Hain Celestial Group Inc (HAIN) 2004 Q1 法說會逐字稿

Good morning and welcome to the Hain Celestial Group first quarter 2004 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 work performance are based on a number of factors some of which are outside 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 and it's important to note that actual results could differ materially from those projected in such collecting statements. Information concerning factors that the cause actual results to differ materially from those in the forward-looking statements is contained from time to time in filings with the Hain Celestial Group with the U.S. Securities and Exchange Commission.

Copies of the filings may be obtained by contacting Hain Celestial Group or the SEC. Today's question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Irwin Simon, Chairman, President and Chief Executive Officer of the Hain Celestial Group.

Good morning everybody and welcome to our fiscal Q1 fiscal '01 earnings call, '04. A little confusing. Anyway, hopefully most of you have had the opportunity to go through our press release and see our earnings that were released this morning. With me here in Melville is Ira Lamel our Chief Financial Officer who will talk about our earnings; also with me today, Steve List who will talk about our tea business at Celestial Seasonings and Maureen Putman will take you through our introduction of our new CarbFit line and some of the successes in that we are expecting from that.

As you have seen, our sales quarter was $127 million versus 96.4 a year ago which is an increase of 32 percent. Our gross margin, 29.2 versus 28.8.

EBITDA for the quarter, 13.8 million versus 9.7 a year ago. Net income, 6.5 million versus 4.6 million which is a 39.5 percent increase and earnings per share for the quarter was 19 cents versus 14 cents which is a 35.7 percent increase versus a year-ago. L

Let me tell you a little bit about our businesses and I will turn it over to both Steve and Maureen and they will take you through a few more of our businesses.

First of all, as I told you before, we would talk about our businesses as Melville, our Celestial Season tea business, our Europe business and our Canada business. I will spend some time talking about some of our brands of businesses in just one second.

Our Melville business which consists out Terra, our non-dairy business and our grocery business was up over 40 percent for this quarter. Our tea business, which consists of Celestial Season tea, of course was up six percent.

Our European business which consists of Lima, Biomarche, Grains Noirs, our European Rice Dream business and some other small businesses Hain businesses over there was up 59 percent.

Our Canadian business which exists of Yves business, both U.S. and Canada and our Soy Dream business, our Earth's Best business, our Health Valley business was up 23 percent. As you can see, some significant increases in these businesses. And number of one in our Melville business, number two in Canada and Europe.

Let me take you through some of our business units. Number one, our snack business. The total snack business which includes Terra Garden of Eatin' as the two main brands, Little Bear Boston Popcorn and Harry's was up over 10 percent. Terra sales for the quarter were up over 12 percent from a prior year.

Terra grocery consumption has stabilized and even though we were down a bit for the period, we are seeing stabilizations and growth coming across the grocery business. You have heard me remind you before and hopefully some of you have tasted because they are excellent, we have introduced some new exotic flavors of our Terra Original Mediterranean and Zesty Tomato. ALready we have reached a 19 ACV in grocery and 86 percent in natural. Our key to success of these products now are making sure we number one, have permanent placement; and number two is getting displays on the floor. That has been a major action plan and a major direction of Terra is getting these products on the floor.

Our Terra facility is operating extremely smooth. Production capacity has improved tremendously. Costs have improved tremendously and we have tremendous opportunity to make additional products. We're just in the midst of launching a new advertising campaign in Q2 with Terra. With Terra, with Outdoor Media and top five markets and national print in major magazines.

Also, for the first time, we're tying in with 1-800 Flowers which kicks off in November with a $10 coupon on Flowers on Terra Chips. One of the things with Terra, Terra is known as a premium brand in the snack category. What we have seen is consumers want natural chips. We have seen that from Fritos introduction and we have seen some of the success that Fritos had with their new natural line.

For the first time, we will be taking Terra into the chip category. On November, we will be launching Terra type kettle chips in three flavors which is a blend of our Terra chips, blue chips, our sweet potato chips and originals. These chips will make a claim, 40 to 50 percent less fat than other potato chips and no trans-fats. Sp we see a tremendous market and this will be the first time that Terra will go into the main chip area.

Coming in January, Terra will launched Terra classics which will be a chipping chips that Terra will introduce. So for the first time, we see Terra as I always referred to it, going into the vanilla of the ice cream business in the mainstream with pretty competitive pricing. Our size will be a 16 ounce bag, so it will retail very similar prices to our Terra original chips.

Our Garden of Eatin' continues to show strong growth in both grocery and natural. Grocery numbers were up 18.8 percent for consumption for 12 weeks ending 9, '03 and natural was up over 10 percent for the same 12 weeks. Garden is also in the midst of launching new guacamole chips, garden nacho chips, and it will also introduce the first organic nacho chip in the market, taking Garden into the largest flavor profile in tortilla chips. So as you can see we have a lot happening in our whole snack category.

As we look at our aseptic category, Soy Dream continues to gain share up 1 point to 19.5 percent and that is due to a lot of strategic moves that we're making. Soy Dream Enrich vanilla and original are the number one and two SKUs in grocery. In natural, Soy Dream half gallon refrigerated SKUs experienced three point gains in distribution versus a year ago and grocery was up two points.

One of the things we are doing on the refrigerated side, we're phasing out our quarts and making room for the first low-fat product with extra calcium in half gallon SKUs that are gaining momentum. We're moving into the whole low-fat category on the refrigerated side.

In regards to aseptic, Soy, Soy Dream in grocery was up 2 percent. The category was down 4.2. Westsoy was up 1 percent. The category was down in natural and so was Soy Dream and so was Westsoy so what we are seeing is consumers switching over.

One of the things we did see which was pretty interesting is the rice category in aseptic. The category was down 2.6 percent and Natural was up 3.7 percent, and on Rice Dream we were flat but on the Natural category Rice Dream was up 5.4 percent. One of the other areas that we should note in the Rice Dream category, Rice Dream refrigerated, the category was up 80.5 percent. An one of the things I have come out here and emphasized there is a whole category out there in the lactate category that there is a major opportunity for us.

Rice Dream was up 21.6 percent on the refrigerated side. In the natural side the category was up 8.6 and Rice Dream was up 15.7 on the refrigerated side. As I told you before, we will put major emphasis against growing Rice Dream in the refrigerated category and go after that lactate consumer and go after that person who wants an alternative to soy in rice.

Some of the other areas which we continue to see some good growth on the nondairy side, our frozen desserts, the category was up 10.2 percent. We were up 12.4 percent on frozen novelties; we were up 6.1 percent and the category was up 17 percent. Part of our nondairy category, we have Walnut Acres Juice products in there. The category on organic fruit and vegetable juice was up 43.5 percent, Walnut Acres was up 41 percent. In natural, the category was up 16.2 percent, Walnut Acres was down in the natural category, so you can some of their momentum in this categories have been growing into the supermasses into the grocery area.

We will continue to introduce many new products. One of the big things we have just introduced in the whole rice soy category, the Imagine side is half gallons, which we think people while size up. We are the only ones out there today in the aseptic category in that half gallons market.

One of our other products under the Westsoy brand, not on the Westsoy brand, but that we launched with a brand named, Slender which is basically one of carb, has seen tremendous success in grocery market and happens to be one of our fastest growing SKUs in our aseptic category.

On our bakery side of the business, or grocery side of the business, our Health Valley numbers look good. Twelve weeks ending September 6, success and as everybody talks about no hydrogenated oil campaign can be seen in some of our numbers. Health Valley continues to dominate the number one position in snack bar both in natural and category with a 40.2 percent and a 43.8 percent share respectively.

Our cookie business in natural saw a 30.5 percent and was up 9.4 percent in grocery and we're just in the midst of rolling it out in grocery right now so that is just minimal of where we are rolling out into the grocery market.

We have launched many new products in late September. Anybody that was at the natural food show saw some of our exciting new products and I think at the show we probably had the biggest stable products of any natural food company out there that were diversified, that were unique and that were totally different; and that goes from PB&J Bars, chocolate chip cookies, strawberry short bread cookies, but the key to it is, no hydrogenated oils or no trans-fats that consumers are looking for today.

The other thing in the category as we talked about our cereal business, which was down over the last few quarters. We finally have introduced new cereal products, Slender for weight management, Enpower is a most complete breakfast cereal and Heartwise and these were launched in the second week of September. We received just tremendous amount of response and tremendous amount of orders and we're in the midst of shipping them now.

One of our other grocery business, our Arrowhead business continues to be real strong. Our baking was up 8 percent, which is outpacing the category. Beans rains and rice was up 14 percent on our Arrowhead Mills business.

Our soup business, which as we come into our season, 12 weeks ending September 6, Hain Celestial we command 62 percent of the ready to eat soup in natural and 68 percent in grocery. In broth, we command 49 percent natural and 54 percent grocery. We have just launched many new soups on the Health Valley brand. We have also just launched on aseptic brand of Imagine some new soups, so we're looking for a major soup season and we're looking for a lot to happen in soup. And our total soup business today for a company is running in the $70 million range, and we expect that to be a fast growth category within Hain. And we're making some major moves in innovation within packaging, product, we have consolidated manufacturers where we think we're getting efficiency and there is a lot we are doing on taste and improvements there.

One of which is one close to my heart called Earth's Best Baby Food and myself just having a new baby this week, I think consumption will go up with that. But, the data for 12 weeks ending September 6 in natural and grocery, in fiscal '04 we returned our focus to growing our Earth's Best baby food business in grocery and the results are out there to show you whys we focused on that. While the category is down 1.3 percent, Earth's Best in grocery is up 9.6 percent gaining 2.1 share points.

Earth's Best in natural foods is the number one baby food brand exhibiting double digit growth, up 25 percent versus a year ago with almost a 72 percent share which actually also is a 1.5 percent share point. One of the things that this has been a major initiative of myself and the company is going after that kids market. Number one, it's a new market that we have to bring new users in every nine months in this categories and now we have gone after Earth's Best Toddler, Earth's Bests Kids and we continuously hear about obesity within kids and we will be kicking off many, many things as we go out and let people know eating healthy for kids of something very important.

We have a lot going on in Europe. We have expanded our Imagine Rice Dream business into Testco (ph) . We expanded into Asta (ph) which is part of Wal-Mart, 180 stores that we will go into in January. Celestial Seasonings in Austria has been expanded into Merker (ph), which is a chain of 100 hypermarkets. Our Grains Noirs acquisition is expanding into Crockinin (ph) which is a group of a chain stores which serve salads and desserts, and also, we will be expanding other Grains Noirs. No Grains Noirs basically were products that were just servicing more from foodservice and good purveyors but we are now seeing it going to the grocery area. And we are seeing opportunities there.

We're looking to expand Grains Noirs into other parts of Europe. We're looking right now how we kind of do a spoke in hub and move it into the UK where we think there's an opportunity for fresh prepared foods and we're reading how to actually look at Grains Noirs business here in the United States.

You heard me talk about our Canadian business. In Canada today we have appointed a new general manager who started with the company to weeks ago, Dave Latella who previously worked for Shamrock Foods, Pepsi and Heinz, has moved to become the new general manager of our Canadian business. Brings a tremendous amount of experience both in sales, marketing and the distribution side.

The Canadian market continues to be strong. One of the areas that we need to continuously focused on is building our Yves business in the U.S. Our Yves business in the U.S. has a 19 percent share and is probably the same size as our Canadian market. In the Canadian market, we have a 83 percent share, but the size of Canada, what we need to do is to expand the Yves productline are we are in the midst of looking at that now at as how we move Yves into lifestyle, how do we move into frozen.

One of our big opportunities in the Canadian market is the Imagine business which just continuously show tremendous growth. We are in the midst of introducing refrigerated Rice Dream for the first time which takes us into the refrigerated category into the Canadian market. We're also seeing in Canada some strong success on our soup business, Imagine soup business and we're seeing some real strong success on our Earth's Best business as it rolled out throughout Labla (ph) chain in Canada.

We are in the midst of right now of refocusing on our Terra Chips business so we're looking for some good things coming out of the Canadian market. What I would like to do now is turn it over to Steve List who will take you through our celestial business and he will turn it over to Maureen who will take you through some of our carb business and then Ira will take you through some of our numbers. Thank you.

Good morning. I am pleased to be talking to you this morning about our Celestial Seasonings division, FY '03 and now the first few months of FY '04 have been a very exciting time for us. I am happy to say that for the first quarter of FY '04 we have continued building on the success we achieved in FY '03.

At Celestial Seasonings we have focused on two key areas; our core tea bag products and expansion into new categories. First our core tea bag businesses has always been the heart of our business. In the past, new strategies have caused the company to divert attention and resources away from it, this is no longer the case. We have repackaged and reformulated several underperforming items. We have developed new flavors in all segments of our business, including herbs, green, black, wellness and iced tea. And these initiatives have succeeded, bringing us new growth and distribution.

Second, we implemented a strategy for growth in new areas. Areas outside of tea bags. New items developed and now selling into two lines of powdered products, teahouse latte's, and teahouse chains. These items are being well-received by the trades and being supported within store consumer sampling in many chains.

Our business grew by a total of 6 percent in Q1 of fiscal '04, continuing to growth trends we set in fiscal year '03. This marks the fifth consecutive quarter of growth for the brand. Celestial Seasonings is unique within the Hain Celestial Group portfolio in that more than one-third of our sales come from channels not reported by Spins (ph) and Nielsen.

These channels provide significant contributions to our growth. Our growth can also be traced to our sales of new products, examples of which is our Cool Brew iced teas in which we expanded our sales nationally this past summer.

For Q1 fiscal '04, in food, drug and mass excluding Wal-Mart, celestial outpaced the category growing 10 percent with strong gains in green, herb and black. Specifically in grocery, our largest channel we paced the category with 10 percent growth. In natural foods, consumption grew by nine percent, while the category grew by just over 20 percent.

While we have been the category leader in both grocery and natural food for many years, we continue to expand our distribution in alternate channels as well. We have increased our distribution in drugstores growing by 17 percent to the most recent 12 week period and 52 percent for the latest 52 weeks, our share is now over 40 percent approximately four times that of the next closest brand.

In mass merchandisers, we have grown our share for the latest 52 weeks and represent more than 50 percent of the sales in this channel, again roughly four times the share of our nearest competitor. We are currently reviewing our distribution system in Canada where Celestial is currently the number one herbal tea brand and the number three specialty tea brand. We believe that the changes we have planned will drive our Canadian business towards greater growth and improve shares.

Last year, we developed a new line of black teas. Over the last 52 weeks in food, drug, mass excluding Wal-Mart, we have increased our sales in black tea by 26 percent, increasing our share of specialty black by approximately 1 point. Combined with our line of Cool Brew Iced Teas, our growth accelerated during the first quarter growing by 45 percent and increasing our share of specialty black by almost two points.

Our new items have generated strong support by the trade. Our new hot teas, Madagascar, vanilla Red, Peach Apricot Honeybush, Perfectly Pear White and True Blueberry Herb began shipping in May and have sold more than half a million in the first quarter, surpassing initial expectations. As I mentioned earlier, we have expanded into all natural, non-tea bag products with powdered lattes and chais, powdered ciders, and (indiscernible) packaged ready-to-drink iced tea. These new products have all begun shipping within the last two quarters. Over the last several years, we have optimized our business internally. We have saved many millions of dollars of cost, most of which were reinvested back into the business into trade and marketing support and our people. New positions were created in a variety of areas. In creative, which services the entire organization, in operations to optimize our procurement production and shipping processes, in trade marketing to better support our customers, and in sales to better service grocery independents and national drug accounts. These targeted additions have allowed us to support for growth and category expansion by accelerating product development and speed to market.

At the point of the merger with Hain, Celestial has the company focused on supplements, slower-moving wellness teas, and some other unprofitable businesses. The combined Hain Celestial team has worked very hard to eliminate unprofitable businesses and refocus on our core line. Our past three years, we have met the challenge by eliminating our unprofitable supplements, catalog, and retail businesses. We have reformulated many of our products, changed packaging, and introduced many exciting new items which will help grow our sales and increase the consumers' interest in our brand in the category. We've developed and will continue to develop new products outside of tea bags. The current Celestial management team has been together for 16 months now, and we are excited about the current direction and the future of the brand. We've benefited from becoming a part of a larger organization, as Hain and Celestial have shared their respective strengths to become a stronger company.

Whether it be our combined creative group, focused R&D group, information technology group, or our large and talented sales organization, we have been able to capitalize on areas of strength to achieve growth and profitability. The specialty tea category continues its strong growth supported by ever-increasing awareness of tea's health benefits and great flavor varieties. Last year was a good year for the growth for the category and for Celestial, as it had followed one of the warmest winters on record. That growth continued into Q1 of FY '04. We are currently on track to deliver our projected growth of 5 to 7 percent for the year. In FY '04 and beyond, Celestial will look to gain distribution in new and current channels, both domestic and worldwide, and continue to expand our brands with exciting new products and new category opportunities.

We certainly hope that the Farmer's Almanac predictions of a cold winter are true, but we're not pinning our hopes on that. We felt confident in our plans and our ability to achieve them. At this time, I would like to turn the call over to Maureen.

Good morning everyone. I am very pleased to be talking to you today about CarbFit. Owen may have had a new baby, but this is what he refers to as his $100 million baby. There's no question about the fact that the low-carb diet is in. Magazine covers proclaim its success, books like Dr. Atkin's New Diet Revolution and the South Beach Diet remain on the top sellers list week after week. Stores that specialize in low-carb foods are popping up all over the country. Now the Hain Celestial Group is excited to announce it is addressing the fastest-growing phenomenon in the food industry today in a powerful way. With low-carb diets on the rise, it's expected that 35 million consumers are seeking low-carb versions of the foods they consume. Low-carb products now account for over $2.5 billion in retail sales with growth over 400 percent. The effects of this trend can be seen in high-carbohydrate foods such as pasta which is down 7.5 percent, or bread down 3 percent, while low-carbohydrate foods such as breakfast sausage are up 7.5 percent.

At the Hain Celestial Group, we are using our core competencies in natural and better-for-you foods to launch CarbFit, a complete line of great tasting all natural product that leverage demand for low-carb products with increasing demand for natural products to deliver a strong one two punch. Unlike any other low-carb brand, products under the CarbFit umbrella will use the equity of many of Hain's well-known existing brands by co-branding to give instant credibility to the productline.

The initial CarbFit lineup includes snacks from Hain Pure Foods, pasta from DeBoles, and cookies from Health Valley. CarbFit pasta from DeBoles contains nine net carbs per serving which is 75 percent less carb than regular pasta and let me tell you, it tastes delicious. We worked with the chef to come up with four of the top-selling shapes, spaghetti, elbow, penne and rotini.

CarbFit cookies from Health Valley contain only 6 to 7 net carbs per serving and like all Health Valley products contain no hydrogenated oils or trans-fats. Varieties include chocolate chip, peanut butter and almond.

CarbFit soy nuts from Hain Pure (ph) snacks in salted and red hot varieties contained only five net carbs and have the healthful benefit of soy. While CarbFit (indiscernible) also contains five net carbs and come in two delicious favors, nacho and ranch. These products are just the first in the lineup of over 45 products across 21 different categories expected to roll out over the next few months in the Hain Celestial Group. Acceptance of these products has been overwhelming from all channels of trade including mass, grocery, natural and convenience store chains.

In fact, this fall Anheuser-Busch's Michelob ULTRA beer has selected CarbFit snacks from Hain to participate in a promotional program in anticipating stores nationwide. The program includes a special in-store display featuring leave carbs behind this fall.

The New England Journal of Medicine recently cited two studies that found people on the low-carb diet lost twice as much weight over six months as those on low fat diets and had improved levels of good cholesterol. We believe that it is this kind of validation along with the quick results of the diet that will give the low-carb diet longevity.

Our new CarbFit line will provide a delicious all natural point of difference for our current and future consumer. At the Hain Celestial Group we are proud to lead the industry in changing the way the world eats. Thank you. And now I would like to introduce Ira Lamel.

Thank you Maureen. Good morning everyone. I'm sure you have had an opportunity to look at our press release which went out early this morning. As Irwin discussed earlier, our sales in the first quarter this year reached a first quarter record of 127.1 million, up 31.8 percent over the prior years first quarter sales of 96.4 million.

Our net income was 6.5 million in the first quarter this year, or 19 cents per share on 35,356,000 diluted shares, versus net income of 4.7 million last year for 14 cents per share bond 34,382,000 diluted shares. Our earnings per share was up 36 percent this year even though our diluted shares increased by almost one million over last year at September 30. The increase was principally from the net activity of share issuances as currency used in our acquisitions in the past year plus incremental shares from in the money options with our stock price at a higher level this year than last year, offset by shares we have acquired in our treasury over the past twelve-months.

Gross profit for the first quarter this year was 29.3 percent as compared to 28.8 percent in the comparable period last year. In this years first quarter, we benefited from more efficient trade spending and from lower warehousing and distribution costs. We expect these improvements to continue and as we realize benefits from our 30 in 3 program in the future, we should see continuing margin improvements.

Our SG&A in the first quarter this year was 25.8 million, or 20.3 percent of net sales compared with 20.1 million or 20.8 percent of net sales in the prior years first quarter. We continued to realize reductions in general and administrative expenses as a percentage of sales as our sales base increases and we roll out the benefit of synergies and integrating acquired companies into or existing infrastructure.

We spent more dollars this year in the quarter on selling and marketing expenses by approximately 1.4 million when compared to the prior year.

Operating income for the quarter this year was 11.3 million or 9 percent of revenue as compared to 7.5 million or 8 percent of revenue last year.

In this year's first quarter, our interest expense and other expenses totaled $791,000 versus $170,000 last year. Interest expense was $400,000 higher this year against last year, principally all from the increased borrowings we made during the acquisitions we had in the past twelve-months. We also had 110,000 of net currency exchange losses this year versus net gains in the prior year of 88,000, giving us an unfavorable swing in currency of $200,000.

EBITDA amounted to 13.8 million in the quarter or 11 percent versus 9.7 million or 10 percent last year. Depreciation and amortization in this year's quarter was $2.7 million as compared to 2 million last year. The $700,000 increase comes from the depreciation and amortization added with the acquisitions, as well as from ongoing capital expenditures offset in part by the reduction in depreciation we realized when we sold our Pharma (ph) Health Valley manufacturing facility to a copacker at the end of last year's first quarter.

Our balance sheet continues to be very strong. Our working capital was 90.6 million. Current ratio was 2.2 to 1 at September 30. Our receivables are turning at 49 days this year, which is at the same 49 day rate at the same time last year and 52 days the year before that.

Inventories are at 69 days compared to 70 days at the same time a year ago and 73 days the year before.

Our stockholders equity is now 450 million, our debt as a percentage of equity is 17.4 percent, still very low.

In looking back at the ten years that our company has been in business, we had some very exciting events over the 10 years. We finished our first fiscal year in 1994 with $14 million of sales. As we ran through our ten-year history, we have made significant acquisitions including the Hain Pure Food company, Westsoy, and Westbrae Natural. In 1998, we acquired four brands at the same time Terra, Garden of Eatin', Arrowhead Mills and DeBoles.

In 1999, a significant acquisition by acquiring the Health Valley Company. In 2000, we acquired Earth's Best and then at the end of 2000 of course we had an acquisition and a merger with Celestial Seasonings.

In 2001, we entered Canada by acquiring our Yves business and in 2002 we made a major addition in Europe by acquiring Lima and Biomarche. Our 2003 year saw three acquisitions with Imagine Foods, Grains Noirs in Europe and Acirca with it's Walnut Acres brand here in the United States.

From 14 million in 1994, we finished our 2003 fiscal year with $466 million in revenue and we see that rising as our guidance last quarter told you to the mid $500 million level. We are very proud to be a ten-year-old company and we are very excited about being in an industry in which we are helping to change the way the world eats, and with that I would like to open it up for questions.

Today's question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) Terry Bivens with Bear Stearns.

Good morning everyone. I will abide by the one and one formula this morning here. Can we -- I guess by my numbers or when it looks like your core growth excluding acquisitions was somewhere in the 9 to 10 percent range. Is that a reasonably accurate number?

As you know, organic growth is not something that will come out and say, but I think you know what our acquisitions are, and you backed in the number so you're pretty smart with your assumptions.

Okay. I guess the follow up would be this. Just in terms of your initiatives, can you kind of update us on where we are shipping 7-11 with Terra, where we are in the Wal-Mart process, just give us some more color on those initiatives?

Number one, 7-11 continues to roll out our Terra initiative with 7-11 has been real good. We are rolling out many more products with 7-11 and Health Valley. You heard Maureen talk about our CarbFit rollout with them, and a tie-in with a pretty good beer company. So, 711 continues to be extremely well positioned, and the interesting thing 7-11 has seen growth in the categories that we're going into. And are working with us on multiple areas and they have just looked at our total product portfolio across the whole range, Ellen Deutsche (ph) and her team have just done a tremendous job there, and 7-11 has done a tremendous job recognizing the opportunity for growth.

One of the other areas, McDonald's continues to roll out including Canada and the U.S. wherein close to 2000 McDonald's today had very good margins with that business, and very good brand awareness with the business, very good trial and very good opportunities to move into other areas, whether it is kid meals, low-carb or what ever. We like what we're seeing on the McDonald's side.

In regards to our -- and I will refer to it as Wal-Mart/Supermasses. All I will say to that Terry is this here. They are not sitting by on the sidelines not realizing the growth in those areas, both in low-carb, both in soy, both in natural and both in both in snacks. There is a lot happening in the whole supermasses market, and they know eating healthy is not a fat and not a trend. They know the world wants to eat healthy, and they are capitalizing on opportunities out there too.

Great. Thank you.

Mark Deckanow from Zoning and Company.

Good morning. Could you talk a little bit about the potential of the Lima brand in Europe and the possibility of introducing quote existing products that you have here under that brand overseas?

The Lima brand in Europe, Mark, is a very strong brand basically sold in the Benelux (ph), some in the UK, in Germany, France. One of the things in Europe, it's a 100 percent organic brand, it is mostly sold today in natural food stores. What we look from that standpoint we do sell some Lima products hear the U.S. today, some of their sea salts, but we feel that maybe what we would take is some of their technology on products and introduce them under our brand names. We're not short of brand names here in the U.S.

So, if we took their sea salt or we took some of their other productline's, whether we introduced it under Hain or Health Valley or something, that is what we would do. The same thing within Europe, we will take some of our products and some our technology and introduce it under the Lima name in Europe. So Lima will become one of our predominant lead names in Europe to introduce some of our types of products.

Could you comment a little bit -- yesterday the news from the United and Wild Oats, is that going to cause any pricing issues now that United kind of (indiscernible) it's distribution into both of the super-naturals?

I don't think so. One of the things I think, it is good for the industry. As you read in the press release, which I'm sure you did, Tree of Life will be the secondary supplier. Both of them will have to carry ample amount of inventories, and if the service level is accurate, which I have heard anywhere in the 90 to 92 percent range, picking up 6, 7, 8 percent additional service level points, I think ultimately helps our sales and ultimately is beneficial and if they are at a stop at 8 percent or seven percent and us being one of the largest vendors in their stores, you know it has been affecting us then.

Can you talk about their negotiating ability? I guess United -- have they become a larger percentage of your sales?

I think if you step back for a second Mark, while they had this Wild Oats business before, we were a smaller company then. With owning what we have today and even taking that back, as a percentage of sales, or smaller percentage of sales than they were a few years ago with us. We have an excellent working relationship with United Naturals and I think combined, no different than we have with Tree of Life. I think what is important here there has to be a strong partnership between distributor and retailer and vendor to make sure that there is product, a way to market and an outlook for consumers to buy it.

Great. Thanks.

Carole Buyers with RBC Capital Markets.

Good morning and congrats on the birth of your new baby.

Thank you, Carole.

I have two questions. One, I was wondering if we could get the growth rates for Health Valley, Westsoy and Celestial for the quarter? I was hoping you could comment on the new channel initiatives and any impact on margins. Is this something where near term you'll see a negative impact on margins, and then you'll see the benefits later, or do new channel initiatives actually come right in at the same margin as the rest of your businesses?

Number one Carole, when you say Health Valley, we break it down -- not as -- you're looking for consumption numbers or --?

Just the growth rates for the quarter?

What I do and as you remember, I put Health Valley as part of our grocery business, but from a Health Valley standpoint, which I talked about, is in regards to our bar business which is a part of the Health Valley business. Our cookie business was up 30.5 percent in natural and 9.4 percent in grocery. Our soup business, which is another major part of it you know, we were up about 10 percent up in natural and grocery from our soup standpoint.

Is that consumption?

That's consumption.

I was looking at just the reported growth rates. It's more for my model.

In regards to cereal, with Health Valley, we were down in cereal, but again that is two weeks of launch of our new productline.

Got you.

Again, in regards to Westsoy what I must say on Westsoy, considering we lost the Starbucks business for reasons that I think everybody knows, and considering we lost the Costco business because they went to a cobranding strategy and we would not do that, we were up high single digit numbers with Westsoy. And you can come back and remember on consumption on the Westsoy numbers, and aseptic in grocery, the category was down 4.2. We were up one percent. So, we are seeing some good happening with aseptic and don't forget that includes a lot of channels that are not captured by are not captured by Spins or Nielsen numbers.

Got you. Okay. On the initiatives, can you comment on the impact of margins? Is it kind of a hit now but benefit later? Does the new initiatives come in at the same exact margin as the rest of your business?

One of the things -- there was a comment that was written about our margins being negatively impacted on our Yves business that we sell McDonald's that is absolutely not so. Is it exactly what our margin is on all of our businesses, no? But on the other hand the volume is nice, it is packed in a 24 pack, it is a frozen products, so it is incredible advertising for the company.

In regards to our -- I think there is a perception out there that is absolutely wrong, that when you enter the whole supermarket mass-market business that there is these humongous slotting allowance, humongous advertising allowance, humongous margin hits. I think that perception is absolutely wrong out there. I think everybody today wants to work with vendors in a partnership and has to be a win-win situation. A win-win situation at retail on pricing, and a win-win situation on the amount of money that we're going to invest in the productline.

As you can see and Ira mentioned it, in this quarter we spent more money on consumer advertising and our objective is monies that are spent towards trade; number one, I think we have not done the best job in getting our full dollars on money that we spent from trade and getting the performance and that has changed a lot. The other thing is we are in the midst of converting a lot of those dollars to consumers. The world wants to eat healthy. I think one of the biggest problems that sits in Hain today is enough people do not know about our products.

Irwin, I asked this just because I am trying to understand directionally meaning you had strong revenue growth this quarter. Will that strong revenue growth kind of work the incremental to the business both from a top line and then as we go-forward, will we actually start to see a greater margin benefit from these initiatives, say in the latter part of the year and going into '05?

Absolutely. But, Carole, I think one of the things on the revenue growth also there is a whole thing here on mix, and I think that is a key to it when we look at our revenue growth too, what is our mix. As we come into tea season, the margin on tea, our strong margins on tea which we will see some additional benefit there.

Some of our low-carb stuff as we start to roll out. You'll see some good margins there. We have seen tremendous margin improvement on our snack business. So, back to your point, Number one, as we go into the back half, yes, you continue to see margin improvement plus as Ira talked about, our $30 million in three years, and as I have always said, we need to spend some of this money back on advertising.

Got it. Thanks a lot.

Scott Van Winkle of Adams, Harkness & Hill.

Hi Irwin, congrats on a good quarter. Can you talk a little bit more about the low-carb launches, what kind of categories and just be honest, does low-carb pasta can taste good?

You know what, some of the categories we have just launched, our snack line and actually they do taste pretty good. We have some incredible tasting pretzels, tortilla chips, and some other Hain snacks. Scott, with good spaghetti sauce, our pasta does taste good. If you want to eat it by itself, there might be a little challenge. But it is interesting, some of the other companies out there that sell pasta and we even saw it within ourselves, our DeBoles business we did the sales off and people are looking for low-carb pasta. So, pasta we will be rolling out cookies, cereals, bars, crackers, soups. We will be launching both in aseptic and refrigerated, soy milk.

We will be launching pasta sauce, so we have by February well over 55 to 60 products that will get launched. One of the things which we think again we have done it totally different. We have stuck to wanting to be a clean productline. We have stuck to cobranding it. Right now people know DeBoles pasta, CarbFit. People know Hain products with CarbFit. People know Health Valley cookies, CarbFit. People know Health Valley Imagine soups.

I think we've come up with a pretty unique strategy on both cobranding in the product and categories that we want to go into. And you will be quite surprised by our pasta. I can't wait for you to taste it.

If you have to guess, what percentage of your CarbFit sales in the future would be incremental and what percent might just be people shifting from Health Valley Bar to a CarbFit Health Valley Bar?

That's a good question. You know, I have seen myself, like I said before our DeBoles pasta numbers and DeBoles is a 8 to $10 million business for us, it is not a major, major business, but I think absolutely there is going to be major shifts. Is it going to be 20, 25 percent? I think anybody out there today including myself and including most people on this phone that are not watching their carbs are kind of out there.

So, I think Scott back to your point, if CarbFit became and I am not again this is not the number that I am putting out there. IF it became $100 million business, does half of a come from switching categories? Probably. Does the other half come in as people have always watched carbs? I think there is a big percentage of it from switching categories and the other is new users coming in.

And the other thing I can back and say this here. People today -- carbs as Maureen told you, over 30 million people today are on low, 35 million are on the low-carb diets. If you step back, there is many, many more that just watch their CarbFit. It is interesting as we have tracked this, consumption of meat in the UK has gone up tremendously because of the high-protein Adkins diet.

It still and if you go back and remember back and '94, '95 the whole fat-free craze, kind of similar to it but, it is still a bit of a dart that you are throwing at a board right now to see what comes up. I met with a major supermarket chain yesterday and that is their number two initiative after natural organic food, is low-carb.

Great. Thank you.

John McMillin, Prudential Equity Group.

Congratulations on your son, Irwin. Just on the working capital trends, Ira, both trade receivables and inventories were up higher than sales growth. If you will kind of go over those trends, what happened there?

Are you talking about them being up higher versus last year's at the same time? One of the things that has to be factored out of the growth in receivables and inventories, John, is that during the last 12 months since the first quarter of last year, we added inventories and receivables that were acquired in the three businesses that we bought. So, there is approximately a $9 million addition of receivables that came in from those three acquisitions, and there is an approximate 10 million of inventories that came in as a result of those acquisitions.

If you want to look at the growth rates of receivables and inventories, I think you have to remove those numbers first in terms of what the bases are. Then compute the growth and I think you'll find that are business is growing faster than those working capital numbers are.

Okay. The major acquisitions in the last year. I mean Imagine was about 70 million, Acirca was about 20 the 24 million. Was there another one I was missing?

We made an acquisition in Europe. The Grains Noirs acquisition. It's important for us in Europe in terms of its size to our consolidated whole. It is a small acquisition on a relative basis. But, the other two that you mentioned we do, we do believe are major acquisitions here in the states.

That basically I guess I am questioning Terry's math, because if Imagine 70 million, Acirca is 20 million, let's just say Grains Noirs is five or something like that, you have close to 100 million run rate divided by 4. That is 25 million off your sales growth and you don't get a number of nine to ten. Are you following me?

One of the things, John that we have talked about in the past is our ability to grow the sales of companies that we have acquired. Part of our growth even though we are not quoting that organic number, part of our growth is the growth that we have produced on companies that we have acquired, and not just eliminate from the equation the acquisitions themselves in total.

Some of the other things, we have discontinued lines on the Acirca line on the soup line. We have discontinued some of the lines on Imagine in regards to pudding lines. It is difficult to take just a straight line and go across and that is why it is difficult for us to tie it back to a GAAP standpoint. Tie it back into actual numbers. So, to say there is $100 million of acquisitions, it's not a straight line either. This here quarter for Imagine is one of our lowest quarters. The soup and soy, too it's not one of our bigger quarters.

Can you just refresh me? In that 14 cents a year ago, I knew the rules have changed in the last year, but you were highlighting an 18 cent number. Can you just refresh me what was in the year ago quarter that was unusual?

The principal thing we talked about last year, John, was that in the first quarter we continued to operate the Health Valley facility as our own. If you remember, we actually sold the facility on October 1st. So, our first quarter was an operating quarter for us with that owned facility. What we highlighted what the fact that we continued in the first quarter to bear the unabsorbed overhead that we had discussed in previous quarters.

We no longer have the actual unabsorbed overheads, but we also discussed last year that it would be over a time frame that we got savings from the new copacker in that transaction as the new copacker transformed the facility into his style of operating the business, upgraded the equipment in the business, and went through the process of learning about the specific product flows in that business.

We have seen some but very small savings to this point from the sale to the copacker on our product pricing on the brands produced there. But, too small to have moved the needle, if you will. But, overtime we will start to see improvements as the copacker starts to bring more business into the facility from other companies and uses the facility to its potential.

Those expenses are still there. So, I mean, if I was adding back, I could add back again those four cents again this quarter too. So -- (multiple speakers)

Those were great days, weren't they? Anyway congratulations on the quarter and tell Maureen to work on something that can prevent appendicitis.

We have a new soup for that, John.

I'll start on it.

Greg Badishkanian with Smith Barney.

When we look out into next quarter, and we sort of just coming out of our forecasts, if we apply a 20 to 30 percent EPS growth rate, should we be applying it to the 24 cent or the 25 cent number? Which excludes the severance charges?

That would be 24 cents, Greg.

24 cents, which includes the one time?

If you remember our guidance is based on the GAAP earnings. That is after any pluses and minuses from things that were on either restructuring lines or otherwise. It is 20 percent on 79 cents getting 95 and 30 percent on 79 cents getting you to $1.03 on the pure GAAP number.

I understand that for the year but looking at it from a quarterly basis --?

We are not giving guidance on individual quarters. We discontinued that practice.

I am just looking for the earnings base. If you will go through a few of the different businesses in terms of your growth targets, you mentioned tea, you expected to be up 5 to 7, maybe just snacks, grocer, Canada, Europe and nondairy? For '04?

We look for our -- the way I talk about it Greg, is a Melville businesses which we look to be in the double-digit area in the 12 to 14 percent range. Included in that is snacks and we look for snacks to be in the 15 percent range, tea is 5 to 7. Our European business, we look to be up in the mid-20s, and our Canadian business, we look for it to be up in the 15 to 18 percent.

And that is the overall --?

Overall 16 to 21 percent.

Great. That is for the growth rate you gave me was for the full year including the first quarter?

Absolutely.

Good. Thank you.

Eric Larson with Piper Jaffray.

Good morning everyone. Congratulations on the newborn.

Thank you very much.

My questions kind of ties back to John's. If you look at your year ago quarter, the numbers that you gave us for one time cost with the Ervindale (ph) plant was just under 1.7 million. So, your gross margin a year ago adjusted for that was 32.4. Your gross margin this year is down. Is that because of acquisitions? Are your acquisition gross margins still lower than let say the corporate average? Would that be the major explanation?

No. The major explanation is that last year's numbers had to be reclassified in order to conform them to the presentations that we have this year. There is some reclassifications between SG&A and cost of goods sold. It's as simple as that.

Okay. If you use that reclass, which the number is I think our -- the numbers you just reported today are in the reclass. Your gross margin was still above 30 a year ago, so there still was a little bit of margin deterioration and I guess I am trying to figure out what that is?

Eric, if you look at today's press release, you will see that the gross profit last year is 27.798.

Your re-class just a little under 1.5 million from gross profit or from cost of goods sold into SG&A? Is that correct?

That is correct. That is to make sure that each year is lined up correctly. Part of the reason is we have certain with reclassified when we owned the Health Valley building. That is the predominant reason as compared to today. Why we do not own it.

Okay.

Put in on an apples-to-apples basis. If you recompute you will see that the 2002 gross margin was 28.8.

Still, you reclass for the cost from cost of goods sold into SG&A, but you still had in costs of goods sold a year ago the 1.65 million of one time. When you put that back on, it is like 30.3 as your comparable gross margin?

No. If you take last year's gross margin and try to remove the unabsorbed overheads, that would not be something that is accounting allowable. One of the things that is very important to understand in the transaction that we did with the new copacker who runs that facility is that the cost of the products that we buy from them still has the same manufacturing overhead base in it as I said, they need to bring those costs down. Which they will do overtime, so that the price we pay for our product, whether it is to the copacker or the price that we had internally when were manufacturing the product are really lined up and are pretty much equal to each other.

That is something that is a necessary comparison when you look at the cost today versus the cost when we were manufacturing. There has been no change there. The only reason we pointed to unabsorbed overheads in the previous periods is because we owned the facility and the facility operated at was a very low percentage of its ultimate capacity. We were telling the world that the unabsorbed overheads were an inefficiency on our part, and when you look at there two Pal’s now lined up together, they're on an apples-to-apples basis.

Okay. Fair enough. Thanks.

Andy Wolf with BB&T Capital Markets.

Good morning. Congratulations, Irwin. I know everybody has been. Congratulations to your wife too.

On the quarter or the baby, Andy?

The baby. The quarter is less important. I wanted to follow-up on comments you made on slotting fees and such being last because obviously retailers want to be where the growth is. But, I do understand that the Health Valley cereals had some slotting fees associated with them. Was that really all I want to know is was that taken in this quarter you reported in or is that n the quarter's or is that going to be in the second quarter?

First of all, we look at it as cost of new distribution. Immediately when the product is shipped, it is expensed. No longer do you amortize slotting fees or anything like that so the day it is shipped is the day it is expensed.

(multiple speakers) start shipping in the quarter you reported?

We started to ship in the last two weeks of September of Health Valley products.

So, that slotting fee was in there. That is good to hear.

We don't like to refer to it as a slotting fee, Andy, we refer to it as a new distribution allowance.

Fine. Gross margin in the past I think you talked about ingredient cost inflation being a factor, at least in some quarters. Could you just sort of give a general comment, maybe you or Ira or whoever wants to speak to that?

I think what we are seeing Andy, evening out, I think we saw in July, we all saw fuel prices high, we saw it come down in August, September. We saw again some oil prices and one of the things at the end of June last year, we were also in the midst of ND (ph) contracts so there are some spot stuff that we had to buy. So right now we are seeing the things pretty well evening out on commodities and prices.

My only other question is your release pointed to the second half as when you are going to begin to the 30 in 3 cost savings. Are you still sticking with the 5 million, 7 million type of number? Can you realize that in the second half?

Yes we are still sticking with good majority that we laid out over the next three years coming in the second half. David and his group have a pretty good action plan. As a matter-of-fact they have announced (indiscernible) for the last two days, executing it. A lot of things Benjie (ph) and his group have done in regard to our whole snack business and consolidating warehouse and the team has identified a lot of good things.

The other area, Imagine, which we will own over a year come December, we are making some significant cost improvement there. We were stuck with some of the rice and soy contracts that were entered into by the previous owners. We are looking at some efficiencies in regards to Imagine. We're looking at where we can produce the product in regards to freight shipping it across the country because it is pretty expensive to be shipping a lot of rice and soy all over the place.

The other thing we have got into half gallons rice and soy which is being produced in the middle part of the country, so we think we should see some efficiencies there. We have also made some moves on our refrigerated rice and soy. Where now we have two copackers, one in the Midwest and one of the West to cover both parts of the country. So, we're making those moves.

We also have consolidated to one soup copacker, or which all of our soups and beans will ship directly out of there instead of coming two. We're in the midst of also consolidating warehouses. So, the big piece is going to come from warehousing consolidation and copackers consolidation in this year and that is where we are seeing a lot of plans in place for that to happen.

Great. Thank you.

Due to time constraints, we are going to take our last question now from Andrew Lazar with Lehman Brothers.

Good morning. Congratulations as well to you and your family, Irwin. Just a quick one. I'm trying to get a better sense for your level of confidence and I guess your visibility to the full year both from the top line and on the margin structure. As you look at the top line guidance perhaps, what are two or three sort of largest swing factors perhaps that could be either additive or in fact things that you've got to watch out for that the either go your way or not on the top line that you have not included yet in your guidance? But could help?

On the margin structure, again forgetting about necessarily what the base was if you looked at your sort of full year '04 and let's just take for instance the high end of your current earnings guidance, what type of sort of gross margin would that be pegged to?

Let me come back and I will let Ira touch on the gross margin number. Number one, one of the things as we sit here today I think Maureen talked about a pretty unique product introduction and you've got to remember Hain has never really created a productline from scratch. We have bought and improved and built. We could see tremendous, tremendous upside on that whole (indiscernible) product, But back to Scott Van Winkle's question before, is there going to be some trade off from some of the other products when people are cutting back on their carbs?

That is a possibility, but one of the things is we or in the game if people are looking to purchase carb products. I think one of the major opportunities for us is another class of trade the supermasses, the convenience store business, besides 7-11, (indiscernible) has gone into this area. And the whole foodservice area, whether it is McDonald's, whether it another foodservice outlets, whether it is Cisco getting into this market. I also sit back and say whole foods and Wild Oats just continue to do a great job out there in building the category and opening stores and bringing more and more consumers over.

The thing is which we have today, Andrew, is the whole organic category and the new changes in labeling laws will be a year old on October 21st. So it has taken a good year for people to understand the value of our organic and what organic means and it really did get off to a slow start. But people today understand the value of organic. All upsides for us. I think there is some other upsides on the Yves side of the business, some upside in the Canadian side of the business. You know --.

(multiple speakers) characterize the least bit. All these things could well be upsides, but you characterize that you're trying to be relatively conservative in how you are planning for some of the things in terms of their impact on the top line at this point?

Absolutely. As we go into these new categories, it does cost money to create and develop products, it does cost money if we want to support the products. I think I come back and say this here, whether new distribution allowances I think are worth it, because there is a 50 percent chance you're going to get sale, because it is in the store.

One of the things the company has to do is educate consumers about we have healthy products. I also come back and say we should not put our heads in the sand and not think that were not going to continuously see competition out there. As this is a growth category, and all of the other major food companies that you cover Andrew are looking to get into growth areas.

So, we are going to see competition and we need to prepare for it. I think it helps us and helps the category because of companies like Kraft and Frito come out into this category. They are out there saying, hey the world wants to eat healthier, so we need to be prepared for competition coming into the category. So there is some things that could be some of our challenges out there, but I always say we wake up every morning and think about natural, organic foods and that is where our priority is.

There is a lot of upside, and there is definitely some challenges out there for us also.

In regards to margin, I will let Ira talk about that in regards where we see outside of margin, but again I think it comes back to our 30 in 3 which we have some initiatives. I think we see some real healthy margin opportunities in CarbFit as that takes off and see some opportunities there. I think as now owning Imagine for almost a year, we have been held back on making some of the margin improvement there and I think Andy and his team and David has some incredible plans in place there. Our big thing has been not to disrupt supply and go out there and make rational decisions for margins and that takes a little of time. And I think Ira just wants to touch on one thing on margins.

Andrew, the margins should come in at a little bit higher than our full year last year. I think when you do that, you will see that we have made some really good improvements in the way we have structured our business and how the cost structure will play itself out. As the 30 in 3 program goes forward.

One of the things that is interesting in our business is that as we grow, and make more acquisitions, just as we did during fiscal '03 year, our highest margin businesses such as Celestial Seasonings become a smaller proportion of our total sales. It is virtually impossible for us or for any company to go out and acquire companies that operate with the margins that Celestial Seasonings operates what. I don't like to use the word margin dilution because I think some people in the analyst community might think that that is a negative. I do not think it is a negative. I think it is just an impossibility to match what Celestial Seasonings is able to do with its products.

I think Andrew, from an SG&A standpoint, where we had $100 million of business on here, and we bring it into this infrastructure, the margins may not be the same, and not that we're not out there looking for businesses that have high margins, but they are not always Celestial Seasonings types of margin businesses available. But I think what it does, if we can grow the business, grow the category, and have the ability to improve our SG&A, I think that is something that there is tremendous upsides for us and we will continue to add to our EPS growth.

The other thing is, looking at our margins and sometimes people forget, when you step back, our margins can not be looked as your traditional food company. When you were GMO free or we buy all of our corn and all of our ingredients and we inspect them for GMO free, so our margins, our products we do not use hydrogenated oils in anything and not only do hydrogenated oils add fat, or add calcium in your arteries but they bring cost down. So everything we use, we probably have 1 to 2 to 3 points higher in our margin just because of our ingredients cost, using a cleaner ingredients.

Good. Thank you very much.

As we said, this will be our last question. I would like to do a quick wrap-up here. Ira has talked and Maureen has talked about the way (technical difficulty) As you can see, a lot of things have happened here at Hain. This is our fifth consecutive quarter that we have hit our internal numbers. We have launched many new exciting products in a quick period of time. I think a perfect example is whether it is our cereals or whether it is our low-carb products. Whether it is our new soy products, whether it is the whole line of key products that Steve and his group are rolling out, whether it is our new products in Europe, we as a company have launched over 100 new products that will be rolling out come it happened in September. But will be rolling out over the next couple of quarters.

As a company that is ten years old, there is competency and loyalty and my big challenge has been raising the management team, raising the bar on the management team and we needed to make changes we have. We will continue to do that.

From a company, we have talked about new channels and have recently heard someone say you're talking about grocery and supermass. One of the things that we had to be is ready for it. From a distribution standpoint, from a capacity standpoint, and an efficiency standpoint, and there is new channel growth out there but one thing Hain will not forget is its foundation of the natural food industry, the natural food industry of the 10,000 natural food stores out there, the whole foods and Wild Oats is a foundation and that is something that is very, very important to us and we will grow off that from all of the other supermasses, convenience or foodservice as there is tremendous opportunities for us.

In November of this year, we will be ten years old. We today are the largest natural food company. Some visionary people and many of them who continue to be Hain shareholders and directors and executive today supported me in the dream of building the way the world eats ten year's ago. Word like soy and words like natural, words like organic, words like GMO, words like low-carb were formed within the food industry.

I could not envision that ten years ago that the market and food beverage in the United States alone is expected to reach $28 billion by 2006.

I know we are the best positioned company to address this market with our strong portfolio of brands and products. I could not have envisioned that over 60 percent of adults and 13 percent of children in the U.S. would be considered obese today. We're encouraging consumers to change the way we eat and while adhering to our rigid, and I mean rigid natural foods and organic standards, I always say we definitely, definitely answer to the highest, highest authority.

We have never had trans-fat or hydrogenated oils in our natural products. Now the world is finally recognizing that these products cause heart disease and illness affecting well over 13 million Americans. We are meeting the skyrocketing demand for products that are lower in carbs and as we talked about all of our CarbFit products.

This being our tenth year, when I started the company, there was options that were given to me that I will be exercising over 500,000 which I will be exercising over the next couple of weeks. That would be expiring on our tenth year anniversary. I thank everybody for today's participation in our call, and I look forward to speaking to you soon. Thank you.

Thank you. Once again that does conclude today's teleconference. We do appreciate your participation and you may disconnect at this time.