The Hain Celestial Group, Inc. (HAIN) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to The Hain Celestial Announce Fiscal Year 2017 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the 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, Senior Vice President, Corporate Relations. You may begin.

Good morning, Krista. Thank you, and thank you all for joining us today. We’re pleased to report Hain Celestial’s Fourth Quarter and Fiscal Year 2017 Earnings Results. Irwin Simon, our Founder, Chairman, President and Chief Executive Officer; Gary Tickle, Chief Executive Officer, Hain Celestial North America; James Langrock, Executive Vice President and Chief Financial Officer; John Carroll, Executive Vice President, Global Brands Categories and New Business Ventures are with us as well as several members of The Hain Celestial management team today. Our discussion 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, which may cause results to differ, are listed in our publicly filed documents, including our 2015 Form 10-K and other reports filed with the SEC. A reconciliation of GAAP results to non-GAAP financial measures is available in our earnings press release, which is posted on our Web site at www.hain.com under Investor Relations. This conference call is being webcast, and an archive of the webcast and accompany presentation, of the webcast -- . The conference call is being webcast and a archive of the webcast and will be available on our Web site under Investor Relations. Our conference call will be brief so limit yourself to one question was one follow-up question please. If time allows, we will take additional questions, and management will available after the call for further discussion. Now, let me turn the call over to Irwin Simon.

Thank you, Mary and good morning everyone. And we appreciate you joining us this last week of August. What a year it's been. I’m extremely proud of all the work that has been accomplished by our team. Building upon a strong team, as well as our core growth plans, our cost saving initiatives through Project Terra, we have made significant progress. All of our business segments delivered constant currency net sales growth during the fourth quarter, as we gain momentum throughout the year in delivering on our strategic plan and investments. The U.S. team, led like Gary Tickle, has done a great job. We’re pleased, net sales grew 2% on a constant currency basis in the fourth quarter. We accomplished this even with our decision to reduce our U.S. fuel count by 20%, the most comprehensive SKU rationalization in the Company’s history. This, and our inventory realignment, reduced net sales by approximately $60 million, and Gary will take you through the benefits that we’re seeing for us. Across natural MULO, club, Amazon, our consumption was up 6% for the top 500 SKUs, which represents 94% of our sales. As the industry has evolved so we at Hain Celestial; what has made us so successful? What will drive our continued success in the future is our ability to evolve our business as we grow our Better-for-You brands, expand relationships with new and existing customers and attract many, many new consumers globally. Across our organic and natural Better-for-You brands, we are well position in some of the most exciting and fastest growing product categories around the world. Before I address our path ahead, I’d like to focus on our total company and segment results in a little more detail. We are really pleased that our fourth quarter and fiscal year 2017, on a constant currency net sales and earnings per diluted share, were in line with our expectations that were outlined on June 22. Fourth quarter consolidated net sales increased 2% on a constant currency basis or up 4%, excluding the UK on label juice divestiture, acquisitions and SKU rationalization. For the fiscal year, consolidated net sales increased 3% on a constant currency basis or up 3% adjusting for the items that I just mentioned above. Adjusted EBITDA for the quarter was $86 million. These results included; the execution of our SKU rationalization and U.S. inventory realignment; our efforts as well as our transition through Hain Pure Protein Turkey pricing and operational efficiencies. Importantly, these efforts have already better position us for growth in our fiscal 2018. On a worldwide basis, we delivered approximately $45 million in annualized Project Terra savings in line what we said out to do. John Carroll will be leading our Project Terra and will take you through all our efforts and our plan very shortly. We have thoroughly reviewed our global organization, resulting in efforts to right-size our business with the elimination of certain decisions to ensure, we have the key capabilities needed to support our business. We generate strong operating cash flow of $217 million and paid down $111 million in debt. We completed two small strategic tuck-in acquisitions, Yorkshire Provender soup and Better Bean products; we licensed the Rosetto brand, a non-core asset via joint venture with Rosetto Foods Limited, in which we hold a minority interest; we divested our project Terra -- our Project Castle, which is a private label dessert business in the UK; we launched an exciting strategic joint venture with the Future Foods Group, a leading retailers in India, which we broke ground in July on a snack plant, which should be operational calendar year 2018. We are excited to have this facility manufacture our Terra Chips products to meet the demand for our snacks in India and the Middle-East, as we further expand our brand presence in these growing regions. Turning to our segment performance. Fourth quarter UK constant currency net sales were up 3% adjusting for divestures and acquisitions. For the fiscal year, UK constant currency net sales increased 13% or up 6%, also adjusting for divestitures and acquisitions. Europe constant currency net sales were up 5% for the fourth quarter and 14% for the fiscal year. Canada constant currency net sales were up 7% for both the quarter and the fiscal year. Cultivate, which we created last year to bring focus on smaller underserved brands and to explore smaller acquisitions, supported by a dedicated infrastructure and R&D. This was a building year for Cultivate under Beena Goldenberg, where we developed a core team dedicated sales associates. For Hain Pure Protein, it was very much a transition year and yes it was, as we work through Turkey pricing pressure, supply disruption and production constraints. In light of this, we're pleased our net sales increased 8% for the fourth quarter and 4% for the fiscal year. We believe our operational challenges that impact sales, profitability for this business segment, are behind us. We had solid growth and profitability from both our FreeBird and Empire chicken brands, and Plainville brand turkey. As turkey prices came down during this fiscal year, it pressured our Plainville brand profitability. We have a strong-strong plan in place for strong execution during the holiday season, including Thanksgiving. We plan to sell more organic antibiotic free Turkey and will further expand our business in higher margin areas. Going forward, we continue to expect our organic protein business to grow double-digits beginning the fiscal year 2018 and operational improvements to begin yield results, and we would lap last year's plan start-up delays. Looking forward, I'm excited about our potential. Hain Celestial is well positioned in some of the most exciting and fastest growing product categories around the world. And we believe the tailwind is driving organic and natural foods growth should only get stronger. Within the $800 billion grocery industry, there is a continuing shift occurring away from conventional CPG brands to organic natural and Better-for-You products, which is exactly where Hain Celestial is positioned today. Since 1993, we've offered authentic high-quality mission driven brands within the organic natural and Better-for-You products industry, and that increasingly resonates with today's consumer. And as we continue to be the first mover in on-trend categories with robust product innovation; for example, we introduced over 200 new products in fiscal year 2017, which many of them are gaining attraction today. At Hain Celestial, we have a truly global and diversified customer base with multichannel distribution across traditional grocery, club, convenience store, fast casual, mass and more recently, the omni-channel for the seamless shopping experience consumers are thinking. We believe this is significant competitive advantages that differentiates us in the industry; however, we also know our next phase of value creation will not be one by relying on the past. We must continue to evolve to meet the needs of our consumers and realities of this operating environment. Looking forward, we will continue to evaluate all opportunities to build our platform, strength, eliminate complexity, enhance margins, including through accretive acquisitions and non-core divestitures. M&A and portfolio change will continue to be a part of our strategy. But going forward, our primary focus will be driving attractive base business growth in today’s highly dynamic environment. Over the last 24 years, we have assembled one of the most attractive portfolios of assets in our space. We believe we now have an incredible opportunity to drive shareholder value through Project Terra by ensuring we are operating this business in a cost efficient matter, while investing behind them to support our long-term growth. Much talked about Amazon’s acquisition of Whole Foods represents a powerful combination between ecommerce and brick-and-mortar stores; Amazon, this will be very much favorable for us; the combined entity represents a significant portion of MULO consumption between our U.S. and Hain Pure Protein business, and we know this will grow. Today, natural and organic foods and beverages represent 9% of sales within brick and mortar. Of online food and beverage sales, 29% is natural organic food or approximately 3-times what brick-and-mortar sales. This represents an increasing opportunity for us as more and more consumers will shop online today. For example, Amazon announced last week that prime with it's approximately 54 million, or nearly half its U.S. household, will launch a Whole Foods customer reward loyalty program, which we expect to drive additional traffic in the stores. It’s great to see Hain Celestial trends improving at Whole Foods, particularly the top 500 SKUs, which are up 5% in the latest four weeks. As Whole Foods reduce its prices, we believe it will bring more and more consumers to buy our brands, which should fuiel incremental future growth. And it also highlights the tremendous opportunity for Hain Celestial, as organic natural products, are increasingly becoming more mainstream and accessible to a much broader consumer base. These means across all channels, including grocery, mass, club and beyond our Better-for-You brands, will benefit from these positive tailwinds. We continue to be very pleased with the strength of our organic natural and Better-for-You products and in other natural brick-and-mortar customers where our distribution and velocities are growing. The business momentum and operational improvements, we experienced in the fourth quarter of fiscal 2017, reinforce our confidence in this tremendous opportunity ahead to generate the growth we are now capable achieving over the next several years. We are confident that we’ve reached an inflection point and the Company is well positioned to resume sustainable long-term growth and profitability. Looking forward, I believe that tremendous value remains to be realized given the strength of our brands, our growing product categories, Project Terra, our people and the loyalty of our customers and consumers. We are excited with what’s ahead for Hain Celestial in 2018 and in the early innings of our business transformation with our greatest opportunity still ahead. Now, I’ll turn it over to Gary.

Thank you, Irwin. It’s my pleasure to present the fourth quarter and full year results for the U.S. business. U.S. food retail landscape has continued to evolve as the shopping occasions fragment across the traditional supermarkets, ecommerce, club, and specialty channels. The customer and channel centric strategies, we are executing today, directly respond to this environment. I continue to see significant opportunities for Hain Celestial to engage the natural organic shopper and become a much larger part of the conventional shoppers’ basket. Our growth roadmap requires us to deliver on four specific strategies. As I outlined to you June, we will seek to; firstly, focus resources on leading brands and products that represent 90% of our business, and which are outgrowing our entire business; secondly, to drive cost out of our business and streamline our product portfolio and supply chain to reduce complexity; thirdly, increase investment in our leading brands and consumer engagement with a focus on innovation where our cost savings will fuel our investment plans to create a virtual circle of growth; and fourthly, enhance our in-market retail activation within the store and online to improve sales execution with more effective trade investment. Our quarter-four momentum demonstrates with our plan is working and I look forward to providing you more detail on how we’re executing against these goals, going forward. In the fourth quarter, we generated net sales of $309 million, an increase of 1% from quarter four last year or 2% increase on a constant currency basis, accounting for Ella’s Kitchen brand in the UK, which is $3 million top line foreign exchange drag. In delivering this result, we continued on the path set to increase our focus on the top 500 SKUs, representing 94% of our MULO+C consumption as of 7/16/2017. Our SKU rationalization program, announced to you in June, continues and impacted fourth quarter top line sales by $5 million or 1.5% of net sales, which was in line with our expectations. As we mentioned, it was approximately 20% of our SKUs in the U.S. that were rationalized. We had minimal impacted inventory realignment in our supply chain this quarter. Adjusted for SKU rationalization impact and foreign exchange, the top line sales grew 3% and underlying gross margin was lower by 70 basis points year-on-year. Our operating income for the fourth quarter was $46 million, which was down $11.5 million versus the same period prior year. The major impacts on operating income were; a planned $3 million increase in consumer engagement investments and other investments and capabilities, including salaries of $3 million; and the impact of foreign exchange and SKU rationalization of $2 million. Turning now to consumption trends. In my commentary, I'll reference the July 16, 2017 IRI MULO+C convenience data, which represents about 60% of our sales, unless and otherwise specified. In the 52-week period, our top 500 SKUs grew 4% in MULO+C, and they continue to outperform our total business with a strong total distribution point growth of over 4.6% in the latest 52-weeks. The impact of our SKU rationalization has resulted in 1.5% drag on MULO+C consumption for the 52-week period. Excluding this, our underlying 52-week consumption growth for the total U.S. business in MULO+C would have been up 1%; consumption for our top 11 brands in up 2%. Some notable highlights across our key brands in the last 12-weeks ended 7/16 include; Imagine soups and broths continued its outstanding performance with 40% growth and Terra chips continued to show a strong double-digit growth; this growth was broad-based across all channels with higher velocities in existing sales channels; MaraNatha has delivered broad based consumption growth of 2% in dollars and over 9% in units in an quarter four MULO+Sales; growth increased double-digits in the natural channel. We're also seeing broad based growth in our Personal Care business in measured and unmeasured channels. We’ve also been focusing on the top 500 SKUs outside of the measured channel of MULO+C where we are seeing improved consumption trends in the natural channel. Our brand investment initiatives continue to build, including the Live Clean launch and incremental programs that were successfully in driving top-line growth the snacks, Celestial Seasonings bagged tea and MaraNatha. In the marketplace today, we’re activating our in-store program against the launch of Greek Gods seriously indulgent innovation, and we are very encouraged by the early reads we’re seeing. Turning to focus on retail execution. We see continued good performance in unmeasured channels, and I call out the positive results of our work with Whole Foods market as noted by Irwin, with a stronger focus on our core range assortments and promotional strategy, resulting in acceleration in both dollars and ACV growth of the top 500 SKUs. In closing, 2017 has been a year of significant transformation. Briefly recapping, we have developed a three year strategic plan that drive growth, brand equity and consumer engagement across our top 500 SKUs and top 11 brands. We’ve reduced in SKU count by around 20% with a top-line impact of $24 million in FY ’17, reducing complexity and increasing focus on our core range, impacting our operating income negatively by $5 million. We have realigned our finished goods inventories with the top-line impact of $36 million in order to move to a more consumption-driven operating model. It’s also impacted our operating income negatively by $12 million. We’ve generated productivity savings of $30 million for the full year, and at the same time, started to accelerate our consumer engagement activities by more than 30% year-on-year, including the Ella’s Kitchen brand, which remains the number one baby food brand in the UK. We’ve also invested in capability with new talent and building new business processes. In 2018, we expect we’ll have an even stronger focus on the top 500 SKUs and top 11 brands, and a further increase in investment behind brand building and consumer engagement activity compared to 2017, funded through our productivity savings plan. This plan should drive low to mid-single-digit growth on the top-line, while improving EBITDA performance in line with sales growth. 2018 is truly a year of exciting opportunity for growth at Hain Celestial, and my U.S. team is very focused on winning in the marketplace. I look forward to meeting with many of you in the coming weeks and to continuing to update you on our U.S. business. Thank you. And I’ll now turn the call back to John.

Thank you, Gary. Good morning. Project Terra is our $350 million cost savings program, which will provide us with the fuel we need to make strategic brand investments, like Gary was talking about, while also expanding our margins overtime. We believe Project Terra represents a tremendous opportunity for Hain Celestial to create value over the next three years. Part of our historical strategy was guided by the view that at that the time, we could create more value by taking advantage of opportunities to build our natural organic Better-for-You branded product portfolio and global footprint. This strategy has clearly paid-off as today we are a leading pure play organic, natural and Better-for-You company and we are well position to benefit from key industry growth tailwinds. However, this approach has also resulted in complexity and costs across the organization. We started Project Terra to help us identify and reduce these complexities in their attending costs. Today, I’m focusing on our cost savings opportunities. We’ve studied our global cost structure and identified savings opportunities across the P&L while at the same time, continuing to leverage our proven supply chain productivity function; but we’re attacking all cost opportunities, including both direct and indirect costs. And to reinforce the importance of Project Terra, we have business leader incentives in place to drive accountability. For FY18, we've identified $100 million in savings across our worldwide operations. We have detailed and prioritized these savings opportunities on a business-by-business and project-by-project basis based on what's the CapEx requirements and the return on the invested capital, as well as what are the non-CapEx cash spending requirements; and of course, what are the FY18 savings and the ongoing annual savings. Now, some of the exciting Terra projects we are executing against include, in the U.S.; where we have identified a significant savings opportunity related to optimizing warehouse handling and freight utilization; where at Hain Pure Protein, where we have indentified millions in cost savings through process improvements that drive increased yield, higher throughput and labor savings; and in the UK, as Irwin mentioned, we've identified millions of cost savings based on our planned exit of project Castel, the own-label chilled frozen desserts business; and globally, where we are looking to drive millions in annual savings by reducing indirect spending. With just those this shows four areas that I talked about alone will drive $25 million in annualized savings. So to summarize, Project Terra is our cost savings initiative to drive $350 million in savings over the next three years to provide us with the fuel we need to prudently invest behind our business, while expanding our margins overtime. We look forward to providing you with more updates on our progress in the future. Now, I’ll turn the call over to James Langrock. James?

Thank you, John, and good morning, everyone. We are extremely pleased with the momentum we achieved in the fourth quarter. Fiscal 2017 has been a transitional year at Hain, but our results continue to improve throughout the year. These improvements across our business, provides us with greater confidence in our fiscal 2018 guidance, which I will discuss in more detail after I review 2017 results. Please refer to our GAAP to non-GAAP reconciliation tables in the press release for additional information on our financial statements. First, I want to provide some color on the timing of our 10-K filing. As you are aware, we filed our 2016 Form 10-K and Form 10-Qs for the first three quarters of 2017 on June 22. 2017. This resulted in significant time and resources being diverted from the Company’s usual fiscal year-end audit process. Accordingly, we plan to file a Form 12-B 25 today and expect to file our audited financial statements within the additional 15 days afforded by the SEC to continue to be deemed a timely filer. With the filing of our 2017 Form 10-K, we expect to return to the normal quarterly financial reporting cycle. Now, on to our results. We gain strong momentum in our business during the fourth quarter, and we believe we are well-positioned to substantially increase profitability in fiscal 2018. Net sales for the fourth quarter performed to our expectations at $725 million, a decrease of $12 million or 2%, which includes $28 million of unfavorable foreign currency impact. Net sales increased by 2% on a constant currency basis. Importantly, the U.S. segment net sales returned to growth, increasing by 2% at constant rates. The acquisition of Yorkshire Provender, completed in the last week of April and the Better Bean acquisition which closed in the last week of June, contributed $1.3 million in net sales. The fourth quarter of 2016 included approximately $7 million in net sales from the private label juice business in the UK, which we divested in the first quarter of 2017. Irwin and Gary discussed top line highlights for the business segments, so I’ll provide you with more of the underlying financial results. As we communicated on our last earnings call in June, our expectations for adjusted EBITDA for the fourth quarter of fiscal 2017 was in the range of $80 million to $85 million. We are pleased to report EBITDA of $86 million, as the U.S., UK and rest of world segments met or exceeded our expectations. EBITDA contribution within our HPP segment improved sequentially and year-over-year, but continue to be challenged in Q4. However, as Irwin previously discussed; we have made progress, streamline the organization with people and processes, and we expect to see improved results in fiscal 2018; we earned $0.43 per share on adjusted basis, the high-end of our guidance range, compared to $0.43 in the prior year period; foreign currency exchange rates impacted reported results by $0.03 per diluted share; the effective tax rate was 27.6%. Moving on to full year 2017 results. Net sales were $2.9 billion, a 1% decrease from the prior year. At constant rates, net sales increased by 2%; adjusted EBITDA was $275 million or 9.7% of net sales as compared to $379 million with 13.1% in the prior year. Now turning to our cash flow and balance sheet. For the fiscal year, we generated operating cash flow of $217 million, CapEx for the year was $63 million and operating free cash flow was $154 million as compared to $129 million of operating free cash flow in the prior year. We spend $19.5 million on tuck-in acquisitions in fiscal 2017. During the full year, we paid down $111 million in debt and our bank leverage ratio decreased from 3.28 times in Q3 2017 to 3.11 times in Q4 of 2017. At June 30th, our cash balance was $147 million and net debt was $603 million as compared to $735 million for the prior year. Our proven ability to generate strong cash flows, along with our solid balance sheet, affords us the capability to invest in the business for future growth while maximizing shareholder value. We currently have $250 million available on our share repurchase program. Building off the strong momentum in Q4: We are pleased to provide the following guidance for fiscal year 2018; net sales in the range of $2.967 billion to $3.036 billion, an increase of approximately 4% to 6% as compared to fiscal year 2017; we are expecting low to mid-single-digit growth in the U.S. and HPP, while, the UK and rest of world are expected to grow mid to high-single-digits; adjusted EBITDA of $350 million to $375 million, an increase of approximately 27% to 36% compared to fiscal year 2017, which reflects $100 million of Project Terra savings, including annual productivity and an increase in brand investment of $40 million to $50 million, primarily in the U.S. These investments are important in our efforts to deliver an accelerated rate of top-line growth over the long-term; adjusted earnings per diluted share in the range of $1.63 to $1.80 with an expected tax rate of approximately 30%. We expect interest and other expense to be approximately $25 million. We expect depreciation and amortization, and stock-based compensation of expense, of approximately $80 million. Now, turning to our outlook for fiscal 2018 cash flow: Based on fiscal 2018 EBITDA expectations; we anticipate cash flow from operations of $235 million to $270 million; we expect capital expenditures to be approximately $75 million, which provide us with cash available for allocation in the range of $160 million to $105 million; our strong cash flow generation provides us with financial flexibility to support our strategic initiatives, including acquisitions; with our improvement in EBITDA and free cash flow generation and assuming a $100 million debt pay down, our leverage ratio would improve from 3.1 times to between 1.8 times and 1.9 times before taking into account acquisitions and share repurchases. With respect to cadence of our quarters from a sales perspective. The second quarter is historically the strongest quarter with the third and fourth quarters essentially consistent with one another, and the first quarter being the lowest. Commencing in fiscal year 2018, Ella’s UK’s financial results will be included in the United Kingdom reporting segment with a vast majority of the sales occur. Approximately $90 million in net sales has historically been included in the U.S. segment. As a reminder, our guidance is provided on a non-GAAP or adjusted basis, excluding the impact of any future acquisitions and other non-recurring items, which we will continue to identify with our future financial results. In summary, we are pleased with the solid momentum we experienced as we exited fiscal year 2017 and we are guiding for strong performance in fiscal year 2018. We expect significant contributions in fiscal 2018 from top line growth and margin enhancement, while also making important investments in the business. Thank you very much. And with that, we will now open-up the call for questions. Operator?

Thank you [Operator Instructions]. And our first question comes from Andrew Lazar from Barclays. Your line is open.

I guess, I wanted to start-off a little bit with looking at the momentum that you saw in your underlying business through the fourth quarter. And just trying to compare that, and see how it drives with maybe what we all see, just from the measured data more recently in the U.S. And I know that only picks-up obviously a percentage of your U.S. business. But perhaps you can just help us bridge a little bit, some of the recent trends we’ve seen in Scanner with your expectation for 4% to 6% sales growth as we move forward through fiscal '18. And then I've just got a follow-up.

Gary is going to answer that. But I think as we all look at IRR or Nielsen information, as you heard me say, it represents MULO, it doesn’t represent a lot of our other accounts out there. The other thing as we've been going through a SKU rationalization and that tail has been a drag by a couple of points. And what we're talking about is our top 500 SKUs that represent 94% of our sales. So let me get to Gary just to take you through the combination, like I said, of what natural Amazon club is, so Gary.

As Irwin pointed out, of course we and I mentioned on the call, we obviously have some SKU rationalization drag, which we anticipate will continue through just mid-2018. But outside of the measured channels that you see, as I again mentioned, we have seen broader consumption improvement across the number our unmeasured channels. And of course, the focus is on the top 500 SKUs in those channels as well. And if I look at the most recent reads across those channels, we’re seeing acceleration in many parts for the top 500 SKUs, very encouraging to see better results in the natural channel, which has been a drag for us. And also with some of our major customers, such as Whole Foods, where we’re definitely seeing much better trends with the focus on the top 500 SKUs, and we would anticipate that that will continue with the assistance of what is going on with Amazon as well. So all-in-all, it’s a change in the balance, if you like in the SKUs. And of course, what you’re seeing in the Scanner data is probably overemphasized because of just one or two decisions and one or two retailers affecting one category. And as you know, sensible portions is a big piece of our business, and it’s turned from growth driver to, at the moment, a drag largely because decisions in one customer. So that tends to color the numbers a little bit that you see in MULO as well.

And then just a quick follow-up. Gary, I think -- but I could be wrong. On the last call, you’d mentioned the same low to mid-single-digit sales growth expectation in Hain U.S. for ’18. And I think it was EBITDA growth of low-double-digit. I think that you might have mentioned EBITDA growth in line with the sales growth. So if I do have that right, I’m just curious what the change was. But it’s possible I have that wrong.

Yes. So first of all, low to mid-single-digit is our expectations of the top-line. And yes, just to confirm, our bottom-line expectations in EBITDA is to be more or less in line with our sales growth. That would be our expectation, recognizing that we, obviously, are making a fairly significant investment in the business to get this growth. And I think that’s a fairly reasonable balance.

Andrew, this is James. I just want to clarify. So, the growth is low mid-single-digits on sales. But the EBITDA would be low-double-digits growth on EBITDA, because just the way the math works.

So it’s consistent with what we had heard last quarter.

Yes, consistent with what we heard last call.

Thank you. Our next question comes from Akshay Jagdale with Jefferies. Your line is open.

Wanted to ask a follow-up on the U.S. Gary, can you -- and just going back to Andrew’s question. I just want to make sure there is no channel-fill related shipments in this quarter that may or may not reverse right, because, you’re doing a lot of, obviously, brand re-launches and you mentioned yogurt and obviously, MaraNatha, and I’m sure there is more coming. So can you give us some sense, if it is a call out, if there is any channel-fill related to your launches? And then I have a couple of follow-up.

Yes, I can absolutely confirm, this is consumption driven. What we’re seeing is consumption driven improvement. The launch, for example, for Greek Gods really has only taken effect now in August. So it really has no impact at all. And for the balance, it’s absolutely a shift in the model as we flag this whole intention of what we've done to 2017 to shift our inventory balance, is all around gearing for consumption driven growth. And that's exactly what we're seeing.

And then just to follow-up. Can you provide a little more color on what you’re seeing in from the Greek Gods launch? It seems like the timeline potentially little bit delayed in terms of the execution and store, but that from a, coming from a very small sample that we have surveyed. So you mentioned the things are going better than you thought or at least encouraging early on. So can you give us a little bit more color on Greek Gods? And then also MaraNatha, I think, the Nielsen data is still not capturing that. So maybe you can give us a better read from what you’re seeing there in the most recent periods. That would be great.

Greek Gods is basically running to our original planned time table; this unscheduled for launch predominantly; kicking-off in Walmart; performance is very strong; the most recent reads we’re seeing very encouraging; good early trial; very much on or ahead of our plan with them; we go to fairly substantial lift in TDPs as a result of the innovation coming in; and we've started the in-store activation program, as I mentioned; so that we get the opportunity for the consumer to try to product. And today, the reads we’re seeing are very encouraging. Of course, it will flow through in the MULO results in the coming reads. So you'll see more of that. In the case of MaraNatha, performance in the MULO read is strong. We've got strong unit growth, as I mentioned. And outside of that, we’re seeing in products of the natural channel, for example, double-digit growth, which we have not seen for some time, also very strong growth in whole foods. So this is broad based growth for MaraNatha across a range of channels, so very encouraging.

And just one last one for Irwin, on Hain Pure Protein, results came in below expectations even this quarter. Can you give us a little bit more color on why you feel confident that things have turned around? Because obviously, your guidance seem to imply that things are going to already turnaround a little bit more than they have this quarter. So anything you can share with us since the quarter close; as to how the results are doing; or that could give us a little bit more confidence that you are in fact going to beyond plan for the Hain Pure Protein business in '18, especially in light of everything going on in retail. So, I think Amazon one of the products they cut prices on, was organic protein. So, we would love to hear your thoughts there. Thanks.

Number one, what I said is; here in the quarter, we saw a 8% top line growth; we're seeing good growth and good profitability coming out of FreeBird; matter of fact, our chicken sales are, right now, we’re sold at on capacity; we're seeing good pricing, good consumption on wings, which prices have moved up dramatically; same with our Empire Kosher business; seeing good growth and good consumption there. Plainville basically as other companies have mentioned. The Turkey category and pricing has come down, not so much in the ABF and the organic, which we’re moving more and more to. We also have moved more and more into the whole daily and Better-For-You products there. So with that, we have a good plan in place. We took out a lot of costs. We’re seeing good momentum on our cost structure, which a big part of our profitability will come from. We have a plan for Thanksgiving, which started in July. So I feel good about the turnaround. It’s mostly Plainville. It was mostly turkey pricing. But it was not -- the first -- the fourth quarter, is not a big quarter for us. It really starts in the first and second quarter, Akshay; so FreeBird, Empire doing real well; Plainville, we’re working it and we’re coming into our big seasons now. And with rotisserie chicken at Whole Foods and prices coming down, it’s a big part of our business and we saw some major-major growth coming out of Whole Foods rotisserie chicken business.

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

So I just wanted to get your view, Irwin, on the landscape. I know you talked a little bit about in your prepared remarks. But clearly, a lot of your traditional package food competitors are struggling in a major way, and retailers is somewhat in chaos, because of what’s going on with Amazon. So just wondering, as you look at your business and seeing clearly, the Better-for-You is going fast. But do you feel like you’ve made enough adjustments to the business to deal with what’s going on with the landscape? Is Hain big enough? And my third question along the same line of questions is, as Amazon Whole Foods becomes big, are you expecting for them to ask for concessions on price?

So number one Scott. We have made significant infrastructure changes under Jamie Fay; what we’ve done with our sales organization; what we’re doing in regards going direct versus broker the infrastructure that we’ve put in place; and the talent that we have hired at Hain, to represent us at our major retailers is a major, major upgrade. In regards to what Gary has talked about is investing in our consumers, connecting to our consumers, the acquisition costs to bring consumers to educate them about our brands. What we’ve done to upgrade our brands to overhaul packaging, whether on MaraNatha, Spectrum would come out very shortly and just our Arrowhead Mills, is just to name of few. So a lot has been done to improve products; a lot has been done the way we sell our products; a lot is being on Project Terra, as you heard John talked about; and Jay Erskine and his team in regards to service levels; improving our service levels by 2-3 points is worth $40 million, $50 million for us. So the infrastructure is built in probably the strongest that’s ever been. The team that’s running these entities today is probably the strongest. So with that, as you heard me say before, of natural foods, only 9% of natural foods is bought at brick-and-mortar, over 30% is bottom-line. And if you look and see who is buying our brands today, it’s millennials. And that is where the consumptions going to continuously move from. As I said, consumption is not going to grow out there. It's the whole category, whether its $700 billion or $800 billion in sales, it's going to move more and more over the natural organic foods. With that, yes, there will be more brands. There will be more private label get in there. And from a Hain standpoint; this is here we've been doing it for 24 years; we have supply; we have manufacturing; we have innovation. The biggest thing we have to do is connect with our consumers and make sure we connect with our customers. In regards to pricing, listen, I think one of the good things that we have is excellent partnerships and relationships with all our customers. We meet with, whether it's Amazon, Whole Foods, Walmart, Target, Sprouts on a regular basis, everyone wants to sell more everyone wants to cut prices. From a standpoint there, they’re asking us for better pricing. I think at the end of the day, everybody wants better pricing. But we have to enhance our margins. One of the reasons we’re taking a lot of costs out of our business that if there is better pricing available, we’ll pass it on. But the most important thing is what you heard me say today is Whole Foods’ comps with us are up 5%, Scott, where they are in negative territory for periods of times; so sale, sale, sales, drives a lot of margins at the bottom line.

Thank you. Our next question comes from Amit Sharma from BMO. Your line is open.

I just wanted to follow-up on that point about Amazon Whole Foods first. They've talked about that this is just beginning. So would you expand on who you see it as a positive if they’re bringing down prices on average 25% on something. And just bringing the 365 on to Amazon.com, what kind of pricing are you working to your model right now versus volume? Thanks.

So I'll jump in there. Listen, number one is, we are a manufacturer and marketer of organic and natural foods. We've got the infrastructure and supply in place that we've built over the last 24 years. So it's just, when you say you’re bringing this on, we're bringing on private label; supply, manufacturing, it's just not easy to push a button, go out there to get products, like a conventional product. Number two is, listen, our research shows where millennials connect to brands, and that’s why we’re spending the dollars we are to invest in our brands where our consumers will connect to our brands. And we think, whether it's MaraNatha, Spectrum, Arrowhead Mills, Earth’s Best, Terra Chips, they are strong brands, and millennials are buying those brands. So it's important we invest behind them. Listen in regards to pricing I think Amazon sees the opportunity of where Whole Foods prices were to bring them down. And ultimately, we got profit margins to make and we're going to hit those profit margins. And as you heard we say before, sales drives a lot of cost, and that's the most important thing how we drive consumption here. And that will be the way that we will be able to -- we need to pass other costs back down, that will be the way we’ll do it.

Thank you. Our next question comes from David Palmer from RBC. Your line is open.

Maybe you answered this before. But what U.S. division sales growth is baked into your 4% to 6% sales growth target for fiscal '18?

Low to mid to singles, David…

And when your total consumption that we see in measured channels, people have eluted to, it's down mid-single digit slightly. How much has that gap widened in recent quarters, and how it's versus total consumption? And in other words, where do you think total consumption is versus what we’re seeing in Nielsen? And how much has that widened in recent quarters?

I couldn’t be precise about the delta. But what I can say is that you have some very specific drags in the MULO numbers, which I referenced some of it before where sensible portions is going from being a growth driver to at least in the short-term a drag. We obviously also have some of the pullback on Ella’s, which we flagged the last earnings call coming out, which will eventually come out of the numbers. Greek Gods, of course has been in recent times, a drag as we pulled out some of the innovation from the last season and replaced it now with innovation that’s coming through in August. So you’ve got this temporary situation where we do see some of the drags coming through MULO+C. But most importantly, we’re totally focused on the top 500 SKUs and the amount of consumption growth we’re seeing across all channels. And that’s where we see encouraging signs and obviously quarter four numbers demonstrated, we’re seeing that come through in terms of top-line sales. So our expectations in terms of MULO+C, I think, we were asked this question before, when do we see this turning around, it’s probably in quarter three, our fiscal quarter three. But in the meantime, total consumption growth for us is our focus in all channels.

But I think, David, what we mentioned is, as you look at our growth in natural club, ecommerce and MULO, our consumption growth shows up 6% and that’s what we mentioned earlier on, top 500 SKUs.

Thank you. Our next question comes from Bill Chappell from SunTrust. Your line is open.

This is actually Stephanie on for Bill. I just have a quick question. I know you mentioned SKU rationalization was a couple of points of a headwind in the fourth quarter. Is that baked in for similar levels for ’18 as well? And I just have a modeling question follow-up.

So just reconfirming what we’d said to that quarter three call. We expected that we’d have the conclusion of that SKU rationalization flow through till the end of the second quarter of fiscal ’18 and to be between 100 to 150 basis points of drag, and that is baked into our numbers for our growth plan.

And then I just have a question about the Cultivate brand switch from the U.S. segment to the rest of world. Did you retroactively adjust that in the first three quarters of fiscal ’16?

Yes. So the filings, it’s all adjusted. So we went back and we retroactively adjusted, took it out of the U.S. and put it into rest of world. So it’s apples-to-apples is the comparison.

Thank you. And we do have time for two more questions. Our next question comes from Andrew Wolf from Loop Capital Markets. Your line is open.

This question is for Gary. Looks like the last two quarters in the U.S. are kind of carbon copies in terms of the sales dollars and the EBIT dollars and operating profit. And the margin you’ve rounded to 15%. So really the question is given all the net investments coming in that you’re going to reinvest. What’s your sense of when the business inflects? And off the base, of the $46 million and the 15% EBIT margin, not against the Q3 comparison.

I guess the point was made earlier in the call about the fact that obviously our first quarter is not our strongest quarter, which is normal cadence for Hain. And obviously, we’re also investing ahead of the growth, which is also a part of the plan. So, the cadence in terms of our performance, so I would expect to see continuous improvement throughout 2018 quarter-by-quarter or I would see it improving. We would expect that obviously quarter two will be a stronger quarter for us, because we’re investing now. But just away the seasonality of the different businesses work for us and our investment plan, it is going to be more back half weighted than front half weighted. And that's just a function of probably the seasonality when the hot tea season falls and when some of our investment kicks in for the different brands.

And I think you or Irwin made comments earlier that it's not just Whole Foods, but the entire natural channel. Could you speak how broad based that is? I guess, I'm trying to get the two things; how broad based is that the expansion, which is good for with you; but also trying to understand what's going on at Whole Foods for you, pre-Amazon. So just a sense that the channel is just recovering in and of itself or do you think Whole Foods was already operating sort of de facto as if it was under Amazon's control? I know they are promoting more just to get your sense of that.

No, I would say -- I’ll address your second question first. The work, the improvement we’re seeing in Whole Foods is very much just a result of the deliberate strategy we said we’re going to employ around focusing in our core range and our top 500 SKUs. And it really has been strong execution of work in close partnership with Whole Foods. Irrespective of Amazon being on the radar or not, it is really about the work that's being done by the teams and excellent work to improve our core category focus, improve our promotional programs, our placement on shelf, our range. It has been just the simple execution of work that we need to do every day, and we are demonstrating we’re doing a great job of just improving the performance in Whole Foods. So it really has nothing to do with Amazon. And in fact, that's why I think Irwin alluded to, we see upside because if you now layer in the work that's to come, we see more opportunity for growth there. And then in terms of your first of the questions, which is around the broad base. As I flagged, we’re seeing improved trends, particularly for the top 500 SKUs, across the natural channel. And I'm talking outside of Whole Foods. And obviously, more focused around those SKUs where we've already -- and those brand where we've started early work, such as MaraNatha, Imagine, these Rare the SKUs that obviously are already turning, because we’ve started some of the investment work and more to come obviously as we work our way throughout our plan.

Thank you. And our final question comes from Steven Strycula from UBS. Your line is open.

So quick question would be on project Terra savings, just wanted to get a sense what the $100 million is coming through this year. Is that net of COGS inflation and what is your COGS inflation for this year? And can you ballpark whether two-thirds of that cost savings comes through COGS and the remaining thirty comes through SG&A? Thanks.

That is not net of food inflation. And at this point, little more than 50% is coming through supply chain productivity with the balance coming through all other areas of the P&L. Steven, anything else?

Thank you. And that does conclude our question-and-answer session for today’s conference. I would now like to turn the conference back over to Irwin Simon for closing remarks.

Thank you. The Hain Celestial remains uniquely positioned in the growing organic natural and Better-for-You products industry. To support our future growth, we are fortunate to have a solid balance sheet that provides the foundation for our capital allocation priorities. It was great to be able to meet with so many of you over the last several weeks in our investor calls and our meetings. We’ll continue our ongoing dialogue with you about our Company, our priorities, our progress and the value we believe we can create. From my experience, I know that input and feedback from our key stakeholders, including our customers and the investment community, gives us a perspective that simply makes us a better company. So we look forward to those further discussions. In addition, consistent with our commitment to be best-in-class corporate governance, we’re regularly evaluating our Board of Directors to ensure we have the right mix of expertise and relevant experience. And we remain in active discussions with accomplished executives from various sectors to refresh our board. We’ll continue to evaluate all opportunities to build out our platform strength, eliminate complexity, and enhance margins, including accretive acquisitions and non-core divestitures. So in closing, we continued to make significant progress across key areas of our business and hit the ground running in our first quarter of fiscal 2018. And boy, I am glad 2017 is behind us. We remain confident that our leading natural and organic Better-for-You brands and strong team and strategic initiatives position us to well execute our mission to create and aspire a healthier way of life. The most important, I’d like to thank our team of over 7,800 employees and our Board of Directors for their contributions and support. Together, we will further capitalize on our core strength and resources to drive Hain Celestial’s next chapter of growth and success. I’d like to thank you for joining us today and enjoy your last week of summer, and buy all our Hain Celestial products. Have a great day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone have a wonderful day.