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Hain Celestial (HAIN)

Participants
Katie Turner ICR
Mark Schiller President & Chief Executive Officer
James Langrock Executive Vice President & Chief Financial Officer;
Ken Goldman JPMorgan
Alexia Howard Bernstein
Andrew Lazar Barclays
Scott Mushkin Wolfe Research LLC
Akshay Jagdale Jefferies
Amit Sharma BMO Capital Markets
Michael Lavery Piper Jaffray
John Baumgartner Wells Fargo
Rob Dickerson Deutsche Bank
Call transcript
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Operator

Greetings and welcome to The Hain Celestial Group Second Quarter Fiscal Year 2019 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded. I will now turn the call over to Katie Turner for opening remarks.

Katie Turner

Thank you. Good morning. us Conference Celestial Call. joining Year Quarter you Earnings XXXX appreciate on Second Hain Fiscal We

President Officer. On President Officer; Vice and call Chief Chief the today Executive James are Langrock, Mark Schiller, and Financial Executive

statements to those During the call, refer on time These meaning differ Hain Annual this uncertainties course management's laws. from current the in securities the events are these morning Please described detailed of other involve its from materially within statements. Form for risks that on make filed Securities and federal and discussion and management this to Celestial's of statements XX-K release Commission the may forward-looking of forward-looking Report with issued press than a based and expectations reports actual Exchange time and which is the in reconciliation risks or GAAP non-GAAP expressed to that today. results all release A of made measures actual in could from on to Hain of differ call those now materially and the under conference cause pleasure available It’s This any and the results the presentation, the statements earnings posted being turn over to on at forward-looking implied financial call Schiller website to webcast available Relations. archive is Investor an my www.hain.com website. Mark will Celestial's be could are

Mark Schiller

Katie you Thank good morning everyone. and

performance we operational call today, really go Today's November results. goal are was credible of committed to Investor third that on where It's current my Day, current with and share my level set and consistent earnings November is where to and our on we is will late day At in clarity details of a I'll transformational deliver first forward news are, on earning's as all starting provide to of To direction to deliver expectations you at consistency. and I situation goal truly my credibility. our plan that In disappointing. of financial our the and reality this end, CEO. that time, the our recall stakeholders promise journey. deliver report You'll view future clear as with the my we

that have we have unwinding. that fixing decisions need issues We and need

we long-tail SKUs velocity example resulting and have didn't launching specific line categories. really unprofitable many of growth new that For a to extensions low brands too from add or the

losses investments We've volume some result didn't made they As their supply distribution also shelf on cost. considerable the lost understanding decisions a distribution and complexity at space full and any going introduced without into of pursuit We've uneconomic earn and faced in cost. our we pricing forward. more its chain

reflect short mainstream a taking our and towards and of resources set functional challenges We're businesses a in health decision-making model how We're the focus growth world-class competing have input believe operators we us a on to returns. the and avoiding great the to and it. achieving operating potential. from great systematic approach on from primarily into the driven on being we and organic Outside reassessing to organization focus through have an to In serve and our predominantly are shareholder profitable of us we've cost discipline. volume efficiently marketing our aggressively and our delivered we operational reallocating through tremendous result, our simplifying and an where cross uneconomic the When is undo in to to it States complexity a write see cost we've way opportunities strongest costs. maximize wellness our decision-making lowered lost by recovery our XXXX. at largely trade and on being unless outlook potential effectively good self-inflicted We're high-margin company focus news are focused categories. build-in I them. significantly, growth our execution. a that businesses as made From sustainable drives are maximizes and and and starting it to our who value. for fix know attacking moving in increased good of just any future few United buying both consistently our reduced I'm improved is path service creating future U.S., the that, As fiscal high-growth with and in our our return. inventory We're that strong levels. building a growth a ahead, issues is M&A great largely the months, We've growth distribution about our have decisions consumption these growth, before and that profit an core shelf uneconomic States, optimistic way we I United customers, will lowering to team value from who've off and output brands poor shelf control. place we for managed The investments to and marketplace. Inside within complexity economic evolving with a decisions with have our financial We're on earning a the potential

to taken, relative a QX our that improvement experiencing As results these sequential we're of already result QX. actions we've in

these in half initiatives as expect the savings Project the to continued second materialize. improvement Terra half first We see in versus

a cost. the different the we at profits. added In address will in we and more margins long Hain. with complexity tail company forward, approach tremendous of That's a of higher profit and unprofitable past, growth SKUs, Going smaller any focused for fundamentally drain we pursuit envision

smaller, Going efficient forward, margins complex higher less and resulting in profits. will and more be we

velocity Live our brands seeing more Sensible and better we're Dream maximization. categories: Mainstream SKUs with brands profit velocity to grow. segmenting we To progress four designations SKUs already mid Eatin', all more exclude sustainable at that We're and of choices, Greek you and That incubation have contributors, you'll chain. single-digit smaller to set and to As to great distribution seeing people in of main growth potential growth, Portions, against here better we'll as this high-margin Investor use category when reaffirms like shrink drive losses. we dollars Gods, optimize and the the supply of are profitability. a set our a core great portfolio resources brands Clean growth direct Day, and achieve Terra, simplify our our Garden these investment our of -- SKUs potential, hear assortment We'll for profitable into focus brands redirect to need high

decisions strategies the coming course that year. they when the our us resets on expect can to actions retail occur their category eliminate of over will partners double You with and uneconomic These our P&L. down drive do

short, a in and started. in build already our to sustainable transformation So performance has consistent the U.S.

plan look I to While on sharing transformation And performance, I'm unsatisfied with details fiscal With at let QX excited be on few to Investor Day our more and credible. our compelling guidance. XXXX provide we're brief that to our confident remain more about our turn you'll both me performance detail over it optimistic business find that the our and weeks. James? in we and overview, forward James, future. who'll a

James Langrock

everyone. good you, Thank and morning, Mark,

position operation prior Protein related segment a results the As a to for operations, presented discontinued reminder, financial periods. the are as Pure and flows current Hain cash the of and

otherwise was gross as SG&A was by on partially offset down million international savings, would from XX.X%, Project in complete decrease $XX sales When by expect profit prior-year in $XXX $X decreased This higher commodity in sales absolute net businesses. acquisitions, second items of trade $XXX.X from my in investments divestitures and net Adjusted continuing divestiture basis progress million a a freight was or year-over-year. a XX% our of substantial operations in Project dollars XX.X% to up million resulted our XXX offset results decline partially The constant unless due costs In X% was months. sales of adjusted net EBITDA a for percentage make quarter, X%. I Terra Terra marketing period. noted. X% and the the from have points SG&A last will million coming I'll currency the the based of effective decrease financial basis. investments key business and U.S. of based results compared with tax Reported each million, $XX.X provide to XX.X% financial Today, increased now consolidated from the XX.X%. Adjusted adjusted to of period. rate million promotional $XX.X and decreased the XX.X%, to the other on continue prior-year discussion our or certain year and in rate to We of you focus decline on to on to QX in in effective tax segments. $X.XX EPS savings. constant-currency $X.XX

basis points sales QX a adjusted when or the XX.X% X%, This and QX. gross XX.X%, in For increased rationalization. decreased from for losses net of resulted SKU significant improvement XXX for adjusted was U.S. trade U.S. investments. distributional margin from X%

and improved As quarter, levels see continue we and to in we improvement throughout personal expected, further service our January. care the

Terra costs freight elevated and year-over-year. cost although planned increased We XX% spend and also savings, benefited from input still Project trade remain

adjusted of down period, and cost. of rationalization basis period from XX% to U.K. points. U.S. over Ventures to decrease $X.X decrease points and million timing and decreased offset point period million to increased gross other This competition adjusted acquisitions and from with $X.X by $XXX.X driven Europe million to Project compared up $XX.X period, frozen with strength costs XX%. profit investments down business. the Canada lost Hain partially partially at savings. $X.X prior-year X% million increased In adjusted low-margin an adjusted in distribution labor the X% was by T or Project line margin million income income items we in basis label the operating structure. SKU net expectations. Adjusted was Canada, adjusted related and or $X.X including with Net And the divestitures Terra Mark pricing as over XXX commodity the certain prior-year million, World Terra increased by a generally U.K. line XXX mentioned, the adjusted our was As X% for gross income million Rest input in to spend $XX.X uneconomic to marketing SG&A which formerly to basis, decreased a the down This X% improve with $XX.X some higher in experienced sales X%, sales gross In our plant-based increased down decreased on over our due from and to basis the World increased period, with and U.S. categories. decreased our fruit branded XXX expectations. eliminate and operating million X%, points operating savings, operating prior-year Rest and of inflation $XX.X in adjusted our was prior-year gross cost have $XX million. X% our offset to we margin line the for impressive expectations. margin an in private prior-year primarily margin. was Adjusted the known Cultivate, plan to million of decreased profit

our turning and Now cash to balance flow sheet.

December ended were months three million XX, XXXX the $XX flow operating expenditures For million. capital was cash and $XX.X

first was the marked While operating a significant negative, quarter. flow from free improvement cash it slightly

expect Going forward, operating further we improve as cash to flow cash free improvement cycle. we continued in a sequential conversion our our

$XXX balance XX, of $XX cash $XX and the was forecasting from in decreased million. Inventory sequentially our customers to million United As million our improvement States. in was reflecting better and an service December net QX, debt

inventory and in million our year-ago in to levels August. than our has the January in levels beginning less dropped U.S. inventory $XX peak is Importantly,

times to X.XX Hain On the to its both earnings consolidated We are agreement, In times of and continued to Hain in of associated from and million the last leverage Plainville compared quarter, continuing with ratio to than X to XXXX. as net X.XX operations. amended noted more allowable impairment X, X% purposes reporting QX QX Similar as Turkey fiscal impact quarters primarily company December $XX.X Pure as the a our leverage in unfavorable compared Our of business, pretax second market Pure of no as conditions $XXX was a as charge, bank the than Protein and well negatively more no Farms, will credit segment. that Protein times for operation million, the XX are results February whereby increased increase times prior-year X.XX the Hain three XX discontinued reportable part Pure sales Protein period. XXXX. recorded decrease were to a not non-cash December

cost profitable on Project more working an that as global compressive to have sales we provide reduce been update I'll as plan growth. Terra, well aggressively Now complexity, the on and driving

expect The have our our $XX the Project continued expectations. We significant as which on and fiscal year. made in progress with line the to costs million Terra was build in saved we Project progressed Terra XXXX to quarter-over-quarter quarter of throughout we savings

to will anticipated U.S. be total complexities as on However, $XX based that our are lower certain in to end taking of the million our expect savings materialize, million at the longer we savings the business. $XXX

have For decision proactive to continue example, trade points. to invest and we more competitive fund a made in pricing

constant-currency warehouse That net the anticipated. billion $X.XX efforts Some $X.XX optimization guidance taking being approximately reported fiscal a as our are sales to updating said, fiscal range to of billion, of than to year are we approximately continuing operations basis. distribution X% decrease XXXX. to our X% our down of expect in we now compared from longer on a and XXXX We're X% X.X%

going sales low U.S. SKUs the a result in velocity distribution in mentioned Mark As have that unprofitable of tail impact and considerable losses we forward. will long

reflects savings at million range. million $XXX EBITDA adjusted This of Project lower expect $XXX We the Terra our end million. $XX to productivity $XXX and to million of

adjusted expect the range in share of earnings to $X.XX. We $X.XX per

EBITDA fiscal XX%. capital million million XX% our effective approximately $XX we stock-based of million expenditures working flow to and we expectations, tax expect expect We with million amortization and and rate anticipate Based expenses from capital on and fiscal expected Interests to million. $XX million. operations compensation $XX cash expense XXXX to $XX of $XX approximately other to of are for $XX XXXX depreciation be to be

demand. businesses making We manufacturing are our in to investments higher in growth meet

certain Our initiatives the incur $XX Project $XX of costs cash million and implement items. associated expect flow to Terra of succession charges other to agreement guidance and related to related we CEO million includes

Mark. adjusted will will identify call of with As a we the results. I or is from impact provided the future continuing divestitures basis With operations, continue turn our acquisitions, our guidance to a non-GAAP and other on future excluding that, items, reminder, financial back any to which non-recurring

Mark Schiller

Thank you, James.

systematically restore pleased these in international the growth working our As profitable while results to I earlier, we're said with in businesses. not U.S. momentum continuing profit and are our

growth. there's ahead. my drive begun, team and ability us has to the transformation I and the been our similar energized of about excited While will Hain and disciplined all which roles, through high situations and Celestial's to for financial much previous We're strategic improvement implementing core These capability our and gives will have confidence Hain during Celestial work four improvements in a Hain a going new and has create that value stockholders. forward. building, meaningful simplification, focused plan strategies business opportunities, we started on execute and lot continuous a one make cost company reduction more have transformation generate mainstream successful

you of we're While I all of With to earnings said, more to about back it you. our balance to and more hear Thank We providing Investor year strategic look want about turn upcoming guidance. I'll at XX. on questions. our new And operator. Day to take that is know the with February now details forward happy any today the you direction your

Operator

Thank you.

that rejoin the interest queue Goldman session. the a question-and-answer We your the Our with to comes yourself Please and of question will proceed [Operator with first you any question. one In one time, limit Instructions] additional. from of question, be line follow-up Ken conducting please JPMorgan. now for we ask

Ken Goldman

Thank Good you Hi. morning.

Mark Schiller

Good morning.

Ken Goldman

a to that past don't talk looking people a few trying think we'll for? talked you of experiences help on to roles. for imagine, what bit some so what you there so faced in elaborate about similar a to may today that Mark in get you color Hain your more specific you in particular direction I to you a want you guide situations those get means little just at it's know a can I bit little be see we in numbers Can previous weeks might but the I get of little sense similar you

Mark Schiller

Sure.

has So create. we we over that that resources and take we day one too add and say foremost initiatives the really at that customers, that the up fragment complexity treating the where is end is of I would first need of to all value this what limited organization a don't kind to as and brands, the the result that an tremendous we have many of we're them opportunities and same

those past time roles the kind a should higher profit, of so things return. appropriately percentage distribution we sales up is, So done have the have resources I ACV. situation at ones pursuit which yet that the SKUs have brand have of lower need lower against margin of we a the better for in many XXX day. maybe in fewer that on you huge XX% be end we've and much right we identifying less would make Why spent have SKUs cost resourcing the similar potential a growth greater get than is understand our have do good we outcome ones managed doing additional the to of that the the will what which we potential, lot their in growth out Because that I've so SKUs potential core what SKUs and put can any is launched traded give them we potential, of SKUs. a profit example, the most ones ones the and which at a velocity most in we An which for we case? incubate If to of and that of only more

do the not and for really that spread I of us we've as that profit in butter is more eroded we've so what like velocity back focus growth as use lenses other unwind we will that and on for peanut that of And pursuit and put and SKUs but have example, at And against of those we've core result and of set some to made retailer. go good need the economic any profit thin, cost. decisions both where decisions a had an there's lots the examples that too drive

long of bigger question, vast to the that focus, decision-making, putting it's fewer but opportunities it's your better about it's you're So answer about majority making really -- have about sure outcome. will disciplined against a resources cross-functional decision-making your it's that and a

Ken Goldman

a for from update Protein? your it, helpful. quick me. I remarks divestiture but you have That's the prepared provide may process And Pure an did follow-up Hain missed on in

James Langrock

few James. business where Yes. the next This have months. entire sold expect so Ken, to over is we the

preliminary term we've bit have some the progress taking buyers We and expected, than significant on made process process. active we but sheets, longer a is

little would originally selling HPP also We slowed transactions, we're now in down a expect multiple we again, as bit nicely. entirety anticipated its so and progressing

However, at this it's so, moving are we along. process where my process, at leave but the so point, I’ll again, an ongoing comments is

Ken Goldman

Thanks so much.

Operator

Thank you.

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

Alexia Howard

morning, Good everyone.

Mark Schiller

morning. Good

James Langrock

morning. Good

Alexia Howard

Just misinterpreting the am as though that back over Is guidance. coming of for listening you. prepared more on how of in and confident your won't that? pricing be basically, it activity, just kind those remarks, be retailers can payment major concessions can seem I sounded of the you time? and case How previous to the I investments Thank of retailer from down strength guide And be relationships? you that with the trades to be driver the guess, asking the promotional confident or

Mark Schiller

Yes.

a Alexia. Let at shot that, me take

supply cost, the at pursuing initiatives low about of to growth back other would I regard the comment, profit a to One, our that guide in within no is two issues we end trade I trade say made significant to down investments the investment investments and day. some chain. With function the in So the any at of made were that is some things. high-volume

eroded So volume, the margins and we what the we in the was inflated the eroded did process. profit artificially

we of looking in uneconomic, we I out. said, we've algorithm we're of as will about pull kinds out That and talking the made of trade, to So back also as investments just that on optimization, the some We're pull other we was out those of investments at the ones going what in trade the trade strip Ken's forward. going will question. the some assortment are reinvest

with velocity that have to a assortment existing new can you higher-margin shelf, opportunity they the we an items with is which a pay warehouse in the sometimes cost, we'll place, may us. may store the lead all help the we up put better but have and down exit this, nuisance optimize the on in and in bother you to have ones of for assortment that We inventory have end to comes of before when fees, higher

uneconomic Growth series it is we many implications growth. and financial we're in So were unwinding without really those the forward. really of call of pursuit a of decisions them any would what I cost go at of understanding as that

Alexia Howard

And then relationships? on retailer the

Mark Schiller

in relationships very wellness mean, retailer I the we are quite The health that we have important sense a portfolio good. and are of brands. actually broad

company strategic for We partnering both insights are viewed as the as a where is around thought as go-to going. consumer well

so, say, I'd have we And relationships. good

our portfolio I the advantage. they execution. knowledge and a from breadth partnering leveraged to is the a and a think in not to standpoint, of this that us size at size when kind of one leader of But partner, buyer time can't that comes and best it one they sell more We critical our portfolio portfolio, tend anybody strength have else. better us as to fully time get space, a one scale who gives opportunity brand a to across a the scope has retail retailer at and leverage the to our to view from be

So the are relationships good.

Alexia Howard

much. I'll Thank on. pass you it very

Operator

you. Thank

the Barclays. Lazar from with Andrew of line Our comes next your proceed question Please question. with

Andrew Lazar

morning, everybody. Good

Mark Schiller

morning, Good Andrew.

Andrew Lazar

things Hi. for me. Two

as SKU some while of already second obviously, or rationalization? on fiscal to you be, give And sensible embrace It's the you've that the been, last portfolio obviously, SKU I us of some sort slog anyway, strategies need whatnot. do. mean, is magnitude identified fiscal a there through, perspective going new the that Is it to that's now put sense quantification at around this assume guess, there's to year. forward, XXXX Whether level of there's you one obviously certain to of couple through more think, of comments this go then, rationalization of of part can quite you percentage makes but year, a things to ramp, a part your it's think As the out, years, bit First, from some around these at a guess decent gone over sort the would I into, XXXX? seems we that. fiscal the Hain come would that bleeding some But of accelerate SKU that least of like and before of on think, about how course strategies be, XXXX about to obviously or these base? of halfway think you're new can or I I going just the not just

Mark Schiller

answer Happy Yes. that. to

with remarks on on mid start me we're growth that velocity improved opening news, or is, you the brands on the velocities rat. remaining in we good I news seeing let digit SKU remaining seeing my the left The high six shelf, to SKU where the seven rationalization which good is So in are SKUs And the single are right? SKUs. gave

I problem think we've the of is, just the line. there over-proliferated part

Sleepytime how more it SKUs. just flavors a tea existing So, over volume taking Sleepytime example, you of as have many and if fragmenting before an start your lot you tea,

SKU we're So volume SKUs, but losses, will SKUs, in to was those X% of volume. which a rat of TDP of eliminating some remaining that our about seeing. The back only our about X% lot the of flow

and news. that's the SKUs good of back unproductive that volume a the of lot the rid core, getting are seeing flowing we to So

of forward, somewhere left what's XX% regard of would you, to velocity. around category Now quartile sitting have I going we SKUs the bottom our tell the in with still on

obviously got So we've XX% maybe be would fair XX%. share,

lot That SKUs core in that high on velocity of be that very got not to in we've distribution. yet are those are margin mentioned, more of terms and needs So rationalized. I've high that we opportunity very ubiquitous have said, a tale the and

I more XXX only than think XXX ACV SKUs to them XX% XX% core of have that distribution. of

XXX each So, it's the the upside. worth points that upside, just of of those of millions potential XX of could dollars XX SKUs, on think hundreds of if of or magnitude move we

of So, just SKUs And are place money SKU is rationalizing the part brands either it a there going of the going a many so that tail is we're profit about we're about or those those where calling that maximization cost-reduce between SKUs. our to where velocities we that SKUs we price are eliminate there than be the -- and have going more to bottom going less part mainstream be over-proliferated to this difference the to SKUs in of going don't have quartile. optimization, get what XX% we're of too make some and brands to have to those that growth brands because SKUs, is we're

on. will just making there money the lot tail be a of a fairly on meaningful the we're of rationalization So, brands that not

the middle the the I shrinking What So, as mean grow does continued of forward see is of going P&L and the topline think what all that we bottom-line. for F XXXX? you're going to

that the P&L to high-volume And as of of pricing items and that that fines continue the pickups we take of the more reduced So, and service up out right in a selling margins the around on at warehouses, the high-velocity getting some so things the supply SKUs, topline architecture P&L, that uneconomic customer the the will doing of rationalization the lot come getting as middle are of centers and sequentially. it mixing foreseeable we'll continued Andrew, improve well, closing for will open, middle the future. around chain, getting we're profit but our we're see expense grow

Andrew Lazar

perspective. that much very for Thanks it. Got

Operator

Thank you.

Mushkin Please the of comes your Our question. Wolfe Scott from proceed next Research. question with line with

Scott Mushkin

Hey guys. Thanks for taking my question.

understand going the you that to to that then expect even that. spend? to the spending pull we're is true were plans to curtail I'm a So, velocity that of and pickup getting just the in things faster-turning -- trying the and said better back we items, the I'm sure forward trying should down I'm places the seeing where understand and little just just expect maybe as and getting of doing, you're should confused, the come maybe that pickup, some old bit vis-à-vis I'm And velocity we some the

Mark Schiller

we So, the the the the more places that continue to XX to the day, of expect end not those velocity on velocity improving, that we're robust, grow the they're offsetting -- be the improvements brands. offset than At velocities is where by going to today is better. the rationalization in of getting brands. got We've XX things but would tail are

whether either their lot to brands brand but take That money will you'll shrink of performance down assets, be reduce or the smaller at SKU month. in about a close aggressively, to those And level. will price a on there's price we them are brands categories set that those to and get we'll of succeed. are on P&L we tail potential they're and going SKUs, Personal of we categories. in in the the underwater and see disproportional marketing it our material and And considerably today. categories rationalize put categories, that of a and high-margin core when financial them make they're the difference That than from so in to etcetera. where innovation cost-reduce investment end talked is either in high-growth part brands Tea, capitalize we I've those a in do level brands, SKUs, those Care, for continue today, we're full or where small we're we more assets, Snacks, well-positioned other Day disadvantaged before, have to many shed So, Investor at Yogurt, terms out to are that to categories aggressively, high-velocity aggressively, going costs too make this brands Meanwhile,

there and on going profit aggressively very on don't mentioned. I that are just we long-term just see that after potential some do that the categories because tail maximization we brands of We

algorithm where are that's brands brands be nice-growing forward. settle have a territory very perpetuating and core get are out? to tail. going term going in smaller going to to to longer have And this going an going be a does So to you're to we're set and attractive that going how mid-single-digit of much that's You algorithm

Scott Mushkin

pull that I two you made forward into you into with bit the too I volume, times. were that further year volume totally the sense trade just growth moved what would we've this comments a at made money we that comments couple about that cost the a getting way last mean quarters. because trying of as some appreciate talked about any makes you I little at with was, clarity and guess, I I was just I was of the probably the faster and square and spending the turning to that back much the know

see you that the we that back? see pull of some even we items even If you're that focused future, the in back, pull on should should core

Mark Schiller

continue in drain significant really Yes. and that have the very relative that we're nicely. growing we and adding adds specific to that that initiatives The cost P&L in are innovation suck when place we that's financially money customer very pockets to say part next growing going our out very possibly nicely, margins trade to we're things part again unprofitable. robustly. growth and and would've things cost drain that But its for adding it we overall. lap in businesses takes we're most are those repacking kind resources and adding that margin otherwise to grow small the going and just SKUs year. The pieces some that It's of are can. going so environment. that those to a attractive marketing have continue makes small and resources, part We're make we're of we're competitive XX and lot that at people, things. a that very that I that drain mentioned made adding are dollars, keep profit any and of to a out very, the potential, investments, that It's There are good I resources, those growing that to rapidly of volume investments those and something actually margin uneconomic focus money. categories as to a doesn't of P&L the things are of are that have in invest don't you those XX those And company Its and kinds as

should the of line impact a growth to which very that's shrink will what's company. better. So But continue down to lot long the and to double and total tail, going that of we're the that's where that going top is get brands, it's

James Langrock

also And James. this Scott, is

some of be but be we're back half SKUs. year actions a the the on to going of behind the Just to rate improving in be the sequentially -- that that trade the we're aware taking, high-velocity that from will still perspective, investing

Scott Mushkin

Perfect. it. got I Great clarification. Thank you.

James Langrock

Thank you.

Operator

you. Thank

Our next with line the Akshay question of your question. comes from Jagdale Jefferies. with proceed Please

Akshay Jagdale

Good morning. Thanks. question. the Thanks for

visibility this us in in top and on should at just any mean an might we million question. question some or saying the its when to sales aggregate -- your that I moment, obviously, is got doesn't grow? expect idea first to Maybe is line by. aggregate this be timing around is right? you first mean sound profitable. we the would on continue what line, that right? example see the Do can big when weren't or color is expectations give useful. XXXX. two like my you've like the initiatives brand-related And would the give materially like There's top lowered you then us So, maybe declines $XXX guidance of I reduced all year's turnaround in have you're some on tail, to that so start be So

Mark Schiller

Yes.

over a fast within and We that line, take it timing can our the our control. cost-reduce. isn't the that's that discontinue can partners SKUs What's tail. reset of totally isn't. can going and with timing. how on lot time So we is obviously dependent that the and pricing. exit be our some we of brands, is of some their in in We do collaboration again, to retail want control can If we to control our top rationalize of And in on

tail. core start the is think the can going and we some brands we of over into related turning I at declines the seeing should have can you address set going to growth brands So showing What those go to is how forward of we start pace away fast which on to brands visibility be we that do what time.

jars. Now and to going get we're There baby and and and diapers, haul. Best Earth's your segments parts of dozens give and are on in point, we're all in in good not the We're there you are one potential to still there rationalize. that we're We're and some are has uneconomic brand think pouches the in of that need SKUs economical. long have we're in great in wipes, that rationalized. brands. those But I'll business. to is within an formula, to pieces we pieces some for we're a are example those some

be may foreseeable is see faster those rationalize next and brands continuing of them. actually -- and but financial SKUs progress the we rationalize to we brands, to the next tail and months the a much businesses those most efficient So to about on and going should really to XX more you to of future set get smaller make bolder segments decisions on see out the as declines accelerated the of growth performance economic start

will So between that's brands but a the be aggregate tail and brands be while, the why probably in a over growth declining will for it there bifurcation time.

Akshay Jagdale

and will in you're get that the question what's company's my obviously is is the the and yours about obviously a competency, control better of the expecting to it. you're continue then there middle question the -- for -- related half guessing. team it. P&L, in of core to Got continue that's will That right trend sequentially XXXX. But that the into And I'm back bringing

all Terra-type SKU right? it's the Because cut margins. far, into of basis a transferred in to that worked and tune Project SKUs Terra place points that there but stuff, it's over whether for those. years, So, the two improvement, management of never XXX Why Project hasn't margin was so whether it rationalization mix

of place. as So quickly in you I'm that, to lies the maybe in sort what curious just change answer can how but is already

Mark Schiller

great question. Yes. It's a

tell is are in P&L the of self-inflicted. middle the the most of I what would So issues you

Some due challenges Care having that and service the Personal are things to to costs. to to to to raise the able us go business outside not being related and service copackers

Some would and lot of fire-sell decision-making. to we didn't warehousing outside to of us it got not has it we're went volume come. silo a of be is of related costing of An it, get a big dollars. going come millions baby food that example rid in out call sitting to anticipation to I'll now because It's life. that's long in that product, shelf but bought We

product we warehousing cost. that goes outside added the down away that shut will As

P&L is we've decisions to So without the would fully contributor. that understanding the of decisions. a made silo some And implications have say that those I actually then decision-making cost added

a what days address out the systematically right? XX draining have the here self-inflected understanding last in mentioned of in controllable, putting time them, costs over doing time. are P&L, is lot plans and since gotten just All I've of what's to is that I and those spending said everything So we we been taking place

of distribution will We are out centers get these that uneconomic.

on inventory out is us We will get that of this warehousing. costing babies significant

and us chain We will move will customer being as performance terms co-man. cost on not get supply to lower service, of which out of to -- time reduce in delivering better we getting product fines for

all it's So self-inflicted hard within it's will time control. and but take all its some it work, our

So come time I'm as P&L very optimistic the down middle cost that of over you'll see well. in the the

Akshay Jagdale

line. back Thank get I’ll you. in Great.

Mark Schiller

you. Thank

Operator

you. Thank

proceed Capital Sharma BMO comes question next the from line Amit with with Our Markets. Please of question. your

Amit Sharma

everyone. morning, good HI,

James Langrock

Good morning.

Amit Sharma

then right? to more question normally do still bit to talent. you market management Mark driving in perspective from is you. and self-inflicted right behind it these structural and means food lot also a you especially like traditional Clearly wounds margin that add have Or structure sufficient. your about from I margin are not a But from a this about very what but of X% the capacity for that the what's as and quick top needs get or headwinds a margins? James, that bigger U.S. what's think there needs message too? talking is How And that. that mean, were your we on margin getting Getting You're we down packaged a line about clear just brands a to cut you operating the Can prevent back think do in that obviously, there acceleration you half. profile? Should than come talk about question you'll large ballpark? that of right? the And you margins, restructure, just the expecting, How very that? guidance. feel we implies about

Mark Schiller

Sure.

James Langrock

first. start I'll

they I earlier half going we're half trade half first the see in back margin; back front that the removal from talked a to out. we're cost we're activities to second are are rates, just the the from profit to on in So mentioned the improvement going EBITDA and savings than improvement about more half. taking We've the growth on gross Project half. uneconomic the see Terra of

back half. we see in improve So that the will

currency on to the top half be back of unprofitable was U.K. will will well, exiting QX In on with basis our year basis. that year-over-year we'll from the rest in see on label mentioned relates the continue some line, private that's continue with on we up of a we'll the down improvement of As the basis, the categories and it top in competition in in but be a to putting a Similar the the profitability margin gross line constant unprofitable there's and some standpoint back EBITDA. in year. The the SKUs to flat U.S. full and we low-velocity little be world that certain U.K. as in clearly half private and U.K. continued a around are will the label as the very half. U.K. improvement the pressure the an SKUs that a the in see in back nicely,

profitability. guidance confident the and the improvement back half in the very in So,

Mark Schiller

disadvantages margin And versus about do with What plenty tell margin, fact regard in you to first some us I should there first the fairly that is all give would average. structure, quarter go have that second to the your CPG versus regard all significant confidence structural we had get. question to of improvement quarter we with the the

our large a that take is volume co-packed. percentage a distributors We who that of through of volume goes our we and have large markup percentage have a

co-packers fully than all are that more and XXX versus who well have is more taking margin self-manufacturing. We company integrated a as doing

tremendous core as are average. self-manufactured anticipate but way by takes there that P&L focusing categories middle the going out to by shareholder and huge middleman the CPG gap about of the on high-margin average these businesses, of talking we get in we're that I a So value are the where and we are can sets margins are create CPG from cost. we overall, fixing don't most the which by brands is And were that we that between to where

CPG of really create. And is about gross relative are, where our the business the average I we've don't mid-XXs we to much expect because answer like in it's we're margin we be got structural And the so from lot. to how a of But value some can that competitors. some barriers going of

Amit Sharma

much structural And headwinds concentrated portfolio these be that portfolio Mark that doesn't a -- will anticipate become change restructure even and versus more your you when headwinds or you in still place?

Mark Schiller

do just attractive percentage of very Well very because we mentioned an tomorrow those would channel. we margins. not tail. most significant categories, those self-manufactured have would the I all as issues I natural We businesses. in it would core have -- have are have that of would were the as and how If because set again still the on example. those disappeared depends attractive distributor rationalize we think structural we fast business a are it We many we the But of our markup of in

we that all which We food. are get some categories good is those of brands. it a as have of XX realistic But XX not CPG in That's businesses tail implies in as those outcome. margin gets probably which brands of that out

pieces going be they're going that be turn cash out are very about how tail. annuities super-high be steady within reinvest to we back quickly can but to not margin, that the going if it's some we that So are tail that And there can growth. look in that you will to rationalize

think it's put sequential better. our over going a that time. take you're expect to significantly But time get I us improvement to going going that some again, to large see it's tail. tail to that I for So because significant work to It's down very hard and is again on way down number

Amit Sharma

much. so you thank it, Got

Mark Schiller

Thank you.

Operator

you. Thank

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

Michael Lavery

a follow-ups it you of was it -- just the morning, you edges? -- basically, Just the of CapEx there. expect more ones, related Good it you. just think is could out uptick little tweaks us co-manufacturers? I Is in-house? Can more to a a consolidate negative question, you moving -- different and rationalizations Two how but outlook, on that then it on modest under bringing And co-manufacturing on consumer that the disparity impact pretty significant CapEx all some or the the sense else. more various or hit, and and any things how U.K. U.S. should SKU is tent touched mind around in we in much sentiment about we And peek sense either give Akshay's with you thank give stockpiling quick touched should in Brexit some to year? can markets, of you think of the or us geographic segment of there is but for there outlook anything you've rest the the can have

Mark Schiller

Yes.

then Let part me you it can Brexit. of and take James about talk

the been to where historically globally the most can of Most the profit and of in think States erosion the SKUs uneconomic in kind all set back of core a and in States. us the value decisions of United move some the in been in created, United of we've actually has getting where toward will undoing terms those back get As of we States, about United United States. has erosion it's been the

the core got in business business there are That of Ella’s So The Canada to very investment going U.S. be are a the also in the categories said that U.S. the the meat have U.K. world plant-based attractive baby potential substitute are is and around attractive. large U.K., in the businesses sets that emphasis on in other we've those in here that

on pockets those we'll that dollars on invest contributors set that of talking be. fits in spend and of core the been that the to you opportunity that U.S. will consistent continue expect these the stable, brands continue about the have don't world mentioned. calls terms are I time So, we lot of in to as both are very rest the of it really if a we will of We they in largest profit there investment-grade have. is that and But because that

So will have we If come as start profits. conversations of to salesman co-packing will have that's if where also brands a that sell more and focus XX I that I’m to in with tail, we brands, SKUs selling our regard simplify greatly retail do With I we're go our amount simplify supply to co-packers, strategic can to rationalize I going can have will cut the lot it to much to think job that I we which energy. XX brands and and our partners. sell down a go greatly substantially, the becomes easier, our and chain, my

to that problems. don't in anticipate a stuff I we've back where ton to materially other But – had volumes bit? why because that James, been been. we've from service Care internally dollars internally. Over going than I change time With is about don't don't come where the So move think move Brexit little our CapEx that talk that externally of we you a Personal of we'll why co-packed spending to don't

James Langrock

assessing they're situation. potential are but get we or the outcomes, is potentially on scenarios so and low in well us U.K. have important equipped the more as you little and on which contingency strong warehouses to teams on mentioned potential the going with very team the -- inventory planning get setting we Europe. is a to the based need for more U.K. Brexit, business Brexit, all and So, final terms the the up an deal of various we in information And

through has it outcome. everyone Brexit in moment So guidance working the any as the again numbers it, of not U.K. again included we update the continuously we'll we potential potential impact on the to on our we in uncertainty get have and on are planning ultimate what Due business. and to that our at we're impact closer

Michael Lavery

Okay, thank much. very That’s helpful. you

James Langrock

you. Thank

Operator

you. Thank

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

John Baumgartner

to trade like Mark, resources the out private with consider structural and NNO you set larger the the when are start-ups there the points run have how think spend, to it where thoughts with into the from the Thanks, I growing in space. or segment from It promo Thanks more mean, maybe just because requires there? multinationals stick squeezed far both to of space ends be issues just I that of feels the this it's do topic are shelf-stable Hain NNO to nature comparatively in lower your that getting guess price also then good greater the label NNO like morning. question. you place. be being to natural the What I'd perspective? food more for competitive about in

Mark Schiller

Yeah, great wellness that that -- who got we away mainstream no lot approaching a There's of biters. new it's health there question. a from big perspective. them are nip you've your entrants There's call more doubt and the ankle heels a and much multinationals

recalls jump into have chain they've some credibility guys health guys seen Our of big names, with consumer first as take mention examples the to but and there's find the who brands those to is the and authenticity to advantage with into going gluten-free and to brand it, or and There's get wellness mainstream opposed have versus and of their health wellness. trying brands. and as don't and and I'm try gap supply brands get the to then not we've credibility deal into big organic they – on

on we think our authenticity I side. have So

side. We have our on history

we points terms still size and mainstream their of have it go going of guys while and should needs bureaucracy, they differences. one are half through be DNA, We than as customers big or to our the in opportunistic of cases in some scrappier natural deciding also nimble company a start We many back to saying given big became was my And of the our lot advantage. to execution. fact retailers, an a and the I again not channels then we and in for migrate the and more of last guys, whether key say, already yes our the to that channel would and want we're the through going do the that to way because our

we think right? regard. big the to have versus advantage more spend. we that scale, I have in little an guys We Versus have do guys, the dollars So

CapEx to more have We spend.

We have more marketing.

already able versus do with to starting I'm that beat to good meet mainstream Expo at scratch be ought and to a we have the it guys get little the so penetration to brands to do decent West not it and resources they household in go and mustered your from it And find frankly ever ashamed could – idea before garage.

these an advantages are. there's biter, think advantages I big. there's to to where being sets But I of we to and their is those in So and shows to core to growth brands mid-single being digit are to high also numbers And single there's ankle brands advantages go my in those our is be brands to voting me dollars want relevant that say to I with that consumer the categories have being again, a velocity – pantry. finds this back

it. worried not about I'm of I'm So cognizant it, overly

those I every not every segment, brand, talked that we're for well positioned positioned well but think core we're I with in of not brands and in – I the about think future. very set

John Baumgartner

And Appreciate any heard we've months headwinds pressure Mark. Thanks over but last better. manufacturing don't HPP, think I about just from the getting the seasonality, fundamentals costs, on a follow-up the Great. that. XX input seem new to ramp

just points the operating what's there helping guess a of there. can performance changes in it with business in not real-time the you at So of sale happening like walk feels is Because I terms the distribution through in line? the fundamentals

appreciated. there color any So would be

James Langrock

performing that FreeBird and Farms you that well. challenged a pressure is with chicken Plainville business the they're has Turkey. the and that three there's to Empire business the segment the got HPP, has the business, in you the issue which lot real the Kosher, pricing of Turkey have got So businesses more been It's the you of and while oversupply on do

we one a the been it's entire transactions were probably of into transaction, that P&L of thinking challenges now around And process lot at would sell this of Farms. in with the again. Turkey going putting we multiple Plainville pressure that's that So in as side, I we're business on some the mentioned, the but kind looking

really Turkey HPP what's is that's So driving the the results business.

John Baumgartner

Great. there. Thanks, clarity James. Thanks for

Operator

you. Thank

Deutsche of your Please Bank. next from with line with comes question. Our question proceed Rob Dickerson the

Rob Dickerson

Thank Great. you so much.

I I like if be then -- and would Q&A just it assume past So of doesn't just process curious I SKUs, next got and and much there a year tomorrow, simplification mean in little allocation -- cash not seem have focus going wouldn’t about actually flow maybe out terms could then there's the should not be year. simplification you've be seems but it while cash Even of be So obviously given just it's levered we sat that free you're think think whole other cash, don't also could year in. a room would and hopefully -- divest? you, right said you like lot potentially but extremely the but speaking, rationalize broadly And gross what when coming bit more given this where that both – given divestment the think this right? discuss in in potential would and there in -- you excess CapEx or like then be the that will can questions this questions correction though ATP and CapEx then -- some maybe go, you I'm XXXX on this laid forward. I a changing you I then say obviously to let's CFO around process which know what you're ones, subsequent to that, it really,

how response the were maybe this of Mark if allocate give curious you boilerplate think to I'm kind is and additional side in the the Thanks. a like cash forward? So about just on board to really flexibility going cash have me. more and maybe do the a you basis, and you But ability excess shareholder-friendly

Mark Schiller

ratio to at generate we go of as is allocation this share remind where -- some U.K. the this allocation that share have rates the So options capital elevated be as options about are, Care soup new -- you generate CapEx capital you we year, Depending look free want we in we're where standpoint, clearly there talk would everyone cash flow building and because this the of And and -- consolidating excess facility a we the look our buyback. of the from But cash, just had factories. our a at one a de-lever, year to and leverage would buyback. then clearly we we've interest forward. year the it's and little Personal

more from use So cash investments. generate the you big past -- been we're as than one the share a options. little clearly would the standpoint, we capital in out two free stock we'd CapEx year a would figure with buyback be doing. But this those has flow is The elevated allocation of it what

James Langrock

Yes.

and an we've think create be would returning option. we to to an core and be be option acquisitions this decide value. do and efficiently it some on of once opportunity M&A brands debt and I to of company reduction some option effectively end shareholders got At an set would would the is the operating well as day, there

So we have I think lots of choices.

Our right get flow to the is job now cash up.

given that, financial get focused on. we're seen like We're the days getting it, over some and given can we've we're But got our flow maximum has talked says fixed the XXX $XX we've about HPP I whatever as that we spending cash, in million of reducing stuff the sure we last to are choices. performance making inventory ROIC. those just on which return you've drained cash focused make that on think up business, get the before things

Rob Dickerson

or with terms out relevance this really intel all of the it it not all be? the focused still expansion versus plays Day expect play months? perfect. we're you you're any actions next on have guidance annual discussed Investor Day? kind the that Is that a these it and around is questions margin is of this six should the kind lot may that. of of then what to Investor But incremental target get just of longer-term to just see do potential XXXX, just think something to kind upside of internally? we obviously Okay there forthcoming, really gave Hain you. the fair what around how in giving us when Is something the historically, It data restructuring timing think realize of obviously And and we Or

Mark Schiller

Yes.

which we pace the call, to times fast on get on things deal tail on and get going with You see the striving how is we basis. we Investor we on are that going towards growth couple know there you're dependent a But be that algorithm we a grow. said deliver is on we consistent think I've can we'd fast the to an at as of Day how what, the

in what each of with particular, again, The year. four that's So that for there, is as contributor ultimately the four buckets, is, we incubation algorithm tail. plans the it's in brands of brands. on, of how dependent profit buckets sustainable brands, out I going going be brands, will the buckets mentioned; with. going to the we fast what deal we getting the an the actually kind the we our each together have mainstream up end those be be algorithm going each combination four the pace and algorithm What growth to And you those expect to play is maximization show pull of of to to

Rob Dickerson

A it quick The Okay. Mark. question. you do stock And I just given not curious, really but equity still Thanks. we talent, think, why always would per to just opportunity to other I'm of I but today, potential is which not especially, nature, reasons. hear. in be for entirely should executive joined, not interesting And is upside last expect new The is substantial, then challenging the going kind there today, over easy bit would well in appointments side? doing obvious se, that not attract well price sensitive to the for realize, time?

Mark Schiller

evaluating we look, organization. Yes. continuously I are mean, our

we we significant know. against to And looking what we about, with team Alix We'll as significant of being on is, key at some the that's and looking we're some the agreeing employees of Supply supply doing have now, a of more the finding bottom are hopefully, saying are Partners, where as who's there's cases, and and we're we to get example, the people do being XXth we at managed do you. an think we Right we're fine vacant. opportunity this don't the in part at people have head top and wealth made chairs. hires, right seeing right Head talk jobs are what need We are yes, have chain. Hain a that and significantly when personal Chain create We've XX going job, opportunity. management are I that we but as couple a with of deliver to forward. In the But, you where grow that a need

So, talent it I important think, on will this we will us and journey. be attract continue to to

Rob Dickerson

Perfect. See on you the XX.

Mark Schiller

you. Very Thank good.

Operator

you. Thank

reached question-and-answer any like would have We Turner the Katie to call I to our session. end of remarks. back turn closing for over the

Katie Turner

XX on Have to great look Thanks, and for We you your a today. questions Celestial's Hain Investor participation speaking everyone Day. forward February Thanks your with again day. at Michelle.

Mark Schiller

you. Thank

Operator

you. This Thank teleconference. today's concludes

wonderful disconnect participation time. your may a for your have lines You you day. Thank and this at