Hain Celestial Group Inc (HAIN) 2003 Q3 法說會逐字稿

Good morning, and welcome to the Hain Celestial Group third quarter, 2003, teleconference. Today's conference is being recorded.

Before we begin today, I would like to remind you that statements made on this call that are estimates of past or future performance are based on a number of factors, some of which are outside of the company's control. Statements made on this call that state the intentions, beliefs, expectations or predictions of the Hain Celestial Group and its management for the future, are forward-looking statements.

It is important to note that actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained from time to time in filings of the Hain Celestial Group with the U.S. Securities and Exchange Commission. Copies of these filings may be obtained by contacting the Hain Celestial Group or the SEC.

I would now like to turn the conference over to Irwin Simon, Chairman, President and Chief Executive Officer of the Hain Celestial Group. Please go ahead, sir.

Thank you. Good morning, everybody. With me is Ira Lamel, our Chief Financial Officer, and Andrew Jacobson, General Manager of our non-dairy business who will talk about our non-dairy business.

Hopefully, each of you had an opportunity to see our press release this morning. Our sales for the quarter were $129.2m versus $105.6m a year ago, a 22.4% increase. Our gross margin, $40m versus $32.4m, a 23% increase. EBITDA for the quarter of, $15.3m versus $10.5m, a 46% increase. Net income, $7.9m versus $5.1m, a 53% increase. And earnings per share for the quarter, 23 cents versus 15 cents, a 53% increase.

I'm proud of these numbers. In lieu of today's economic times people watching inventories, people watching pricing, I think Hain and our people have done a great job in building distribution and getting out there. As people continue to eat healthy and look today to watch their weight, watch their nutritional values, Hain will continue to build distribution among our products.

This past quarter, we introduced over 35 new products, which I will talk to you about as I go through each of the businesses. We have taken a lot of strides at looking at our business and we have made drastic improvements over our business this year versus last year. Ira will talk more about some of these in a few minutes, but day sales and receivables--45 days this year versus 50 days last year. Days in inventory--60 days versus 74. And our working capital--$84.3m versus $75.9 last year. I think there's some tremendous improvements as we look at always improving our business.

As I mentioned on our last call, with over 2,500 SKUs and 30 brands, we are consolidating our businesses for the purpose of SKU rationalization, category growth and category management. This will help us with trade spending and consumer spending. This will help us to evaluate where our growth will come from. This will help us where we need to spend our money. This will help us spend money against brand and categories, where competition is spending to help us fight off competition.

With that, I will present business growth by the following businesses. Our Melville business, which includes our Health Valley businesses, our Terra Chip Garden of Eatin' snack businesses, Arrowhead Mills, DeBoles, our Hain businesses--they were up 27.3% for the quarter. Our Celestial Seasonings business was up 4.3%t for the quarter. Our Yves business which includes our Canadian business which is other Hain products, was up 32.5%, and our European business which is Lima, Biomarché and other Hain products, was up 37.5% for the quarter.

A bit about our business. Our snack business. We're happy to see Terra Chips up 1% sales for the quarter. As you recently remember, Terra for the first quarter was down 16% and was down 5% in the last quarter. And as we're seeing, Terra on the upswing now is positive news.

In grocery for the period ended 3/22, total Hain snacks were up 10% on a 52-week basis and up 5% on a 12-week basis. Terra vegetable chips is the number-one item in the specialty snack category for natural in grocery. While Terra consumption is down in the last 12 weeks, we're recycling on a pretty hefty growth number of 32%. So consumption on a 52-week basis is still up 1%. Our operations and facility at Munaki (ph.) is running fine. Our vacuum fryer is up running and we're continuously seeing improvements coming from that facility.

In regards to our Garden of Eatin', it continues to show extremely strong growth in both grocery and natural channels, up 19% and 12% on a 12% basis. Garden of Eatin' is up 22% in grocery and 16% in natural. We're in the midst of bringing on a new East Coast facility to help with demand for garden, and actually this will help us with our freight and shipping. So look for some new things and new flavors in that coming from Garden.

In regard to our Health Valley business, it's continuously working quite well for us with our new relationship with our plant in California. We will see multiple new products and multiple new packaging coming in that facility and we're just in the midst of launching that now.

But in natural, Health Valley and Imagine represent the number one and two positions in soups, controlling almost 35% dollar share. For 12 weeks, Imagine is up 11.6 while Health Valley is basically flat. In grocery, Health Valley and Imagine, again, occupy number one and number two with a combined share of 39%. Health Valley is up slightly while Imagine is up 25%.

Our snack bar category for both natural and channels has a 51% dollar share in natural and a 58% share in grocery. Where we still need some help and work is our ready-to-eat cold cereal, Health Valley. Extremely competitive category, but stay tuned, as we're in the midst of coming out with a whole new line of cereals which will be launched this coming summer.

Earths Best--our leadership position in natural foods with a 75% share continues to show strong growth, up 29% for the latest 12 weeks, outpacing the category growth of 23 percent. In grocery, the baby food category is down close to 2%. We're seeing some affects. We're down 3.6 versus a year ago, but we continue to grow in our strongest channel which is the natural food channel and where a lot less money is spent.

With Earths Best, we're in the midst of launching multiple new product lines for kids under the Earths Best name, and we're quite excited about extending the whole Earths Best line into a line of kids' products.

We're seeing some good growth coming from our Hain pure food line, in the oil and the condiment category, launching a lot of new juice products. And actually, we're seeing some good growth coming from our Arrowhead Mills business. Baking products are up 8%; our grains, beans and rice, up 27%; hot cereal up 9., almost 10 percent. So seeing some good growth on our grocery businesses, Melville businesses, coming from other Hain products.

On the Celestial side of the business, it was up 4.3%, which is not included in that number--we closed one of our retail stores at the end of December. From a Nielsen standpoint, Celestial was up 2.1% in natural. It was flat for three months ending March 22nd. And grocery--we're seeing some good growth coming from our mass markets, and that means our Wal-Mart and Target business.

Introducing a lot of new products. We just introduced our ready-to-drink Celestial Seasonings tea, which we launched at the natural foods show in March. We're in the midst of launching a very successful Cool Brew program that we introduced last year, and one of the new flavors this year is Peach Ice flavor. Last year, we did not have that new distribution within the supermarket category.

So we're looking for some very interesting things coming from Celestial. And one of the things with Celestial, we did not have a major summertime program or an iced tea program, and with their new Cool Brew we think that will help us within the fourth quarter of Celestial.

In our Canadian business--up 32.5%, our Yves business on a 52 weeks ended 3/22, the category grew 5.6%. Yves grew 4.3%, but up in Canada we have, like, an 85% market share within the Yves category. In the U.S., Yves has a 29.1 share.

We were down 1.4% versus a year ago and we have some operational issues that we need to deal with Yves here in the U.S. But on the other hand, we feel good about Yves. In the McDonald side of the business, we feel real good about Yves expanding into other food service businesses and as we come in to our season right now, we are looking for a very healthy summer program with Yves.

We're continuously seeing good growth coming from our Canadian business on our Hain products, our Health Valley products, our Earths Best products, our Terra Chip products. And we have Imagine up in Canada, Rice Dream is the strongest rice milk up in Canada. Also very, very strong results coming from our soup business up in Canada.

In Europe--was up 37.5% and good things happening in our Biomarché business which is our fresh business. We launched organic sandwich breads. We've launched organic side dishes of salads. We also have seen a good growth coming from our Biomarché business within Del Lays (ph.). Lima, we had launched additional products and we also just launched Lima in Norway and we launched other tofu products. Actually, we'll be launching other tofu products in June.

Over in Europe, Celestial Seasonings--we just introduced it into Del Lays, so we continuously expand Celestial Seasonings in Europe and actually the same with Rice Dream. We just introduced that into Del Lays so we continue to expand our Imagine business into Europe.

In regard to Terra, we're developing new packaging which will be launched in the U.K. come this summer. And as I've told you before, we will be rolling Terra out in the U.K. and rolling it out in the Continent.

The Imagine integration has gone quite well. By the end of January we had closed down the facility in California. We've integrated sales, integrated marketing, integrated operations, integrated customer service. So basically, everything has been folded in within owning that business after 60 days.

We are quite happy with the Imagine acquisition, both here domestically and in Canada and Europe. We're seeing a lot of good things coming from other Imagine products like soup and as we come into the summer season we're seeing a good demand coming from our frozen desserts.

As we move into fiscal 2004 and we put together our plans, as we're seeing today, the super masses, meaning the supermarkets looking for growth, and a lot of growth being concentrated on the natural organic category. And as we work with a lot of the supermarkets today on this category management, we're seeing them dedicating a lot of space to natural foods in the coming months and the coming year.

We're also seeing this with convenience stores. And we're also seeing this tremendous surge of organic and natural foods within the food service, and we're seeing a good demand from some of the largest purveyors of food service looking for natural organic foods.

You know, as a company, cost containment has been major around here. We're in the midst of going through a network redesign and eliminating costs within our warehousing. This past quarter we've also had major fuel surcharges, ingredient costs that increased because of commodity prices, especially on organic. We did not pass any of those price increases on, and we absorbed them, which was a big part of our cost containment.

I'm real excited. We just went through our strategic planning for the next three years, have really put some good plans in place on how to grow our businesses, how to grow our brands, how to grow through channels and how to contain costs over the next three years.

In regards to people, you've heard me talk over the last year about a lot of the people changes and additions that we've made. We'll continue to do that. As you saw in our press release, David Cooperswait (ph.) has just joined us yesterday. David's past experiences with Frito-Lay and Quaker Oats, which will bring a lot of knowledge to the company, which will help us in the operational area as that is a major, important part of the company.

From the acquisition front, we're seeing a lot of good acquisitions out there, as companies out there today are realizing the competition, realizing the cost of going to business, realizing the cost of infrastructure to put out there. So we're seeing a lot of good acquisitions that are in the $50m to $100m range that would fit into Hain's portfolio that we're continuously looking at. And if they're right, they're strategic, they're accretive, we will move ahead with these.

In regards to guidance for the fourth quarter on a earnings per share, we're reaffirming guidance for the fourth quarter of 19 to 20 cents, and on a revenue side, $113m to $117m.

What I'd like to do is turn it over to Andy Jacobson to talk about our non-dairy business. Andy then will turn it over to Ira Lamel and then we'll be ready for your questions. Thank you.

Good morning. Our non-dairy strategy required realignment with the combination of Imagine and Westsoy. This strategy is evolving as the combination of the two brands are still in its early stages. In the marketplace, we are positioning Westsoy as the value brand, and Imagine with its Dream name as the premium brand. With the acquisition of Imagine Foods, our dollar share of aseptic soy has risen to 53, and aseptic rice has risen to 88 in grocery. In natural, we dominate with a 53 share of aseptic soy and an 85 share of aseptic rice.

Now that Hain Celestial controls the aseptic category in grocery and natural, we plan to arrest overall category declines through strategic category management and of course product innovation. We've got some exciting new products in the works on rice, including new flavors and a rice milk that will deliver important nutritional benefits.

On the soy side, we will launch new and innovative aseptic packaging to drive excitement, and we will introduce need-specific products catering to aging baby boomers. We plan to increase the consumption, with the launch of four half-gallon aseptic SKUs in July, under the Dream name.

In refrigerated, we have an 11.4 share of total refrigerated non-dairy, including soy and rice. We will grow our refrigerated business by promoting the equity of the Dream name. Soy Dream will be introducing a low-fat soy product with 33% more calcium than milk in an innovative plastic container.

We will focus our efforts in soy by developing the Dream name and gaining distribution on Soy Dream. The refrigerated rice segment is very underdeveloped and will be a major point of focus for us. This segment is still realizing double-digit growth. With the Rice Dream name, we will double the size of the rice category. We will launch compelling consumer communications around the Dream name to support both soy and rice.

Our frozen business--Soy and Rice Dream, are major opportunities for us. We are working on some product improvements and will aggressively pursue expanded grocery distribution when the product improvements are complete. We are currently working to expand distribution in natural on Rice Dream and Soy Dream frozen products that have ACVs below 80.

As stated earlier, since the Imagine acquisition, we have completed the integration of sales, marketing, customer services, operations and human resources. We have developed an additional source of supply to support our expanded distribution on the Dream refrigerated products.

Soy Dream continues to gain share in aseptic grocery, up to 17.4 share at the expense of Eden Soy and Vitasoy. Soy Dream continues to grow the natural aseptic soy category, up 6%. Soy Dream refrigerated continues to outpace category growth in grocery, up 30% versus the category at 26. Soy Dream is the number two refrigerated brand in natural, growing at 12.5%. Rice Dream's dollar share of grocery aseptic is over 80 and is outperforming the category, showing just a slight decline.

A natural rice aseptic, Rice Dream has a 79 share and is flat. Rice Dream dominates refrigerated rice and is driving growth up 29% in natural with the category only up 13. Rice Dream refrigerated is driving grocery category growth up 28%, while the category is only performing at 21.

Imagine is the leader of non-dairy frozen desserts in natural fruits where we have a 23 share growing at 4% and it's poised to take over the number two position from Soy Delicious in grocery. Imagine is outpacing the frozen category, up 46%, while the category is up only 21. There is an opportunity for growth in frozen. Currently, the Imagine brand has less than a 10 ACV in grocery. Soy Dream frozen desserts are growing at 73% and represent a 17 share in grocery.

Rice Dream frozen desserts have a 16 share of grocery and in natural are relatively flat. They have less than a 6 share of grocery and a large distribution opportunity in front of them. Imagine has been growing despite little to no marketing activities over the last three quarters. Rice Dream will be participating with Westsoy in a regional in-store coupon machine program in June.

Westsoy remains the number-one aseptic soy brand in grocery and gained one share point in the last quarter due to Catalina couponing and in-store coupon machines. Our closest competitor, Eden Soy, holds a 19 share and continues to decline, down 14% versus year ago for the latest 12 weeks.

All leading aseptic soy brands other than ours are in double-digit decline with the exception of private label. Westsoy continues to gain share, down 1.7% when the category is declining at 4.5. The category decline has begun to slow, with the support of marketing and promotional programs focused on aseptic brands.

In natural, Westsoy remains the number one aseptic brand with a 35 share. Our closest competitor, which is Eden Soy, continues to lose share. In Q3, Westsoy participated in two cycles of a national in-store coupon program to support both aseptic and refrigerated distribution. Catalina began in March and continues into Q4. As I mentioned earlier, we are running a regional in-store coupon machine programmed in June on Rice Dream and Westsoy. We are working on some exciting promotions to drive category growth in natural channels in Q4 and Q1.

New products. Westsoy is launched in October, Soy Slender which has been a huge hit with the trade and is starting to show up in Nielsen's with a 10 ACV to date. Fourth quarter launches include seven grab-and-go options of our successful soy products, shakes, vigorade (ph.) and plus plain vanilla. We are launching a flavored unsweetened line to capitalize on the incredible success of the unsweetened segment and the low carb trend that's going on with the consumer diets today.

Westsoy has done a complete product improvement over all of its lines which will start hitting in Q4 and continue through Q1. Overall, the Hain Celestial Group is very excited about the opportunities we have in the refrigerated and frozen cases, as well as the opportunity to drive growth in aseptic as the category leader through product innovation and expanded distribution.

At this time, I would like to turn over the call to Ira Lamel.

Thank you, Andy. Good morning, everyone. I trust you've all seen our press release by now, so I'd like to take you through it. As Irwin discussed, our sales reached a record $129.2m for the third quarter this year, which was up 22.4% over the prior year third quarter sales of $105.6m.

Our earnings were $7.9m in the third quarter this year or 23 cents per share on 34,887,000 shares versus $5.1m last year or 15 cents per share. These results represents a 53% increase over the prior year. There were no restructuring charges this quarter. There were no add backs, and there were no such items in the third quarter last year.

Gross profit for the third quarter was 31% this year as compared to 30.7% in the comparable period last year. Our improvement in gross profit this year versus last year resulted from improvements in the efficiency of our trade spending, and from the improvements we have made in our distribution network.

We have also realized some initial savings from the co-packer who now produces at our former Irwindale (ph.) for the Health Valley brand. These improvements were offset by higher ingredient costs we are currently incurring, particularly in the cost of organic ingredients used in many of our products. We have seen significant cost increases in oils and certain grains. Our SG&A in the third quarter this year was $26.2m or 20.3% of sales, compared with $23.9m or 22.6% of sales in the prior year's third quarter.

Our dollar spending on advertising and marketing was lower in this year's third quarter than it was in last year's third quarter--due to the switch in certain of our spending between the second and third quarters this year compared to last year. Taking the second and third quarter together to eliminate the impact of the timing of certain of the spending, we spent $2m more this year than we did last year.

G&A has flattened, as we realize the benefits of spreading our G&A costs over this year's increased sales base. We are on track in realizing the G&A synergies we expected with the Imagine acquisition. As Andy said, we have integrated Imagine's systems into ours and at the end of March we closed the Imagine office in San Carlos, California.

Also, G&A expense in this year's third quarter include the impact of the Fleming bankruptcy, as we recorded a charge of approximately $200,000 related to our receivables from Fleming.

Operating income for the quarter was $13.8m or 10.7% of revenue versus $8.5m or 8% of revenue in last year's quarter--61%. In this year's third quarter, interest expense and other expenses totaled $1.2m versus $300,000 last year. Our interest expense was $643,000 this year versus $273,000 last year. This increase comes from the borrowings we drew down in the acquisition of Imagine Foods.

The other expense this year included on this line was currency losses from our foreign operations which aggregated $355,000. Net income for the first quarter was $7.9m or 6% of revenue versus $5.1m or 4.9% of revenue in the prior year. EBITDA for the third quarter this year amounted to $15.3m versus $10.7m in the prior year.

For the nine months ended March 31st, 2003, our revenues were up 16% to $348.6m from $300.5m in last year's nine-month period. Operating income reached $34.9m this year, versus $27.6m last year, a 26% increase. And net income for the nine months reached $20.7m this year against $15.8m in last year's nine months--31.3% rise.

As Irwin indicated earlier, our balance sheet continues to get stronger. Our working capital was $84.3m at the end of the quarter, with a current ratio of 2.4-1. This represents an increase of almost $8.3m in working capital over the prior March 31st and more than $13m in working capital over the level we had at the end of our last fiscal year, at June 30th, 2002.

Our receivables are currently turning at 8.4 times with only 45 days in receivables at March 31st this year, compared to 50 days last year. Inventories are turning at 6.1 times per year with days in inventory down to 60 days compared to 74 days at the same time a year ago.

We carried $59m of inventory at the end of this year's third quarter compared to $57m at the end of the prior year's quarter, a $2.5m decrease, despite the addition of Imagine's inventories brought on just prior to the end of Q2. Our cash conversion cycle is now at 71 days, while last year it was at 85 days, representing a 14-day improvement in our ability to convert into cash.

These improvements are in part the result of reduced working capital needs after the sale of the Health Valley manufacturing facility. Our stockholders equity has now reached $430m. Our debt as a percentage of equity, which increased as a result of the Imagine borrowings, remains at a very low 12.3%. Since the draw down of the credit line to acquire the funding for Imagine Foods, we will have repaid $8m of those borrowings through today.

As you may know, the SEC has recently adopted its Regulation G. At the Hain Celestial Group we intend to fully comply with this regulation and we expect to be mindful of the issues associated with the disclosure or discussion of non-GAAP financial measures. To the extent non-GAAP financial measures are utilized by us in the future, they will be presented with an accompanying complying reconciliation to the appropriate GAAP financial measure.

On today's call, no non-GAAP financial measures will be discussed by us in connection with our presentation of the company's quarterly results or in the question-and-answer period which is about to follow.

At this point, we're ready to open it up for questions.

Thank you, Ira.

Thank you. Our question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touchtone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us and take as many questions as time permits. Once again, please press star one on your touchtone telephone to ask a question. If you find that your question has been answered, you may remove yourself by pressing the pound key. And we'll pause for just a moment to assemble the roster.

Our first question will come from Scott Van Winkle, Adams, Harkness and Hill.

Hi, guys. First of all, congratulations on all the improvements you've made in the last year.

Thank you, Scott.

A couple of questions. First, do you want to talk about the Kroger announcement of the private label natural foods products?

Gee, Scott. I figured that would be one of the first questions. Number one, private label within the supermarket business has been a big part of their business, but I think the good news to that is the reason they go into private label is because they recognize the growth in a category and that the category is going to be around. With that, it means they're real serious about the category and, you know, they're also going to have to have other branded products. And with our line of products, I think we will be a major partner with Kroger. And if it ever makes sense where we would help them with their private label, we may do that, too. So I think it's great for business, great for awareness, it's great for natural food sections and it's very good for us.

Do you have any idea what categories they're going to be most aggressive in?

You know, they have, it's interesting. We've seen their soy category so far into private label and we've seen some snacks. Actually we've seen some baby food and we also get some numbers and so far the numbers have been nothing of concern to us.

I guess a couple of questions for Andy. First, has there been any impact, either negative or positive on the category from Dean's Marketing Investment? And then second, why a plastic container for the Dream products refrigerated? Do you just want to be differentiated?

Well, I think if you look at the case today, the biggest unit of milk sold is sold in plastic--the gallon. And I think having our product look as close to milk is important. And anything that Dean Foods does with the amount of money that they're planning on spending is just bringing more people over to the box. And the more people that come over there, the more opportunities we have to sell our product.

And, Scott, just to add to that, I think we've seen some growth and it still continues to be real strong and whether it's the Starbuck business they picked up that has brought the attention to the food service category that they need to have soy.

So, yes we're seeing, growth definitely coming from Silk from what they're spending. But on the other hand what we're seeing is awareness levels being, heightened and other companies or other food service or restaurateurs or whatever coming to Westsoy or coming to Imagine for soy milk business.

OK. And just a last question. Did you want to throw out an internal growth figure? Of if you did, I missed it. Can I get it?

Well, as Ira said, now, because of Reg G we didn't throw out a number. What happens now, we integrated all our brands and, you know, because of GAAP we would have to start breaking out each individual brand. So there is not an organic growth number. But I think knowing our business you could figure it out.

Thanks.

And our next question will come from John McMillin of Prudential.

Good morning.

Good morning, John.

Maybe I don't know your business, because I can't figure it out exactly and I can't imagine, Ira, why GAAP can't tell you what percent of revenues came from acquisitions. If anything, it understates your numbers. I mean what did it add last quarter, you didn't have the acquisition for the full three months, correct?

That's correct, John. But one of the reasons that we've decided not to discuss acquisition percentages or organic growth percentages is because they are not defined in GAAP. And if you go back historically in the disclosures that we've made on these calls in the past, there have been some Q&A on how we computed those numbers.

If we were to do it today and provide a reconciliation of how we got the computation done, it would lead us to disclosing individual brand numbers and we have always taken the position, particularly recently, that we're not going to disclose sales on individual brands. So we've stayed away from it this time, John, and we will stay away from it in the future.

OK. You gave revenue guidance for the quarter, correct? Can you just refresh me on what the revenue guidance was for this quarter? Because the $129.2m did come above my expectations. But just refresh me. What was your guidance?

It was $123m to $127m or $128m, John.

OK. And the fact that you're higher than that. Where was the surprise in the tea side? I mean I actually thought the number was going to be higher than plus four, but where did the delta kind of come from?

John, we actually hit the volumes that we expected to hit at the top end of our range. We were favorably impacted because of the euro and the top-line affect of currency.

OK.

But, John, just coming back on the tea side, I think, you thought we'd be higher. That 4.3 again is, Reg G came into play March 28th. I mean that is GAAP. But what's not, as you heard me say, we've closed stores and there's existing businesses that are not...

Sort of a supplement, then.

So they're supplements and there are other things in regard to our wellness tea which is a much higher case that we've discontinued which we replaced with herbal tea. So, you know, on a GAAP basis it's 4.3, but it is definitely higher if you compare apples-to-apples.

This is going to be real behavior modification.

Well, it definitely is for me, John.

Yeah. And for me, maybe. You've given '04, I think in your last conference call you had some '04 guidance, if I'm not correct, or you endorse the Street. I mean is there anything you can say, Ira, for next year? I mean if you've got a three-year plan, you've certainly got a plan for next year.

John, we have not come out with '04 as of yet and we've not finally presented our full '04 numbers to our board. But there is numbers out there and we're feeling good about the numbers that are out on the Street today. They are not our numbers but, you know, we're feeling good about some of the numbers that are out on the Street today.

And then two quick questions. The Terra number you gave of plus one that was just Terra alone? That did not include Garden of Eatin'?

Right. And the whole snack business was up over 5% but Terra alone was up 1%, John.

Yeah. And then, Andy, the decline of aseptic soy, you know, you're saying it's gotten higher than this 4.5. Is there any kind of read on when you think the business can kind of get back into a growth mode or is that just are people just going to refrigerated? And did you give a total non-dairy number for the quarter?

No, we didn't. To answer your question, John, over the past couple of years there's been some introductions in the natural food category that have come in, in the aseptic category, with a whole bunch of money and got a whole bunch of SKUs on the shelf that really, really hurt the category overall because they were in and out in 12 months. And that kind of shook the category a bit. You're seeing a lot of weaker players now be consolidated out.

We've seen Eden Soy and Vitasoy with substantial declines over the last four quarters. And we feel that we've got our arms around it and we're in the best position to satisfy all the consumers' needs and we look for growth coming shortly.

And I think, John, we can compare our aseptic soy to the condensed soup business. I think flat and a little bit of growth is something we'll be quite happy with as there are some extremely good margins within the aseptic soy business and as we're going in there and doing category right now, what retailers are looking at.

And back to the question before on private label, they're not going to have five or six different SKUs within the aseptic category. And with the way we're going to spend against it with category management we hope to gain share and to gain growth by eliminating a lot of the weaker competition.

Good. OK. Well, congratulations. Thank you.

Thank you, John.

And moving on to Terry Bivens of Bear Stearns.

Good morning, everyone.

Good morning, Terry.

Hey, first of all, thanks for having these calls in the morning. It makes it easier on everyone, I think. Just a couple of things. Irwin, I heard you on the '04 guidance. It sounds like you feel good about some of the preliminary stuff out there.

Yes.

OK. Just a couple of other things, then. In terms of Dean Foods, have you--they keep saying that they want to do more on the aseptic shelf. Have you seen any evidence at this point of that?

Not really, Terry. We do see them out there with two flavors, plain and vanilla. And, you know, other than that I think they are doing a great job both with Silk and Sun Soy in the refrigerated category and we really have not seen much happen so far on the aseptic category.

OK. As you look at Celestial, obviously there was a big storm out there I guess in, when was that? March? Did that affect your results at all? Wasn't the plant shut down a couple of days?

Well, we did not ship for about 2, 2-1/2 days. So any time you lose shipping days, it doesn't help you. So it probably took us almost a week to get back to normal out there. But, yeah, that definitely did affect us.

OK. And as you look into this quarter with Celestial, last year I don't think was especially robust. I think we were up about 2% or something in a pretty competitive environment. How are you looking at Celestial as we move through…what's usually a reasonably light quarter there?

Well, actually I think last quarter we were a down quarter versus a year ago. But we're looking to be up in this quarter. As you heard me say before, we've launched Spring Teas. We also have launched in our supermarket our Cool Brew which last year we only launched that in Wal-Mart. It was actually, it had quite good success. So we are looking for, you know, again, 3% to 5%, 4% to 6% increase in this quarter on Celestial.

OK. As you look at Terra just let me make sure I know how the 7-Eleven is rolling out. That's coming out this quarter, is it not?

Yeah, it rolled out April 1st. So there was no 7-Eleven in the last quarter. And we're seeing already some real good success and if you start going into some 7-Elevens--I've gone in some stores (inaudible) But feeling good about the 7-Eleven rollout in their 5,500 stores.

We're also feeling good about potentially announcing rollout into a major drug chain which we've been testing and been very successful, and we're looking at a major rollout there.

OK.

And Terra just rolled out its two new flavors of Terra, our first two flavors ever, Zesty Tomato and the Mediterranean and, had a very, very, very good reception with that. Our big thing with Terra is gaining distribution and that's through DSD, that's through specialty food distributors.

So that's the big push on Terra today. And, you know, some of the other big pushes with Terra, as we've put it together with Garden of Eatin' and we've put it together with our soy chips. As you see, Glennies (ph.) out there with a lot of soy chips. We have our Hain soy chips. As you see, our Zoings (ph.) versus Pirate’s booty, one of the big things for us is the going with a total snack program, both from natural organic from a DSD standpoint. So, you know, we're looking to improve growth and distribution that way.

OK. Just one last thing on this Reg G. I mean I can take a rough cut at it, but do you think this is something we're kind of stuck with? Because I suspect the impact here is you're not really getting the credit for the organic growth rate that you had in the quarter. Is this kind of what we're stuck with or...

Well, Terry, I guess we always answer to the highest authorities, meaning our lawyers and the SEC. You know, March 28th is [inaudible] this came into effect. And you're 100% right. I'd love to stand on the tallest building in New York and scream about our organic growth, but even certain people can put a muzzle on me.

OK. Well, thanks very much. Congrats on another solid, clean quarter.

Thank you.

Yep.

Our next question comes from Andrew Wolf, BB&T Capital Markets.

Hi, good morning.

Hi, Andrew.

I just want to take a sort of shot at the Imagine question, too, just looking at the Q that you put out with the pro forma numbers. It looks like the first half it was $35m contribution is in a little more in the first quarter than the second, just using the numbers you put out there. Is that the kind of run, with a flattish business, can we just assume that, if you took, say it's about $17m to $18m a quarter, or use that as some kind of a basis for a reasonable estimate?

Andy, you're looking at the 10Q, I guess the footnotes from Q2, which gave that disclosure. Those numbers that you quoted in terms of the $35m are accurate. That's what the sales would have been--would have been added to the top line had we owned Imagine on July 1st.

But of course we can't speak to what actually would have been under our ownership and what actually will take place going forward. As Andy described, we're trying to marry the two brands of Imagine and Westsoy and it's kind of an all-bets-are-off in terms of figuring out what the real numbers might be, once we combine the brands and move them around to the different geographic areas and so on.

Andy, just to add to that, I think one of the things is Imagine used to be in the pudding business, used to be in the frozen business and we've exited those businesses as we do some transition on Westsoy refrigerated and move it over to Imagine and pick up that business. So I think it becomes difficult for us to compares apples, you know, to oranges here or apples to apples. And again, that's kind of back to GAAP and that's where, you know, we're having, you know, our Reg G keep coming up at us.

One more point I'd like to make on it, Andy, is don't take the Imagine number and assume it's all non-dairy. Remember, it had a good soup business. That's now folded into our soup business. It's separate from non-dairy. And frozen as well. So we've broken the Imagine business up and have it managed by the people in our business that specialize in those particular areas.

And the last thing on Imagine, in terms of seasonality, I would imagine the soup business is the most seasonal thing there and the other things, even frozen, are probably less seasonal.

Well, soup and frozen. Actually, you know, they do kind of trade off each other. You know, your soup business starts in September-October, falls off in February normally, March. We keep having days like today, we'll probably sell some more soup and tea. And then our frozen business starts to pick up, in this quarter and runs into September.

OK. Another housekeeping. What was your D&A for the quarter?

Hold on just one second. Depreciation and amortization for the quarter ran about 2.2.

And I think you said EBITDA was 13.3?

No, 15.3.

15.3. OK, that's makes sense. All right. And the last question you talked about--Irwin mentioned that Yves in the U.S. had some issues. Was that something competitive? In the competitive landscape? Is it more competitive here, especially given the brand's positioning or is it more something internal?

Both. We had some executional issues and we did have some competitive issues from Lite Life (ph.) which on the executional stuff we've changed in regards to some reporting, the way the Yves business U.S. now reports. And on the competitive things, there were some products that we did not have those yet that our competitors did and picked up some space on us. So they were the two reasons. But both have been addressed.

Thank you.

Thank you.

From RBC Capital, we'll hear from Carol Buyers.

Hi, good morning.

Good morning.

A couple questions. I was wondering, the numbers that you discussed, the groceries in the beginning when you talked about Melville Celestial. Is that consumption or revenue growth?

That's revenue growth, Carol. Originally, the first numbers I gave were revenue and the second numbers I gave as I went through, you know, Nielsen's and Spin.

OK. Gotcha. OK. And then, Irwin, I was wondering if you could talk about just the competitive landscape in the supermarket business versus natural, just what's happening there?

You mean competitive from our standpoint or competitive of what's happening between supermarkets and natural food stores?

Both.

OK. Well, you know, the good news is here, from a competitive standpoint, when you're in a hot category and there's growth you're going to attract competitors. From the standpoint today, we have Dean Foods who is a $10b company who is into the soy area. We do have Frito-Lay who's come out with snacks and into the snack area with Frito-Lay Naturals or Frito-Lay Organics. They've introduced it and are getting good distribution out there and are actually helping to create a natural foods snack aisle.

Are the supermarkets getting more aggressive with slotting or are they actually being less aggressive as a category?

Not at all. I think if anything, one of the very positive things that we're seeing, the supermarkets are going into much more category management And because they're getting, you know, more and more serious, they want to see one or two people. They do not want to see everybody from every different company. And Hain today being a leader in 13 of the top 15 categories, if they can spend a day with us or spend five days with all the other companies, we're seeing that to our benefit. So, yes, we are seeing competition out there, Carol.

But what I'd like to say is we get up every morning and we think about natural, organic products where it's part of our product line with other people. The other thing, it just brings more and more awareness to the category and, you know, it helps in certain areas where we are number one and we need to maintain that.

In regards to competition, I think the great news is Whole Foods and Wild Oats are doing a great job in either opening up new stores--bringing in customers and getting growth. And the supermarket industry today is struggling for growth. You're seeing more and more supermarkets expanding their distribution.

And on my last call, I also talked about, you know, that it was convenience stores. At the natural foods show we saw some of the big food service distributors at the show looking at it. So there is a good buzz within the industry. But on the other hand is a good buzz definitely brings competition which means, you know, we've just got to be on our game all the time.

OK, great. And then I just had two other questions. I was wondering if you can comment on the potential for McDonald's in the U.S. Has the Canadian success increased the potential for Yves in the U.S. of McDonald's?

And then I was also wondering if you could talk about Tree of Life? They announced this morning that there are some significant layoffs as they consolidate the divisions. How has it been doing business with them recently?

In regards to McDonald's I think you're seeing tremendous improvement in McDonald's and I think we're seeing great success from our Canadian operation and the only thing I can say is stay tuned for that.

Do you have any anecdotes about Canada, say, one in every 10 burgers sold in Canada?

What I can tell you is they have a minimum that you must reach or McDonald's will kill the program. We are reaching that minimum and as a matter of fact I was just in Toronto not too long ago, even though there was a ban on traveling there, because I drink tea and I wasn't worried about SARS, but, you know, they're seeing some good success coming from their lite menu and the Yves McVeggie Burger in Canada. So all I can say is stay tuned.

In regards to Tree of Life, we're seeing, good things coming out of Tree of Life. You know, we're seeing good growth and I think there were definitely things they needed to do and I think it's important for the industry that there are other distributors and other suppliers.

OK. Hey, great. Thanks.

Thank you.

And our next question will come from Mitch Kaiser with Piper Jaffray.

Hi, everyone.

Hi, Mitch.

Hi everyone. A quick question. Did you say how much the euro, the positive euro added to sales for the quarter?

About $1m, Mitch.

OK, thanks. And then on Tree of Life, As they took on the Wild Oats account, are you seeing things improving pretty significantly with them or do you get a sense for that?

We are seeing things improving significantly and [inaudible] stocks are not great for anybody's business, but definitely we are seeing that.

So fill rates are in the 90% right now or...

Yeah, definitely.

OK. Thank you.

Thank you.

And at this point, we have used our allotted time. I'll turn the conference back over to Mr. Simon for closing remarks.

Thank you. As you can see, we've made great strides. We are in an industry that is showing good growth. We are in categories that are showing good growth. And, one thing I will just say is we own some of the best-known brands within the industry.

As a company that's 10 years old, as we acquired a lot of brands we've integrated them, we grew them. We've had our growing pains, but as we report our numbers today and we share our successes with you, you can see it's a lot of hard work. And what I'm proud of, is the visibility and continuous improvement-- not only on our top-line numbers and our bottom line, but everything in between that we need to do to get there.

At Hain, we've added a lot of new faces, a lot of new people that have brought in here a lot of talent, that have helped us get there, and that will continue to happen. So you have a full team which is pulling together to take Hain to the next level on the $1b side.

In regard to acquisitions, I'm quite excited about a lot of the opportunities out there from that standpoint. I think there should be some interesting opportunities for Hain as consolidation is a big part of every industry, but I think it's a real big part of this industry as this industry somehow gets smaller and smaller on one hand but bigger and bigger on the other hand. Because as we expand more and more into supermarkets and mass market, the cost of doing business is a lot more.

Thank you for spending time with us today and have a good day.

And this concludes today's Hain Celestial Group third quarter, 2003, teleconference. Thanks, everyone, for joining us. Have a great day.