Greetings, and welcome to Hain Celestial's Second Quarter 2022 Earnings Conference Call. At this time all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anna Kate Heller, Investor Relations. Thank you. You may begin.

Thank you. Good morning, and thanks for joining us on Hain Celestial's Second Quarter Fiscal Year 2022 Earnings Conference Call. On the call today are Mark Schiller, President and Chief Executive Officer; Chris Boever, incoming Executive Vice President and Chief Financial Officer; and Javier Idrovo on his final earnings call as Executive Vice President and Chief Financial Officer of Hain. 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's 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, and an archive of it will also be available on the website. And now I'd like to turn the call over to Mark Schiller.

Thank you, Anna Kate, and good morning. On today's call, I'll give some color on our Q2 performance and balance of year forecast as well as progress against the Hain 3.0 strategy we laid out on Investor Day. Joining me today on the call are Javier Idrovo and Chris Boever. I'd like to take this opportunity to thank Javier for his hard work, his contributions to Hain 2.0 and his assistance in smoothly transitioning all of his duties. I also want to welcome and introduce Chris, who officially begins his role as CFO starting tomorrow. I'm very excited to have Chris joining our company and team. He brings a wealth of CPG experience a deep operating background and exceptional leadership skills. I look forward to partnering with him on our Hain 3.0 journey. Let me briefly turn it over to Chris to say a few words.

Thanks, Mark, and good morning, everyone. This is my third week at Hain and everything I've seen has confirmed the reasons I was so excited to join the company. Hain is a leading global health and wellness company, and we are exceptionally well positioned with great brands and a very talented team. I'm looking forward to helping to lead the Hain 3.0 journey and continuing to grow shareholder value.

Thank you, Chris, and again, welcome to the team. Let me start today's call by giving some color on our Q2 results. I'm pleased that we delivered top line performance at the high end of our original guidance and in line with our pre-earnings announcement in January. As I'll discuss in more detail, we're seeing strong consumption in our growth brands that is leading to accelerating top line growth for the company. With regard to profitability, our bottom line came in slightly below our original guidance, driven by continued and well-publicized industry-wide supply chain and labor challenges. While the team is doing a great job with pricing and productivity to offset almost all of these additional costs, late in the quarter, we did experience some incremental unforeseen costs, which led to about a $3 million miss to our original adjusted EBITDA guidance. I'll discuss those more in a minute. Digging deeper on the top line, net sales were down 2% versus a year ago when adjusted for currency and acquisitions, divestitures and discontinued brands. Compared with two years ago, before the pandemic, adjusted net sales were up 7%. Our growth brands, which make up almost 70% of our total company sales were up slightly in the quarter versus a year ago and up 12.6% versus two years ago. I'm pleased to report that net sales in the United States, our biggest market, were strong and continue to show material sequential improvement. Adjusted for divestitures, net sales in the United States were up 3.7% versus last year and 9. 7% compared to the same quarter two years ago. And consumption last quarter for all US brands in measured channels was up over 10% compared to last year and 16% versus two years ago. This is a testament to the success of…

Good morning, everyone, and thank you very much, Mark. I also want to take this opportunity to thank the Board and the rest of my Hain colleagues. It has been an exciting journey, and I wish the company continued success. Now turning to the financials. Let me highlight a few key aspects of our second 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. First, we delivered top line sales results at the high end of our original guidance and demonstrated resilience in a challenging operating environment. Second, despite the supply chain challenges and highly inflationary environment impacting the entire industry, our overall adjusted EBITDA margin improved versus the prior year, and our International business delivered another quarter of adjusted EBITDA growth. Third, our balance sheet remains strong with good capital allocation flexibility. And finally, we believe that we are well positioned to deliver on our updated full year guidance as well as the new long-term algorithm we laid out during our Investor Day presentation last September. I will start with a discussion of our top line results, and then I will drill into each of these aspects. As we overlap last year's COVID demand surge and a Brexit-related demand pull forward, second quarter consolidated net sales decreased 10% year-over-year to $477 million. Foreign exchange impact on the second quarter net sales was minimal, while divestitures and brand discontinuations reduced net sales by close to 8% compared to the prior year period. When adjusting for these two factors, net sales for the quarter were down 2% versus the prior year quarter. This translates to a first half sales decrease of about 1%, which is at the high end of the previously provided first half…

Again by thanking our thousands of employees around the world who have worked exceptionally hard in a very challenging environment. Their can-do attitude, scrappiness and teamwork have helped us to deliver solid performance throughout the pandemic and their dedication and resilience will continue to serve us well as we work toward making our Hain 3.0 vision a reality. With that said, we'll now take your questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Anoori Naughton with JPMorgan. Please proceed with your question.

Hi, good morning.

Good morning.

I wanted to ask about your guidance for EBITDA growth. It implies a pretty significant ramp in the back half, and thank you for providing that cadence update for the fourth quarter, that's helpful. But it would be helpful for us to understand a little bit more about what are the assumptions you're making? Like give -- you got enough confidence that this new guidance is conservative enough for today's volatile environment?

Yes. Thank you for the question. So we have been obviously on this journey for quite some time. We have productivity that's coming to fruition in the second half. We have volume acceleration that we are expecting in the second half that will drive some of that EBITDA. We have more pricing coming in the second half that will also improve the margins because, again, the inflation is hitting before the pricing catches up. So we -- and we expect some mix improvements in the second half as well. So I think you put all that together and we're confident that we will have significant improvement in our EBITDA. And remember, last year, we also had a challenging fourth quarter, which we get to overlap this year, which will also be helpful in terms of driving that EBITDA growth

Mark, if I may, I would also like to add that we have a quite strong visibility to our cost of goods going forward for the second half. So we are probably more than -- having more than 90% visibility for the spending. So we feel pretty good about the cost forces that we have embedded in the second half as well.

Great. That's super helpful. And then can you just update us on -- I think in the second quarter, you were expected to do some inventory reload and customers in the US. Can you just update us on where you stand? And what's embedded in your assumptions for the back half?

Yes. So we -- our inventories are relatively strong across most of our brands, but we have had some supply disruptions related to the industry-wide issues that everybody is familiar with. And so there are a couple of brands or segments within brands where we still have some gap in terms of our inventory levels at customers versus what they've been historically. We expect that we will make some improvement on that in the second half just as we did on the first half, but we haven't assumed that those issues completely go away. So again, I think we're taking a balanced approach in terms of what we have visibility to and what we have in place to help us kind of fill the pipeline on those places where we have challenges.

Great. Thank you.

Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Good morning. Thank you.

Good morning, Mike.

Just wanted to touch on the EU energy piece. It obviously sounds like a very significant move and obviously, speaking of cost to matter, but it sounds like you've locked that in. Can you just clarify, does that mean that it can't get worse or better, or is it options where if the cost pressure improves, you might potentially have some upside to your numbers?

No, it's pretty much locked in. So it is -- we have visibility and clarity around what that will be. It's significantly inflationary versus a year ago and versus our original plan and even the first quarter earnings, it's added about $10 million of cost, some of which happened in Q2 and the rest of which will happen in the second half of the year. And that added the risk of completely oversimplifying that explains completely the change in our EBITDA guidance. It's highly inflationary. Like I said, it was up as much as 10 times, what it was a year ago, and it's now come down a bit. We locked in. And while it's, again, probably 70% inflationary for us year-over-year. At least we have visibility and certainty to it at this point.

Okay. Great. That's helpful. And just another one on pricing. You said you're in discussions with some customers. Can you characterize the nature of that? I guess it just feels like pricing has become almost automatic in this environment. Is there any real resistance or pushback, or is it more just sort of negotiating orders of magnitude and some tweaks around the edges. Can you just give us a sense of what the dialogue there is like?

Yes. I think there's -- it's a little bit different in the US versus the rest of the world. So let me take those separately. In the US, there's certainly general recognition around the inflation because everyone's feeling it, including customers with their labor challenges and their supply chain challenges. And so I think there's a general recognition that pricing is needed. Every company is taking it. And those conversations are going very well. It's always a negotiation because, again, they control the shelf space. And often, there's a give for the get. But as we saw in the first half where we largely got our pricing through, as expected, we anticipate that will happen here as well. International is a little bit of a different story on a couple of fronts. Number one, we have a much more significant private label business, particularly in Europe, where it's -- you have contracts, and it's very difficult to change pricing when you have contracts. So those are going to be much more challenging conversations. And the retailers are just much more resistant to pricing there and can be more punitive. Now we got it in, in the first half. We had some impact from that. We lost distribution in a couple of categories as a result of that pricing action, but we did get the pricing in. And as we are having conversations now for the second half of the year, again, there's a general recognition that, that pricing needs to happen. It's just a question of what's the give for the get that we continue to negotiate. But I do expect the pricing will all get in before the end of the day.

Really helpful. Thanks so much.

Our next question comes from the line of John Baumgartner with Mizuho. Please proceed with your question.

Good morning. Thanks for the question.

Good morning, John.

Maybe first off, just in terms of the outlook. Obviously, the supply chain environment has been tough to forecast here as we can see. But if we think about the reiteration of net sales for F 2022, can you just walk through the visibility and confidence into that target? I mean to what extent do you see risk, whether from COVID following Omicron or supply chain that shelf resets don't materialize or the innovation doesn't launch? How do you think about that for the next six months or so?

Yes. So for North America or US in particular, the confidence is very high. We've got consumption momentum. We've got distribution momentum. We're getting significant pricing in place and seeing our unit volume growing at the same time. We have some big merchandising programs that have been secured that we've talked about on previous calls. And so we will see a material acceleration in North America driven by the US business. In international, what's interesting in international right now is, in the UK, entire grocery store sales are down versus a year ago, the entire store. So some of our categories are down. And while we're gaining share in those categories, our expectation is, as we left the lockdown period from a year ago where everybody was in their home. And now as they've opened up the country and people are going back to work, we've lost some of the occasions that were in the house, so some the lunch occasion and the kids being home from school and the lack of travel. So it's affecting the entire store there, but again, we think that will be short lived. And as we get through the end of the third quarter, we expect that, that will mitigate and that we will continue to see because our brands are gaining share. Our brands are seeing double-digit velocity growth. And so we have confidence in the fact that as long as the entire kind of store environment normalizes that our share and our volume will come with it.

Okay. Great. And just to touch on the ParmCrisps acquisition, that sort of gets you into the deli part of the store, which is a newer area for Hain. So can you -- Mark, can you speak to your plans for these two brands here? How do you think about the distribution opportunities? Any ideas for innovation? What and how do you see the brand contributing to the snacks business going forward? And then also, what is your assumption for the EBITDA contribution from that business for the duration of this year? Thank you.

Yes. So starting with the second part of the question. The EBITDA contribution for the second half is going to be pretty nominal because they haven't taken pricing yet to offset all of these costs. They were going through a process and didn't want to take pricing in the middle of that process. So we're going to need to get that pricing in place. Obviously, we just bought the business, and so you don't want your first conversation with the retailer to be we're taking a price increase, but we will get that through the second half of the year. And we'll also -- we have some significant synergy projects and productivity projects that we think will get this business to be kind of EBITDA average as we get to the F 2023 plan, but it will contribute nominally in the second half of the year. On the top line, we're very excited about the ParmCrisps business. It is very high growth. It's got huge distribution opportunities. It's got a lot of momentum. The household penetration is up 33% versus year ago. The distribution is up. We've got innovation that gets us into new segments. They just launched the snack mix, which is one of the segments we identified in the Hain 3.0 strategy that we wanted to look at. They're already in it, and they're off to a great start with that. There's also -- because these are really cheese-based snacks, they also have other opportunities in food service with this product as a salad topper or replacement for croutons. And they have additional innovation ideas that I'm not going to go into on this call because I don't want to tip my hand competitively too early, but there's some pretty significant innovation opportunities that will drive growth as…

Great. Thanks. Appreciate it.

Yes.

Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Thanks. Yes. It's just -- obviously, we're all dealing with inflation. And Mark, I know you've been able to push across price increases. Do you -- what's your expectation and you've been able to take them going forward? Is this -- are we hitting sort of the peak of that? Are you getting any pushback at this point? And then in terms of your supply chain costs, they continue to be an issue. Do you see at this point of time where you think they're going to start to abate or at least level out?

Yes. So on pricing, we have done a very good job of kind of offsetting our cost with pricing, but there are other pricing levers that we haven't fully utilized yet. So most of our pricing at this point has been list price increases. But we certainly are looking at trade spending, both depth and frequency of promotion, and we're also looking at weight outs, right? Because if you can keep the list price the same and take a few ounces out, that's another way to get pricing in. And then certainly, as we're encouraging customers to fill up trucks, that's also a way for us to get some of the costs out of the middle of the P&L that could also be beneficial on the cost side. So I think there is more pricing opportunity, but it's going to come in different ways. And on the supply chain side, as I've said on previous calls, the things that we control, we're doing a really good job with. The output in our factories, the distribution and warehousing is fully staffed. We've got inventory. We're able to ship. It's the things that we don't control in the supply chain, which is where we're having most of the challenges, inbound ingredients. There's things, for example, like a worldwide shortage on pouches right now, which impacts both our baby food business in Europe as well as the United States, and there just aren't any pouches. And that's because there's labor shortages and there's an inability to keep up with demand globally, which is affecting everyone. So those are the things that -- those kinds of things, trucks not showing up to pick up orders and ship them to customers which require us to find something on short notice at a very premium price to make sure we can clear our docs and get the product out the door. Those are the things that are driving our costs. I think a lot of it is driven by labor shortages throughout the supply chain, not our labor shortages, but global labor shortages. And I think that as those abate, we will see things normalize, but right now, all we can do is find backup sources of supply and continue to react to kind of the challenges that we've been facing. The good news is, as we get to the fourth quarter, we start to lap this that started really fourth quarter of last year. So we have one more quarter of kind of elevated costs. They've been relatively stable in terms of their elevation since fourth quarter of last year. So I think as we lap this, it will be less of a conversation about the incrementality of those costs. And hopefully, as ingredient costs come down and some of these things normalize, we'll start to see some of the costs abate as we get into the fourth quarter and into next year.

Okay. And just a quick follow-up today. Is there anything else that you could do at Hain, whether it's investments in infrastructure, shipping -- I know you outsource that, but is there anything that doesn't require too much of a capital expense that could help alleviate some of these concerns or basically, at this point, with only one more quarter of elevated costs, you think you can ride this out and everything should somewhat normalize, like you said, starting maybe your fiscal fourth quarter?

Yes. So we're certainly not resting. So even though our hope is that things kind of stabilize, we are aggressively automating in our plants, trying to take out the need to fill all these open jobs because, again, it's good for the cost, and it also alleviates some of the labor disruption. We're increasing our inventory levels on things where we've had issues with regard to service and supply. So we're doing things to try and mitigate and protect ourselves from further disruptions, but it's hard to predict disruptions that go on in somebody else's factory or in terms of crops. And so we're reacting quickly to the things that we can see and we're responding internally with things that we can do to kind of mitigate some of the challenges that we've seen. And so as those come to fruition, we would expect that, again, our costs will come down a bit as that productivity continues to hit the marketplace, and we can alleviate some of the bottlenecks.

Excellent. Thanks for that update.

Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning, everyone.

Good morning, Alexia.

Okay. So first of all, focus on the sales side. You saw 1% growth in North America, but the measured channel growth was very strong this quarter. Where was the shortfall? Because it must have been, I guess, outside of measured channels. And then in Europe, the negative growth that you saw this time, are you expecting that to improve going forward once we've lapped the stocking up that happened around Brexit and the China baby food phenomenon?

Yes. So the gap between shipments and consumption in North America is really driven by a couple of things. Number one, there is channel shifting going on. Remember last year that we had massive growth in e-commerce as an example. And while it's still up 70% on a two-year basis, it's been negative in the short run. Now the good news is, our second quarter trends in e-commerce were better than our first quarter trends, and it, again, seems to be moving back towards flat, but it has been a headwind that is part of the difference. The second is part of North America is Canada, and in Canada, we are still overlapping. We've now completed it, but we were overlapping the sanitizer success from previous years. And there is a slowdown in the plant-based business that's been well publicized. That is one of our biggest brands in Canada that's also got some short-term headwind. So between that -- and again, a little bit of a gap on some of the supply on a couple of the brands. That's really the difference between the shipments versus consumption. In Europe, I would expect as the store normalizes that our sales will normalize, but as I said, the entire grocery store is down. And again, it's driven by the overlapping of complete lockdowns last year. Remember, they had much more severe lockdowns for a prolonged period of time versus what we've experienced here in the US. People were not allowed to go to work for a long period of time, and those occasions have now left and gone out of the house as people go back to work in the office. And they've made the decision that Omicron is -- while people are still getting sick that the hospitalizations and the deaths are much, much lower than they were previously, and they're going for herd immunity, which means that people have gone back to a more normalized life and a very significant number of eating occasions have left the grocery store. Again, that kind of laps at the end of Q3, where they started to exit last year, but last year, we had Brexit, and we had the lockdown, which led to kind of significant in-home consumption acceleration. So we just have to lap that for another quarter.

Great. I really appreciate it. Javier, all the best with the new role, and welcome to Chris. And I’ll pass it on.

Thank you.

Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.

Thanks. Good morning. I'm just thinking about gross margins in light of not just input costs and pricing timing, but also what will be viewed as transitory COVID costs. And I just wanted to check in with you about your long-term targets. So do you still think that longer-term gross margins around 30% could be achieved from the mid-20s? And as you're thinking about this year and maybe just the COVID era, how much transitory friction is there in total as we can think about -- God willing, we get past these things, and in fiscal 2023, for example, we'll start perhaps having the pricing stick and some of these COVID friction costs go away. So I'd be curious about your commentary on all that.

Yes. So remember that the Hain 3.0 strategy was a 2025 destination, and so we've got lots of time to get there. I think what's encouraging is, our top line momentum, particularly in the United States, has accelerated dramatically in terms of consumption, which I think is -- bodes very well for that journey. As I said in the prepared remarks, we've had about 10% inflation plus another $40 million to $50 million of what I would call these transitory costs, and we've got about $100 million of pricing and about $50 million of productivity to offset those things. And so that's why you've seen our gross margins while down slightly, they've been pretty solid relative to the rest of the industry. I do expect over time that these costs will go down. I don't expect that we're going to continue to see double-digit inflation. And I do expect that this pricing will stick because we're seeing unit growth on top of the pricing which, again, is very encouraging to us that when we originally planned, we had assumed that there would be some volume fall off, and we're not seeing that. In fact, we're seeing volume accelerating. So I think we expect, over time, these costs will come down. And as that happens, obviously, our margins will go up, assuming we can hold on to all this pricing. And we still have productivity that is planned out for several years. So I'm optimistic that we will get there, but we're in a very volatile environment right now, and we need to see some relief on some of these things in order to see those margins go back up.

I'm sure it's tough to disentangle what is the -- what pricing is covering in terms of transitory versus non-transitory. Do you feel like really your pricing for everything, but the transitory costs and because of your pricing for transitory plus traditional input costs, then you would obviously have a situation where you would be ahead of plan after these transitory costs go away. I mean how should we think about -- how you're pricing for your costs?

Yes. So our model has been -- and our model for 3.0 is, we're going to price to cover inflation, and then we're going to use the productivity to reinvest in our brands and accelerate the bottom line. Short term, we've priced to cover inflation and the productivity is being used to cover these transitory costs. So we're not investing as much in marketing and we're taking as much to the bottom line because of all these transitory costs. So as -- again, over the next several years as we get into this 3.0 journey, I expect we'll continue to price to cover inflation. And so that productivity becomes our opportunity to significantly increase the EBITDA growth, but short term, these transitory costs have set up that productivity.

That’s helpful. Thank you.

Our next question comes from the line of Eric Larson with Seaport Research. Please proceed with your question.

Yes. Thank you, everybody and Javier, congratulations and good luck to you, and welcome aboard, Chris. So two quick questions. So if you look at where consensus estimates are right now for EBITDA for fiscal 2022 is at $268 million. And so you're guiding this year to sort of flat versus last year, that's $258 million. So if you kind of just –d kind of wash out all of the puts and takes going on here, it seems like the entire adjustment to your EBITDA guidance for this year is the incremental $10 million of energy costs in Europe. Is that a fair way to kind of wash this all down to something that we can better understand?

Yes. It's a little bit of an oversimplification, as I said, but at its core, that is what's driving the decline. We do have incremental costs, but we do have incremental pricing. We have incremental productivity that's covering some of the transitory costs. So there's a lot of puts and takes in this environment, but at its simplest level, yes, we've got $10 million more of cost and we're taking the guidance down $10 million. And so those -- that can explain it at 30, 000 feet, but I certainly would tell you, underneath the water, there's a lot more puts and takes in there. There are some things that have been negative surprises and there are some things that have been positive surprises, but it all walks us out to basically about a $10 million change.

Yes. Yes, there's a lot of moving parts. I'm just trying to, again, simplify it to the best that we can to see what are the real incremental change was. So the second question is, you've got $100 million of pricing already taken this year. So just use a simple $2 billion revenue base, that's 5%. It seems that the price increases by other packaged goods companies are actually higher than that. Are you trying to maintain as much price competitiveness and use some of your product -- your great productivity opportunities to maybe try to be more price competitive going forward through to this, or again, is that a little over a simplification of how I'm looking at this?

Well, so we look at pricing as a percentage of our cost, not as a percentage of our revenue. So as a percentage of our costs, it's significantly higher than the 5% that you said. And if you look at the retail data, you'd see that we're -- in the most recent 12 weeks, we're up about 7%, and that's before we take the second round of pricing. So I would expect, at the end of the day, you'll see about 10% increase in pricing at retail. And we do analyze this by segment, by category in great detail to make sure that our price gaps aren't getting any wider to make sure that our velocities aren't dropping. And like I said, in some cases, it's been way better than we thought, where we're actually picking up units and velocity, despite a significant increase. Baby would be a good example of that, where we've taken double-digit increases, and our velocities have picked up dramatically. And then there's other cases where you know what, we took pricing and our competitors haven't taken yet and we're seeing some velocity fall off, so we have to make adjustments. And that's what I meant before by my puts and takes comment. It's not all going exactly as planned, but on balance, it's going as planned, but you're going to see about 10% retail pricing at the end of the day.

Got it. Okay. Thanks. One more real quick question. If you like your stock price at an average price of $44 in the second quarter, I would assume you like it a lot at 36. Is that a fair observation?

See, I am not going to divulge. We got our internal strategy as relative to at what price we consider the stock to be of value, but it's a fair conclusion to say that if we like the stock in the mid-40s, we certainly like it in the mid-30s.

Thank you, everybody. Appreciate it.

Our next question comes from the line of Rebecca Scheuneman with Morningstar. Please proceed with your question.

Good morning and thanks for the question. So I think I'd like to start with if you could kind of provide a little update on the staffing levels. You might have mentioned that you're fully staffed, but that could have just been in the warehouse. I believe last, quarter, you said the warehouse had returned to full staffing, but there were still some shortages in the manufacturing plants, and you could provide a little update there. And also give me a picture of what it's like at your retail customers and if shortages there are impairing your ability to launch new products.

Yes. So within our factories, with the exception of one plant that has been kind of a perpetual challenge for us since last spring, we're pretty fully staffed and our turnover is very low. And so we feel great about that. We do have one plant, and I've said it previously, we did a consolidation of two different snack plants into one right before the labor challenges hit. And it's a very competitive marketplace where wages have gone up considerably. And while we are getting much more output out of that plant than we were six months ago for sure, we still do have some labor challenges in that one plant. In Europe, we don't have labor challenges. We have COVID challenges with high absenteeism as they've moved everybody back to work. We're seeing increased cases of COVID and therefore, we have -- again, short term, some people are going out for five days and coming back. And that's disrupting production a little bit, but we don't expect that to be a long-term issue. With regard to retailers and even suppliers, they are seeing labor challenges just as the rest of the world is seeing labor challenges, whether that's in our industry or other industries. And that's where the disruptions come in. It can be that a customer is supposed to come and pick up an order and their truck doesn't show up because they couldn't get a driver. It could be an ingredient that doesn't arrive on time because they're having challenges. It could be a co-man who has 10 customers and has to take the volume that they haven't split it among 10 people, even though their output may not be at the level that it was previously. So as I said before, internally, I think we've got good control of our labor externally. Those are the things that are driving these transitory cost increases that we're facing, and we're doing the best we can to offset, finding backup sources of supply, air freight and materials, finding a truck to pick up the order if a customer wasn't able to get a truck. Again, all those things come with extra cost and that $40 million to $50 million that I said in my prepared remarks, -- and so far, we're doing a really good job because our service levels are above average for the industry. And we know that because, again, customers are giving us more distribution. They're offering less merchandising programs that other people have dropped out of, and they wouldn't be doing that if our service levels weren't good. So while it's adding cost, we're doing a pretty good job of keeping the customer service at the end of the day, and that's the priority because for us to be a growth company, we have to be a reliable supplier. And short term, we may have to eat those costs and find productivity to offset it.

Our next question comes from the line of Scott Mushkin with R5 Capital. Please proceed with your question.

Hey, guys. Thanks for taking my question. So you said earlier about Europe that people have gotten back more to normal, eating out more. So the thought process, and we get this from our clients is, as we get to the second half of calendar 2022 and things cycle, the price increases cycle and maybe we're seeing some volume hiccups. How do you think the business performs through that vis-à-vis yourself, but also maybe competition if we start to see a ramp-up in promotions and maybe even the retailers asking for price decreases.

We're going to obviously watch the consumer, right? If the consumer is willing to accept the increases, then we're going to keep the increases in there. If the consumer is trading down while we see that competitors are lowering their prices, we're going to have to be responsive to that. But I do expect, as you just pointed out, that things will normalize as we start to lap people going back to work. And it was a very -- unlike here where some people are working at home, I think I saw a study recently, 38% of people are back to the office 100% of the time, another 35% are kind of half in, half out and another 30 or so percent are home. It's a little bit of a mixed bag here. There, they kind of swung the pendulum all the way to the left and then swung it all the way to the right. So we are overlapping complete lockdowns for a period of time that are driving occasions out of the home. As that normalizes and we lap that, I do expect that volume will normalize within the grocery store. And I do expect that double-digit inflation, everybody is working to get that inflation down. And as that materializes, we'll just have to watch the marketplace in terms of what does that do to retail prices and consumer behavior, and we will certainly lead in categories where we are share leaders, and we'll follow in categories where we may not be the leader, but we've got a very robust kind of pricing team, both here and in Europe that are watching these things exceptionally closely. And you see it so far in the data that we've done a really good job of responding to people that haven't moved when we have or people who have moved more or less than we have, and we're watching the promotional environment just as closely to see where prices are going down. We've got to stay within certain gaps of people so that our consumers don't trade to other brands. So we're on it. We're watching it, but yes, I would expect these things are going to normalize as we get into F 2023, certainly better than some of the challenges we've been having now because we're going to be overlapping those challenges pretty soon.

That is all the time we have for questions. I'd like to hand the call back over to Mr. Schiller for closing remarks.

I thank you guys for all your interest today. Obviously, it's a very challenging environment, as you've heard from everyone. I'm incredibly encouraged by the top line momentum that we're seeing in consumption in the United States. That has been one of the proof points that's been missing in our Hain 2.0 journey. We said that was to set up top line growth in 3.0, and the fact that it's accelerating, we're very excited about. So I look forward to the one-on-one calls later today. And again, thank you all for your interest.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.