Hain Celestial Group Inc (HAIN) 2003 Q4 法說會逐字稿

Good afternoon and welcome to the Hain Celestial Group fourth-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 call over to Irwin Simon, President and Chief Executive Officer of the Hain Celestial Group. Please go ahead, sir.

Thank you and good afternoon, everybody, and welcome to our fourth-quarter call and our fiscal 2003 results. With me today is Ira Lamel, our Chief Financial Officer, and David Cowperthwait, our Vice President of Operations. Hopefully most of you had the time to see our press release that went out at 4:00 today.

Our sales for the fourth-quarter move $117.8 million versus 95.5 a year ago, which was a 23.4 percent increase. For the fiscal year it was $466.5 million versus $396 million, a 17.8 percent increase. Net income, $6.8 million versus a $12.8 million loss; and for the fiscal year, 27.5 million versus 3 million a year ago. EPS for the fourth-quarter was 19 cents versus an adjusted 11 cents, which was a 73 percent increase versus fiscal 2002. And for the year end, 79 cents versus a 47-cents adjusted, which was 68 cents versus a year ago.

Let me first talk about the quarter, then I'll talk about the year, then I'll talk about what we have to look forward to in fiscal '04. Celestial Seasonings for the quarter grew about 20 percent. In our food, drug and Target stores for 12 weeks ending 7/12, celestial was up 7.4 percent on consumption; and the category was up 9.7. We had great growth on black tea and green tea and herb tea. In natural foods, week ending 7/12 Celestial grew 9 percent and the category grew 25 percent.

So what drove some of that growth? A lot of new products. Our cold-brew ice tea, which for the first year we've had ice tea, and we introduced it in March, and we had a great success and great sell through on our ice tea program. We also introduced new spring teas that actually were quite well accepted and sold through on a real acceptable manner. We also introduced for the first time in natural foods new aseptic teas.

Some of the new products that we just introduced in the fourth quarter, which will continue to roll out now, and will continue to roll out in the next couple months, Teahouse Lattes, Chai Cider, some new blueberry tea, white tea, and some red and peach tea. One of the things we have done on foodservice, we tied in with Green Mountain Coffee as we launched new foodservice teas for the Green Mountain Coffee machines.

On our snack business, Terra for the quarter was down 6 percent. Garden was up 4 percent. On a consumption ending June 15, we were up 5 percent in grocery for 52 weeks; but we were flat for the last 12 weeks. In natural, we were up 4 percent for 52 weeks; and we are up 5 percent for the latest 12 weeks. New Terra flavors, which Mediterranean zesty tomato were just introduced in the end of March; and we have seen some great success stories and great new distribution gains on those products already.

A lot of people have asked me, how has Frito done with their new natural products? Frito has done quite well. Frito has helped Hain tremendously by going out there and instilling natural foods sections for natural snacks. Before, nobody could find a place for natural snacks. Now we're seeing natural snack sections in the store. And we are continuously seeing chains instituting natural sections. One of the things we must execute as a company is pounds on the floor; getting our displays out there.

We did see a real good June and July, up close to 16 percent in July on Terra Chips. We saw some new distribution. We finally rolled out to 7-11, which happened in late April, early May, to the 5500 stores. And it took us a little more time than we expected rolling out the products to 7-11. And we're seeing some good success rates coming from it. We are also continuously seeing our expansion onto airlines, continuously seeing our expansion throughout other Jet Blue, etc. So we see some exciting things happening with Terra.

If you step back for a second, what were some of the reasons also that we saw some issues at Terra? We were up against Frites, which last year had some high-growth rates, and some Red Bliss. And we expect a lot of new products coming from Terra, which will help grow our distribution and will help grow Terra back to a double-digit growth number, which we are looking for next year.

On the reverse side, Garden of Eatin', as you heard me say, was up for the quarter. Garden of Eatin' on a consumption grew 16 percent in 52 weeks in grocery; grew 8 percent in 12 weeks in grocery. Natural grew 15 percent for 52 weeks; and it grew 12 percent for 12 weeks. Again, Garden of Eatin' was introduced in 7-11. Garden of Eatin' is in the midst of introducing numerous new products, and we will continuously see great things coming from Garden of Eatin'.

In regards to our nondairy business, our nondairy business with the acquisition of Imagine doubled to almost a $30 million business. We saw great growth in the quarter. And WestSoy, Soy Dream, and Rice Dream are gaining share in a declining aseptic and soy program. They are up almost 2 points to a 55 percent share, due to smart promotions and a good category management at shelf level. Soy Dream continues to gain share in aseptic grocery, up 1 point to 19.5 percent. Rice Dream has gained 2 points to achieve an $83 share of the grocery aseptic rice. Rice Dream dominates the refrigerator rice in grocery with a 58 share, and is up almost 20 percent. Rice Dream refrigerated is driving natural category growth. Rice Dream is up 26.5 percent.

WestSoy is also gaining share in aseptic soy and grocery, up 2 points. And we are also seeing some good success coming from our frozen products, our Dream brand, which is frozen Soy Dream, is driving growth in grocery and frozen nondairy, outpacing the category, gaining 2.5 percent share points. We are in the midst of introducing for the first time on the Soy Dream and Rice Dream half-gallon products, which will be rolling out this month. And this is the first time that we will be seeing Rice Dream and Soy Dream going into the half-gallon category. And if you had to say what are some of the biggest increases that we're seeing on the WestSoy, it has been in the half-gallon area.

Our grocery business for the quarter with up over 2 percent, and the pillars of our grocery business is Health Valley, Arrowhead Mills, DeBoles, Earth's Best, Hain, and Health Valley. We have heard a lot about hydrogenated oils, transfatty acids. We have heard a lot about our cereal business. You have heard me talk before about what the divestiture of the Health Valley plant will do for a lot of new products. We have them all for you now.

Our cookie business in natural was up 12 percent because we rolled out numerous new cookie products with no transfatty acids, no hydrogenated oils. So those Oreos out there that have hydrogenated oils, and if you want Oreos today without them, you can get them in our natural food stores. We've rolling out a whole line of chunk cookies. We're rolling out a whole line of PB&J bars. So there is a lot of new products coming out with Health Valley. And they've rolled out first to natural food stores, and we're seeing the results for it. As you heard me say, consumption was up 12.2 percent in natural food stores. We will start to go after distribution in the grocery stores, and that will start immediately, this month. We will also roll out many new cracker products. And none of our crackers, none of our products contain hydrogenated oils or transfatty acids.

You have heard me talk for longtime about cereals. In the next couple weeks we will be introducing new functional Medley cereals. And the lineup includes Slender for weight management, Empower, and HeartWise. The natural food show that is coming up this week in Washington, they will be debuted there. And we're excited about finally getting our new cereal program in place and our new cereal products, as cereal categories for us was under fire.

We're pretty excited about the soup season. We think one of the biggest growth areas for Hain Celestial is the soup category. We today have the number 1, 3 and 4 position with a 60 share in natural and a 70 share in grocery, and we see a strong growth opportunities. Don't forget soup is used for cooking. Soup is used for a meal. Soup is used for a snack. And we are in the midst of introducing multiple new soups, coming this season. So we're pretty excited about the soup business, the soup category, and this year's coming soup season.

Arrowhead Mills, we're seeing some good growth there. Our cold cereals on Arrowhead Mills up 9 percent. Our baking mixes up 10.8 percent; and beans and grains up 15.8 percent. And it has taken us a few years, but one of the things with Arrowhead Mills, we have introduced all new packaging. We have introduced it under the USDA seal that is 95 percent organic. And we're finally going after the grocery category there. And we have got some pretty good acceptance. You will see other new products coming under Arrowhead Mills.

And from the DeBoles side, the exact same thing. We are in the midst of introducing low carb pasta, which I will talk about in a little while on low carb products.

Earth's Best, and as we continuously hear about obesity and kid's eating healthy, in natural we're the number 1, up 28 percent with a 72 share. And actually our last four weeks, our grocery was up 14 percent. One of the things that we are in the midst of doing, and you have heard me say about it before, we're continuously introducing toddler foods, and will continuously introduce new products and go after the issue that is facing our nation today with obesity and some of the foods that our kids and children are eating. And one of our big challenges at Earth's Best, we're bringing new users in every nine months. And we now will convert those users over to Earth's Best toddler products; and we're pretty excited about that.

Our Canadian business, Yves business grew almost 20 percent. A lot of that was helped by the addition of the McDonald's business in Southern California which has been very successful. It's also been helped as we come into barbecue season, not that we had a great barbecue season this year with our weather, but we have seen seem great things happening with McDonald's. We have seen some great things happening with other Yves products. What we see today with Yves, we see a tremendous opportunity, again with U.S. And Canada we have about an 83 percent market share. In the U.S. we have a 19 percent market share; and the businesses are almost the same size. So we're looking for multiple new distribution and multiple new distribution opportunities in the U.S. And we're looking at other categories to bring the Yves product line in.

We're also quite excited about the Canadian business for Imagine. We will be introducing Imagine refrigerated Rice Dream in the Canadian market very shortly, and expanding our Imagine business, expanding our Terra Chip business, expanding our Health Valley business, and our Earth's best business.

Our European business was up 20 percent. We completed late in June the acquisition of Grains Noirs. Grains Noirs is a fresh-prepared meal business, sandwich business, that also provides meals to EchoStar, the train between Belgium and the UK, and also provides fresh meals to the chains like Delays (ph) etc. So we're pretty excited. We've seen some great results. And we're pretty excited at how we can put Grains Noirs and BioMarche together and get efficiencies there.

We are also excited about Imagine. Imagine refrigerated will be launched in October in the rice side in Europe. We are also in the midst of introducing Imagine on the soup side in Europe. And right now there is not anybody in European doing aseptic soups, and we see a big opportunity there. We look to expand the whole Celestial brand in Europe, with multiple new products and ruling out it into other countries.

So how about the year? What about our report card? Our sales growth was 17.8 percent for the year. Net income, 27.5 million versus 3. Our Health Valley plant, we're pretty excited about the divestiture of that. As you heard me talk about a lot of the new products, a lot of the efficiencies, and a lot of opportunities that come out with future new products. The Terra plant is performing well; and as volume increases there I guess you could say it will perform even better.

We've done some great acquisitions this year. We acquired Imagine, just a great brand. It got us into the rice category. As you heard me say before, Soy Dream will be our refrigerated brand of choice. It got us into the organic soup category, which we're seeing 50 percent growth. It got us into the frozen category, which you heard me talk about the growth there. And it got us into both these categories both in Europe and Canada, so just a great growth category for us.

In the middle of June we announced the acquisition of Walnut Acres. We folded Walnut Acres into our infrastructure already. And Walnut Acres we're pretty excited for from the juice side of the business. And we see a great opportunity on the organic juice side of the business; and we see some opportunity on soups and condiments and some of the salsas. So we're pretty excited about the Walnut Acres. You just heard me talk about Grains Noirs, and I think there's some good things that we can do there.

We have gained a lot of new major distribution in the last year. We have improved our distribution in the mass market, in the major supermarkets. We have improved our distribution in the whole foods, in the Wild Oats. We have improved our distribution in convenience stores. And we see some big opportunity in moving into foodservice, where tremendous amount of things are looking for.

Celestial Seasonings, after three years we have had our best year ever in Celestial. For the year, the business grew over 8 percent. It was the best year for tea consumption. And in Q2 -- and again it was not -- everybody thinks it was a cold winter. It was just a normal winter. We sold over 2 million cases. So after three years, a lot of great things happening at Celestial, and the management team deserves a lot of credit out there. We are in the midst of introducing a lot of new flavors at Celestial. You heard me say for the first time we're going into lattes and chais and just getting away from the tea bag, as we look to Celestial become Celestial hot beverages, not just the tea business.

We've introduced new Terra Chip flavors for the first time. Terra originals, which were around for ten years. Zesty tomato and Mediterranean has been great introductions. And come in the next four weeks, we will be introducing a lot of new other Terra products which will be some breakthroughs for us.

And last but not least, we have upgraded our management team continuously, which is helping bring these results in from the Hain Celestial Group.

So what we have to look forward to in fiscal '04? What are we excited about? It is a great environment out there for natural organic foods. We are pretty excited as the awareness level about natural organic foods continues to be at high levels. We love when bigger companies like Kraft and Frito enter this category or talk about this, because it helps bring the awareness level to us. In fiscal '04 Hain will enter its 10th anniversary, which means after 10 years being around, I think we've done a lot of great things right; and we've done a lot of things in 10 years. And I look forward to the next 10 years.

Obesity in children is a big challenge, and Hain is out there today looking to make sure we have the right ingredients in all our products. Transfatty acids, hydrogenated oils, low carbs are all buzzwords that have been around Hain for a long time, but they're becoming important within the food industry. I think one thing that maybe we overlook sometimes, when we make our products, there is none of these ingredients in our products. So we have sometimes the highest cost and margins because we put the best of ingredients in there. All our ingredients are natural. As I always say, we answer to natural, organic, vegetarian, kosher, so there's many rules and laws that we are answering to, to make sure we put the cleanest and best product out there.

Come this week at the natural food show, we will introduce many new products which we are excited to; and many new products which we think will be the first and some breakthrough on that. We are looking for some good growth at Whole Foods and Wild Oats, as they continue to open up more stores. And we feel pretty good about distribution issues resolved by Tree of Life at Wild Oats. And as we settle through some of these this year, we feel that they are beyond us and should help a lot of things from a growth standpoint there.

In regards to new distribution, we're looking for plenty of new distribution at the super masses, as a lot of people are asking for natural foods at the super masses. And a lot of the super masses won't understand how they can grow their category. And Hain being a leader in 13 of the top 15 categories, they are coming to Hain to help them learn it. There is also plenty of opportunities in foodservice and military. And you heard me talk about just two of them, at McDonald's and 7-11.

We as a company will invest in our brands. Brands, brands, brands, brand equity. And this is where we need to do it. We need to let people know about our brands, because we have some of the greatest brands out there in the natural food industry. This past year, the company spent a lot of time working on a strategic plan for the next three years. We have mapped out our strategic plan over the next three years of where we want to go, how we're going to get there, and how we're going to do it, and with the personnel and the people and the strategy how to do it. And I am pretty excited about it.

We have financial goals in place. For our fiscal 2004, our guidance will be 95 cents to $1.03, which is a 20 percent to a 30 percent increase on earnings-per-share versus fiscal '03. Also from a revenue standpoint, $540 million to $565 million, which is 15.7 percent to a 21 percent increase. And that does not include any acquisitions for our up-and-coming year.

I'm quite excited about the acquisition opportunities. We're seeing tremendous acquisition opportunities both in the U.S. and Europe. And with our balance sheet and with our past, we will capitalize on them where they make sense. If we don't see the right acquisition, we will continue to grow our current business and expand our current brands, which we think there is tremendous opportunities for.

In regards to something that you saw on our press release, that Hain is announcing 30 and 3. As we integrated businesses, we wanted to mark sure we serviced our customers right. By bringing on David Cowperthwait who will tell you about himself in a few minutes, we have initiated a major cost-saving plan in this company, where we are looking to save $30 million over the next three years. Which we will invest back in the business, back into infrastructure, back in the brands, to continuously build our brand equity and also continue to invest and let it drop back to the bottom line.

So I am pretty excited about fiscal '04. I feel that the team made great efforts in fiscal '03 with a tough economy out there. And one of the things I forgot to mention in regards to the fourth quarter, April and May were just tough, tough months out there. And I think we're pretty excited of what we have been able to achieve in six weeks that normally takes companies to achieve in 12 weeks. And I'm pretty excited what I have seen far happening in July and August in regards to the businesses. So I'm going to turn it over to David Cowperthwait, who will take you through our plan for 30 and 3. Thank you.

Thank you, Irwin; and good afternoon, everyone. Before we get started on 30 and 3, what I thought I would do is give a little bit on my background prior to coming to Hain. I spent nine years with Quaker Oats out of school, equally split between engineering and operations. Had the opportunity to do a lot in both areas on a lot of brands. Most notably, I your started up their bar operation facilities in the mid-80s, and started up their Gatorade 64-ounce PET operations in Tennessee in the mid to late '80s.

From there I went to Frito-Lay and I spent 13 years, equally split between manufacturing and distribution, primarily on the East Coast, running the Northeast region in New England, and then the last three years on the West Coast, where I had responsibility for three plants and a number of DCs in northern California.

I'm tremendously excited about the opportunity. I think it blends both things that you would look for. One is taking the experience from Frito-Lay from a supply chain standpoint, and be able to apply it and built it here at the Hain Celestial Group. Which really leads into 30 and 3 and what I am going to cover. I'll go over the key highlights for couple minutes, in terms of areas that we're going to use to drive productivity over the next three years.

When you really come down it, a handful of areas of focus. The first is co-pack productivity in building really strategic alliances. As our business and our volume grow, size is starting to become a very good advantage for us, both in terms of doing business with our customers, as well as them being able to do business with us, on both sides of the business. Coupled with that, with data interchange in the technology they have between EDI and web, to speed up the accuracy and reliability of information.

The second area is manufacturing productivity. We have identified significant productivity in the five plants that we have in our system between Yves, Celestial, Arrowhead, DeBoles, and Terra.

The next area is distribution. As many of you know, distribution is all about touches, transfers of product, miles and load efficiency. And really two areas that we're looking at to get a lot of productivity in the next couple of years. The first is warehouse consolidation. It is really continuing the process that we started over the last couple years of consolidating warehouses. Most of you may or may not know, we basically had three distribution networks; one ambient, one refrigerated, and one frozen. If you take a vision of six warehouses, potentially one for the East Coast and West Coast for each area, we can significantly reduce that over time.

The second is distribution efficiency, and that really is -- we have done a lot of work on lane (ph) rates and areas of that nature over the last couple of years in terms of competitive bidding and working things like that. The big opportunities are starting to improve queue, weight per load, eliminating or reducing the LTL shipments we send. Again, it goes hand-in-hand with our business growth and a lot of the things that we're doing with acquisitions and new businesses as we bring them on board.

The next area is supply chain visibility and leverage. If you look at our inventory, there is significant opportunity to reduce days on hand as well as inventory levels on ingredients and raw materials. And reduce system efficiencies. And we have identified significant productivity in those areas as well.

The next big bucket for us is SKUs, stockkeeping units, and line item rationalization. Actually, starting a process where we are looking at line items by line item basis on a volume, margin, turns, sales, and sales basis, to optimize the mix of our portfolio and improve the profitability of the items we have.

Next area is the least (ph) landed cost model, where basically every time we look at a warehouse or distribution point or point of manufacture, we basically work through the entire supply chain and optimize the cost through the entire supply chain, from the point of basically purchasing ingredients all the way through to our customers. To make sure we're doing it, making the right trade-offs, and making the best bottom-line decision for the business.

The last area of focus is to continue to improve the utilization of a lot of the technology that we have through training and skill development. But it is finalizing and completing our MRP implementation, our DRP implementation over the next couple of years, and then using Web-enabled information to become much more efficient with a lot of our business partners.

And last but not least is three areas from a service standpoint that we're really focused on improving along with those items. And continuing to improve. The first is product availability. The second is working on the ability to measure and deliver a fresher product from a customer standpoint, to give them more time at the point of purchase on the shelf, and in timeliness and delivery, and leveraging those things.

So those are the key highlights for the next couple years in terms of delivering $30 million in productivity, that we can put back into the business.

Thank you, David.

Good afternoon, everyone. As Irwin discussed earlier, our sales in the fourth quarter this year reached 117.8 million, up 23.4 percent over the prior year's fourth-quarter sales of 95.4 million. Our net income was 6.8 million in the fourth quarter this year, or 19 cents per share on 35,151,000 shares, versus a net loss of 12.8 million last year or 38 cents per share loss on 33,818,000 shares.

Gross profit in the fourth quarter this year was 28.4 percent, as compared to the reported 13.2 percent in the comparable period last year, and the 28.8 percent on an adjusted basis to reflect last year's significant charges to gross profit, resulting from the restructuring and onetime items last year.

The small reduction this year resulted from the cost of fuel surcharges and from the higher ingredients costs we've experienced. Also our gross profit this year was impacted by a $500,000 increase resulting from offsetting items in the fourth quarter. We recorded a valuation allowance of $1.5 million, and reduced the carrying value of chargebacks receivable from customers; and we recorded a $2 million reduction of reserves established last year in connection with the charges the company recorded for supplements and other items similar to the chargebacks.

While these offsetting items increased gross profit dollars, they had the effect of reducing the gross profit percentage because of the line items they were recorded to. These unfavorable impacts on our gross profit percentage were offset in part by better performance in our distribution and warehousing areas.

Our SG&A in the fourth quarter this year was 23 million or 19.5 percent of net sales, compared to 24.1 million or 25.3 percent of net sales in the prior year's fourth quarter. We continued to realize reductions in G&A as a percentage of sales as we increased our sales base and leveraged the infrastructure that we have in place. Significantly, our dollar spending on G&A has also been reduced at the same time, as we control costs and benefits from the synergies of integrating acquired companies. We spend more dollars on selling and marketing in the fourth quarter this year, by approximately 1.2 million, when compared to the prior year.

Operating income for the quarter this year was 11.3 million or 9.6 percent of revenue. Operating income includes a credit of 875,000 for the restructuring loss, to reflect the reversal of a provision we had made last year in connection with the sale of our Health Valley manufacturing facility to a co-packer. We had provided certain expected costs to exit the lease on the facility; however, the cost to terminate the lease was lower than we had provided for at that time.

In this year's fourth quarter, interest expense and other net totaled 435,000, versus 240,000 last year. Our interest expense was 514,000 this year, versus 180,000 last year. This increase in interest expense comes principally from the borrowings we drew down on the acquisitions we made this fiscal year. EBITDA amounted to 12.9 million or 11 percent for the fourth quarter.

Reviewing the full fiscal year, our revenues were up 17.8 percent to a record 466.5 million, increasing from last year's 396 million. Gross profit for the year was 30.7 percent, versus 29.3 percent last year. SG&A was 20.9 percent this year versus 22.1 last year. Operating income for the year reached 46.2 million or 9.9 percent of revenue, with net income reaching 27.5 million or 5.9 percent of revenue.

EBITDA for the full year amounted to $53.8 million or 11.5 percent of revenue; and depreciation amortization for the year totaled approximately $8.5 million, with capital expenditures totaling approximately 10 million. Our earnings-per-share on a GAAP basis for the full year were 79 cents, versus last year's 9 cents on a GAAP basis, and 47 cents last year adjusted for the restructuring and other charges.

Our balance sheet continues to be a source of strength for the company. Our working capital was 83.3 million with a current ratio of 2.3 to 1 at June 30 this year. The working capital increased almost $12 million over the prior year-end, when our working capital was 70.9 million. Our receivables are turning at 49 days this year, compared to 52 days in the same time last year, and 56 days the year before that. Inventories are at 68 days, compared to 70 days last year, and 76 days the year before.

Our stockholders equity is 440.8 million at June 30. Our debt as a percentage of equity, which as I said earlier increased this year as a result of borrowings for the three acquisitions we made, remains at a very low 15.5 percent. At this point, we will open it up for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) Terry Bivens of Bear Stearns.

Good afternoon, everyone. A couple of questions. I guess, Irwin, if you look at the reversals that you had here, it looks like the number came in at around 17; I guess relative to my model, the shortfall was on the gross margin side. Now I've heard what Ira said. But if you do look at the gross margin, it has steadily tracked down since the second quarter. Can you give us a little bit more color there on what you think has happened on that line? And what we can expect in '04 there?

On the gross margin line, Terry, we traditionally do decrease from second quarter down through fourth quarter. Our second quarter each year is generally higher as a margin percentage, because we have the strength of Celestial Seasonings and other products during the colder season. And Celestial Seasonings I think is well known as our best margin product line. So as it is a smaller percentage of sales in the ensuing quarters after Q2, it has a diminishing impact, if you will, on our gross profit percentage.

I do recognize some seasonality there. I guess you are saying that the reason we're lower apples-to-apples in the fourth quarter is the fuel surcharge and ingredients. Which ingredients would you identify?

We have had some increases as we have talked about the last couple of quarters in our ingredients costs, particularly in the area of oils and organic ingredients. We've seen prices rise in those areas. And then of course the fuel surcharges have gone up. We saw some small increases also in vanilla. Even though vanilla sounds like a small item, it is used in so many of our products that it has an impact on quite a number of them.

But the most significant have been fuel surcharges and oil. That is oil for -- we're talking about ingredient oil and cooking oil, which is used in many, many of our products.

In the quarter, how much would you say acquisitions added to sales?

The acquisitions in the quarter were minimal, Terry, because Grains Noirs and Walnut Acres happened in the last two weeks.

But we did have Imagine there, right?

Right.

How much would that have added?

If you recall from our last quarter, we were not going to discuss because of Reg G the breakout between acquisition and organic growth. But I will refer back to our release when we acquired Imagine to begin with. And it was a company in the approximately $70 million revenue range.

This would've been a somewhat like quarter?

(multiple speakers) the soups, and would've been a like quarter for us.

Okay. Let me just ask one more thing. I noticed on the balance sheet, you have a pretty sizable cash position there. Is there any particular reason for that?

The cash buildup has to do with the timing of the maturity on our borrowings, under our revolving credit agreement. In order to obtain the best rates possible under our borrowing grid, we locked in for a certain period time. And when I say a certain period of time, not more than 90 days on that rate. So soon after year-end, you will see that cash was used to pay down those borrowings.

Okay. Thanks very much.

And we will take our next question from Mark Chekanow of Sidoti. Please go ahead.

Can you talk a little bit about McDonald's? You said you had added distribution. Is that in addition to the 600 chains, 6 or 700 locations in Southern California? Or have you added new regions? And can you talk a little bit about the opportunities there?

Sure. What I can say about McDonald's, Mark, is McDonald's has gone quite well for us since the introduction in the middle of May. The program is continuing. Originally they looked at the program on a seasonal basis; and results have been good. We are in the midst now of rolling it out into Houston and Austin. And right now I am not in the midst to talk about other markets. But we see some good successes out there, and we're seeing some good results and we only look for other opportunities.

Is this all for the McVeggie burger? Or is all for Soy McNuggets? (multiple speakers) you talked about possibly launching that type of product.

It is just right now for the veggie burger. And I think first is to see how well soy is perceived, and then I think there is other opportunities for other veggie products. And other opportunities within the Hain Celestial Group. So I am quite excited about that. Great partner to work with.

Could you talk a little bit about the potential with warehouse close? I know it is a fairly underpenetrated area for you. Are you in talks with Cosco maybe for more Terra distribution? Or perhaps some discussions with Sam's Club?

Another good question. One of things that we have before was a very good care Terra business at club stores. And over the last year there were some transitional issues with that. We see some good things happening with club stores coming. We are also seeing some big opportunities coming at Sam's with WestSoy and Imagine.

We are also seeing some things happening with some other major mass market and club store business, with soy milk and other products. So we're seeing -- and right now in club stores we do very little business. The only business that really we do in club stores today is with Walnut Acres, with juices and some of our salsas and spaghetti sauces. And we're seeing some good results.

And again none of that is built into our numbers for next year. So no other McDonald's are built into our numbers, no additional club stores are built into our numbers, no acquisitions. So no distribution gains. The way we build our budget is on what we have today. So if something was to come along at Wal-Mart, Sam's, McDonald's, they are not in these numbers, Mark.

Okay. Could you talk a little bit about, then, you mentioned Wal-Mart; your discussions with them? And their outlook on maybe adding an organic section into some of their supercenters?

The only thing I can say, and I definitely can't speak for Wal-Mart, Wal-Mart is a company that recognizes trends. And they recognize growth. And Wal-Mart is recognizing the concerns with obesity. They're recognizing the concerns with sugar-free. They're recognizing the concerns with low carb products. They're recognizing the opportunity in soy.

We happen to have all those products, so we see a big opportunity. What I can say is we're seeing significant growth of our tea business with Wal-Mart. And some of it reflects back in this quarter. So the only business we really do with Wal-Mart today in this company is basically tea business.

I wanted to clarify something. When you say you're seeing opportunities with Sam's Club for something like WestSoy, are you saying you're in advanced stages of talks for new distribution? Or is this still just something you are exploring?

What I am saying is, there is opportunities. Do we have orders in hand? No. Is there strong, strong, strong interest? Yes.

Thank you.

And we will take our next question from John McMillin of Prudential.

Good afternoon everybody. Regulation G does not restrict companies giving basically internal growth numbers. I have dealt with other companies that are able to break out and give lower internal sales numbers than what is reported. I don't want to turn this conference call into a legal discussion, but I have heard it from almost every other company that have had acquisitions in their model. I just don't understand the reluctance to tell us whether internal growth was 3, 5, or 8.

John, I guess one of the things I think I'll come back to you again on, at $117.8 million I don't think we are reluctant at all to talk about our organic growth. I think we'd be quite -- as I said one other time, and I said it on my last call, I would love to be able to get on top of the Empire State Building and scream out what my organic growth has been for the year and for the quarter. Okay?

But in this day and age of Reg G and Sarbanes, I've got to tell you, I'm being coached by my attorneys in the way I -- Reg G, in the way I am able to report back, tie in all my brands into GAAP, all the acquisitions, and in disclosures in regards to discontinued products, etc. So with that, back to the original question, I think it is pretty easy to figure out what Imagine was in the quarter, in regards to the number. And I think it is pretty -- we only acquired Walnut Acres and Grains Noirs in the last two weeks of June, which were just minimal sales. So the company here, by every means would love to talk about organic growth, because I think we have got something pretty exciting to talk about.

What was the targeted sales number that you gave us in the last conference call?

The last conference call, John, our guidance was $1.13 to $1.17.

And acquisitions, as you told Terry, didn't come in till late. So basically you came in on the high-end of sales guidance.

Right.

And the low end of earnings guidance just dealt with the fuel surcharge? I am stripping out the restructuring reversal.

The low end, in regards to earnings --

The stock is getting hit, after trading's down $1.50.

I think a couple things. Well, I don't know what after earnings --I don't know what after hours is. But to come back in regards to the quarter, John, I think if you come back and look and say what a difference a year makes, I feel pretty good from a company standpoint, to make 6.3 million versus a $21 million loss a year ago. I come back and say whoa; April and May were tough months, so we made up a lot of the downfalls in April and the middle of May in six weeks out there. And really have done a great job at it. And I'm pretty proud of what numbers we have put up there today.

Also, which we have not talked about in the fourth quarter, we owned Walnut Acres for two weeks. We got saddled with all the charges there that came into the quarter that are P&L. So there's multiple things in the quarter that we also absorbed in there that hit us, which is part of doing business. So I feel good about what the organic growth is, even though I can't talk about it. I think 117.8 and the range was 113 to 117. I think in regards to what we have accomplished, in regards to net income versus a year ago.

And maybe April and May has shortened a lot of people's memories, but I will tell you what. I remember those six weeks of business. They were pretty tough, but I think we've done some great accomplishment of what we have been able to do in the last six weeks of the quarter.

And just in terms of sitting here a couple years later, and viewing your relationship with clients, and where you have been and where you want to go; you have got a lot of different shareholders and I guess they are one of them. But I think you were hoping for some more meaningful business combinations. Can you just stand back and view that relationship as it stands now and whether it has been what you hoped it would be?

I think it is three years in September, John. And I think whether it's Hain or Heinz or whatever, I think if I come back and look at it, I think we got a great asset from them in Earth's Best. I think in regards to -- at the time we sold equity, it made sense. In regards to all the other business ventures that we look to do, whether it was Europe, whether it was foodservice, whether it was club stores, whether it was manufacturing, they basically are not things that happen today. And I think a lot happened at both companies. So if I had to come back and say, did I get everything I expected back then. Not at all. And maybe Heinz feels the same way. But they are a shareholder today and that is what they are.

Okay, thank you.

We will take our next question from Scott Van Winkle of Adams Harkness & Hill.

Hi, a couple questions on the receivables and gross margin. First, Ira, I think you said that receivable days were down year over year. Is that correct?

Yes.

But if I look at receivables in the balance sheet, they were up 39 percent year-over-year and revenue growth was only 23 percent.

Part of it has to do with a reclassification that we had to make in our first quarter, which is disclosed in the 10-Q, with where certain items were classified on last year's balance sheet. So that had an impact on the day sales and receivables. We had to move something from the other category up into accounts receivable, which increased it.

The other things that you don't get the full impact of is your receivables go up when you acquire companies, but you don't get the full impact of the day turns. So as an example, with our Grains Noirs and Walnut Acres or Acirca acquisition in the fourth quarter, our receivables went up; but we really received no benefit of sales from those companies to the extent that receivables went up. So you cannot simply take those measurements and think that they necessarily are going to line up just perfectly.

Okay. And what is your current opinion of inventory in the channel?

Scott, elaborate on that.

I look at the -- see the gross margin down and receivables up; and I just wonder if there's any excess inventory in the channel?

Absolutely not. I think what is important to realize today, excess inventory in the channel is not something that anybody wants to do. And one of the big challenges with us on inventory is shelf life. People have just cracked down on shelf life. And so that is not something that is out there at all.

And you give the Celestials numbers; and good growth for Celestial in take away, but it was a little weaker than the category. Is that because of your lack of black tea exposure?

No, I think one of things we're not seeing there, we're growing 20 percent. What is not totally measured and not in the numbers is Wal-Mart. So Wal-Mart is not in the numbers.

Okay, and with regard to the 7-11 distribution, I forget the size of the package. The small packages of the Terra Chips. Is anything you are doing there, -- is that a driver of your excitement in foodservice? It seems to be that system you have in 7-11, at least the racks I've seen, would apply pretty well to foodservice.

Well, it is; and actually we are in the midst of rolling out Health Valley products coming September. There is a whole stream of other products. Thanks for reminding me, we are in the midst of introducing numerous new low carb products, which we think is a hot category right now. And we will introduce low carb snacks, low carb bars, low carb cookies, low carb pasta, with the CarbFit Carbolite CarbFit name on it, with our brand on the bottom. And they will be going into 7-11. And we see some pretty good excitement on all of these low carb products.

And one clarification. When you talked about rice and Soy Dream going to half-gallon, that was aseptic, wasn't it?

That is aseptic, (indiscernible). And just making sure we're clear on that, number one, Rice Dream and Soy Dream is half gallon today. The strategy once again, Soy Dream will be the premium brand. WestSoy will be the price brand. Soy Dream will be the refrigerated brand. Rice Dream will be the refrigerated brand. We're putting major emphasis and major growth on the rice refrigerated category.

We will now take Rice Dream and Soy Dream for the first time and take into the half gallon aseptic. And for us, Scott, the fastest-growing business on the west side of the story is the half-gallon side of the business. And people are looking for value. If anybody here lives in New York and sees the prices of milk, we think people will be trading to aseptic.

And last question, regarding the guidance for next year. It looks like you (indiscernible) the midpoint of your revenue and earnings guidance; basically earnings growth about the same level of revenue growth. Am I getting that correct?

And second, why not some margin expansion? I would think you still have some opportunity, some good comparisons against early next year.

Hey, Scott, is there anything wrong with being conservative out there? Is there anything wrong with spending back on the business? I think we have got a lot of new products, a lot of opportunities. And I sit here today feeling pretty good, in today's day and age, talking about a 20 to 30 percent range on EPS growth, and 16 percent to 21 percent on revenue growth, without any acquisitions, without any of the new opportunities that we talked about.

So I think David to my left here is being a little conservative in regards of what he is looking for margins. We want to invest back in our business. We're sitting here today with one of the biggest opportunities out there. The world is starving out there for products that are either organic, natural, obesity, and we have to get out there and tell our story. And I think that is our biggest opportunity. And we're going to invest money back into telling that story.

Okay. And you made some positive comments about the trends thus far in July and August. You have two months in the books. Anything more specific about the current trends?

No come we're feeling good about the business. As you heard me say before, April was almost like business -- someone has made this comment before, and I want to point it; it was someone turned the lights out. And I think we started to see things come back in the second half of May. We just saw an incredible stellar June. I guess people did not go on vacation in July, so we saw a very, very strong July. And we also saw a good August.

One of the things we feel good about this year, the natural foods show being early, which allows us to introduce a lot of the new products at the natural foods show in early September. And hopefully -- because we don't ship before we show them at the show. And hope that we can start shipping some of these in this quarter. So we're pretty excited about that. So, yes.

Thanks, Irwin. I will see you in DC.

Due to time constraints, we have time for one last question and we will take that from Andrew Wolf of BB&T Capital Markets.

Thank you. Any update on the blackout effect? I know one of your plants was closed for a bit. Did that have any effect, or do you think it will have an effect this quarter?

You know, Andy, it did have an effect. Our phone systems took a long time in getting back up. We lost orders for a couple days, even though we opened up on Monday. Our Terra Chip facility was down until Saturday; actually didn't get back up until Sunday. So definitely -- listen, we lost in the East Coast here, (indiscernible) two or three warehouses shipping days. So it definitely had an effect.

Can I quantify it right now? No, but the only thing that we can -- we made up six weeks within six weeks in the last quarter. Hopefully we can make 1.5 days up in this quarter. And I don't think it will have an effect.

So in terms of the materials lost, in the fryers and such, that is not, so far as you can tell, not a material amount?

It was; and it is probably somewhere between all that, maybe in the $0.5 million range or so. But hopefully there is insurance and there is coverage on those things. And they are things we are going to have to deal with. But we did throw out products, and we did work in progress and stuff like that. And people got paid and people were not at work, so productivity. But in regards to ingredients and stuff like that, there was stuff that had to get thrown out. In the midst of frying you can't reuse products.

Andy, we are currently working with our insurers and we are gathering all of the impacts around the company from the blackout.

I want to follow-up, you made a comment on Walnut Acres, that you took charges or (technical difficulty) this quarter. Did you take a big severance charge into this quarter?

No, where Irwin was referring was not specific charges themselves, but the fact that we had their infrastructure for the two weeks.

You're choking up. Andy, what basically happened is we closed Walnut Acres; we kept the people, the office open for three weeks to integrate it within Hain. So all of these people came on Hain's payroll and were part of the P&L.

With virtually no sales in those last couple of weeks. So it's not specific charges, but it is the overload in that operation. The Acirca-Walnut Acres business model was one in which there was a very, very heavy G&A overload. Very, very heavy spending. It's the reason we were able to pay the price that we were able to pay for the business. But until we got past certain initial integration phases, those charges and costs just remain part of our P&L.

All right, so you are saying that Acirca was perhaps materially dilutive by a penny or two or something like that?

(inaudible) that much, Andy. We are not going to talk about the exact impact. I would say there was a small impact. It was probably just a bit less than a penny.

Thank you. And in terms of the reduction and the closure of Acirca's headquarters and that, that is happening in the current quarter? Are there charges related to that that will flow into the quarter? And if so can you separate those out at some point?

There won't be any charges. When you close the facility of a company that you acquire, such as in this case, that is part of the accruals in purchase accounting. So that won't affect our P&L. It is only the cost of operating it while it was still open that has to go through the P&L. There won't be any charges in Q1 from Acirca. It certainly -- and we mentioned this when we first acquired the company, that we looked at the first half of the year as not being accretive in fact. We thought it might be even for the whole year, as it was kind of a little drag on the front end. And came back on the back end.

So basically we have built into next year, and as we said this in our press release, Andy, Acirca being a neutral for this year for us. But we look to expand upon that. We look to grow our juice business. Somebody asked me a question before about club stores. We see a big opportunity in club stores with Acirca. So we're pretty excited about that.

One of the things that we have had to do with Acirca, as Walnut Acres-Acirca were running out of money, we had to build inventories. And we have had in the first couple of months, in July and August, some major out-of-stock issues with it, just getting products and inventories built back up. Thank you, Andy.

Can I ask just one last question? On the $30 million cost savings plan, can you speak to the realization timetable? How it will build over the next three years?

We've mapped that out. A lot of the things I took you through earlier, we have identified the potential with it. We have identified it could be a range of $5 million in 2004 to a high-end of 7 or more; and in the latter two years it will start to accelerate, anywhere from 10 or slightly less than that to slightly higher than that. So that is how we've mapped it out currently. This year, 2004 will be a little slower than the two following years.

Yes, the goal --

And Irwin, strategically, you suggested you are going to put a lot of that back in the business. Do you have a specific ratio? Or are you just going to see what the business needs? Or will some of that come to the bottom-line I guess is another way of asking the question?

I guess as we come back and see, is it 50-50? But ultimately, number one, getting cost savings gets efficiencies in the company. And I think as David came back before, just improving our service levels, which is tremendous, if we improve our service levels today at $540 million by 1 percent. Improve our shipping time. Right now, and we have a major program in place right now, we take Terra Chips two-week lead times on orders. We have a major initiative in here to move it up to five days. It is amazing what that changes in regards to shipments, reorders, productivity, efficiencies, etc.

So there is a lot of things now, as we put systems and people in place, which automatically, Andy, drop to the bottom-line. So we see big opportunities. On the other hand, Andy, the more money that we can spend on advertising, the more we can build brand awareness, the more people buy our products. It improves margins and drops to the bottom-line anyway. So if we don't get it on one side, hopefully we get it on the other side.

Okay, thank you.

Well, thank you, everybody, for listening to our fourth-quarter and our fiscal 2003 earnings. As you heard me say, I am pretty excited of what we have been able to do in the fourth quarter, in regards to our net income. Back to John's question, I wish I could go stand on top of the Empire State Building in scream out what our organic growth is, because I think it is something to be feeling pretty good about, on what we have able to achieve in this quarter, knowing what April and May were, as people were sitting in front of TVs.

One of the things, we see some great things happening on Celestial and making some major moves there. We have had our challenges with Terra this year, but David and his group have a great plan in place. And we are looking to get back to the double-digit growth on Terra. And we are looking for a lot of the opportunities, and we have a lot of new products coming.

And one of the things we are out there beating the street to get pounds on the floor, to get displays. And I think Frito has helped us tremendously. And we think we just have a great opportunity with Garden that will continue.

Also we're feeling pretty good about our grocery business. We are looking for some big things coming out of Health Valley. If I had to say, this is the year for Health Valley. This is the year for cookies and crackers. This is the year for soups. And this is definitely the year for cereals. And we have taken a lot of pounds in the chin for cereal business; and now we have our extruder and now we have our new piece of equipment, and we will get a lot of Medleys out their on our cereal business.

We're pretty excited about the opportunity for Earth's Best and real excited about the Arrowhead Mills, DeBoles product lines that are coming out.

Nondairy continues to be a big part of our business. Our nondairy business has doubled now with the acquisition of Imagine. And we are excited about the aseptic half gallons. We are excited about the opportunity in refrigerated Rice Dream and Soy Dream. And we're really excited about the frozen business. So expect a lot to come out of Imagine. And we're expecting that aseptic category to continue to grow.

You just recently saw an announcement that came out with Cargill, as we're joining up with Cargill. Stay tuned for that, on some of the things that we will do and be able to make some claims in regards to rice milk. Because right now there is not a lot of claims able to be made on rice milk. And Andy and his group should be expecting a lot out of there.

In regards to Canada and Yves, we are in the midst now of putting in a new general manager. We expect some big things from Yves; and Ellen her group had been doing a lot with McDonald's, a lot with 7-11. And we expect a lot to come out of Yves this year. And our big opportunity with Yves has to be for growth in the U.S. And with a 19 percent ACV, we expect that.

In regards to Europe, Europe today is one of our biggest opportunities. And as Europe today is a 50 to $60 million business within Hain, we are looking for a $200 million European business, as we think organic and natural in Europe is a major opportunity. And we see also that we see us consolidating the European market with acquisitions, and looking to do that.

So our report card with the year I think has been good. I feel good that we have had no major surprises throughout the year. If you come back and look what we forecasted in our ranges, come back and look what we forecasted in our topline, I feel good that we have been able to achieve all of those.

I come back and look at fiscal 2004, 20 to 30 percent EPS growth in the range I think is pretty significant; and I think 540 to $565 million, which is 15.7 percent growth to 21.1 percent, excluding no acquisitions and excluding no major new distribution opportunities; we are pretty excited.

In today's day and age with Sarbanes and the cost of doing those, you heard me talk about Walnut Acres. And continuously as we absorb, increase in commodities, increase in fuel, these are things that are always absorbed. And making sure that we hit our objectives and goals out there.

I feel good at where we are situated today. There is not a day that the newspaper, whether it is Times, Post, Wall Street Journal or any other paper, is not talking about health and nutrition. And I think it is important that President Bush as he tries to control health care costs, as he starts to push through eating healthy and how that is extremely preventive in disease.

By 2006 trans fat acids has to be reported on packaging and labeling. We have already been doing that. And I have heard some talk, heard some mention before about our gross margins. We are -- come back to your traditional food company. Our gross margins are much higher than other companies, as we do not use hydrogenated oils. We do not use artificial ingredients. We use organic oils. We use GEI-free oils. So there is a lot of standards out that we live up to in our ingredients that a lot of companies do not do, and a lot of companies do not have that cost. So we always ensure that we are using the highest standard of ingredients out there in our products.

Thank you very much for your time; and I'll speak to everybody soon. Bye-bye.

That does conclude today's conference. We thank you for your participation and you may disconnect at this time.