The Hain Celestial Group, Inc. (HAIN) Q1 2022 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Hain Celestial First Quarter 2022 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions, to join the question queue. [Operator Instructions] I would now like to turn the conference over to Anna Kate Heller, Investor Relations. Please go ahead.

Thank you. Good morning and thanks for joining us on Hain Celestial's First Quarter Fiscal Year 2022 Earnings Conference Call. On the call today are Mark Schiller, President and Chief Executive Officer; and Javier Idrovo, Executive Vice President and Chief Financial Officer. During the course of this call, management may make forward-looking statements within the meaning of the Federal Securities laws. These include expectations and assumptions regarding the Company's future operations and financial performance. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to Hain Celestial's Annual Report on Form 10-K, quarterly reports on Form-10-Q and other reports filed from time-to-time with the Securities and Exchange Commission and its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The Company has also prepared a few presentation slides and additional supplemental financial information which are posted on Hain Celestial website under the Investor Relations heading. Please note, management's remarks today will focus on non-GAAP or adjusted financial measures. Reconciliations of GAAP results to non-GAAP financial measures are available in the earnings release and the slide presentation accompanying this call. This call is being webcast in the archives that will also be available on the website. And now I would like to turn the call over to Mark Schiller.

Thank you, Anna Kate and good morning. Let me start by thanking our 3,000 employees for their continued hard work and excellent performance in the face of many macro challenges. We've kept one and other states and worked collaboratively with urgency to deliver continued strong results. On today's call, I will give some color about our Q1 performance, progress against the Hain 3.0 strategy we laid out on Investor Day, and how we are addressing the challenging macro environment. Starting with Q1, we delivered better performance than we guided on our last earnings call on both the top-line and the bottom-line. With regard to top-line growth, adjusted net sales were basically flat year-over-year versus our guidance of being down low- to mid-single-digits. On adjusted EBITDA, we had guided to a decline of mid to high teens versus year ago, and we came in better than that, down 13.8%. Looking at the reporting segments, North America adjusted net sales were down 1% compared with year-ago and up 8%, versus fiscal 2020. This is strong performance given that year-ago comparisons include significant headwinds from overlapping $8 million of pandemic-driven hand sanitizer sales and explosive growth in several of our largest categories. Our growth brand sales were up 1% versus year ago, and up 10% compared to two years ago. Particularly encouraging, we also delivered strong double-digit consumption growth that accelerated throughout the quarter and into Q2 across many of our growth brands, which collectively make up about 70% of our North American sales. In fact, in the most recent 12 weeks ending October 24, our growth brands were up 12% compared to last year and 20% versus two years ago with household penetration, ACV, velocity, and average items per store, all growing. Sensible Portions, Earth's Best, Celestial Seasonings, and Alba were all up 20% or more versus pre-pandemic 2 years ago and are gaining share. Adjusted EBITDA in North America, excluding divestitures, was down 32% in line with our expectations. There were 3 primary drivers for the decline. First, remember that last year we grew 63%, so the COVID-related overlap was significant and planned for in our guidance. Second, these results were also impacted by industry-wide supply chain challenges, which I'll discuss in detail later. And third, due to long lead times, there was a lag between inflation hitting our P&L and the timing of pricing. It's important to note that after our price increases hit the market, our September-adjusted EBITDA was up 22% versus year ago. In International, we delivered another strong quarter with adjusted net sales up 2% versus year ago, and 14% versus fiscal 2020. We saw particularly strong consumption performance on Hartley's, Ella's Kitchen, and our three leading shares, refrigerated soup brands, which all grew double-digits and gained significant share compared to two years ago. Adjusted EBITDA, when excluding divestitures, was up 21% compared to a year ago and 72% versus 2 years ago, reflecting the continued successful execution of our numerous productivity projects in Europe. Importantly, margins expanded considerably versus year ago with adjusted gross margin and adjusted EBITDA margins up 576 basis points and 487 basis points respectively. While we're in the process of converting all our internal reporting to reflect our new Hain 3.0 strategy, we do have some metrics to share with you today. You will recall from Investor Day that we segmented our brands globally into growth brands, fueled for investment brands and simplify brands. Our growth brands make up roughly 70% of our sales and 75% of total Company profit. Our aspiration over time for this group of brands is to consistently grow near double digits. In the first quarter, after adjusting for divestitures, these brands grew 3% versus last year and 18% compared to two years ago in aggregate. Within the growth brands, we created two distinct segments, turbocharge brands and investment brands. The turbocharge group comprised of meat-free, non-dairy beverage and snack brands, grew adjusted net sales 5% year-over-year and 20% versus two years ago. The targeted investment group comprised of our tea, baby, yogurt, and personal care brands, grew 0.4% versus last year and 15% versus two years ago. So, in summary, our sales momentum is increasing and our top-line performance versus prepandemic is extremely strong on our growth brands. Let me switch topics here and spend a few minutes talking about inflation and the supply chain challenges impacting all companies, and then touch on the pricing and productivity improvements we are pursuing to offset them. When we finalized our plan and communicated our anticipated inflation costs, we expected mid-single-digit inflation in North America and low-single-digit inflation in international. Since that time, crops have come in highly inflationary and transportation costs have continued to skyrocket, in each case more than we initially anticipated. As a result, we now expect additional $20 million to $25 million of inflation to hit our P&L this year, and we fully intend to take additional pricing actions to offset it. We're covered 90% on commodities and packaging for the balance of the fiscal year. Our remaining exposure lies primarily in transportation and labor, which impacts both costs and supply. With regard to supply chain disruptions, as with every other Company, we faced unprecedented challenges. The good news is we've made terrific progress since Q4 last year. Starting with inbound materials and co-manufactured products, we found backup or alternative sources of supply to ensure that we continue our service at very high levels. On our self-manufactured products, our factories are running well and we've made to terrific progress in the locations where we've had labor shortages, both here and in Europe. We filled about 2/3 of the open positions that we had at the beginning of Q1, and importantly, are keeping up with elevated demand. On the distribution and warehousing side, we're currently fully staffed and have the capacity to keep up with increasing sales. Also impacting the entire industry, transportation remains our biggest challenge. The shortage of drivers here and abroad is well known, resulting in delayed receipt of inbound materials, inability to secure trucks, and many scheduled orders not being picked up on time. When this occurs, it impacts both service and costs. We continue to consolidate orders to reduce the number of trucks needed, and we're collaborating with customers to refine pickup and delivery windows to ensure we keep service levels high and to share costs. So, you're probably wondering how these challenges are impacting our P&L. First, we're prioritizing service even when it requires increased costs because 1. in times of significant supply disruptions, strong service leads to increased shelf space and merchandising opportunities, 2. additional sales growth will generate profit dollars to help offset the inflation, and 3. it strengthens our customer relationships and positions us as a reliable go-to-partner in the future, especially when many are struggling with their service levels. The second way we are managing the cost challenges, but is by taking significant pricing. In North America, we've taken list price increases on virtually every brand with the average increase of about 6% to 10%. Thus far, the elasticities have been very low and we've seen minimal impact on volume. In Europe, our pricing will be effective in early Q2 and has already been accepted by most retailers. We expect similar low elasticities since virtually every Company has announced plans to take pricing across their brands. With new unplanned inflation hitting our P&L, we expect to take additional price increases that will be effective in the second half of the fiscal year. Again, these increases will be across many brands and include multiple pricing levers. The third way we are managing cost challenges is via productivity. As discussed on Investor Day, we have hundreds of active projects being implemented, with an expectation that we will achieve close to $50 million of productivity this fiscal year. Importantly, the productivity projects go beyond saving money by providing other benefits like reducing our need for additional labor in our factories, furthering our sustainability agenda, and simplifying our Company. Looking forward, we expect to see accelerating sales momentum this fiscal year. We're confident because we are: 1. We have gained significant distribution with more expected; 2. we've already secured sizable incremental merchandising events that we've discussed on previous earnings calls; 3. we're making strong progress on addressing the items that have had service challenges; and 4. in line with Hain 3.0 strategy, we're building capabilities and embedding changes to our processes to enable accelerated top line growth. On the cost side, we'll continue surgical execution of pricing of productivity to offset the macro supply challenges I've mentioned. I've mentioned. And we continue to leverage our nimble and scrapping culture to find creative solutions for disruptions in our supply chain. In summary, we're excited by our momentum and confident that we have the right brands and strategies to accelerate top-line growth from here and create a Company that consistently delivers high growth on both the top and bottom line. With that said, let me now turn it over to Javier to provide more detail on our Q1 performance and go-forward outlook.

Thank you, Mark. and Good Morning, everyone. Let me start by highlighting a few key aspects of our first-quarter results that demonstrate strong execution of our transformation plan. And the building of a solid growth platform as we move into Hain 3.0 journey. 1. We again delivered solid operating results at the top end of our guidance on top-line and bottom-line. Second, despite the supply chain challenges impacting the entire industry, our international business delivered another quarter of strong financial performance, while our North American operations improved throughout the quarter. Third, our balance sheet remains strong with excellent capital allocation flexibility. And finally, we are well-positioned to deliver on our full-year guidance, as well as the new long-term algorithm we laid out during our Investor Day presentation in September. I will start with the discussion of our top line results, and then I will drill into each of these aspects. As we overlapped last year's COVID demand surge, first quarter consolidated net sales decreased 9% year-over-year to $455 million. Foreign exchange benefit first-quarter net sales by 2% while divestitures and brand discontinuations reduced net sales by close to 11% When adjusted for these 2 factors, net sales were flat versus prior year, exceeding Q1 guidance of a low to mid-single-digit decrease on an adjusted basis. When comparing our performance versus pre - COVID Q1 2020, after adjusting for foreign exchange, divestitures, and brands discontinuations, our net sales increased by 10%. This was better than our guidance of mid-to-high single-digit growth. While we guided to year-over-year adjusted gross margin expansion for the quarter, industry-wide distribution and warehousing cost pressures, driven by continued labor shortages, trade carrier availability, and other freight cost issues resulted in our delivering a slight reduction in adjusted gross margin. The first round of North American pricing actions we implemented in September, began to benefit the total Company P&L late in the quarter, with an overall gross margin increase of more than 300 basis points during the month compared to the prior year period. While the supply chain challenges were most prevalent in our U.S. operations, they are also impacting our international operations. Despite these headwinds, we were still able to deliver adjusted gross margin expansion of 300 basis points when compared to Q1 2020. Total SG&A, including marketing came in at 16.3% of net sales in line with the prior year period. Marketing expenditures as a percent of sales were slightly higher than prior year, largely to support our meat-free business and the launch of the Linda McCartney nondairy beverage product range in the UK. SG&A spending as a percent of net sales, excluding marketing, was slightly lower than prior year from controlling labor-related costs, and third-party expenses. First-quarter adjusted EBITDA decreased 14% versus a year ago to $47 million, slightly better than our guidance of a mid to high-teens EBITDA decrease. The improvement compared to our guidance was driven by actions we took to lower SG&A spending. adjusted EBITDA margin of 10% or the 61-basis point decrease year-over-year, mainly driven by the decrease in gross margin already mentioned. When comparing our performance versus pre-pandemic Q1 2020, our EBITDA margin improved by 374 basis points. Our adjusted first quarter EPS of $0.25 decreased compared to $0.27 in the prior year period. The adjusted effective tax rate for the quarter was 23.4% consistent with the prior year tax rate. Let me provide some detail on the individual reporting segments. Starting with our North America business, where we continue to face the industry-wide supply chain issues we have discussed before, but are seeing improvement in our sequential basis. Our planned price increases in the U.S. had hit the market, and are sticking, as evidenced by better elasticity of demand. On the top-line, reported net sales for the first quarter decreased 5% year-over-year to $265.5 million, mainly due to the lapping of elevated at -home food consumption and strong hand sanitizer sales in the prior year period due to COVID -19. After adjusting for foreign exchange movements and divestitures, net sales decreased 1% versus the prior year period. When comparing our performance versus Q1 2020, after adjusting for foreign exchange movements, divestitures and brand discontinuations, our North American sales increased by 8%. The turbocharged category delivered close to 9% growth versus prior year and 15% growth versus Q1 fiscal year '20, driven by the strong performance of our snacks business. In the targeted investment category, our tea and baby food products delivered mid-to-high single-digit growth versus prior year, with tea also delivering north of 20% growth versus the same period two years ago. Our personal care business performed well when compared to two years ago, delivering close to 10% growth. While these last 2 quarters has presented multiple operational challenges, we have been able to maintain relatively strong customer services in the U.S. From a profitability perspective, adjusted gross margin for our North America business decreased by 476 basis points, driven by the supply chain challenges already discussed, partially offset by our pricing actions taken late in the quarter, and productivity initiatives. Adjusted EBITDA in Q1 decreased 38% to $24 million. Adjusted EBITDA margin of 9.1% represented a decrease of 486 basis points versus the prior year period driven by the gross margin decrease. Most of our pricing began to benefit the P&L in September. Specifically, September's EBITDA margin increased by about a 130 basis points relative to the prior year period, largely driven by these pricing actions and supported by our productivity initiatives. Now let me shift to the international business where we delivered strong overall results. Net sales for the first quarter versus the prior year period decreased 13% on a reported basis in line with our expectations. Foreign exchange increased sales by 4% while divestitures reduced sales by 19% after adjusting for currency movement and divestitures, net sales for the quarter were up about 2% versus the prior year period, and up 14% compared to the first quarter of 2020, the most recent pre -pandemic period. Sales increased behind high growth on our Ella's kitchen, baby food, and Jill Soup businesses in the U.K.. Our growth category of brands delivered 24% growth in constant currency versus the same period 2 years ago, driven by the strength of our plant-based, non-dairy beverage, and Ella baby food businesses. From a profitability standpoint, we grew adjusted EBITDA by 21% versus the prior year period, and adjusted EBITDA margin by 487 basis points to 17%, despite facing global supply chain challenges and not yet having taken pricing to cover inflation, which went into effect in the second quarter. This profit growth acceleration reflects a 576 basis points adjusted gross margin expansion, generated primarily from the implementation of the North American productivity playbook and the divestiture of the low margin through business. Shifting to cash flow and the balance sheet, Q1 operating cash flow was $38 million. This is a decrease of 8% versus the prior year period, but an improvement relative to the adjusted EBITDA decrease for the quarter given improved inventory management. Capital spending for the first quarter was $17.8 million or 3.9% of net sales by on track for full-year spending of about 3.5% of net sales. Cash-on-hand at the end of the quarter was $29 million, while net debt stood at $317 million. Gross debt leverages as calculated under our existing credit agreement was 1.6 times. Our balance sheet remains strong and as a result, we have significant flexibility to both reinvest in the business and return value to shareholders. Consistent with our capital allocation principles, during the quarter, we repurchased 4.5 million shares or 4.6% of the outstanding common stock at an average price of $38.80 per share for a total of $175.6 million excluding commissions, leaving us with about $207 million of additional repurchase authorization remaining under our 2021 program at the end of the first quarter. Now, turning to our outlook, we are reaffirming our full-year guidance for fiscal year 2022. Compared to fiscal year 2021, we expect low single-digit adjusted net sales growth, reflecting a small benefit from currency of about 20 bps and a 600-basis points headwind from divestitures, modest adjusted gross margin expansion, and mid-to-high single-digit adjusted EBITDA growth. Given the timing of the price increases hitting the market, confirm incremental volume-generating events in the second half of fiscal year 2022, and the higher inflationary environment than initially forecasted, we expect the following: net sales to be down low single-digits on an adjusted basis in the first half of fiscal year 2022, and improvement over our initial first-half guidance announced by mid-to-high single digits in the second half. To note, during Q2 fiscal year '22, we're overlapping a Brexit related volume pull forward that benefited net sales growth in Q2 fiscal year '21 by about 4%, and adjusted EBITDA to be down mid-single-digits in the first half of fiscal year 2022 and up-low double-digits in the second half. As part of the full-year outlook, and given the industry-wide supply chain challenges we are facing, we are updating our estimate of cost of goods inflation to be north of 6%, which we plan to continue to recover over time through additional pricing actions. In summary, we were able to deliver first-quarter results generally better than the guidance levels we outlined previously, even in the face of significant global supply chain and inflationary challenges. We believe that we have strong momentum and are well-positioned to deliver adjusted top-line, and adjusted EBITDA, growth and margin expansion in 2022 and beyond. I will now turn the call back to Mark.

Thank you, Javier. We're proud of our strong Q1 performance and how we continue to overcome the many macro challenges all companies are facing. We have a compelling Hain 3.0 growth strategy, terrific brands, and an exceptional team and culture to thrive in this environment. With that said, let me turn it over to the operator to now take your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ken Goldman of JPMorgan. Please go ahead.

Hi. Good morning. Thank you for the help on the cadence of guidance. I wanted to ask a little bit more specifically on the second quarter. Javier, your EBIT margin in international has grown 400 basis points to 500 basis points year-on-year each of the last three quarters. I just wanted to get a better sector -- a better idea of how to think about that for the second quarter. Is it fair to assume maybe a similar increase and then as you get to the back half for the year, a little bit less of an increase as you start to lap some higher numbers? I'm just trying to get a sense of how we model on a segment-by-segment basis. I know it's been a little more challenging for some of us, including me to be specific, especially on the international side of things. Thank you.

Thanks for the question. You should expect gross margin improvement for international for Q2. I wouldn't put it to the same level as Q1, largely because inflation in international was fairly muted, I would say, for Q1, but the ingredient inflation for international is picking up in Q2 and beyond. And even though the pricing is still working its way through Q2 through Q4, Q1 really did benefit from a low inflation environment, at least in international. What I would say is yes, Q2 will have margin improvement, it will not be to the same magnitude as Q1. And Q3 and Q4, we will see -- Q3 will see margin driven, but they will not be at the same -- I would say they will be at a decreasing rate relative to what you would experience in Q1 and Q2.

Just remember, Ken, that last year when we divested the fruit business, which was a very low-margin business, we start to lap that in the second half. So, part of the Q1 margin expansion in international, about half of it was just divesting the fruit business, the other half was productivity and true performance. And as we get to the second half, we don't have that fruit favorability.

Got it. And then a quick follow-up. Javier, you mentioned that you are now expecting COGS inflation to be north of 6%, and then you talked about the goal being regaining that over time with pricing, and I think productivity. Just to be clear, because you mentioned it on percentage terms, is the goal to regain the margin percentage or the profit dollars?

The goal right now is to regain the profit dollars.

Perfect. Thanks so much.

Our next question comes from Michael Lavery of Piper Sandler. Please go ahead.

Good morning. Thank you.

Good Morning.

Just wanted to touch on the elasticities. You gave some color there on what you've seen so far. Obviously, it's still pretty early, but can you just give a sense relative to guidance, how you're thinking about that and what assumptions you've made about elasticity?

Yes. So, we're very pleased to see that the elasticities have been very low and had a nominal impact on volume. In fact, we're continuing to see volume growing with 6% to 10% pricing on top of it, that's part of why we've seen such robust acceleration in our consumption. Our plan assumed that there would be some modest elasticity. It's coming in a little better than we thought. But on the flip side, it's being offset or more than offset by the fact that inflation, which we assumed would have stabilized for the balance of year, inflation has gone up considerably since the year started, primarily freight. And again, as crops have come in across the globe, they've been highly inflationary and we did not fully anticipate it. So, we've got a little bit of benefit on the elasticity side, but it's being more than offset by additional inflation.

Okay great, thanks. And just a quick follow-up on the top line. I know it's a pretty small percentage of your total portfolio that's in U.S. measured retail sales, can you just give maybe a sense of the rest where there may be any particularly notable call out that we should have in the back of our minds as we're trying to look think about the total picture, but looking at just the pieces, we can see. Is there a country or a channel, or something that's particularly robust that that's got some sustainability to it? That's just good to make sure we don't forget or anything like that.

Yes. So personal care has a very small percentage of its total sales in measured channels and we're particularly on the Alba sun care business, which we've talked about on previous calls. We're doing exceptionally well and a number of manufacturers were found to have benzene in their sunscreens, which we do not. And so, we picked up a lot of distribution from other people in channels that you won't see. Everything from surf shops to e-commerce to clubs, that would be one place that I would say certainly we're seeing robust growth. The other place that you don't have a lot of visibility to is, again, e-commerce, which is a big part of our business, particularly on snacks and personal care, and baby. We do a lot of volume in the e-commerce channel and that business is also very robust. In international, we're at so many different countries you'd have to buy all the syndicated data in every country to really get visibility. But remember, on the 3.0 strategy, we talked about expanding non-dairy beverages into the UK, under the Linda McCartney brand, and we talked about starting to expand the Linda McCartney meat-free brand into Europe. Those are incremental sales versus our baseline because that's new distribution in a new country, which will also have some tailwind to our second half revenue numbers.

Okay, great. Thanks so much.

Our next question comes from Alexia Howard of Bernstein. Please go ahead.

Good morning, everyone.

Morning.

Good morning.

Hi, there. Can I dig into the freight cost situation? Because it sounds as though that's one of the real pain points that you're going through now. Can you just remind us what percentage of COGS that is? What proportion typically go to the spot market versus the contract rates and where that's gone to? And then I know that in the past, you've talked about benefits from having full truckloads and moving from half full, quarter truckloads to full truckloads. Is the supply chain disruption really messing with that, so that you can't get there at the moment? I am just wondering on the freight side, what exactly the mechanics are that are going on in there? And then I have a follow-up.

Yes. I'll let Javier speak to the specific cost numbers in a second, but freight is a multifaceted problem. One is, sometimes trucks just don't show up to pick up orders, which adds costs in a different way than just costing more for each driver and each truck when they show up. So, there are a number of ancillary costs that can be very robust when you've got to then go to the spot market and try and contract someone on short notice to come pick up a load that's sitting in front of your dock doors. So yes, there's massive inflation, but there's also those ancillary costs. With regard to filling up trucks, we continue to make progress on filling up trucks. So, when we started our journey a couple of years ago, we had about an average of 2 pallets per truck. We're now more than half a truck full, and given the driver shortage, we are working with retailers to consolidate orders. So, instead of ordering a half a truck every week, how about order full truck every other week, kind of thing, so that it takes some of the cost burden out and it also makes it easier for customers who may be having labor issues in their warehouses to not receive as many trucks. So, it's a win-win solution, we're making good progress there, and really that's agnostic of the driver shortage. Us filling up trucks takes trucks off the road, which is good for both of us and we continue to work on that. Javier, you want to add some color on the cost?

Yes. Let me give you the framework that we use here at the Company to think about inflation and the components of our cost. But the bucket that we use to evaluate our inflation: 1. our finished goods, 2. ingredients, 3. packaging, 4. labor, 5. freight, and 6. for international, we also look at energy costs. And so, what I would say, the places where we're seeing the highest pain points, as you call it right now, in the united -- in North America, I would say it's 1. ingredients and 2. it's packaging. And then 3. freight obviously is one that is permeating not just North America, but also internationally. So those are the 3 big pain points in North America. And then 4. in international, again, it's ingredients. and then that would also add -- in addition to freight, I would also add energy costs are pinpointed in international. So, that's kind of how we look at our basket of costs, and that's how we end up evaluating the impact that we have to being around 6% for the full year.

Our next question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Thank you. In terms of reiterating guidance, I assume this considers all the cost increases and the fact that you're taking price increases, you said almost all retailers are accepting it. Are you able to offset the ones that aren't accepting it? Are you able to offset your revenues by the price increases for the potentially lower volume for the retailers that won't accept it? Particularly, you mentioned there's going to be another set of price increase. So, it's just -- I was just wondering how you'd look at the go-forward guidance based on all the factors you were talking about.

So, the go-forward guidance includes everything we know about today. The increase inflation is certainly in there. We've assumed of pricing against that inflation, based on both, our success in the first round of pricing, as well as the elasticities that we're seeing. Obviously, we have to go to retailers and have that conversation, and in some cases it's a negotiation. But by large, everyone is taking pricing and retailers are having the same cost pressures that we are. And so, this is an unusual environment in terms of ability to pass on pricing. We are very conscious when we do take pricing of what are relative price points are versus our competitors. So, we're not just arbitrarily passing on costs. In some categories, like edible oils, our costs are up a 100%. We're not going to take a 100% price increase obviously. So, we really do look brand by brand, category by category, channel by channel, to make the best decisions around what we think is the right thing to do for the brand, both for the short term and the long term. And, we do it very consciously of what's going on around us. So, so far we've done -- the first round of pricing went very well in North America, in the U.S. We're now implementing pricing in Europe and Canada in the beginning of Q2, and we will come back with additional pricing in the second half to offset that incremental inflation that we've seen. And so, part of our guidance, Anthony, was that we still expect to see margin growth, but it might be a little bit more modest than originally assumed because of this extra inflation. But we're also seeing higher revenues than we initially assumed because the elasticities are lower on some of the pricing. So, it gets us to the same place on EBITDA, but a little bit of -- there's some moving parts on both the top line and the middle of the P&L.

Understood. Just as a quick follow-up. Separate topic. but you mentioned there in Hain s 3.0, you're starting to roll out new products -- has that been hampered at all by all the issues you outlined today, or are you able to launch these new products in this environment?

In North America were not having any issues with customers resetting shelves and us getting innovation and we've actually been very successful in Q1 in terms of increasing our TDPs and the number of accounts carrying our products and we expect that, as other categories reset, like snacks resets in the spring, that we will continue to be recipients of space. In Europe, it's a little bit more challenging because they are having much more severe labor shortages and driver shortages. Some of the retailers are not setting the categories like they would normally -- some are, some aren't, so, we're seeing more spotty distribution on the innovation up particularly in the UK, which not only has the same macro challenges as everybody, but we also have -- they're still implementing the Brexit changes that make it just more challenging to get products over the border from Continental Europe anyway. So, I'd say a little bit more growing pains and a little bit more of an unusual reset pattern going on in the UK. But right now, Europe and the U.S in particular, we're getting in innovation as planned.

Excellent, thanks Mark, that was helpful.

Our next question comes from Rebecca Scheuneman of Morningstar. Please go ahead.

Hi. Good morning. Thanks for the question. In previous quarters, you have disclosed the percentage of sales that's coming from new products, and, that -- we've been seeing some good trends in that regard -- I think it was 9% in the fourth quarter, 4% in the third quarter. Do you have That statistic for the first quarter?

Yes. It was about 6.5% in the first quarter, up from about 1% in FY'20 and about 3.5% in FY'21. So off to a good start. Was down a little bit versus Q4? Because in Q4 we were -- a lot of categories were resetting. We had big pipeline volume in Q4, which is why it was a little bit inflated up at that 9% number, but 6.5% is a good number for us. We want to be high-single-digits. And the stuff that we have been launching is sticking high repeat rates, very incremental to the categories, and so as we keep coming with more innovation, coming on top of the previous innovation, as opposed to have just trading out things that didn't perform well. So, we're pleased with what we're doing. We like the rate at which we're getting -- percentage of sales that we're getting from innovation, and we're very happy with the incrementality we're getting both from a distribution and a consumer standpoint.

Okay. Great, thanks. And then my follow-up is just on the labor picture. I wonder if you could add some color there as the situation seems to be improving, or possibly, if it's getting worse. I know a lot of the retailers and Amazons of the world are looking to staff up for holiday, so there is potential there that the problem could be getting worse. I'm just wondering if you could add some color there. Thanks.

Yes. So, as I mentioned in the prepared remarks, we filled about 2/3 of the positions that we had opened at the end of Q4. So, we've actually had a terrific quarter in terms of resolving some of the labor challenges that we have. And in Q4 as an example, we -- the labor shortage was so severe that we couldn't run some of the factories 24/7, because we didn't have enough people for a third shift. That's all behind us. We've fully staffed up our distribution and warehousing facilities. We have made significant progress in our manufacturing plants, particularly where we were challenged in terms of our ability to manufacture enough product to keep up with demand. We still have some openings, but we're solving it. We've done it through increased wages. We've done it through better benefits. We've done it through the incentive pay, and other things to make sure that we're the preferred manufacturer in town. And, so far so good. I would say on the freight side, again, we're still having -- we're still seeing third-party carriers having trouble getting drivers, which is impacting our business and everybody in the industry. But on the things that we control internally, we've made terrific progress and we're in a good position to keep up with demand, as long as we can get the trucks to get it from point A to point B.

Okay. Great. Thank you so much.

Our next question is from Eric Larson of Seaport Research Partners. Please go ahead.

Thanks for taking my question. Mark, I think in your prepared comments you mentioned that you have a significant number of more promotional events this year, and I think a lot of that, it tends to be closely tied to innovation reductions as well. But can you give us maybe a little bit more clarity on what's the timing of both promotional events are and what those might entail?

So, the first thing I would tell you is remembering, last year at the height of the pandemic, there was a lot of people pulling back on trade spending and merchandising events because the demand was so robust. In some cases, we're just adding back some of the promotional spending that we took out last year on brands that we were having supply challenges with. So that's ongoing throughout the year. But in the second half of the year, specifically, I mentioned both big distribution gains and some significant promotional activity. We've got some major promotions going on in the club channel in the second half of the year and I mentioned sunscreen, where we're picking up significant distribution, and we're putting money behind that to make sure we get the end caps, and were visible in the channels where we picked up distribution. And, we're having great success right now on snacks with bundling our brands together to get big merchandising events. That has helped all boats rise, if you will. And we're going to continue to do that in the second-half. So, we've got a number of incremental sizable events that are secured and that's part of the reason we're so confident in the growth that we're going to see in the second half of the year.

Okay. Thanks. And then my follow-up question. It might just be more clarification than anything else. So, you got some extra transportation inflation here, COGS is going up a little bit more than you had thought. And I think you said that what -- just a clarification, that you'd take additional pricing in the second half or are you going to take additional pricing that'll be effective beginning the second half? I am not sure which of those two to is the correct answer.

Yes. So, we're finalizing our plans right now. We'll go out to the retailers later this month and then it's about a 60 to 90-day lead time, depending on the customer before it actually hits the shelf. So, expect that we'll see mid-third quarter is when the second wave of pricing will hit, and there will be a little bit of pricing and international that hits in the fourth quarter that we're aware of as well.

Okay. Perfect. Thanks for the clarification.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Schiller for any closing remarks.

Thanks, everyone, for your time today. Obviously, these are unprecedented times and I'm proud of the fact that we continue to perform well in a challenging environment. Hopefully, you've taken away from this presentation that we're starting to deliver on that accelerated topline that I know everybody has been looking for, and our Hain 3.0 strategy is very much focused on. S o we're excited about the future, we're excited about the balance of year, and I thank you guys for your time today. Will be available for questions throughout the day. And with that, I'll turn it back to the Operator. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.