Hain Celestial Group Inc (HAIN) 2022 Q1 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Hain Celestial First Quarter 2022 Earnings Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Anna Kate Heller, Investor Relations. Please go ahead.

Thank you. Good morning, and thanks for joining us on Hain Celestial's First Quarter Fiscal Year 2022 Earnings Conference Call. On the call today are Mark Schiller, President and Chief Executive Officer; and Javier Idrovo, Executive Vice President and Chief Financial Officer.

During the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to Hain Celestial's annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed from time to time with the Securities and Exchange Commission and its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

The company has also prepared a few presentation slides and additional supplemental financial information which are posted on Hain Celestial'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 and non-GAAP financial measures are available in the earnings release and the slide presentation accompanying this call. This call is being webcast and archived, that will also be on the website.

And now I'd like to turn the call over to Mark Schiller.

Thank you, Anna Kate, and good morning. Let me start by thanking our 3,000 employees for their continued hard work and excellent performance in the face of many macro challenges. We've kept one another safe and worked collaboratively with urgency to deliver continued strong results.

On today's call, I'll give some color about our Q1 performance, progress against the Hain 3.0 strategy we laid out on Investor Day and how we are addressing the challenging macro environment.

Starting with Q1, we delivered better performance than we guided on our last earnings call on both the top line and the bottom line. With regard to top line growth, adjusted net sales were basically flat year-over-year versus our guidance of being down low to mid-single digits. On adjusted EBITDA, we had guided to a decline of mid to high teens versus a year ago, and we came in better than that, down 13.8%.

Looking at the reporting segments. North America adjusted net sales were down 1% compared with year ago and up 8% versus fiscal 2020. This is a strong performance given the year-ago comparisons included significant headwinds from overlapping $8 million of pandemic-driven hand sanitizer sales and explosive growth in several of our largest categories.

Our growth brand sales were up 1% versus a year ago and up 10% compared to 2 years ago. Particularly encouraging, we also delivered strong double-digit consumption growth that accelerated throughout the quarter and into Q2 across many of our growth brands, which collectively make up about 70% of our North American sales. In fact, in the most recent 12 weeks ending October 24, our growth brands were up 12% compared to last year and 20% versus 2 years ago, with household penetration, ACV, velocity and average items per store all growing. Sensible Portions, Earth's Best, Celestial Seasonings and Alba were all up 20% or more versus pre-pandemic 2 years ago and are gaining share.

Adjusted EBITDA in North America, excluding divestitures, was down 32%, in line with our expectations. There were 3 primary drivers for the decline. First, remember that last year we grew 63%, so the COVID-related overlap was significant and planned for in our guidance. Second, these results were also impacted by industry-wide supply chain challenges, which I'll discuss in detail later. And third, due to long lead times, there was a lag between inflation hitting our P&L and the timing of pricing. It's important to note that after our price increases hit the market, our September adjusted EBITDA was up 22% versus a year ago.

In International, we delivered another strong quarter with adjusted net sales up 2% versus a year ago and 14% versus fiscal 2020. We saw particularly strong consumption performance on Hartley's, Ella's Kitchen and our 3 leading shares refrigerated soup brands, which all grew double digits and gained significant share compared to 2 years ago.

Adjusted EBITDA, when excluding divestitures, was up 21% compared to a year ago and 72% versus 2 years ago, reflecting the continued successful execution of our numerous productivity projects in Europe. Importantly, margins expanded considerably versus a year ago with adjusted gross margin and adjusted EBITDA margins up 576 and 487 basis points, respectively.

While we're in the process of converting all our internal reporting to reflect our new Hain 3.0 strategy, we do have some metrics to share with you today. You'll recall from Investor Day that we segmented our brands globally into growth brands, [few] for investment brands and simplified brands. Our growth brands make up roughly 70% of our sales and 75% of total company profit. Our aspiration over time for this group of brands is to consistently grow near double digits. In the first quarter, after adjusting for divestitures, these brands grew 3% versus last year and 18% compared to 2 years ago in aggregate.

Within the growth brands, we created 2 distinct segments, turbocharge brands and investment brands. The turbocharge group comprised of meat-free, nondairy, beverage and snack brands, grew adjusted net sales 5% year-over-year and 20% versus 2 years ago. The targeted investment group comprised of our tea, baby, yogurt and personal care brands grew 0.4% versus last year and 15% versus 2 years ago.

So in summary, our sales momentum is increasing, and our top line performance versus pre-pandemic is extremely strong on our growth brands.

Let me switch topics here and spend a few minutes talking about inflation and the supply chain challenges impacting all companies and then touch on the pricing and productivity improvements we are pursuing to offset them.

When we finalized our plan and communicated our anticipated inflation costs, we expected mid-single-digit inflation in North America and low single-digit inflation in International. Since that time, crops have come in highly inflationary and transportation costs have continued to skyrocket, in each case more than we initially anticipated. As a result, we now expect additional $20 million to $25 million of inflation to hit our P&L this year, and we fully intend to take additional pricing actions to offset it. We've covered 90% on commodities and packaging for the balance of the fiscal year. Our remaining exposure lies primarily in transportation and labor, which impacts both cost and supply.

With regard to supply chain disruptions, as with every other company, we faced unprecedented challenges. The good news is we've made terrific progress since Q4 last year. Starting with inbound materials and co-manufactured products, we found backup or alternative sources of supply to ensure that we continue our service at very high levels.

On our self-manufactured products, our factories are running well, and we've made terrific progress in the locations where we have labor shortages, both here and in Europe. We filled about 2/3 of the open positions that we had at the beginning of Q1 and, importantly, are keeping up with elevated demand. On the distribution and warehousing side, we're currently fully staffed and have the capacity to keep up with increasing sales.

Also impacting the entire industry, transportation remains our biggest challenge. The shortage of drivers here and abroad is well known, resulting in delayed receipt of inbound materials, inability to secure trucks and many scheduled orders not being picked up on time. When this occurs, it impacts both service and costs. We continue to consolidate orders to reduce the number of trucks needed and we're collaborating with customers to refine pickup and delivery windows to ensure we keep service levels high and to share costs.

So you're probably wondering how these challenges are impacting our P&L. First, we're prioritizing service even when it requires increased cost because, one, in times of significant supply disruptions, strong service leads to increased shelf space and merchandising opportunities; two, additional sales growth will generate profit dollars to help offset the inflation; and three, it strengthens our customer relationships that positions us as a reliable go-to partner in the future, especially when many are struggling with their service levels.

The second way we're managing the cost challenges is by taking significant pricing. In North America, we've taken list price increases on virtually every brand, with the average increase of about 6% to 10%. Thus far, the elasticities have been very low and we've seen minimal impact on volume.

In Europe, our pricing will be effective in early Q2 and has already been accepted by most retailers. We expect similar low elasticity since virtually every company has announced plans to take pricing across their brands.

With new, unplanned inflation hitting our P&L, we expect to take additional price increases that will be effective in the second half of the fiscal year. Again, these increases will be across many brands and include multiple pricing levers.

The third way we're managing cost challenges is via productivity. As discussed on Investor Day, we have hundreds of active projects being implemented, with an expectation that we will achieve close to $50 million of productivity this fiscal year. Importantly the productivity projects go beyond saving money by providing other benefits like reducing our need for additional labor in our factories, furthering our sustainability agenda and simplifying our company.

Looking forward, we expect to see accelerating sales momentum this fiscal year. We're confident because we are, one, we have gained significant distribution, with more expected; two, we've already secured sizable incremental merchandising events that we've discussed on previous earnings calls; three, we're making strong progress on addressing the items that have had service challenges; and four, in line with our Hain 3.0 strategy, we're building capabilities and embedding changes to our processes to enable accelerated top line growth.

On the soft side, we'll continue surgical execution of pricing and productivity to offset the macro supply challenges I've mentioned. And we continue to leverage our nimble and scrappy culture to find creative solutions for disruptions in our supply chain.

In summary, we're excited by our momentum and confident that we have the right brands and strategies to accelerate top line growth from here and create a company that consistently delivers high growth on both the top and bottom line.

With that said, let me now turn it over to Javier to provide more details on our Q1 performance and go-forward outlook.

Thank you, Mark, and good morning, everyone. Let me start by highlighting a few key aspects of our first quarter results that demonstrate strong execution of our transformation plan and the building of a solid growth platform as we move into Hain 3.0 journey.

First, we again delivered solid operating results at the top end of our guidance, on top line and bottom line. Second, despite the supply chain challenges impacting the entire industry, our International business delivered another quarter of strong financial performance, while our North American operations improved throughout the quarter. Third, our balance sheet remains strong with excellent capital allocation flexibility. And finally, we are well positioned to deliver on our full year guidance as well as the new, long-term algorithm we laid out during our Investor Day presentation in September. I will start with a discussion of our top line results, and then I will drill into each of these aspects.

As we overlapped last year's COVID demand surge, first quarter consolidated net sales decreased 9% year-over-year to $455 million. Foreign exchange benefited first quarter net sales by 2%, while divestitures and brand discontinuations reduced net sales by close to 11%. When adjusted for these 2 factors, net sales were flat versus prior year, exceeding Q1 guidance of a low to mid-single-digit decrease on an adjusted basis.

When comparing our performance versus pre-COVID Q1 2020, after adjusting for foreign exchange, divestitures and brand discontinuations, our net sales increased by 10%. This was better than our guidance of mid- to high single-digit growth.

While we guided to year-over-year adjusted gross margin expansion for the quarter, industry-wide distribution and warehousing cost pressures driven by continued labor shortages, freight carrier availability and other freight cost issues resulted in our delivering a slight reduction in adjusted gross margin. The first round of North American pricing actions we implemented in September began to benefit the total company P&L late in the quarter, with an overall gross margin increase of more than 300 basis points during the month compared to the prior year period.

While the supply chain challenges were most prevalent in our U.S. operations, they are also impacting our International operations. Despite these headwinds, we were still able to deliver adjusted gross margin expansion of 300 basis points when compared to Q1 2020.

Total SG&A, including marketing, came in at 16.3% of net sales, in line with the prior year period. Marketing expenditures as a percent of net sales were slightly higher than prior year, largely to support our midstream business and the launch of the Linda McCartney nondairy beverage product range in the U.K. SG&A spending as a percent of net sales, excluding marketing, was slightly lower than prior year from controlling labor-related costs and third-party expenses.

First quarter adjusted EBITDA decreased 14% versus a year ago to $47 million, slightly better than our guidance of a mid- to high-teens EBITDA decrease. The improvement compared to our guidance was driven by actions we took to lower SG&A spending.

Adjusted EBITDA margin of 10% was a 61 basis point decrease year-over-year, mainly driven by the decrease in gross margin already mentioned. When comparing our performance versus pre-pandemic Q1 2020, our EBITDA margin improved by 374 basis points.

Our adjusted first quarter EPS of $0.25 decreased compared to $0.27 in the prior year period.

The adjusted effective tax rate for the quarter was 23.4%, consistent with the prior year tax rate.

Now let me provide some detail on the individual reporting segments, starting with our North American business where we continue to face the industry-wide supply chain issues we have discussed before, but are seeing improvement on a sequential basis.

Our planned price increases in the U.S. have hit the market and are sticky, as evidenced by better elasticity of demand. On the top line, reported net sales for the first quarter decreased 5% year-over-year to $265.5 million, mainly due to the lapping of elevated at-home food consumption and strong hand sanitizer sales in the prior year period due to COVID-19. After adjusting for foreign exchange movements and divestitures, net sales decreased 1% versus the prior year period. When comparing our performance versus Q1 2020, after adjusting for foreign exchange movements, divestitures and brand discontinuations, our North American sales increased by 8%.

The turbocharge category delivered close to 9% growth versus prior year and 15% growth versus Q1 fiscal year '20, driven by the strong performance of our snacks business.

In the targeted investment category, our tea and baby food products delivered mid- to high single-digit growth versus prior year, with tea also delivering north of 20% growth versus the same period 2 years ago.

Our personal care business performed well when compared to 2 years ago, delivering close to 10% growth.

While these last 2 quarters have presented multiple operational challenges, we have been able to maintain relatively strong customer service levels in the U.S.

From a profitability perspective, adjusted gross margin for our North America business decreased by 476 basis points, driven by the supply chain challenges already discussed, partially offset by the pricing actions taken late in the quarter and productivity initiatives.

Adjusted EBITDA in Q1 decreased 38% to $24 million. Adjusted EBITDA margin of 9.1% represented a decrease of 486 basis points versus the prior year period, driven by the gross margin decrease.

Most of our pricing began to benefit the P&L in September. Specifically, September's EBITDA margin increased by about 130 basis points relative to the prior year period, largely driven by these pricing actions and supported by our productivity initiatives.

Now let me shift to the International business where we delivered strong overall results. Net sales for the first quarter versus the prior year period decreased 13% on a reported basis, in line with our expectations. Foreign exchange increased sales by 4%, while divestitures reduced sales by 19%. After adjusting for currency movement and divestitures, net sales for the quarter were up about 2% versus the prior year period and up 14% compared to the first quarter of 2020, the most recent pre-pandemic period.

Sales increased behind high growth on our Ella's Kitchen, baby food and chilled soup businesses in the U.K. Our growth category of brands delivered 24% growth in constant currency versus the same period 2 years ago, driven by the strength of our plant-based, nondairy beverage and Ella's baby food businesses.

From a profitability standpoint, we grew adjusted EBITDA by 21% versus the prior year period and adjusted EBITDA margin by 487 basis points to 17% despite facing global supply chain challenges and not yet having taken pricing to cover inflation, which went into effect in the second quarter. This profit growth acceleration reflects a 576 basis points adjusted gross margin expansion generated primarily from the implementation of the North American productivity playbook and the divestiture of the low-margin fruit business.

Shifting to cash flow and the balance sheet. Q1 operating cash flow was $38 million. This is a decrease of 8% versus the prior year period, but an improvement relative to the adjusted EBITDA decrease for the quarter given improved inventory management.

Capital spending for the first quarter was $17.8 million or 3.9% of net sales, but on track for a full year spending of about 3.5% of net sales. Cash on hand at the end of the quarter was $29 million, while net debt stood at $317 million. Gross debt leverage, as calculated under our existing credit agreement, was 1.6x. Our balance sheet remains strong and, as a result, we have significant flexibility to both reinvest in the business and return value to shareholders.

Consistent with our capital allocation principles, during the quarter, we repurchased 4.5 million shares or 4.6% of the outstanding common stock at an average price of $38.80 per share for a total of $175.6 million, excluding commissions, leaving us with about $207 million of additional repurchase authorization remaining under our 2021 program at the end of the first quarter.

Now turning to our outlook. We are reaffirming our full year guidance for fiscal year 2022. Compared to fiscal year 2021, we expect low single-digit adjusted net sales growth, reflecting a small benefit from currency of about 20 bps and a 600 basis points headwind from divestitures, modest adjusted gross margin expansion and mid- to high-single digit adjusted EBITDA growth.

Given the timing of the price increases hitting the market, confirmed incremental volume-generating events in the second half of fiscal year 2022 and a higher inflationary environment than initially forecasted, we expect the following: net sales to be down in low-single digits on an adjusted basis in the first half of fiscal year 2022, an improvement over our initial first half guidance, and up by mid- to high-single digits in the second half. To note, during Q2 fiscal year '22, we are overlapping a Brexit-related volume pull-forward that benefited net sales growth in Q2 fiscal year '21 by about 4%. And adjusted EBITDA to be down mid single digit in the first half of fiscal year 2022 and up low-double digits in the second half.

As part of the full year outlook and given the industry-wide supply chain challenges we're facing, we are updating our estimate of cost of goods inflation to be north of 6% which we plan to continue to recover over time through additional pricing actions.

In summary, we were able to deliver first quarter results generally better than the guidance levels we outlined previously even in the face of significant global supply chain and inflationary challenges. We believe that we have strong momentum and are well positioned to deliver adjusted top line and adjusted EBITDA growth and margin expansion in 2022 and beyond.

I will now turn the call back to Mark.

Thank you, Javier. We're proud of our strong Q1 performance and how we continue to overcome the many macro challenges all companies are facing. We have a compelling Hain 3.0 growth strategy, terrific brands and an exceptional team and culture to thrive in this environment.

With that said, let me turn it over to the operator to now take your questions.

(Operator Instructions) Our first question comes from Ken Goldman of JPMorgan.

Thank you for the help on the cadence of guidance. I wanted to ask a little bit more specifically on the second quarter. Javier, your EBIT margin in International has grown 400 to 500 basis points year-on-year each of the last 3 quarters. I just wanted to get a better idea of how to think about that for the second quarter. Is it fair to assume maybe a similar increase. And then as you get to the back half of the year, a little bit less of an increase as you start to lap some higher numbers. I'm just trying to get a sense of how we model on a segment-by-segment basis. I know it's been a little more challenging for some of us, including me, to be specific, especially on the International side of things.

Yes. So thanks for the question. You should expect gross margin improvement for International for Q2. I wouldn't put it to the same level as Q1, largely because inflation in International was fairly muted, I would say, for Q1. But the ingredient inflation for International is picking up in Q2 and beyond. So -- and even though the pricing is still working its way through Q2 through Q4, Q1 really did benefit from a low inflation environment, at least in international.

So what I would say is, yes, Q2 will have margin improvement. It will not be to the same magnitude as Q1. And Q3 and Q4 will see -- Q3 will see margin improvement, but they will not be at the same -- I would say they would be at a decreasing rate relative to what you would experience in Q1 and Q2.

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

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

The goal right now is to regain the profit dollars.

Our next question comes from Michael Lavery of Piper Sandler.

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

Yes. So we're very pleased to see that the elasticities have been very low and had a nominal impact on volume. In fact, we're continuing to see volume growing with 6% to 10% pricing on top of it. That's part of why we've seen such robust acceleration in our consumption.

Our plan, assumed that there would be some modest elasticity, it's coming in a little better than we thought. But on the flip side, it's being offset or more than offset by the fact that inflation, which we assume would have stabilized for the balance of year. Inflation has gone up considerably since the year started, primarily freight. And again, as crops have come in across the globe, they've been highly inflationary and we did not fully anticipate it. So we've got a little bit of benefit on the elasticity side, but it's been more than offset by additional inflation.

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

Yes. So personal care has a very small percentage of its total sales in measured channels. And we're -- particularly on the Alba sun care business, which we've talked about on previous calls, we're doing exceptionally well and a number of manufacturers were found to have benzene in their sunscreens which we do not. And so we picked up a lot of distribution from other people in channels that you won't see. So everything from [surf] shops to e-commerce to Club, that would be one place that I would say, certainly, we're seeing robust growth.

The other place that you don't have a lot of visibility to is, again, e-commerce, which is a big part of our business, particularly on snacks and personal care and baby. We do a lot of volume in the e-commerce channel, and that business is also very robust.

In International, we're in so many different countries, you have to buy all the syndicated data in every country to really get visibility. But remember, on the 3.0 strategy, we talked about expanding nondairy beverages into the U.K. under the Linda McCartney brand. We talked about starting to expand the Linda McCartney meat-free brand into Europe. Those are incremental sales versus our baseline because that's a new distribution in a new country which will also have some tailwind to our second half revenue numbers.

Our next question comes from Alexia Howard of Bernstein.

Can I dig into the freight cost situation, because it sounds as though that's one of the real pain points that you're going through now. Can you just remind us what percentage of COGS that is, what proportion typically goes through the spot markets versus the contract rates and where that's gone to?

And then I know that in the past, you've talked about benefits from having full truckloads and moving from half or quarter truckloads to full truckloads. Is the supply chain disruption really messing with that, so that you can't get there at the moment? I'm just wondering on the freight side, what exactly the mechanics are that are going on in there. And then I have a follow-up.

Yes. So I'll let Javier speak to the specific cost numbers in a second, but freight is a multifaceted problem. One is sometimes trucks just don't show up to pick up orders, which adds cost in a different way than just costing more for each driver and each truck when they show up. So there's -- there are a number of ancillary costs that can be very robust when you've got to then go to the spot market and try and contract someone on short notice to come pick up a load that's sitting in front of your dock door. So yes, there's massive inflation, but there's also those ancillary costs.

With regard to filling up trucks, we continue to make progress on filling up trucks. So when we started our journey a couple of years ago, we had about an average of 2 pallets per truck. We're now more than half a truck full. And given the driver shortage, we are working with retailers to consolidate orders. So instead of ordering half a truck every week, how about we order full truck every other week kind of thing so that it takes some of the cost burden out and it also makes it easier for customers who maybe having labor issues in their warehouses to not receive as many trucks. So it's a win-win kind of solution. We're making good progress there. And really, that's agnostic of the driver shortage. Us filling up trucks takes trucks off the road, which is good for both of us, and we continue to work on that. Javier, do you want to add some color on the cost?

Yes. So Alexia, let me give you the framework that we use here at the company to think about inflation and the components of our cost. But the buckets that we use to evaluate our inflation are finished goods, ingredients, packaging, labor, freight. And for International, we also look at energy costs.

And so the -- what I would say, the places where we're seeing the highest pain points, as you call it right now, in the United -- in North America, I would say, it's ingredients and it's packaging. And then freight, obviously, is one that is permeating not just North America but also International. So those are the 3 big pain points in North America. And then in International, again, it's ingredients. And then I would also add, in addition to freight, I would also add energy costs are a pain point in International.

So that's kind of how we look at our basket of costs and that's how we end up evaluating our -- the impact that we have to being around 6% for the full year.

Our next question comes from Anthony Vendetti of Maxim Group.

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

Yes. So the go-forward guidance includes everything we know about today. The increased inflation is certainly in there. We've made an assumption of pricing against that inflation based on both our success in the first round of pricing as well as the elasticities that we're seeing. Obviously, we have to go to retailers and have that conversation. And in some cases, it's a negotiation. But by and large, everyone is taking pricing and retailers are having the same cost pressures that we are. And so this is an unusual environment in terms of ability to pass on pricing.

We are very conscious when we do take pricing of what our relative price points are versus our competitors. So we're not just arbitrarily passing on costs. In some categories, like edible oils, our costs are up 100%. We're not going to take 100% price increase, obviously.

So we really do look brand by brand, category by category, channel by channel to make the best decisions around what we think is the right thing to do for the brand, both for the short term and the long term. And we do it very consciously of what's going on around us.

So, so far, we've done -- the first round of pricing went very well in North America and the United States. We're now implementing pricing in Europe and Canada in the beginning of Q2. And we will come back with additional pricing in the second half to offset that incremental inflation that we've seen.

And so part of our guidance, Anthony, was that we still expect to see margin growth, but it might be a little bit more modest than originally assumed because of this extra inflation. But we're also seeing higher revenues than we initially assumed because the elasticities are lower on some of the pricing. So it gets us to the same place on EBITDA, but a little bit of -- there's some moving parts on both the top line and the middle of the P&L.

Understood. Just a quick follow-up, a separate topic. But you mentioned during Hain 3.0, you're starting to roll out new products. Has that been hampered at all by all the issues you outlined today? Or are you able to launch these new products in this environment?

In North America, we're not having any issues with customers resetting shelves and us getting innovation. And we've actually been very successful in Q1 in terms of increasing our TDPs and the number of accounts carrying our products. And we expect that as other categories reset, like snacks resets in the spring, that we will continue to be recipients of space.

In Europe, it's a little bit more challenging because they're having much more severe labor shortages and driver shortages. Some of the retailers are not setting the categories like they would normally. Some are, some aren't. So we're seeing more spotty distribution on the innovation, particularly in the U.K., which not only has the same macro challenges as everybody, but we also have -- they're still implementing the Brexit changes that make it just more challenging to get products over the border from Continental Europe anyway.

So I'd say a little bit more growing pains and a little bit more of an unusual reset pattern going on in the U.K. But right now, Europe and the United States, in particular, we're getting in innovation as planned.

Our next question comes from Rebecca Scheuneman of Morningstar.

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

Yes, it was about 6.5% in the first quarter, up from about 1% in fiscal '20 and about 3.5% in fiscal '21. So off to a good start, it's down a little bit versus Q4. Because in Q4 we were -- a lot of categories were resetting and we had big pipeline volume in Q4 which is why it was a little bit inflated up at that 9% number. But 6.5% is a good number for us. We want to be high single digits. And the stuff that we have been launching is sticking, high repeat rates, very incremental to the categories. And so as we keep coming with more innovation, it's coming on top of the previous innovation as opposed to just trading out things that didn't perform well.

So we're pleased with what we're doing. We like the kind of the rate at which we're getting a -- percentage of sales that we're getting from innovation. And we're very happy with the incrementality we're getting both from a distribution and a consumer standpoint.

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

Yes. So as I mentioned in the prepared remarks, we filled about 2/3 of the positions that we had opened at the end of Q4. So we've actually had a terrific quarter in terms of resolving some of the labor challenges that we have. And in Q4, as an example, we -- the labor shortage was so severe that we couldn't run some of the factories 24/7 because we didn't have enough people for a third shift. That's all behind us. We've fully staffed up our distribution and warehousing facilities. We have made significant progress in our manufacturing plants, particularly where we were challenged in terms of our ability to manufacture enough product to keep up with demand.

We still have some openings, but we're solving it. And we've done it through increased wages. We've done it through better benefits. We've done it through incentive pay and other things to make sure that we're the preferred manufacturer in town. And so far, so good.

I would say on the freight side, again, we're still having -- we're still seeing third-party carriers having trouble getting drivers, which is impacting our business and everybody in the industry. But on the things that we control internally, we've made terrific progress, and we're in a good position to keep up with demand as long as we can get the trucks to get it from point A to point B.

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

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

Sure. So the first thing I would tell you is, remember, last year at the height of the pandemic there was a lot of people pulling back on trade spending and merchandising events because the demand was so robust. So in some cases, we're just adding back some of the promotional spending that we took out last year on brands that we were having supply challenges with. So that's kind of ongoing throughout the year.

But in the second half of the year, specifically I mentioned both big distribution gains and some significant promotional activity. We've got some major promotions going on in the Club channel in the second half of the year. And I mentioned sunscreen, where we're picking up significant distribution and we're putting money behind that to make sure we get the end caps and we're visible in the channels where we picked up distribution.

And we're having great success right now on snacks with bundling our brands together to get big merchandising events. That has helped all boats rise, if you will. And we're going to continue to do that in the second half.

So we've got a number of incremental, sizable events that are secured, and that's part of the reason we're so confident in the growth that we're going to see in the second half of the year.

Okay. And then my follow-up question, it might just be more clarification than anything else. So you've got some extra transportation inflation here. COGS is going up a little bit more than you had thought. And I think you said that -- well, and just a clarification, that you're going to take additional pricing in the second half or are you going to take additional pricing that will be effective beginning in the second half? I guess I'm not sure which of those 2 is the correct answer.

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

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

Thanks, everyone, for your time today. Obviously, these are unprecedented times, and I'm proud of the fact that we continue to perform well in a challenging environment. Hopefully, you've taken away from this presentation that we're starting to deliver on that accelerated top line that I know everybody has been looking for and our Hain 3.0 strategy is very much focused on.

So we're excited about the future. We're excited about the balance of the year. And I thank you guys for your time today. We'll be available for questions throughout the day. And with that, I'll turn it back to the operator. Thank you.

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