Hain Celestial Group Inc (HAIN) 2005 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Hain Celestial Group third quarter 2005 earnings conference call. My name is Christie. I will be your call coordinator for today.

[Operator Instructions]

I'd now like to turn the presentation over to your host for today's call, Ms. Mary Celeste Anthes, Vice President, Investor Relations at the Hain Celestial Group. Please proceed ma'am.

Thank you, Christie. Good morning. I am Mary Anthes, Vice President, Investor Relations at the Hain Celestial Group and I am pleased to be with you today to announce our third quarter 2005 conference call with earnings that were released early this morning. We have several members of our senior management team here today to talk with you about our results. And they include Irwin Simon, our President and Chief Executive Officer; Ira Lamel, our Chief Financial Officer; John Carroll, President of Grocery and Frozen; and Adam Levit, General Manager, Snacks.

Our discussion today will include forward-looking statements. These forward-looking statements are current as of this date. We do not undertake any obligation to update forward-looking statements either as a result of new information, future events or otherwise. Our actual results may differ from those predicted, and some of the factors, which may cause results to differ are listed in our publicly filed documents including our 2004 10-K. This conference call is being webcast and an archive of the webcast will be available on our web site at www.hain-celestial.com under investor relations. Our call will be limited to approximately one hour, so please adjust your questions accordingly. Management will be available after the call for additional questions. Now let me turn the call over to Irwin Simon, our President and CEO.

Good morning Mary, and good morning everybody, thank you Mary. Hope everybody had an opportunity to read our press release that was released early this morning. Let me take you through our Q3 numbers. Let me take you through what's going on and Ira, John and Adam will take you through some of the other exciting things that are happening, both in their divisions and on our financial side.

Our sales for the quarter were up 18% as you have seen, 161 million versus 136 million. Our gross margin was 28.2 versus 28.2, but I think what's important to see and we will take you through some reconciliation later -- 30.2 our margin as we add back some of our higher cost, and mix with Celestial Seasonings. So that margin enhancement that we have been talking about we are well underway there. And I think the other thing, as we're affected by higher costs -- a lot of the cost savings offset even additional higher costs in the quarter.

The SG&A number in the quarter 20.9% versus 21.6. And again, SG&A is down and that is adding other businesses into the infrastructure, which you are saying, hey we are growing businesses but we are not adding to the SG&A of the business. Our operating income 11.7 million versus 9 million, a 30% increase; net income 7.7 million versus 5 million, which is 54% increase. Our earnings per share is $0.21 versus $0.14 and I talked about in the last quarter on our conference call about are SKU rationalization which I will talk about in a few seconds. But in the quarter, we discontinued products that we sold well below our cost that hit us for $1.2 million, which we add back as $0.02. And that increased our net income 8.4% and if we add those $0.02 back, it's $0.23.

About the quarter, you know we announced last year effective July 1, a price increase. It took us about 6, 7 months to get this price increase through, as we have price protection promotions and timing out there and we've learnt a lot from that price increase, because it was one of our first in years. The important thing to look at our price increase -- it stuck;100% of our customers accepted it. And a lot of times with price increase, you go back and look how did it affect my growth, and did pricing hurt? Well if you come back, our Celestial business is up 6% and this is the eighth quarter in a row that Celestial has been growing at high-single digits, but consumption numbers, which I will talk about in a few minutes, are just amazing with Celestial.

Earth's Best which is one of my favorite brands you know, our whole line of Earth's Best infant foods, baby foods, kid foods and now our Sesame Street line was up an amazing 74%. Our Terra Chip business was up 15%. Our Health Valley Soups, which John will talk about in a little while was up 13%. So we are getting distribution back and the cold did not hurt us at all. Our Garden of Eatin' snacks with a lot of competition coming at us out there, was up 23%. Our Imagine business, which includes our Rice Dream and our Imagine Soup was up 8%. Our frozen business and this is just growth not acquisition growth at all, was up 15.3%. This is new products that we introduced since we acquired the frozen business, so a lot of good things happening on the frozen side.

In regards to Europe, our European business was up 20% and that is being driven by Lima, Rice Dream, Soy Dream and Terra Chips, which I will talk about in a little while. So what's not working? We have some challenges in Canada. Our Canadian business was down 8%, and I will talk about that in a little while, but we made some management changes in Canada. As you saw we've added responsibility of Canadian business to Steve List and I'll go into Canada in a little while which you know is about a 50, $60 million business. Health Valley cereals, cookies and bars, we had some challenges there which John will talk about. But I think, we have an excellent program in place to really make some things happen on Health Valley.

On top of that John and Adam will talk about some of the consumption numbers that are out there and good take away. Some of the challenges in the quarter -- well no different than any other packaged food company and no different than anybody else will talk about with major food companies.

Fuel well over $1 million. Everybody on this call fills up their car once in a while and know the price of fuel. Our commodities, we will talk about one ingredient in Terra Chips called taro, which was well over $1millon. Our costs tripled in regards to a price per pound in the quarter.

Packaging, we are getting packaging increases coming at us left, right and center. And one of our biggest ones, Tetrapak, just dropped another major one on us yesterday. So our packaging was tremendous. In regards to Sarbanes we continue to spend on Sarbanes and Ira will take you through about being ready for July 1, which is the beginning of our new fiscal year and it's kind of like you need to be ready July 1. There is no -- it's a red light or green light; there is no yellow right there. So whatever the cost is you know we are spending to do that.

We continue to invest in advertising to support our brands. With a hot category, with a lot of new supernaturals and supermarkets committed to the industry, we need to tell consumers about how good our products are and what they are. Input cost which means all the things I just talked about except advertising, cost us an additional 4.5 to $5 million in the quarter, which was almost 2.8%, in regards to our margin. And if you go back and look at our price increase last year, our price increase took time to get through and with that, it was probably price increase -- the margin was about 2.2% that offset. As you can see, higher costs absolutely hurt us. We have initiated and have announced another price increase effective June between 2.5 to 3.5%. We expect this price increase to stick another 100%. We expect as we come out earlier with this price increase announcing it that the effect of this is by July 1 and there is not price protection out there because our costs are higher today and we are paying the higher cost up until the price increase takes place. So we are looking for our price increase to be effective July 1 on all categories and all customers.

Let me talk about the category. The category is strong and the strength in the category comes from the numbers I talked about. There is a lot of new supernatural supermarkets that continue to open up. There are a lot of supermarkets that are seeing the strength and the growth from supernaturals. There are a lot of supermarkets looking to enhance their specialty, natural food section. There is mass markets as we continue to grow and look at that.

Last year at this time, if I was on this call I would be talking about low carb. Low carb business is basically dead. Where the space is going is to supernatural. What we are doing is discontinuing -- or the retailers are discontinuing our low carb and everybody else's low carb products and replacing it with natural, organic products. So automatically, we would rather have more Health Valley products or more Earth's Best products than Carb Fit, who are not selling. It is not only from our Carb Fit, but you see most low carb products today going away. The food pyramid and the initiation of the new food pyramid will help us tremendously as whole grain and soy are a big part of the new food pyramid.

Let's talk about Celestial, up 6% on shipments. Our group out there is doing a great job. We have introduced a lot of new products and this is the eighth quarter in a row that we have had good high single-digit growth. We have Tazo, Twinings, Lipton, a lot of competitors coming at us with promotions, advertising but Celestial today is the number one specialty tea in the tea category. And the tea category is growing nicely and everything you read about tea and all the health benefits of tea set us up for additional great growth. So consumption during this period was extremely strong. The consumption of tea was up 15%. For 12 weeks, Celestial consumption grew ahead of the category. We were up 16% in food, drug, and target for ending March '05.

Our brand share was 28%, and this is what's some of the most exciting news, our green tea was up 33%, black up 16, wellness up 12%, and our herb tea grew 9%. We continue to outpace the category in drug where our volume grew 49% and in mass market our volume grew 39%. So we continue to do good growth in a lot of different categories. In our European business, our sales were up 20%. Lima was strong up 7%. Our Grains Noirs, which is our fresh business, continues to do a tremendous amount of expansion of new products, which are going not only into feeding the trains but also feeding supermarkets and specialty food stores.

We have a major commitment to the soy rice milk business in Europe. We have Soy Dream, Rice Dream, Natumi and Lima. And Lima will be skewed towards natural foods, Soy Dream and Rice Dream will go after supermarkets, and Natumi will go after the wholesalers. So we look to go after the whole rice soymilk business in Europe in a much bigger way, and will continue to roll out those brands. Terra has had a lot of good success in Europe going into Delhaize/Carrefour and Sainsbury/Tesco. We are also enjoying some good success with Celestial in the United Kingdom.

In this quarter, our health and beauty business continues to be strong. Our categories are up. The category is up 13% on oral care, sun protection up 25, Jason's is up 15, and sun protection 47%. We've owned Jason's now about nine months. Over the last nine months we have been evaluating the brand and trying to understand the brand strategy and trying to understand the consumers. And trying to go back and look at the packaging and we have got some work to do on the packaging of products. So over the last nine months we have gone back. We have improved a lot of the products. We now are ready to present our total brand strategy to come out with our new packaging and we now have introduced our first new product line of Earth's Best Body Care for Kids which is an exceptional product and our Red Elements Skin Care. They were introduced at the Natural Food Show in March and are just rolling out now. This is the first new products that we've introduced in this brand since we have owned it. So we are pretty excited about our whole body area. We are pretty excited about the business.

At the end of March into early April, we acquired Zia, which is the number one skin-care line. And over the next three months we look to integrate this into Jason's from a manufacturing, from a marketing, and where it makes sense, sales. We are pretty excited about that line.

From a food service standpoint McDonald's continues to be strong. Those in New York City can still get burgers in McDonald's and hopefully we can expand that throughout New York. 7-11 -- if you go into 7-11 now, you can buy Terra Kettles along with some other Terra chips and those that fly Jet Blue, and Adam will talk about all the great things we are doing with Jet Blue on Terra Chips. You heard me say about Canada being down. Nothing wrong with the products. We had some execution issues more to the US than Canada. We have an 88% share on the Yves business in Canada. Our Hain business, our Terra business was up strong. And with some changes there, I'm not concerned. It is just about execution on our Canadian business.

SKU rat. is something that it is important to all of us and something that as you heard me say before we really got to have a great strategy in place on executing the SKU rat. John and his group and the rest of the group around here have identified products and products that we discontinued in this quarter, which you've heard me talk about before. But we are getting close to a final SKU rat. and with that, we will have that completed by the end of this year.

And as we look for the space and discontinuing those products going into next year, the savings from the SKU rat. will be tremendous for us. And not only the savings from inventory levels and not only the savings from products that are spoiling out or we are selling below cost, but the savings as we put faster moving SKUs on the shelf. And John will talk about it. Working on SKU rat. right now has reduced our inventories almost 10 days within the Melville business, which is pretty significant.

Part of the SKU rat. you heard me say before was brand rationalizations. We're looking and considering divesting some brands. We will look at divesting Kineret brand, which was one of our first brands which is a good growth kosher brand; our Estee brand, which is a good growth brand in the diabetic area, which we've got a lot of calls for; FeatherWeight and Kosherific. We've got a tremendous amount of calls for these brands. If we're not going to focus on them, it would probably make sense for to put them in someone else's hands and we will start working on that in the very near future.

China today is a great market and we are in serious discussions with a company called Yeo Hiap Seng to do a joint venture and buy equity within their company. With this, what we will do is number one, help them procure some products for us in China, do some manufacturing where it makes sense, as they have five different plants over there. They have between the US and Europe a 20 to $25 million business which we want to utilize to get into the Asian market because today we do not sell into the Asian market. Last, but not least, we want to use their infrastructure to sell our products into Asia. We will be working on this over the next couple of months and we think this is a tremendous opportunity for the Hain Celestial Group to get into the Asian market.

Our balance sheet continues to be very strong. Our cash conversion cycle, which we have now focused on hard has come down 4 days to 78 days versus 82, and that six days from last year. Our free cash flow over the last two quarters has improved to $27 million and I think just focusing on that it is amazing how much cash there is in the hills out there. In fiscal '06 as we are into our final planning for fiscal '06 and working on it, we are pretty excited about fiscal '06 and the opportunities and the growth. And we're looking at 8 to 11% top line growth and 15 to 20% bottom line growth. And what I want to do is come back to everybody with some more detailed numbers and a more detailed plan when we are ready to present our fiscal '06. So today, that is my objective for fiscal '06. We're working on our plan.

What I would like to do is turn it over to John and just before I do that, what a difference a year makes. John is now here one year. And what we have seen is a great frozen management team and an implementation of our frozen business. Really seen some good improvements on our working capital within John's group. Our service levels in that group today are at 98%. Last year on this call, you remember us talking about soup, our service levels whether we are in the low 90s or high 80s and that is where they were.

Our natural foods show that happened in March, not only from John's group but from Adam's group, and Steve's group and Andy's group, we have had tremendous new product introductions and probably one of the best shows I have ever been at where we have introduced new products. We've also gone through a really good SKU rat. and working on that. Last but not least, there is a group over there today that has the can-do spirit and is having a lot of fun. What I would like to do is turn it over to John.

Good morning. As I stated in our last call, Hain Grocery and Frozen had four strategic objectives to continue to improve our business. First, we want to continue to drive profitable growth in our six core categories. Second, we want to improve our margins by driving out costs. Third, improved working capital management. Fourth, upgrade our talent and improve execution.

Our goal is to make meaningful progress in every quarter against these objectives and Q3's performance represented a continuation of the positive trends you saw in Q1 and Q2. Starting with our first strategic objective, which was profitable top line growth, Hain Grocery and Frozen sales were up 2.3% versus a year ago. Frozen was up double digits and grocery was up 1%. The grocery growth number is somewhat misleading. If you remove the $2 million Carb Fit sell-in in Q3 '04, and it truly was a sell-in, not a sell-through, grocery was up 4.3% and total Hain Grocery and Frozen sales were up over 5%. And important to note is this 5% increase was driven while still limiting unprofitable distributor promotional buyouts which is a practice we started in Q1.

Our growth was driven by strong performances by several of our key brands. As Irwin said, Earth's Best was up over 70% and the base Earth's Best business was up 50 and the balance being contributed by our new Sesame Street launch. Imagine soup was up over 20%, Westbrae was up over 18%, Health Valley soups up 13, Imagine frozen up 13%, Rosetto up 13%. Rice Dream and DeBoles up 5%. These year on year sales increases were driven by a combination of factors including consumption growth in our SPINS and Nielsen measured categories for four of our six core categories -- soup, baby food, frozen meals, and ingredients. Continued growth in our unmeasured categories, for example, nondairy beverage sales continue to grow at Trader Joe's and mass merchandisers.

We continue to see distribution gains on Earth's Best, Imagine soup, and Rice Dream. Two areas where we experienced some consumption softness were Health Valley cereals, cookies, and bars, and Soy Dream. Our consumption is down double digits in both businesses and we are addressing both brands. Health Valley is being restaged with high impact, new packaging graphics, product quality improvements across 40% of the line, great new products and strengthened consumer and trade program. Soy Dream, which I want to note is the smallest part of the Imagine acquisition at 10 to $12 million annual sales, is being restaged with a reformulated product featuring the USDA organic seal an improved taste and again more impactful package graphics.

Both Health Valley and Soy Dream restages were presented to retailers at Expo West in March and were very well received. Additionally, Expo West was the debut of Hain Grocery and Frozen's rebuilt new product queue. Based on our fewer but bigger new product strategy that we discussed in last quarter's call, we introduced 50 new Hain frozen and grocery products at Expo West -- a decline from the numbers we have introduced in previous years, but they received a very strong retail response including the response to our new Health Valley seafood soups, which are the first seafood soups in the category; our new Imagine aseptic bisque; our new Health Valley Extreme Fun kids' cereals; new Arrowhead Mills fruit and flakes cereals; and on the frozen side, our new Ethnic Gourmet Taste of Santa Fe entrees, our new Hain's Signature Recipes frozen vegetable, and the product line it was by far the biggest hit at Expo West was our new Celestial Tea Dreams frozen desserts.

All these new products which ship in June and the Health Valley and Soy Dream restages are going to play a key role for us in driving profitable FY ‘06 growth. Moving on to our second strategic objective which is rebuilding our margins, Hain Grocery and Frozen Q3 organic gross margin was up 130 basis points versus a year ago, as a more favorable product mix led by Earth's Best and frozen, along with pricing offset rising costs. As Irwin said before, Hain, like other CPG manufacturers, is experiencing considerable cost pressure across commodities, packaging and transportation. For example, our Q3 transportation costs per case were up almost 10% versus Q2. We do not see any abatement in the near future in cost pressure, given that it is being driven by fuel prices and increased demand for organic ingredients.

And again as Irwin said, this outlook has led us to move proactively and we announced in April a 3% grocery price increase that will be effective in June. We also executed an LTL reverse auction in April and realized 5% to 7% in bid savings. We are now going move forward with the full truckload auction on key freight lanes in Q4. We also finalized new contracts with three of our top six co-packers, each of which include for the very first time a productivity clause. Finally as Irwin discussed earlier, we are moving to finalize and execute our SKU reduction. Moving on to our third strategic objective, which is improving working capital, we saw a significant improvement in Q3. Hain Melville days in inventory declined 10 days versus Q2 and six days versus a year ago despite the fact that we actually have soup in our inventory this year.

Our days in payable increased by three days, and our Hain Melville cash conversion cycle declined 13 days versus Q2 and seven days versus year ago. The key driver in this improvement was better inventory management driven by our initial SKU rationalization planning and our implementing our new S&OP process with a focus on improving forecast accuracy and managing pack attainment. Finally, moving to our fourth strategic objective which is upgrading talent and improving execution, I believe our improvement in this area is best exemplified by our year-on-year comparisons for the Health Valley soup service and sales. As you know, last year we had a very difficult time shipping Health Valley soups. This year, our soup service levels were 98%, driving sales up 13%.

This executional improvement, coupled with the previously discussed improvements in limiting promotional buyout, reducing working capital, and rebuilding our new product queue, shows that Hain Grocery and Frozen can meet exacting standards of our customers. In fact, at Expo West, the majority of our customers commented on the improvement in Hain Grocery and Frozen execution on service levels, on-time shipment, and overall business management. Now we are turning that same executional focus to driving out costs, headed by our new VP of operations, Jim Myers, and driving excellence and increased turn at the shelf. To summarize, Q3 was a continuation of our progress against our four strategic objectives. Our biggest challenge going forward is cost pressure and we are taking proactive steps now to protect and build our margins. I'll now turn the call over to Adam Levit, General Manager of Hain Snacks.

Thanks John. Good morning everyone. I want to share with you today some of the exciting news out of our snack division. We continue to focus our efforts on three key areas -- innovative new products, new distribution, and off-shelf display or as we like to call it, Pounds on the Floor. These efforts have paid off well in the third quarter with total sales growth of 13%. That growth included tough comps of last year that, like John's business, has a significant Carb Fit portion. Without the Carb Fit, our growth was 17%. Our two key brands, Terra Chips and Garden of Eatin', continue to show strong growth. Shipments on Terra were up 15% for the quarter. Consumption on our core segment, exotic vegetable chips, remains extremely strong at 21% for the latest 12 weeks. Terra consumption in natural is also up 6% for the latest 12 weeks and an impressive 27% for the latest four-week period.

This increased consumption did not come without a price. Our marketing and trade spending were both increased during the third quarter to help drive this explosive growth. We are also not without our challenges. As we've discussed previously the cost of taro has increased dramatically. However, our team has put a strong plan in place to manage through this issue. First, we have found alternate supplies from several other countries. Second, we have been able to negotiate some temporary price declines on other commodities to offset the taro increase. As the demand for Terra has continued to grow, so have the efficiencies of our plant in New Jersey. Our manufacturing team has performed miracles in that plant. Our daily throughput is up 25% without any increases in labor. These efficiencies have further helped to offset the cost of taro. These combined efforts have helped mitigate much of the taro increase during the third quarter and as these initiatives take full effect, we expect to completely offset these increases during the fourth quarter and our next fiscal year.

Our operation team has had success in other areas including service level and inventory turns. Service levels have increased from 94% last year to 98% on a year-to-date basis. Our inventory turns for the third quarter have exceeded 1.9 turns per month. As in John's business, we've announced a price increase that will take effect during the fourth quarter. This is on many in the key segments within the snack business. Several of our other channels continue to show amazing growth. Club is one particular area, our new Red Bliss 15-ounce has been accepted in a number of divisions and that segment of the business is up 142% over prior year. Our relationship with Jet Blue continues to be strong and I'm happy to report that Terra Blue has been named the official snack of Jet Blue Airways. Our new product efforts, as I mentioned, continue to show positive results. Our Terra Kettle Blends have climbed into the top 50 items in natural foods and continue to gain ACV in grocery.

In the middle of this past quarter we launched a unique new product called Sweets and Beets, which has been met with tremendous acceptance by the trade and we expect to be in wide distribution by the end of this fiscal year. The new product news on Terra continues as we launched our Terra dips under our new Terra Chef's line. These gourmet dips will be followed by a line of upscale crisps scheduled for launch in July. What is really important about these new items is they will help expand the Terra name throughout the store without having any cannibalization effect on our existing snack items. Also helping to drive the growth on Terra is our exciting breakthrough promotions. These initiatives help drive displays in trial, and we are currently in the midst of our Terra Whirl’d Tour promotion as advertised in 20 city FSIs as well as other national magazines. We continue to increase the brand awareness on Terra. We have a Terra nationally targeted sampling tour with the Terra van wrapped in our Live Colorfully advertising program visiting cities nationwide. That tour has given out over half a million samples to date. That wraps it up on Terra but the news on Garden of Eatin' is equally exciting. We are seeing a significant number of new entrants into the category including private label, but with the high quality and unique flavors in our Garden line, the brand has been strong in the face of this higher competition.

Shipments for the third quarter were up 23%. Natural food consumption has outpaced the declining category up 6% in the latest period. Garden has also joined Terra in the important club channel with two new SKUs active in many of the club segments. Garden of Eatin' is equally active on the new-product front. One of our newest launches, a 22-ounce resealable bag of restaurant style tortilla chips, has offered consumers a great value with new innovations in packaging and design. We've entered the taco kit market, with the first organic taco kit in this growing and large category. We have also introduced organic microwave popcorn under the Garden of Eatin' brand. As a total division, we continue to drive our efforts towards DSD distribution and over the past quarter have converted a number of major retailers in both the east and midwest markets. And that is going to help expand our Pounds on the Floor program. With our continued growth in consumption, a focused new product plan, and strong retail execution, the Snack Group expects to be well positioned to drive both top line growth and bottom-line profits for the balance of this fiscal year and into our next year. With that, I would like to turn it over to Ira.

Thank you, Adam. Good morning everyone. As Irwin discussed earlier, we had very strong revenue growth in the third quarter this year with a 17.8% increase in our sales to $161.3 million, up almost 25 million over the prior year's third quarter sales of 136.9 million. Our diluted earnings reached $0.21 per share on a GAAP basis on 37,308,000 shares versus $0.14 per share last year on 36,804,000 shares. This represents a 50% increase over last year. In whole dollar terms, our net income was $7.7 million this year, representing a 54% increase over last year's third quarter net income of $5 million. As Irwin discussed earlier, we took our SKU rationalization costs through the P&L for $1.2 million, or $0.02 per share. Adding this back, our adjusted earnings per share would have been $0.23. On the gross profit line, we were very pleased to have maintained our 28.2% margin year-over-year in the face of the challenges of increasing input costs since last year.

In the third quarter this year, we absorbed the impact of increased ingredient costs impacting our margins by 1.6 points and separately incurred increases of $1 million in the total cost as Adam discussed of our main ingredient in our Terra Originals which impacted margin by another 60 basis points. Fuel charges and accessorials, the federal regulations implemented last year, cost us another 60 basis points. As we have discussed in the past, the changing mix of our sales had a further reduction in margin of 110 basis points. Finally, taking that SKU rationalization impact through our cost of sales, margin was reduced by a further 60 points. In the quarter, we did get the benefit of 2.5 points from the price increase, which we implemented, in the first quarter of the fiscal year. Adding all of these items together, in order to compare our margin this year to our margin last year on an apples to apples like basis shows that our margin would have been 30.2% against last year's 28.2%. Therefore, we are reaping the benefits of various efficiency and improvement programs.

In the quarter this year, we experienced an offset to these increased input costs and other items by realizing the benefit of a lower tax rate in the third quarter. As we discussed in our press release this morning, that tax benefit comes because certain outstanding tax matters were terminated within the third quarter of this year. The benefit amounted to $1,265,000, $0.03 per share, and reduced the tax provision in the quarter to 27%, as compared to 39% used in earlier quarters. That same $1,265,000 was charged as an expense through our tax provision in a prior year, so including it on our earnings now through our tax provision is simply the reversal of the expense we originally had incurred.

We followed existing SEC guidelines in recording this benefit now and therefore did not and could not include the benefit on our effective rate used in the earlier quarters of the year. We expect our rate for the fourth quarter will be approximately 39% and that of course is dependent upon how our full provision comes out for the full year. After all is recorded, our tax rate for the full year should be back to the 37 or so percent we have experienced in recent years. Our SG&A in the third quarter this year was 33.7 million, or 20.9% of net sales compared with 29.5 million, or 21.6% of sales in the prior year's third quarter. With our sales rising by 17.8% in the quarter, and our dollar spending on SG&A rising by a lower 14%, we continue to realize reductions in G&A as a percentage of our sales, as our sales base increases and we benefit from synergies. We spent more dollars on selling and marketing expense in the third quarter this year by approximately 1.7 million as compared to the prior year, with almost half of that increase coming from consumer based promotional programs.

Operating income for the quarter this year was $11.7 million, an increase of 30% over last year's 9 million. As a percentage of sales, operating income improved by 11% to 7.3. Without the effect in the quarter this year of the SKU rationalization program, operating income would have reached almost 13 million, or 8% of sales, showing a 21% improvement over the prior year. In this year's third quarter, interest expense totaled $1 million versus about 0.5 million last year. The half a million dollar interest in increase expense cost us one penny of earnings this year as compared to last year. The higher interest expense resulted from higher interest rates as we all have experienced and our higher average borrowings with the acquisitions we have made. Our EBITDA amounted to 14.9 million in the quarter and was 16 million before the SKU rationalization charge versus 11 million last year.

Depreciation and amortization in the quarter was $3.1 million, compared to $2.4 million in the prior year. As Irwin discussed earlier, we have continued to focus on improving our working capital management by becoming more disciplined in managing our cash conversion cycle. We improved to 78 days as a company, a reduction of four days in our cash conversion cycle from the second quarter this year and an improvement of 6 days in that cycle from the third quarter of the prior year. Since we announced the program at the end of the first quarter, we have reduced our cash conversion cycle from 94 days to the 78 days I just spoke of, a total reduction in two quarters of 16 days, a 17% cut in the number of days it takes to convert cash. This contributed to our $14.8 million of operating cash flow in the quarter, or I should say operating free cash flow, and as Irwin mentioned 27.1 million of operating free cash flow in the last two quarters since we began the program.

Our balance sheet continues to be a strong one. Our working capital was 128.6 million, giving us a current ratio of 2.9 to 1. Our stockholders' equity is now at $530 million, and our debt as a percentage of equity remains a low 16.7%. Since our year end at June 30, 2004, we have reduced our debt by $22.4 million through March 31. In addition to that reduction in debt, we have 17.1 million in cash in the bank. We're now in the fourth and last quarter of our fiscal 2005 year and anticipate that our revenues in the fourth quarter will be between 156 million and $163 million and that our earnings per share will be $0.19 to $0.21. As Irwin mentioned, with the end of our year coming we're very focused on completing our Sarbanes-Oxley program.

We expect to complete it by the required date and our outside auditors have begun to perform the required procedures. We are working with them very closely in meeting the end of year deadline. At this point, we can open up the call for questions.

[Operator Instructions]

The first question comes from Andrew Wolf of BB&T. Please proceed.

Good morning. On the fourth quarter earnings guidance the 19 to 21, I just want to double check -- that is a GAAP guidance or is that excluding any items?

It is a GAAP earnings number.

Okay so that will include the Sarbanes-Oxley ramp which is referred to and any future SKU reduction?

What happens there, Andy, is in Sarbanes, what we have budgeted today including additional moneys have to spend, there may be, I am not sure. But from what we know today in fees, we're ramping up to make sure we are finished for July 1. This includes what we believe that we are going to have to spend. There may be additional fees, I am not sure. And in regards to SKU rationalization, SKU rationalization will included this going through P&L.

Andy, it does include the expected fees that we have been anticipating and have been quoted by the various professionals that serve us. But I must say that in talking to a lot of Chief Financial Officers around in other companies, the Sarbanes-Oxley process has ultimately cost them more than they anticipated it would. We tried to factor that in, so Irwin is correct in saying that it is already in that $0.19 to $0.21. Certainly if we get to the point of having to put more resources after it from our outside professional staffs, we will have to deal with that. But right now we are on track to complete by June 30th and we think the numbers we have factored in are appropriate.

Okay thank you just a follow up on SKU rationalization, it sounded like the quarter was in large measure about reducing the Carb Fit? In a getting out of Carb Fit, is there much more to come there? Could you just sort of

Well Carb Fit, there is more to come on Carb Fit. Probably some more as we look to replace, and here's the big thing, Andy, what is important. We will not discontinue a SKU until we have a SKU to replace it. And at the same time, we are also watching what is out there because we don't want as we discontinue more coming back from the customers.

So basically as you saw in the third quarter as we introduced a lot of new products, we went after that space. In the fourth quarter, it will be the biggest because we introduced a lot of the new products in the March quarter. So we want that behind us because what happens to us is we might have recognized we are discontinue the SKU, have not announced it yet, and we have customers that are still ordering that product. So what is not included in our SKU rat., the 1.2, is lost sales that we did not have. And what's not included in our top line is also lost sales where we did not ship or we discontinued the product here.

So basically, we want to have this completed by June 30 because the last thing we want is go into next year with not budgeting these SKUs. Our customers get mad at us if we cut them when they do not know it is discontinued. So the big part will be in Q4.

Okay, and just to reiterate, if you have to discount, blow out through jobbers or whatever have you at a loss, that is contemplated in the $0.19 to $0.21?

Yes, exactly. It depends though if there are additional SKUs that we discontinue. But from what we planned right now, that is included in the $0.19 to $0.21.

Okay, thanks.

Okay.

Your next question comes from John McMillin of Prudential Equity Group. Please proceed.

Good morning everybody. The Company is being more professionally run, so I don't beat you up on this tax item. But can you just go and explain why you did not disclose the tax item when you had the CAGNY (ph) lunch in early April?

Actually, John, I'm going to let Ira, who has had 26 years more experienced at this than I am and was better to talk about the tax man than I am, too, okay?

John, every company goes through various tax planning techniques and when they implement various techniques at a particular point in time it is something that cannot be and should not be disclosed to the world as to what may be the particular technique.

Interestingly enough, under the rules of the IRS, if we take a particular position with something it is disclosed to the IRS in the tax return. So there is nothing that is done that is what I would characterize as inappropriate, certainly. But you always have to take the position that with certain kinds of tax planning techniques, you may not necessarily succeed with that tax technique surviving as you go forward.

Under the SEC guidelines, you cannot smooth when you have this item. You take the provision through when you implement the tax planning techniques, so our tax provision in the past has included expense when we develop various techniques.

When you see that the techniques actually are successful you have to take it back in the exact quarter in which you have made the determination that the technique has been successful or that an event has taken place that tells you were successful.

You basically had an audit and you --

No, I did not say that John. I am just telling you that the timing allowed us to take these things into our provision as a credit. You may want to look at it effectively as though we have had an audit, but I cannot say to you that we have.

At least you're learning something from HEINZ, Irwin. I just think it just going to came out of the blue and certainly --

Well, John, under the existing rules, it has to come in the quarter. And we cannot talk about it in advance, because that in a sense invites the look over our shoulders at the way we do our tax planning. (multiple speakers)

John, to your first comment, I take your compliment of being a lot more professional. I think its growing up and becoming a much bigger Company. And I think our advisers -- this comes from good advice on what we can do and what we can't do here. It is not Irwin Simon or Ira Lamel standing up and saying, "I wish I could tell," and I think in today's day and age, I wish I could tell a lot more than I do tell.

You probably should not pay a 39% rate, nobody else really seems to.

We are the highest taxed company within the food industry. And maybe we need some plants in Puerto Rico or Dominican Republic or something like that, but --

Just as with the cash conversion cycle and the whole working capital management project, reducing our tax rate is a responsibility, a challenge that has to sit on the back of our finance organization which obviously I lead. And Irwin and I have been talking about it. And we are going to continue to look for ways in which we can reduce our taxes. And as we go forward, hopefully our rate is going to come down.

Yes, as long as it doesn't come down 10 points without telling us, I think --

Well, I don't think so, John. And part of that is as you said before, is becoming a bigger professional Company. One of the things that we're doing is building a tax department here which we don't have today, and hiring internal tax people to figure out, because if we can reduce our rate by 2 points, it is a lot of money to us. And that is our move next year, is hire internal tax people to just focus on this.

Okay, on to the second part -- I guess acquisitions added about 10 or 11 million.

Exactly.

And FX -- was that a factor at all?

Not a significant one, John. The rates year-over-year have not moved that much.

Okay, so you basically -- your net growth was about 10% organic. What -- John Carroll, what did soy beverages do, or aseptic beverages -- however you described it. What was the total number that you put Soy Dreams and all these things together?

Our soy beverages were flat in the most recent quarter, but when you take out the Soy Dream decline, we were up 2 to 3%.

But John, I think what's important is our Rice Dream number was up 5%. Are aseptic Rice Dream was up 5, our WestSoy was up approximately that. And if you take out Soy Dream, it brings it down to being flat on soy.

Flat is not that bad given how tough the category has been. In terms of the new revenue guidance, I guess the new revenue guidance of 125 -- I'm sorry, of 625 to 632 million is in the low end of the early April guidance of 625 to 645. In February, you gave guidance 650 to 670. So every time we talk to you, the number keeps coming down a little bit or at least to the low end. Can you just kind to go into --

Absolutely, I think there is three points for that. Number one is a SKU rat. I mean it's not -- I think the big thing is we have shown what we can do on top line sales and good growth out there on top line sales.

I think number two is when we decide to eliminate a whole line, especially within Carb Fit, there. I think the other thing is we look in the numbers when we get into the business -- we eliminated over 200 SKUs at Jason's alone.

And then number three, John, is just timing from new products, when we will launch them. And we really are very cautious on planning for new products. But the big thing is SKU rat.

Hey John, the other thing which is important here, which we come back and look at our sales -- as a Company, we have taken -- you heard John say we have taken 10 days of inventory. Our customers have taken well over a week to a week and a half of inventory. One of our biggest customers has closed like five warehouses. What we want to do -- we would rather sell less product that is more profitable then more product that is less profitable. Our strategy has changed also in the way that we are going to market with our customers.

And a big example was in our first quarter. Our revenues were only up 9 or 10%. We pulled back on a lot of shipments that went into customers.

Just in terms of the price increase, and maybe John Carroll can answer, whatever -- will there be any kind of a retail buy-in?

John, I expect there will be some, but not a significant one, we did not see significant ones in the past.

Okay, thanks a lot.

Thank you John.

Your next question comes from Greg Badishkanian of Smith Barney. please proceed.

Great, thank you. Just on Carb Fit, I don't know if you mentioned it, but what were the actual sales in the third quarter '04 and third quarter '05?

Minimal in this quarter. And probably if you take the business last year and if the business was a 10, or $15 million business and smooth it out, you can probably figure out what that is.

Okay and also, in terms of soup sales, you had some out of stocks last year. It was up about 13%. How close did you get to the third quarter '03 sales number? Did you get all the distribution or half of it? Or how does those compare?

Basically, we are up 13%. We are up versus last year. If you had to come back and say with that 13%, we are probably back to where we wanted to be last year at this time.

Have we lost the sales? Absolutely. We have had consumers that switched to Amy's. But I think the group has done a good job by being up 13%.

But what is also important is this here. Our Walnut Acres sales were up tremendously, double digit numbers, and our Imagine aseptic was up 20%. So what you can't really look at, Greg, is we might have lost consumers of Health Valley, but they went over to Walnut Acres or they went over to Imagine and bought some of our other products.

Greg, the other point I would make is there was a real focus at Expo West in launching new canned soups that no one else has under the health guidelines to further help our comeback on Health Valley soups.

So we believe we switched a lot of consumers at the time to Walnut Acres soups and our Health Valley aseptic soups and our Imagine aseptic soups.

Good. And maybe John, if you can just talk about the mix -- aseptic versus can last year or so versus now. Have you moved more towards the aseptic?

We have. We have seen it move more towards the aseptic. They both have similar shares of the total food category.

But the faster growing, Greg, is aseptic, and with the new Recart, which I think you saw at the show, we think aseptic -- and it's interesting; aseptic in soup -- perception of fresh; aseptic in rice is not the same perception. But we just see such a big opportunity with our aseptic organic soups and our Health Valley aseptic soups. And that is going to be one of our big growers next year.

Any thoughts on April sales trends are if you are able to comment on that?

Absolutely. We have before. And business continues to be very, very strong. Trends look good in April. And orders and shipments and whatever new consumption numbers that we have got in really look good for us.

At what tax rate should we model in for when you -- I think you said 15% to 20% earnings growth. What tax should we use for that, 37 or 39?

I think looking forward, Greg, we should return to the 39%, maybe 38% -- and a little off 39. Our full year rate for 2005 should come in just a tad above 37% after this credit, which is what we had in the past. But as we said at the outset of the year, one of the things that has impacted our rate in being higher currently is some of the countries that we have entered into in Europe being higher, and the mix of some of the states we pay taxes in here in the United States, with new states entered into as the result of some of our acquisitions.

So I think we're going to continue at close to the 39 and as Irwin said, we are very seriously looking at bringing some in-house talent in to start working on tax techniques from within and trying to get that rate down in the future.

Thank you.

Your next question comes from Terry Bivens of Bear Stearns. Please proceed.

Good morning this is Ken Goldman. Terry actually had to step away for a moment. A couple of questions. On fuel, obviously every company in your space faces fuel charges right now and higher ones. But a couple of the companies that we cover, Fresh Del Monte. Del Monte have taken some creative actions to combat that. It seems like you guys have taken creative actions to combat taro (ph) costs. I am just wondering if there is anything that you can do that you see to moderate the impact of fuel costs on you guys?

Well, I think John has mentioned in his comments that we have gone out and have done some reverse auctions in looking for carriers and stuff like that. But I will tell you, I'm not sure what Fresh Del Monte -- I would love to hear it, Ken. But we agree to a price. And what we also do -- is they come back and said if there is a price increase in fuel, they are coming back after us. We are not out there because we don't want our own fleets -- Fresh Del Monte may -- on hedging against fuel. That is not something we are doing.

But what we need to do and what we are continuously doing and if we were in the same situation last year where we were shipping trucks that were half loaded or something like that, it would be an issue. Our main thing is to reduce our freight costs, our accessorial costs, and actually at the same time make sure we are shipping full truckloads. And that's a key. We cannot go out and hedge on fuel right now. We are not just in that business

I want to move forward because I know time is limited. In the press release you mentioned that new price increase averaging 2.5% to 3.5% on certain brands. I am just wondering what the overall effect might be on the top line?

2.5% to 3%, Ken.

Okay, so when you say certain of the brands, the overall effect is still 2.5 to 3.

2.5 to 3%. There is no price increase right now in Europe and there's no price increase on Celestial Seasonings today. Most other products do have a price increase. And there are some products, Ken -- even though we will not take a price increase, we are taking some sizedowns on certain products, too, to offset price increases.

Last question, I just want to clarify something that I think was said earlier, taking about SKU reduction. You mentioned I think that discontinuations won't happen unless replacements are there for certain products --?

No what happens is this here -- we have identified SKUs and we will not go to trade and discontinue unless we do have products to replace on the shelf. There is one thing we own on the shelf called a lot of space. And we will basically identify SKUs, start to discontinue them, and then start replacing them with other products on the shelves. But the ones that are not selling -- we are not leaving products on the shelf that are not selling.

I guess my question really is that one of the main pushbacks we get when talking to investors is that some of them tend to think that your Company has still too many SKUs. And obviously , you guys feel the same way. You are an on a program for that. But I'm just wondering if this is more of an ongoing thing, whether you see SKU reduction is something that could happen for years and years or whether you think it will slow down in '06 and '07?

And Ken, I have got to say this here. Normally, I get accused of having too many SKUs. What someone needs to do is go to a Whole Foods or a Wild Oats and look at our product line and understand why we have so many SKUs. And we probably have in the triple digits in those stores.

So they are used to looking at traditional supermarkets where we may only have 100 to 500 SKUs. But one of the things that we are doing and we have not done before is gone through a major SKU rationalization. We may eliminate 300 to 500 SKUs -- at the same time, no different than I'm talking about selling off 4 to 5 brands. We will always discontinue SKUs, but this time will be the biggest one that we have done.

For instance, Carb Fit -- the retailers are telling us the low carb category is something they do not want. We're not going to sit with Carb Fit products, Carb Fit Packaging if the retailers are not having Carb Fit sections where they want natural organic. Originally we used to have a SKU that totaled $1 million. Now our hurdle has changed because it is spoiling out and we're ending up throwing it out. So because of that, the hurdles, the demands have changed to where we have higher moving SKUs. So there are a lot of internal rates that we are setting. There is a lot the retailer is are setting. And there are a lot of good new products that we're coming out, that having space. But I think anybody that tells you that we have too many SKUs, tell them to go to a Whole Foods or a Wild Oats or a Trader Joe's.

Thank you very much.

Your next question comes from Scott Van Winkle of Adams Harkness. Please proceed.

A couple of questions. First, I don't know if you gave this number. If you did, I apologize. But what percentage of your SKUs have you cut across? You gave the 200 number for Jason's. But what percentage have you done, and how far along are you on the plan you originally put together?

Jason's was about 200, and I said that earlier. And Scott, we probably have cut about 100 SKUs over this year. What will happen, Scott, and again it is not final, what we want to do in going into our fiscal '04 -- '05 -- '06 year, the last thing we want to do is build promotions and build budgets around SKUs that we are not going to keep. At the same time, we have multiple new products coming out.

But a perfect example is last year when we did not have Health Valley soup, we sold a lot of Walnut (ph) Acres soups. There is not a lot of mainstream traditional soups in the Whole Foods and the Wild Oats there. So we're looking at brands and SKUs as it makes sense for us to have more chicken soups. So if we are, what are we going to replace it with?

So do we have another three or 400 SKUs, Scott? Possibly. And probably now with the switch in the whole low carb area and more opportunity to enhance that with natural organic, and that is what everybody wants in their stores -- major supermarkets have absolutely just cleaned out the low carb category and are putting bigger natural food sections. So that gives us not only where we had Carb Fit but more and more space. We will have it completed in this quarter.

And Ira, when you're talking about the 1.2 million this quarter from SKU reduction, I got a little confused. Is this the loss you took relative to your selling price minus cost of goods sold? Or is this the difference in what you sold that liquidated product versus what your normal wholesale product would have been?

The second, the latter of what you said. It is the actual reduction from our cost that we incurred in selling the product off at lower prices. So it was an actual charge through the P&L to take the inventory down for the selling price.

And it also included, Scott -- it wasn't all from those reductions. Some of it was also the disposal of some of that inventory because once we discontinued the SKU, if we could not sell off certain of it, or some of the ingredients were no longer going to be used, that was disposed of.

And Scott, if you include the margin, it would be (multiple speakers) 2, $3 million that it would affect us.

I've just wanted to make sure.

It's all hard costs. The other thing is, which is absolutely not included in this here -- when a customer orders it, and we do not ship it, so it's a lost sale, it is not included anywhere in sales or anything like that, either.

That is it.

Last question?

Your last question comes from Andrew Lazar of Lehman Brothers.

Good morning. Just a quick comment and a question. I do too, like John, certainly applaud some of the things that you are doing around SKU rationalization, the more effective trade spending, the cash flow focus. I guess in the spirit of taking it to the next level, while I am all certainly all for tax planning and paying lower taxes, I think probably the best in the food space ultimately would show something like a lower-than-expected tax rate as kind of a upside to earnings as opposed to kind of getting to where you wanted to be including the benefit. And I know you have had a lot of things working against you this year that are fairly unusual, as well -- costs and things like that, but you see my point.

This is Ira. I look at it from the purist accounting perspective. Certainly I am not an analyst. So I do respect the manner in which the Street does look at it.

But from the purist accounting perspective, I really do look at it as a situation in which I had to take an expense through the P&L in one period. And I get it back in another period. And it's probably unfair if I were to look at it and say take the hit in one period, but don't get the benefit or the credit in the other period when it turns around, so (multiple speakers)

And the way you were budgeting your year, like from the start, you had a sense that this would be coming back as a credit during the course of the year and had built that into the guidance that you were thinking about even though you couldn't communicate it that way to the Street at the time.

That is correct.

And Andrew, just on that, number one, tax is something we all have to pay. Tax -- in Hain's case, we were one of the highest-taxed company. And from a standpoint, you can forecast the year -- as we sat here back last May or last April doing our forecast for 2006, there is nowhere throughout the quarter and the average price accrued was anywhere from 55 to $57 a barrel. At the same time, we never realized that we were going to be paying almost triple the price of taro which is a main ingredient.

It is forecast -- we know, is there good things that happen? Do I look at it as a pickup? Absolutely not. Do I look at it as an offset against cost? And hopefully, we do not have these costs next year at this time and one offsets the other. That is the way we look at it. And as you run your business, there are some good things that happen and there are some bad things that happen. There are things that go in your favor and things that do not. (multiple speakers) And this went in our favor, where $4 million of cost did not go in our favor.

But I think what is important is this here. And going back to John, we today are getting incredible topline growth. We are able to take price increase. It's able to stick. We're able to take price increase again, and it's able to stick. I mean, the tax is something that we got an advantage this quarter and we did not get an advantage on our cost in commodities and in ingredients. And I think what we are saying is, hey, we pay high taxes and we had higher costs. One of the big food companies you listen to had a $250 million in cost increase in their quarter and we are small company. So I think what we're looking at is it's an offset against normal cost.

I see your point. I think more importantly, and you touched on this little earlier in your remarks, Irwin -- when I look at Hain's organic sales growth rate as well as the ACV levels, in the measured channels -- sort of the FDM through scanner data of a lot of your key categories, it seems that the type of growth that maybe Hain and the Street have been expecting in really the conventional grocery channel has not yet maybe materialized to the extent that we have all been expecting. And you have been getting obviously growth on the other side, supernaturals and all of that, clearly.

But I want to get a sense of -- A, would you think that point is correct? And then why do you think that is? And what do you think it's going to take to really get that piece of the growth, the conventional piece that we always were looking for, for organic to go more mainstream? What do you think it will take to get that to really going? And do you think we see more of that in fiscal '06?

The thing is, Andrew, we are in the selling a product business. And I think you have a perfect example here is in New York City, where three major supernaturals have opened up. Those three major supernaturals are doing almost the same business as two of the major chains in New York.

So when you look at that, I think what is going on out there is a lot of people are converting to supernaturals, to mass market or club, and coming away from the supermarkets. And that is where our biggest growth is. So consumers may not be going to the traditional supermarkets, buying our products, because of the availability being out there today in three major supernaturals in New York and a few other, where three years ago, that was not available.

So what is the good news for us? Whole Foods is planning to open up 50 more new stores over the next couple of years and they carry a heck of a lot more SKUs than any other supermarket. And that is happening with the other supernaturals out there.

At the same time, if you read Safeway's release yesterday, they talked about a lot of their growth coming from the natural foods section and the superpremium section, etc. If you come back, Andrew, and look at our Earth's Best growth, a big part of that came from other than supernaturals, and being into mass merchandisers like a Toys 'R' Us or a Babies 'R' Us where we were not before.

So the big thing I feel great about is the growth of the category, the growth of the retailers that are just focused on this category. And one thing I cannot control, and sometimes it is frustrating --

The channel shift (ph) --

No, is the commitment that supermarkets are not putting to this category even though it is growing. And you follow supermarket growth out there and you know what it is.

So my focus is go where the going is going, and that is today the supernaturals. And we are doing extremely, extremely well. Another perfect example is Jason's. It was only 80% sold in supernaturals. It is now going into some mainstream drug chains who are seeing that as a good growth for them.

So from a standpoint, a lot of it is not determined by me, it is determined by the retailer how much they want to grow in this category. I would put up -- where retailers have committed to the category, we are the fastest-growing with that retailer.

Got it. That's helpful. Thanks a lot.

Thank you Andrew. Last question. What I would like to do is thank everybody for your time today. It's late. We have been on this call an hour and 15 minutes.

Just a quick recap -- excellent top line growth, and I feel good about the top line growth and where we are going with the tough you know consumption out there. And you heard Andrew say about the supermarkets, there are 33,000 supermarkets. I will tell you, there is not that many supernaturals or natural food stores.

We have done a good job on our cost reduction. And even still with the face of all the costs coming at us, our cost reduction has helped us to get to where we are today. New products -- I think we are the most innovative on new products, exciting products, and have done a good job on that.

I thank John for his compliment on a good management team and a professional management team, but more important is, we are 10 or 11 years old and not 100 years old and we have raised the bar here tremendously.

But a good management team means being good, professional, but entrepreneurial and reactive. And that is what we have here is entrepreneurial and reactive, and hopefully, we are out there identifying trends, where trans fats, hydrogenated oils, whole grain, natural, organic, soy, rice -- there are things that we have been doing for the last ten years where everybody else today is recognizing health, health, health, health.

We have been able to get price increase. We have been able to get them through. We will continue to get price increase. And that's something that we have been able to do before and not something we've been able to get. And also shows you, there is price elasticity where people will pay a price for products. On the other hand, we can never forget, price is important to consumers out there.

We have focused on the last two quarters of cash conversion and $27 million. As you heard me say, there is a lot more gold in those hills. And there is a lot we can do with that gold, whether it's buying back stock, doing additional acquisitions. And that's something that is a major focus of every manager in this company.

Brand rationalization -- and again, no different than what Ken said before -- we have too many SKUs. I think a lot of time that's a comment without understanding our business. And I would like everybody that says that for me to take them a walk through a supernatural to understand the categories and why we have so many SKUs in the categories and understand the growth in those supernatural stores.

We are also going to eliminate ourselves some brands. This is the first time we ever did this. And it shows that we are trying to focus on our key growth brands and our key growth areas.

China for us should be pretty exciting. And looking forward to sourcing, looking forward to moving into the Asian and Asian category here in the United States and Europe, and looking forward to selling some of our products into Asia because I see Asia today a lot similar to where we were ten years ago in the natural organic categories.

Acquisitions -- we've done a great job on acquisitions, integrating them, recognizing them. You know, I think a lot of people thought when we acquired Celestial Seasons, the tea category was a category that would never grow. I would say of everybody on this call that's left on the call or here, green tea is an important part of our diet. If it's not, it should be. So the tea category will only get stronger.

The whole body category -- walk into supernaturals today and you will see the space dedicated to it. And I think what people are realizing -- what you put on your body, what you wash your hair with is just as important as the food that you eat, and whether it's a toxin, carcinogens or that within that.

And last but not least, I think the people that we have working within Hain today -- and hopefully, most of you get a meet a lot of them or even hear them on this conference call -- is the best management team that Hain has ever had. And you know, with brands, people, having the right strategy and well on the way to enhancing margins, which we've laid out some plans, converting cash, we are really excited about the future. I will be back to talk to you more about 2006. But my objectives are to grow 10 to 12% organically, 15 to 20% top line, and to get everybody happy. I will get pass that dollar, I promise you.

So thank you everybody for your time and hopefully we will speak soon. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.