales were up in constant currency, but the retail environment does remain competitive. We saw good growth from our soup, grocery, desserts, rice and plant-based beverages. We’re expecting an exciting year in the U.K. this year. In fiscal 2015, we invested in our growth in the U.K. with infrastructure, brand building for our soups, dessert, ready to eat rice with CapEx investments as well as in our plant-based beverages in Europe and we believe these investments are starting to pay off and we’re seeing them. In constant currency our Tilda, Frank Cooper, Farmhouse Fare and Sun-Pat brands were up double digits and New Covent Garden was up in middle single digits. We expect our projects Castle Chill Dessert business to breakeven in fiscal 2016. Tilda has been a great acquisition for Hain and has performed well with the fourth line up and running as expected in March and we’re ready for Ramadan sales and we’re currently meeting only 40% of our requirements in house and we’re still using third party co-packers to supply us. We're on track with the mill refurbishing the lines affected by the fire should be commissioned by December and full operational in our third quarter. We also plan to expand Tilda into other grains and as consumers increasing realize the benefit of whole grains around the world. Our ready to eat product was up 20% and the category grown 11%. We're expanding this plant capacity with $10 million investment in CapEx. Tilda expanded pain distribution network with great responses from the Middle East market listing ships and other baby products and look to expand that more and more into the Middle East. Tilda also had its first major U.S. distribution with BJ’s Wholesale Clubs, Giant Eagle and IV and that's just the beginning. Hain Celestial Canada under the rest of the world segment performed well in constant currency driven by Terra, The Greek Gods, Jason, Alba, Avalon and seeing some incredible traction coming from our Yves meat free brand as well as strong performance in the Mass Challenge Next, Europe’s best Yves as I just said. The balance of the rest of the world was up in constant currency with double-digit growth from Lima, Danival, Terra, Celestial Seasons, our grocery business. In July, we acquired the Mona Group a leader in plant based foods and beverages with a wide range of natural products under the Joya and Happy brands. This as I said before will give us access to sell products into Austria, Germany, Eastern Europe, Mona also will give us the opportunity to expand our plant based business to over $100 million and give us two plants of additional capacity where we're reaching capacity at Natumi. Internationally we've also had a joint venture with Hutchison Hain Organic Holdings with sales up 20% and growing with a lot of opportunity in China. Hain Pure Protein which we acquired last July had a phenomenal year up strong double digits. It's showing how the consumer today wants the less red meat, less pork, more protein that's organic and antibiotic free. It's is a fast growing category and we've added capacity which we're in the midst of building the new chicken facility which should come online by the end of this calendar year. Hain Pure Protein has launched Plainville Farms antibiotic-free program daily along with the FreeBird daily program. At Empire sales were up single digits only owning a four months. They've introduced a new logo, a lot of new Kosher products and we'll introduce the Kosher Antibiotic Free daily program. Our balance sheet remains strong as does our ability to generate free cash. We continue to always evaluate our capital structure. We take cash to the bank. At June 30, our bank leverage was 2.37, our lowest in five years compared to 2.85 last year during which we spent nearly $100 million in acquisition and $50 million in CapEx. Our debt declined by $24 million. We'll continue to focus on generating shareholder returns as well s our focus on return on invested capital. Our return on invested capital in fiscal '15 is in the high single digits. We're targeting low double-digits for fiscal 2016. Looking forward to 2016, we're excited and we're looking to build upon robust growth with an increased focus on some of our legacy brands. We would like to get brands like Arrowhead Mills, The Bulls. Hain, Health Valley growing in high single digits like we did with Little Bear Burritos Brand up 26% this year. When you put focus, money and attention, it's amazing what you can so. It's much easier for us to do this than to go out and pay high multiples for some of the acquisitions that are already out there. In fiscal 2016 we expect high single digit organic growth with two thirds of the growth of our net sales coming from existing portfolio and one third of the growth coming from acquisitions that we made in fiscal 2015 and the beginning of 2016. We'll continue to do strategic acquisitions. There is lots out there, but we'll be disciplined and we'll continue to pay disciplined multiples like we've done before. Why am I so optimistic about 2016? Our geographic footprint will get bigger. Today international sales are 405 with the U.S. at 60% and I would like to see it 45%, 55% or even 50%, 50%. We have a great position in categories like snacks, antibiotic free and organic protein, which are growing double-digits. We're excited about the celestial season T launch. I would expect high single digits from our Baby and our Personal Care categories. In Europe we now have a $100 million plant base business and look for some great growth coming out of Danival and Lima. In the U.K. we have the impact of the Tilda fire and that is behind us. We'll have capacity with our ready to eat rice. We're looking for strong year coming out of New Covent Garden Soup with new packaging, new products and a great new product line up for the tray. The whole meat free category and Vegan continues to grow and we're pretty excited about what Linda McCartney will do this year and as I said before, we expect this year for Castle to breakeven and be our biggest growth year ever. I also expect some great things in expansion coming at India and the Middle East and China. We have 35 plants around the world. We're one of the biggest sources of GMO and organic ingredients. We have 6400 talented people that work at Hain today and we all look to add to that. We're in one of the hottest categories in consumer packaged goods. All we have to do is easy, execute. I am being emphasis when I say easy. In summary, we've had a record fiscal 2015, overcame two big challenges as the year began. The first quarter of fiscal 2016 is off to a good start. We look forward to another successful year of growth and delivering increased shareholder value. With our $3.5 billion targeting insight for 2018, we're looking for $5 billion in 2020 with continued internal growth and acquisitions. With that I'll turn it over to somebody that's going to help me get there at the $5 billion number in 2020, John Carroll.

Thank you, Irwin. Good morning. Q4 was a very good quarter for Hain Celestial U.S. and it closed a strong year for the business despite having to overcome the nut butter voluntary recall. Key highlights from Q4 included net sales of $332.8 million, up 3% versus year ago. Q4 net sales, ex nut butter and FX however were up 8% versus year ago with organic growth of 6%. Importantly our Q4 growth was achieved despite weaker overall sales trends in the natural channel and $3 million to $4 million in personal care product cuts due to an unforeseen increase in demand which caused a significant shift in channel and product mix. Our Q4 adjusted operating income increased to $62.2 million, up $9.9 million or 19% versus year ago and our Q4 adjusted operating income margin increased to 18.7%, up 250 bps versus year ago, driven in part by almost $10 million in productivity savings and tight expense management. Turning to the full year, our FY'15 results reflected our fifth consecutive year of meeting our U.S. business model financial objectives, which call for us to drive mid to high single digit topline growth, 30 or 50 Bps of margin improvement and double-digit operating income growth. So as you look at '15 you can see that our adjusted net sales of $1,383.2 million were up 8% versus year ago. Our FY'15 adjusted net sales ex nut butters in FX were up 11.3% versus year ago with organic growth of 8%. Our FY'15 adjusted operating income increased to $236.8 million up 11.5% versus year ago and our FY'15 adjusted operating income margin increased to 17.1% up 56 basis points versus year ago. Additional key FY'15 achievements included a very strong year for AOC consumption growth. FY'15 marks our fifth consecutive year of strong U.S. consumption trend. Our full year AOC consumption growth ex MaraNatha and Celestial Seasoning Cake Cups was up 8.1%. We drove AOC growth across our brand portfolio despite going against a yearlong 10.7% year ago comp. We also delivered 17% two-year stake growth and as Irwin mentioned before across the ocean Ella's Kitchen continues to be the number one baby food brand in the U.K. Our next key FY’15 achievement was our strong innovation performance. We introduced over 100 new SKUs driving $46.5 million in FY ’15 sales. These SKUs included great new products like sensible portion stackable chips, Earth's Best Toddler Formula, BluePrint Organic and Raw Green, Ginger 32 Ounce Juice, Alba Botanica Coconut Body Wash and Celestial Seasonings Caramel Apple Dream Tea. Another key FY'15 achievement was in the area of productivity where we delivered $35 million in productivity savings to more than offset 2% inflation. Key FY'15 productivity initiatives included the BluePrint manufacturing consolidation into our Westchester plant, which drove yield and efficiency gains with lower labor cost. We also realized snacks packaging savings from identifying a lower cost higher quality packaging supplier. We will look to use this supplier to drive more savings in additional product categories in FY'16 and we moved our natural channel merchandizing team to advantage sales and marketing to drive SG&A productivity. This outsourcing initiative will improve our natural channel merchandizing performance while reducing annual cost by 20% to 25%. Our final key FY'15 achievement was Rudi's Organic Bakery performance. We drove high single digit AOC growth despite slowing demand in the Gluten-Free category and having to deemphasize most of the previous owners unprofitable new product launches. We improved the Rudy’s business model by driving significant synergy savings while simultaneously driving supply chain productivity across the product line and we delivered a first year EBITDA multiple of approximately eight times against our $62.1 million purchase price, which is in line with our objective of paying six to eight times fully synergized EBITDA for strategic acquisitions. All of these FY'15 achievements will be key contributors to our FY'16 performance and as Irwin said, we are optimistic about FY'16 given several key factors starting with our pipeline of new distribution wins. As I said on our last call, we achieved distribution wins totaling over 100,000 new points of distribution or PODs at key retailers across the country in Q3. Over 70% of these POD wins are currently on shelf today most of which appeared on shelf in the last few weeks. As we measure this, these POD gains impact will be best reflected by the performance of our Top 200 products, which account for 70% of our AOC sales. As Irwin said our top 200 SKUs consumption and distribution was up 11% and 5% respectively in Q4. Our distribution momentum has continued as we gained additional new authorizations in Q4 at key accounts such as Whole Foods, Kroger, Meyer, Publix, Sprouts and Walmart and Target. And again I want to repeat that Panera bread just authorized two BluePrint SKU’s in all U.S. locations and will begin shipping this week. We’re also optimistic about '16 because our MaraNatha brand is now poised to recapture lost AOC business. We regained 100% plus of our roasted nester and raw almond butter distribution. We’re also executing MaraNatha brand makeover featuring new interpretive packaging graphics with a clear wraparound label to showcase our high quality product and we’re aggressively investing in digital and in-store marketing to drive retrial of MaraNatha which is still by the way the leading brand of almond butter in the category. Finally we’re excited about our FY'16 innovation line up which includes terrific new products like Greek Gods Yogurt, TERRA, fruit and veggie nut bars, Celestial Seasonings Ready to Drink and Aseptic Chai Tea Latte, which are good for the current users as well as Millennials, Alba Mineral Continuous Spray Sunscreen, Rudi's Organic pumpkin bread which is our first ever Rudi’s seasonal product and sensible portions Bats and ghosts Halloween snacks. Our strong lineup of innovation coupled with the resurgent MaraNatha brand, new distribution wins in a full queue of new productive initiatives makes us very optimistic about FY'16. So to close Q4 kept a record FY'15 for Hain Celestial U.S. with 11.3% adjusted net sales growth ex nut butters in FX and 8% organic topline and AOC consumption growth. We also had an 11.5% increase in operating income and a 56 basis points increase in FY'15 operating income margin and we’re optimistic about FY'16 given our continuing momentum of new distribution wins, our MaraNatha re-launch plans, our new slate of innovation, our stronger natural channel merchandizing team with Advantage and our productive initiatives across the P&L. And now I'll turn the call over to Steve Smith. Steve?

Thank you, John and good morning, everyone. I’m going to take you through the financial highlights of the fourth quarter, the full fiscal year and balance sheet and then we will have a few comments on guidance. If not stated amounts I will be discussing are from continuing operations. We had another solid quarter from sales perspective. In addition to increases from our portfolio, our acquisitions of Hain Pure Protein and to a lesser extent Empire Kosher, Live Clean and Rudi's increased sales by $131 million in the current quarter with these businesses showing strong growth under our ownership versus the same period last year of approximately $30 million to 26%. Our results versus year ago were also affected by unfavorable foreign currency of $28.4 million, nut butter sales which were down $13 million in the quarter as we continue to rebuild distribution and purposeful reductions in private label food service rice sales in the Middle East of $10 million that were unprofitable to continue. Gross margin on adjusted basis was 24.9% while it was 27.8% in the same period last year. As discussed on prior earnings calls a straight comparison is not meaningful due to the HPP segment, which did not exist last year. Excluding our Hain Pure Protein segment, adjusted gross margin for the current quarter would have been 27.6%. The balance of the change compared to prior year or about 20 basis points is primarily due to increased investments in point-of-sale trade and promotional spend activities in the U.K. and mix. Increased trade and promotion investment activity in the U.S. and U.K. as well as mix are also the primary drivers of the shortfall in gross margin compared to our expectation for the quarter. Examples include in the U.K. Daniels with promotional activity has increased and at Tilda where we look to liquidate higher priced rice inventory ahead of the arrival of new crop. We continue to make purposeful investments in different categories across our brand portfolio and geographies to drive consumption and invest behind our customers, brands and markets. While in the short term, certain of our metrics maybe adversely affected we believe this is the right longer term business decision. Total SG&A expense on an adjusted basis was 12%, a 310 basis point improvement compared to 15.1% last year. The Hain Pure Protein segment had 170 basis point favorable impact on our SG&A rate and the rate of spend continued to decline in the quarter from the aggregate impact of our acquisitions as we continue to achieve additional operating leverage. On an adjusted basis our operating income was 12.9% of sales this year increasing 20 basis points from 12.7% of net sales in last year’s fourth quarter. Excluding the Hain Pure Protein segment on an adjusted basis operating margin would have been 13.8% or 110 basis higher than the prior year. On a GAAP basis for the fourth quarter of this year our effective income tax rate was 3.7% due to a onetime $20.7 million benefit from the tax restructuring or our Canadian subsidiaries. Of the total benefit $9.6 million will be realized as cash in fiscal 2016. Our adjusted effective income tax rate for the fourth quarter of this year and which excludes this benefit was 31.9% compared to 34% last year. Our adjusted earnings from continuing operations was $0.55 per diluted share compared to $0.45 per share in last year's quarter improving 22%. As noted in our press release, our current quarter adjustments which reduced net income by $13.9 million are principally from the $5.6 million of unrealized currency gains and the non-recurring tax benefit of $20.7 million. Partially offsetting these amounts are start-up cost of $2.9 million related primarily project Castle, our chill dessert facility in the U.K., $3.5 million of acquisition related fees and expenses as wells integration cost including a factory consolidation project for BluePrint as production moved from Long Island City to our Westchester facility. $6.3 million primarily for a negotiated settlement for personal care packaging claim lawsuit, which goes back to 2007 around the time we acquired the related business, $2 million related to the continuing reboot of our nut butter facility and $0.5 million of severance costs. Turning to full year results Irwin already commented on our sales number but I’ll elaborate a little bit more. Sales growth was driven by incremental distribution and consumption as our existing portfolio of brands continue to perform well plus the acquisitions of Tilda Rudi's, Hain Pure Protein, Live Clean and Empire Kosher, increased sales by approximately $514 million for the year. This amount also includes brand growth of some $75 million or 13.3% under our ownership. Net sales were also impacted by the favorable, unfavorable effect of foreign currencies of approximately $56 million for the full year and again that's an unfavorable effect and lower net butter sales of approximately $30 million, which is on an adjusted sales basis. As a result, growth from both our existing portfolio and our acquisitions excluding nut butter sales and in constant currency and as a percentage of sales was high single digits. On an adjusted basis, gross margin was 24.6% as compared to prior year's adjusted gross margin of 27%. Similar to the explanation for the quarter, you need to exclude our HPP segment to compare to the prior year. Doing so our adjusted gross margin would have been 26.75% or 215 basis points higher than the straight comparison. Additionally adjusting for the effect of having Rudi's for a full fiscal year in 2015, but not in 2014 would add another 15 basis points to this year’s margin to 26.9%. As we said when we acquired Rudi's it will be slightly dilutive to gross margin. The balance of the change in gross margin is primarily due to the additional point-of-sale trade and promotion investment which is shown as a reduction of net sales and adjusted gross margin was slightly below our expectations for the same reason. Total SG&A expense on an adjusted basis was 13% a 210 basis point improvement compared to 15.1% last year. The Hain Pure Protein segment had 150 basis points favorable impact on our SG&A rate. Additionally, the rate of spend declined as we continue to proactively manage our costs and leverage our infrastructure as the aggregate impact of our acquisitions helped us to achieve additional operating leverage. Adjusted operating income was $314 million or 11.6% of adjusted net sales this year as compared to $256 million last year. Excluding the Hain Pure Protein segment on an adjusted basis, operating margin was 12.2%, an improvement of 35 basis points versus the prior year. For the full fiscal year, depreciation and amortization was $57 million as compared to $48 million in the prior year. Stock compensation was $12.2 million for the year compared to $12.4 million. On a GAAP basis for the full fiscal year, our effective income tax rate was 22.2% compared to 33.8% last year. Due to the previously mentioned tax restructuring for the full year, our adjusted effective income tax rate was 32.9% which is slightly better than prior estimates due to the final mix of our worldwide income and is the same as the prior year. Adjusted earnings were $1.88 per diluted share compared to $1.59 last year improving by 18%. Our balance sheet continues to be strong. Our working capital is $571 million with the current ratio of 2.6 to 1 at June 30. The increase in working capital of $191 million is primarily from three sources. A $43 million in our yearend cash balance to $167 million, debt repayments and working capital requirements for our acquisitions. Stockholders’ equity was $1.772 billion. Debt as a percentage of equity is 48%. Debt to total capitalization is at 32.3%. Net debt at the end of June was $677 million, a decrease of $67 million. During the fourth quarter we generated a $115 million of operating cash flow, an increase of almost $53 million over the prior year period. As a result operating cash flow for the full fiscal year is a $185.5 million versus $184.8 million in the prior year and this is despite the nut butter recall which cost us $34.3 million pre tax. For the year, operating free cash flow was $134.3 million this year as compared to $143.2 million for the prior year. The decrease in operating free cash flow of $8.9 million is the result of the nut butter recall and higher capital expenditures, which were $51.2 million for the year or $9.6 million higher than the prior year. CapEx was higher than the prior year because of $10 million of capital investment to expand the capacity and increase the efficiency at our Hain Pure Protein segment production facilities including the acquisition of new facility for free bird chicken at a processing facility. Our cash conversion cycle was 65 days for the year flat to the prior year. Turning to fiscal '16 guidance, net sales for the full fiscal year of 2016 are expected to be in a range of $2.97 billion to $3.11 billion. This includes our most recent acquisition Mona Group, which we previously stated was approximately $50 million and the full year impact of our fiscal '15 acquisition as well as the impact from currency. Approximately two thirds of the growth is organic growth including the growth of our acquired brands under our ownership and one third of the growth is coming from acquisitions. With respect to the cadence of our quarters from a sales perspective, our second quarter is historically our strongest quarter with the third and fourth quarters roughly consistent and our first quarter the smallest. We anticipate earnings per diluted share will be in the range of $2.11 to $2.26 per share for the year. We expect first quarter earnings to be up slightly to the prior year. The Mona Group will be slightly dilutive in the first quarter and we will have a higher share count as compared to the first quarter last year. Including the effect of our Empire Kosher acquisition, our gross margin for the year is expected to be 24.5% to 25.5% while our annual SG&A rate, which include amortization is estimated at approximately 12.7% to 13.4%. Including the effect of the Empire Kosher acquisition, full year operating margin is estimated at 11.8% to 12.1%. As we acquired Empire Kosher March 2015 a metrics for the first three quarters of fiscal 2016 will be impacted by the acquisition. Our effective annual tax rate is approximately 32%. Weighted average diluted share count is estimated at $105.5 million shares for the full fiscal year. CapEx is estimated at approximately $50 million. Interest expense is anticipated to be approximately $26 million and as indicated in our press release our estimates do not include any results of discontinued operations, acquisition related expenses, integration restructuring charges, start-up cost, unrealized currency gains or losses, reserves for litigation matters, other non-recurring or one-time items including any product recalls or product withdrawals that may have been or maybe incurring during fiscal '16 or future acquisition activity. And at this point, I'll turn back to Irwin.

Thank you, Steve. We will now open it for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Amit Sharma with BMO Capital Markets. Your line is open.

Hi, good morning, everyone.

Good morning, Amit.

Irwin you talked about expansion beyond the natural channel, could you just layout for us what's the growth algorithm for different channels as you think about groceries, mass, natural and other newer channels that you talked about?

Well I think as you look today and you look at our growth last year Amit, we’ve had double-digit growth coming from two of the big mass market retailers out there. We've also had some great growth coming from retailers in the grocery channel. And if you come back and look to what John talked about as 100,000 SKUs growing, it's growing in grocery and mass market and just to name a few the commitment by Target, the commitment by Walmart, commitment by Sam’s going to more and more organic products and Sam’s sells to food service and other consumers. And again on digital the big thing what's happening today with Digital whether it's Amazon and not only Amazon, its retailers that are selling direct to consumers. You heard me talk about this morning where Panera is taking BluePrint in 1900 other stores around the U.S. and they love to roll out and test gluten free breads on the West Coast. Our protein business and we see some incredible growth on protein in regards to antibiotic free and organic. So if you go to City Field, you'll find our products. If you go to watch a game at Madison’s Square Garden you'll find our products. So as I said Amit everywhere there is a cash register, but if you look at what Albertsons and Safeway as the two retailers got together and see their growth, the focus and they've said that in a recent perspective, they're focused on natural organic is a big focus for them. So I would come back and say again with whole foods and yes there has been slowing in the natural channel, but with the growth among our mass markets listen there is 4400 Walmart, there is 600 neighborhood shops, there is 600 Sam’s out there, there is 400 or 500 Costco’s around the world, there is 1,800 Target stores, there is 2200 Albertsons and Safeway now under one banner, there is 3200 Kroger not just Publix, Wegmans to name a few and then there is all these regional retailers. There is lots of room for us to go. If you come back and look at our ACV and grocery today, it's probably in the 35% range. If you take all our products and the opportunity for expansion and again where it's coming from, it's not that consumption is growing and you heard me talk about the $92 billion of food out there that is converting, it's converting from conventional food where the consumer is looking for healthy alternatives.

Got it. And then there is a quick follow-up for Steve, Steve I don’t know if I missed it, did you give FX impact for fiscal '16 on sales?

I did not, but the impact is approximately $50 million on fiscal '16. Most of that's going to be in the first half of the year.

Great, thank you very much.

Amit, just to add to your comment before, I think as I said to you, the big thing about Hain’s is how diversified of a portfolio we are and how we have the opportunity to sell to lot of retailers and that's when you look at our earnings as we look at guidance, we're looking at 70 countries that we sell in today. We're looking at multiple categories, multiple brands and I think the thing that comes back and show us is here, we were off close to $50 million on MaraNatha this year between the brand and the private label sales. And we made it up with our other products and our other brands around the world and not easy to go out there and make up a $50 million drop in sales when you have a brand like that and when you see natural slowing and go there and make up the sales that we made up in other chains, which shows the demand for our products.

Got it. Thank you very much Irwin.

Thank you.

Our next question comes from the line of Evan Morris with Bank of America. Your line is open.

Good morning, everyone.

Good morning, Evan.

I guess first question is for John…

Hey Evan could you speak up. We're having trouble hearing you.

Yes can you hear me now?

Yes.

Okay. First question is I guess for John, you mentioned that you're very optimistic about F'16 in the U.S. and just wondering if you can kind of put some parameters around that, your expectations for sales growth for the US business. I guess, wheeling on a like-for-like, you have some, I guess easier comps in the first half you are rolling through the MaraNatha issue? So if you could just kind of frame where your expectations are for fiscal '16 and I guess sort of a cadence of how it flows through the year? Stephen Smith\: Well, I think our '16 objectives are consistent with what we've called out in our US business model. Look we're, I mean, we're looking to drive mid to high single digit top line growth. We're looking to find 30 to 50 Bps of margin improvement and we're looking to drive double-digit operating income for our sixth consecutive year. In regard to the cadence of it, clearly we're going to have a benefit with MaraNatha in the after post-August 19, which is today because we will be going in softer comps, so we should see some strengthening in MaraNatha. There are put and takes throughout the portfolio. But look, I think our strongest part of the year will be the second half as you'll see the full maturation of the hundred thousand points of distribution that I talked about last quarter, as well as some of the new wins that I mentioned in this quarter.

Okay.

And Evan, I think the big thing just going back to what I said before to Amit, is this year, I mean, the world is our oyster out there in essence where to go with our products and I think the big thing is as you come back and you heard me say, so we're rolling out a whole new line of keys with Celestial, going after millennials. If you look at Celestial today it goes after an older consumer base. If you look at our snacks what we rolled out with Sensible Portions and as we went into Wal-Mart with an exclusive package similar to a Pringle package and our new snacks. So I think from a US standpoint with the amount of retailers and the amount of ACV and white space out there, there is a lot of opportunities for us to grow our business.

Okay. And then just a question on productivity. You had $55 million in savings this year, with a lot of issues whether it's the MaraNatha, the Tilda fire, whatever it is and you're targeting only $60 million for next year. So I'm just wondering why that number isn't meaningfully higher, what - why aren't there further opportunities for additional savings considering again you've got $55 million in this past year with a lot of those headwinds? Stephen Smith\: So number one when we go for 60 we start all over again, so it’s not like we take 50 and we get a plus five as of 60, okay?

Right. Stephen Smith\: So the clock starts at zero to get those, so that's number one. Number two, I will tell you this year, when we get to 60 we don't stop looking, okay? I think the big thing is where do you look and where do you go? A big part of last year had to be SG&A integration. A lot of it comes from acquisitions and procurement. So again, I come back and say, $60 million is a good start in a number that we can achieve, but if there is a 100 out there, I promise you will go for it.

Okay. And do you think as you look at the productivity and cost saving opportunities, whether it's integrating certain businesses whatever it might be, the 60 million is that a pretty good run rate then at least for incrementally over in the next couple years, is there still that level of productivity savings and left within the business? Stephen Smith\: I think a couple things Evan, it depends on acquisitions, as we do acquisitions how we integrate them and productivity we get out of those. Listen we have not integrated all our UK businesses. There is three businesses over there that still operate separately and we've done that for a reason. As one of the big things that as we globalize our business on procurement, right now as we look at freight around the world, we have you know, what is it, 8 to 10,000 ocean liners that we use that we're now consolidating through one ocean liner company, our freight, our warehousing, and that's where we're going. If you come back today and look at Hain in our business, so the US excluding protein is a $5 billion, $6 billion next year. You look at our Hain Pure Protein approaching a $500 million business, I mean there's tremendous amount when it comes to insurance, when it comes to corrugate, when it comes to packaging, as we look today with health insurance, what we're purchasing around the country. So we will continue as we add people, as we add manufacturing facilities. We have 35 manufacturing facilities around the world today. It's amazing how much money we save as we buy hair nets from one company around the world or earplugs or safety glasses et cetera. So that's a big part of it as we bring it all together on a global basis. But I come back and say that we can sign up here and $60 million is a number built into our budget, okay. It's not like it's a low hanging number out there, we don't hit it, no big deal. And it's all part of our compensation. So it's there and at the same time if we can put productivity and cut other costs and put it towards marketing and building brands, we're going to do it.

Okay. Thank you, I'll pass it on.

Our next question comes from the line of Scott Van Winkle with Canaccord Genuity. Your line is now open.

Good morning. Stephen Smith\: Good morning, Scott.

John, when you joined this company many years ago, I doubt you ever expected to be talking about a 19% operating margin, so to kind of follow on that last question. Where can this operating margin go in the US?

Okay. So as Steve mentioned before, our operating margin is still being weighed down by our Rudi's, acquisition. So as I look at this here, look, I think we can continue to be adding 30 to 50 basis points of operating margin improvement year-on-year for minimally the next three years. I mean, there is still – as Irwin said there's still a lot of opportunities here for us to take costs out of the business and back to Evan's question, and so I can give you some senses. We've got some - one of the reasons why we're not seeing a huge increase in productivity this year versus last year is we're moving to a longer lead time projects with longer - which ultimately produced longer streams of annual productivity savings. So I - God I don't think we've hit a wall here yet. I still think we can continue to deliver as our financial model has been doing for several years.

And Scott just to add to that, I mean, if you come back and look at our infrastructure and our SG&A today, I mean, the infrastructure is built out and yes we'll continue to add to it. But if we can add and get to the $5 billion mark by 2020, after cost of goods a lot of that drops to the bottom line. It's not that we're going to be adding three more John Carroll's or three your Irwin Simon's, thank God. But I mean, there is additional manpower, but that's the big thing here is how we build scale and if we can grow high single digits, low double-digits and do $100 million or $200 million acquisitions, there is a lot of coin or gold that drops to the bottom line here at Hain.

Okay. Great and then another one for John. So I think the stat that was thrown out was that the top 200 SKUs in the US in the fourth quarter had a 11% growth in measured channels and then that was about 70% of the sales basis 200 SKUs, is that right?

That's correct for the AOC channel, yes, Scott.

So can you help us kind of foot the other 30% of sales, the rest of the SKUs, and kind of bring it to that 6% internal growth number you gave from the US in Q4? I'm wondering it just seems like a big disparity, a 11% growth in the AOC channels for, you know, the majority of the business and then a 6% internal growth number for the entire US business. Can you kind of foot the two?

Sure. I think the key is that the AOC business accounts for 60% to 65% of our business. So it speaks to as Irwin mentioned that the natural channel for example is not growing for us at this point in time. So that – and that balances out even though we're looking at top 200 SKUs, the overall business has a drag on it, a slight drag on it as a function of the non-AOC business and the non-eCommerce business.

Okay.

And in that number you are not including the Costco's of the world, the eCommerce, food service, et cetera. So I mean, that's additional growth opportunities that’s not in the AOC number.

Got you. The natural channel is – I think the piece that I wasn't getting there. And then real quick one more I apologize, the Pure Protein number was really strong this quarter. Can you give us an idea of what to expect maybe in Q1 or the first half? It’s been a tough number to forecast and now you've got two acquisitions we're kind of compounding on.

So again, Thanksgiving will be - this will be a big year for Turkey. Turkey prices are high and so if you come back and lock at Hain Pure Protein, the second quarter and your fourth quarter are your biggest quarters and then if you look at Empire, it is your third quarter, no it's your fourth quarter this year because Passover is late and that's a big quarter for us. So that's your biggest quarter. So basically your second, your fourth quarter are your two biggest quarters, Scott. Listen the big thing coming out of Hain Pure Protein is, we're today processing close to 10 million Turkeys a year, 20 million chickens all antibiotic free and organic. We are launching a major deli program and going after the antibiotic free and organic deli category to further process. We look to grow that to a $0.5 billion business for us and not only as you looked today for fresh products we have a great fresh distribution system with Hain Pure Protein today and today we'll have with our new plant coming on we'll have four protein processing and I come back and say this year, as we – the big thing that we've done with Hain Pure Protein, I mean, we bought this business in 2005 it was an $8 million business between our growth and acquiring Empire, it's on its run rate to be $0.5 billion in size. If you look at consumption on chicken and Turkey, and protein here are the two categories that are growing. Listen avian bird flu is something that was out there last year and I knock on wood and we avoided it and that has driven prices up. I like where corn prices are today, soy prices in regards to that, but it's a fascinating category with tremendous opportunity and great demand for us. An expansion opportunity, and the big thing Scott here what's happened for us is before this business used to be 60%, other peoples label and 40% our brand. That's reversing to 60% brand at 40% other people’s label.

Thank you.

Thank you.

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

Hey, guys. Thanks for taking my questions. So I wanted to get back, I know there's been a lot of time spent on the call on kind of the growth rate and given the channel shifting going on in the mainstreaming. But I think what I want to kind of dive into is does – when does the slowdown in the natural organic, when do you get a little bit nervous about that number one. But also number two, and I think maybe more importantly, how does it change your business as you start dealing more and more with the guys like Kroger and Target and Costco and Amazon. How does that change the dynamics of your business your kind of go to market strategy? And then I had a follow-up.

I think the - Scott to answer your first question, this is John. Look, the slowdown in the natural channel, it would make us nervous if we didn't see it offset elsewhere in the business in terms of in conventional specifically. So as we look at this and we continue to see good growth both for the category in ourselves in the natural channel - in the conventional channel, we're still very comfortable with our category. In terms of the dynamics, when we start to work with more conventional customers, the key dynamic is that you're in many instances you're dealing directly with a direct ship customer and as a result, you're programming and your pricing ends up being better than it would be in instances where you would previously have gone through a distributor. Because it's the same cost, just with going to a direct consumer – direct customer, you actually can invest those costs directly against price and programming. So ultimately that should lead to faster turn of our products in the conventional channel which will ultimately help us as long as the category continues to grow overall lead to good strong growth for ourselves.

And Scott, I think the thing is that this year you come back and look at Hain today and as we've been building out the infrastructure and building out for this year, we feel that our growth will come back among natural, there is 467 Whole Foods out there, there is 180,000 – 180, I wish 180,000, 180 Sprouts and they continue to open up stores. So between the two of them, they will continue and I think they will right size the numbers and get pricing right and we'll continue to see growth absolutely rebound in both Whole Foods and Sprouts and I feel comfortable in saying that. On the other hand, as I keep saying, there is so much other conventional product that will convert to natural products. And one of the things that we have done and we've talked about it, we've set up an infrastructure to go out and service all these direct accounts. So we have a team down in Bentonville, we have a team up in Minnesota, we have a team that just calls on club stores, we have a Kroger team. We have a Publix team. So we built a sales organization out there and we built a distribution network to be able to deliver to these accounts and there's some that talk to us now about going direct and because they can get a full truckload coming out of Hain and that's the model. So today as we built this out, that was part of our overall strategy many years ago that we felt confident in this category that this would continue to grow and this was just not for consumers that shopped in natural food stores. And today we have a distribution system built out to service every grocery store in America, every mass market. We have a sales organization that calls on channel specific. We have merchandisers that just call on natural food stores that we've outsourced today, that have the newest technology to go into a store. So we're there for that…

Regardless of the channel.

Regardless of the channel and that's what I said before, wherever there's a cash register, we can sell Hain product to today and as we look to grow up or down the street, as we and look to grow more and more food service, I mean, again just think about it, we're going to be able to distribute blueprint with a 40 day shelf life on it to 1900 Paneras around the US. We sell a lot of chicken and Turkey today to a lot of retailers with seven day shelf life on it. So we're set up for it and we're ready to sell a lot more.

So that's a good segway into my second question that goes to the M & A side. A lot of - you guys have obviously been doing smaller tuck-ins with great results. But I guess the question is, you kind of look across the landscape, is it time to consider something bigger, particularly in the US as the land grab starts to increase, as the food, the mainstreaming, the pure foods movement continues or maybe even accelerates? I mean, what's the company's tolerance for doing something a little larger and would you consider paying a little bit more if it were slightly or more strategically?

Listen, number one is, I think Hain gets a tremendous amount of credibility out there for what we've done on acquisitions and made some great acquisitions and multiples that are attractive and there's times we've been criticized that there is no more acquisitions and we keep seeming to find great niche acquisitions, and have done a great job at it. You sit back and look at our portfolio today and if we had one of the top consulting firms do this 20 years ago, I don't think they could have come up to where we are today. But the next phase of Hain to get to a $5 billion or $10 billion company, just adding $50 million in acquisitions is going to be tougher for us if we're looking to get to at $5 billion, $7 billion, $8 billion. So my tolerance is listen I am –I don't have tolerance for debt with three plus in it. On the other hand, good, accretive strategic acquisitions, if we added some of those, and they made sense we would definitely look at those. But I think as I said, we're not going to go out and pay five times revenue for $100 million acquisitions or we're not going out to pay four times revenue and that’s I think there is a lot internally and what I said originally was we have brands today in Hain, Health Valley, Arrowhead Mills, DeBoles, Westbrae that we already own, put some focus against them, get them growing instead of going out and buy some of these startups our return on invested capital is going to be a lot better and is going to help our growth rate because some of those are flat or declining. So that’s we’re going to look at, but as you see our balance sheet today, our debt equity were down to 2.3 times, we have been there since 2008, 2009, 2012. So Scott we have the ability to step up and do a big acquisition.

That’s perfect Dave. Thanks for taking my question and thanks for the answers.

Thank you.

Our next question comes from the line of Alexia Howard with Bernstein. Your line is now open.

Good morning, everyone.

Good morning.

Can I touch a little bit on the gross margin outlook? There were lot of puts and takes this quarter that you went through but if you look out into 2016 are you anticipating that you might be getting maybe better operating leverage or what the shape of the gross margin outlook from here? Thank you.

Well we gave guidance of 24.5% to 25.5% for fiscal 2016 that includes the Empire acquisition. Obviously productivity is margin enhancer. Mix is a margin enhancer. However things like inflation will offset that. So we continue to believe that we can expand gross margin into fiscal 2016 and beyond and do you have any other questions or did I answer your question?

Yes, it was really just around the comments around promotional activity stepping up, is that going to get more intense, but it sounds as though it's going to be more for the steady as she goes through the year?

Right, right.

Okay. And then a just a quick follow-up you’ve said that Tilda is proving to be a great acquisition that I think to begin with there is obviously been issues along the way, is that coming around really strongly now? Just a quick update on that because that did sound as though it was a change. Thank you and I’ll pass it on.

Sure, thank you. So Tilda was great acquisition we paid a good multiple for it. It got us into grains which great growth category, basmati rice great demand and it allowed us to expand into other markets like the Middle East, like India and the ready to heat which is the fastest growing, grew almost 20% last quarter and the category grown at 11%. Right now we’ve just picked up BJ's Wholesale Club, Hive, Wakefern, Giant Eagle here in the U.S. we look to introduce the ready-to-heat. Our plant should be up and running 100% by the end of calendar year. Our ready to heat facility should be up running in the beginning of the New Year. So if you go back and look at multiples that were paid and you look at a global brand business and today we paid about nine times before synergies and savings and you get a global brand like that. Lexia has been a great acquisition for us if you look at all the components it's done for Hain

Great, thank you very much. I’ll pass that on.

I would like to find another Tilda.

Very good.

Our next question comes from the line of Ken Goldman with JPMorgan. Your line is open.

Hey, good morning everybody.

Hi, Ken. How are you?

I’m doing well Irwin you?

I’m great.

How's the meat?

That’s the third thing that happened this year. Am not skating yet.

John, I think you said your sales in the natural channel aren’t growing. We can see how comps slowed there, but total sales for most of these customers including new store growth remain positive. So, I’m curious why Hain still wouldn’t in general see revenue growth in the channel even though comps have maybe come down a little bit.

I think we're seeing some growth from new stores but from a comp store basis we're flat. So that’s the key piece of that one.

Got it. Okay. We’re running long, so I’ll just let it go there. Thanks everyone.

Thank you, Ken.

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

Hey Irwin, congratulations on a really good year, but I do want to ask you about U.K. if I could, could you just elaborate on the profit situation? Is that mainly what's going on competitively among the retailers, they're pushing private label and is that causing branded players to have to step up promotion or is there something else more operational happening with the profits?

No let’s come back and look at U.K. in three different or four different outlooks. Number one from a Tilda standpoint we had a great year on ready-to-heat, an okay year on Tilda bag rice. As you go back and look at Hain Daniels, we had a really good year on our grocery business and the thing about our grocery business we've focused on the brand, private label was where we were hurt because you had European private label coming in at lower prices and we just backed away from pricing there. In regards to our soup business, we spent a lot of money and launch our soup business. You saw that we grew 8% in our soup business. Our New Covent Garden soup and we're ready for a great soup season this year. We picked up some additional fruit business, fresh fruit, fruit juice business, which is mainly private label. You got to remember in the U.K. 60% of our business is branded, 40% is private label. In regards to Linda McCartney, we saw growth, but not profitability where we invested we were looking for both this year and Castle we're looking to breakeven this year on Castle and hopefully make some money. So again it's been investment. Today we got close to a $1 billion in the U.K. Andy and then last but not least, our Ella's baby food and our baby products very profitable, good growth. It now is the number one baby product. It's the number one baby food in the U.K. We're in the midst of launched our non-dairy plant based beverages through our grocery group or look to introduce Celestial Seasonings. We wanted to wait for the new packaging. We're going to look to introduce sensible portions now and we backed up acquisitions until now until we got everything fixed in the U.K. and we're expecting a big year in the U.K. where profitability this year is up almost 40%, 50% if you look at our profitability this year, so looking for a big year. And listen we started the year with a fire with Tilda that hurt us with some other issues, but we're expecting some big things coming out of U.K. this year.

That's comforting. So it sounds like some of the results in the last couple of quarters were impacted by these investments in soup and some other things also, I guess stepping back from some unprofitable business.

Some of things that we right sized the business, we have a business called Abu Shmagh which basically was a food service private label business and the previous owners in that sold a lot of rice into the Middle East. It was great for sales but there was no profitability. We decided to emphasize that just in this quarter -- fourth quarter alone. It was $10 million of sales that we have taken out and was basically out of sold at breakeven or loss. So there is some stuff in Tilda that we are still cleaning up from the prior owners and the thing is you got to look at U.K. on our branded business and our private label business.

Just one follow-up and it's about Tilda more in the U.S. so you're not some of your distribution gains, is that in the ready-to-heat products or is that across the portfolio products?

It's across the portfolio. In BJ’s it will be in the bulk products and in the grocery customers it will primarily be in the ready-to-heat, but we're getting interest in both sides of the business.

Do you have -- what kind of expectations do you have for that product especially ready-to-heat for this year? Is it either in the guidance or above and beyond the guidance, if you wanted to comment on that?

It's incorporated in our guidance, but we're very excited about the ready-to-heat, we think it's a truly differentiated product that we can drive some sales on going forward.

And Andy know a lot because the big thing with ready-to-heat until we get capacity in the U.K. with 20% growth in the U.K. business we got to get that in our new plant that we've just added. We have a plant in U.K. which is the Jas plant, which was not affected by the fire, but is running 24X7 just to supply our demand in the U.K. Ultimately what we have to do is move manufacturing here and that’s something we'll do because everybody that we’ve shown the ready-to-heat product do want -- we just don’t have capacity today.

Okay, that’s very clarifying. Thank you.

Thank you, Andy.

Thank you. Our next question comes from the line of Will Chappell with SunTrust. Your line is now open.

Hi, this is actually Stephanie on for Bill. I just have a quick question about what you're seeing in terms of the competitive environment for Baby in the U.S. and if there is any change to that in that fall?

So here Stephanie, this is John. Basically the baby environment is very competitive right now and its driven primarily by the mass customers. We don’t see any significant change in the level of competition in the short term and that’s why we’ve actually as we spoken about early, we’ve actually increased our investment against our baby brands and quite frankly it's working. Earth’s Best continues to be the number one organic baby food brand in terms of the standalone brand and showing good growth in the high single digits and Ella’s look we had rough year at WalMart where they brought in -- they brought in Happy Baby and Plum on to the shelf, but actually even Ella’s as we lap the introduction of Plum and Happy Baby is starting to get more traction in WalMart and overall has always had a very strong very business at target.

I appreciate the color. Thanks so much.

Sure.

Our next question comes from the line of Andrew Lazar with Barclays. Your line is open.

Good morning everybody.

Good morning.

There was some discussion as I recall on the last conference call about as you build new distribution and gain on some of those wins, I think that the velocity of the sales in those new points of distribution come in at slower rates for a period of time until they build up to what I guess more of the company average or that the channel average and that's when you would start to see organic growth really accelerate as a result of those new distribution wins. So I am trying to get a sense first off, do I have that right and then because some of these new distribution wins you've talked about are so new, I guess what's -- is there a typical lag that we should expect between those new products getting on shelf and when you see the organic growth accelerate as a result of it, or what stage are we at in that process or what has history shown you and you've gotten new significant wins like the ones you've talked about are in terms of the forward-looking growth?

Andrew this is John. What we generally see is that it takes a new SKU three to six months to fully achieve velocity comparable to the SKU the same SKU in other retailers. The only -- the only wiggle there is if it turns out that they bring it on shelf and you have to wait nine months -- if they do it right at the end of the season. So for example for soup if you brought it in April or some of the other -- or tea and then you have to wait a little bit longer as you got into the season. But overall here is why it's so important that we focus on the top 200 SKUs because those are highest velocity SKUs and generally have our highest distribution as well and as we bring them on, we will actually see the new distribution ultimately lift the velocity of the entire business because as I've talked about in each of these channels the top 200 SKUs accounts for 60% to 70% of the business.

Andrew just to again as we cut them in, it takes time as they do the resets and some in September and then you run into Holiday season where no new products come in etcetera. So there is three to six months before you get it in and most retailers reset once a year. Some do twice a year.

Yes and I am trying to put the sheer number of the new points of distribution, the 100,000 number just because I forget perhaps, I am trying to put that in perspective of how significant is that relative to when you won sizeable amounts of new distribution before? Is this maybe the largest sort of incremental gain in new distribution you've had in a couple of years. I am trying to put it in perspective because I truly don't remember.

Sure what I had said before was that these new gains are comparable to what we saw in FY'14 where we gained three huge pieces of business driven first by Walmart because Walmart is a 25% plus of the AOC on Sensible Portions, Greek Gods and Ella's Kitchen. This is a little more fragmented because it's not concentrated on three key brands, but in terms of the actual increase in PODs, this is more comparable to what we saw in '14, which had been by far our largest increase at least in the history that I've been here at the company.

Got it. Okay. Thank you. What I am trying to do is get a sense as being trying to draw what could be a reasonable connection right between some of the distribution that you've talked about and where organic sales growth can go and things of that nature, so that's helpful, thank you.

And Andrew there is more to come. Just because we got a 100,000 doesn’t mean we stop there. We're representing new products all the time.

We talked about getting some nice gains in Q4 as well.

I think you got to look at that too. So as -- which is important.

Thank you.

Thank you.

Thank you. And we do have time for one or two more questions. Our first question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Good morning and thanks for taking my question. So I just wanted to touch on the natural channel. So clearly trends there continue to slow at some of your leading customers. So just wanted to get a sense as you look at the various channels, what other opportunities do you see right now and helping to drive stronger growth in the natural channel?

Listen I think it comes back down to three things. It's selection, it's price and again making sure the products are in the stores not at the stocks and that we have distribution and I think that's key in regards to maintaining and getting additional growth in natural food stores, but if you are out of stock, you cancel the product. if you're priced 20% to 30% higher, then other retailers, retailers there are crossover shoppers. And last but not least is there is selection that you're going to have the right selection and what we continuously do as we come out with new products around natural expo we look to introduce them into the natural channel first because that's where our original, that's where our consumer shop. So innovation is key there also.

And is there more of an opportunity…

Rupesh, this is John. One other point I would add is when you think about our key natural channel brands, MaraNatha obviously did not have a strong year given the recall. Imagine soup, we've been quite candid about what -- we did execute soup season like we wanted to and we will not repeat that this year. We're going to win in soup season and Dream plant based beverages, those are three key brands that we're putting quite a bit of effort against and we think that we can kind of dictate our own fortunes in the natural channel by investing on those businesses -- in those businesses and driving increased consumption against what I would argue is probably a low base in that channel.

But consumers today are out there shopping for selection, innovation and price and that is something so important and I think that's a key driver where Natural has got to focus on.

And on the Selection side do you see an opportunity for maybe more exclusives going forward for the Natural channel?

Sure, listen with the major natural food retailer in July, we had a Hain store with a store and 176 of their stores and we had couple hundred skews in there John very, very successful. Yes and again with Burritos, Westbrae and what do we look at, what do we do with certain brands that are focused on just natural channels. Listen Arrowhead Mills and DeBoles are focused on the natural channel. We have 50 plus brands today and that's where the opportunity of our brands do we bring that are exclusive just to the natural channel.

Okay. Thank you for all the color.

Thank you.

Thank you. And our last question will come from the line of Anthony Vendetti with Maxim Group. Your line is open.

Thanks. Just a quick follow-up on the ACVs and grocery, you said you were on 32% or so, what is the opportunity there in terms of where do you think that could go over the next several years? And then just a quick question on Ray Kelly joining the Board just the rational for that and the composition of the Board going forward now.

Irwin had talked about an average ACV of about 35%. That actually reflects our top 100 SKUs. Our top 200 SKUs average about 26 ACV in the AOC channel. But I think that if we continue to focus very diligently on driving the top 200 SKUs, we could move that number up to 40% to 50% over three to five years. So I think there is a lot of room there.

And in regards to the Board, the composition of the Board listen I think we have as always we have a very independent Board. I am the only insider on the Board and that's been the way all the time, very much independent directors. The Board is elected every year. In regards to Ray Kelly, we had a Board Member that passed away this year and when I was out there looking for Board Members what do we not have on the Board today in regards to experience that could ultimately add value. I've known Ray a long time. He ran a 55,000 police force in New York City. He ran customs. He is from a global standpoint. Today as Hain expands into so many countries around the world with cyber security and we recently heard about Reuters being hacked with press releases, our risk management, our international relationships today is legal in India, the Middle East. The risk management today in regards to the companies and foreign corruption acts and stuff like that just to ensure, so it's just another element to ensure that Hain has experienced Board Member to help us with. We've a diversified Board today that understands who, that understands packaged goods that understands finance, that understands comp and when you can get somebody like Ray Kelly's talent, it's a big addition to our Board and we'll continue with our Annual Meeting coming up in November as we look to add to the Board and that's something we'll continue to do.

Okay. And just -- if I could follow-up on the Hain Pure Protein clearly you've been able to avoid the Avian flu issue, but as you mentioned Turkey prices are going to increase this year. How do you adjust for that? Is that something that just impacts the gross margin a little bit or do you try to pass that along to your customers?

Well hopefully when you got the goods, you can get the price, okay. So that's one thing and the good news is the thing about Turkey the pulse are in the ground now and we're growing them and we're growing our own. So we're positioned for that and let's knock on wood there. We're set and we're expecting a major Thanksgiving this year. We're looking for good pricing. The good news is consume wants antibiotic free. Today we're probably one of the largest producers or antibiotic free turkey, turkey breast, turkey in general ground, turkey in the market is moving more and more towards that from a protein standpoint and same with chickens. So we're vertically integrated and again we're watching our barns and we got a lot of security in place. When it comes to our barns and how you visit us etcetera and that's goes the same with Empire Kosher today in regards to all our products going through their antibiotic free or organic we're moving towards that in regards to our whole daily program. So I think the big difference is we're not out there trying to buy birds on the market. We have our own -- with our own grower barns and we can manage that very closely.

Excellent. Thanks a lot.

With that, that is our last question Mary tells me and when Mary tells me something I got to listen. Again 2015 started off last year this time with us discussing a major product withdrawal or recall one of the biggest and toughest within Hain history. As you heard me say before including private label products that we manufacture it was close to $50 million in sales that we did get this year and we plan to make up every dollar of that and then some. At the same time we did make it up with other brands, other categories other products. We made the profitability up and within months got back in production with MaraNatha and have recovered from it and you're going to see some major distribution drives and some major things happening with MaraNatha as John talked about new packaging, new products etcetera. We can't control the almond prices, but we will get the product out there and we'll look to lots of productivity to manage the pricing. With regards to Tilda, again we never plan for fire. We never had a fire before. In October we had a major fire, but within weeks [Rowan] [ph] Bob and the team were able to move to third party co-packers, which is amazing and not miss a beat. We might have missed a few weeks of production and we were able to be back up and running and servicing Tilda brands around the world. At the same time dealing with demand of ready to heat rice and which I've learned buying Basmati rice is not that easy, lot of fluctuation in price. A lot of different farmers in India and we've done a great job and the plant will have a brand new plant with many efficiencies, lot of velocity and have capacity to produce a lot of product and again that is behind us. Other challenges happened in the year, but we deal with them and we move on and whether natural channels slowing and where do we move that to? Whether we have a customer that decides to discontinue a product or bring another products or you heard John say before with bringing on a new customer where we overshot the projections and our volume on personal care took us at a stock on other customers and how do we make up that $5 million, $7 million of stock. Those things happen, what Hain does a great job at is managing a very diversified portfolio with multiple commodities with multiple geographies, multiple customers. As you heard me say, there is no one brand that represents more than 10% of our sales and we have an exceptional diversified customer base where our biggest customer today is probably 13% of our sales and if you look at our business today, we're 60% U.S., 40% outside. Yes, we have currency fluctuations, but we'll deal with it. We're in a hot category. Natural organic products will continue to grow as I've said it before, eating healthy is not a fad, it not a trend, it's a part of life, living healthy and lifestyle. If you go back and ask anybody about the word wellness ten years ago, maybe 5%, 10% focused on it. Today it's 99% and eating healthy is not for the 1% and we're seeing it growing in multiple channels and multiple mass retailers around the world. You heard me talk about our balance sheet, our balance sheet is strong at 2.3 times. So we have the ability. I was asked to do multiple acquisitions out there and to do acquisitions that are much higher or larger than we've done before and we've tested that before. We didn't go ahead with it. So we would know how to integrate that. What I have to say is this here, we have an exceptional team at Hain. That's why we've been able to put these results up. There is a role obviously to get this things done here and we're entrepreneurial, we're nimble, flexible and the team works 24X7 to make things happen around the world. Today we have 35 manufacturing facilities, just we have now one in Vienna, two in Germany in the U.K. So again we have multiple manufacturing facilities as we have to manage that. I am excited about 2016 because of our products, our categories, our customers and last but not least just the demand for natural healthy products. With that I am going to thank everybody again for joining our call today. Enjoy the rest of your summer and continue to live, drink and eat healthy. Thank you.