Hain Celestial Group Inc (HAIN) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hain Celestial Group fourth-quarter 2005 earnings conference call. My name is Annemarie and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to Ms. Mary Anthes, Vice President of Investor Relations. You may proceed.

Thank you, Annemarie. Good morning, I'm Mary Anthes, Vice President, Investor Relations of the Hain Celestial Group. I am pleased to be with you today to introduce our fiscal-year and fourth-quarter 2005 conference call regarding earnings that were released earlier this morning. We have several members of our management team here today to talk about results. They include Irwin Simon, our President and Chief Executive Officer; Ira Lamel, our Chief Financial Officer; and John Carroll, President of Grocery and Frozen.

Our discussion today will include forward-looking statements. These forward-looking statements are current as of today's day. 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 materially from those projected, 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 website at www.hain-celestial.com, under Investor Relations. Our call will be limited to approximately an 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, everybody. Thank you, Mary. Hopefully everybody has had an opportunity to look at our press release that was released this morning. Let me first tell you about the fourth quarter, and then we will talk about the year and all the exciting things that we have happening at Hain Celestial.

Our sales for the quarter, 151.3 versus 137.3, up 10.2%. Our adjusted gross margin, 27.2 versus 27.3, basically flat. Our SG&A for the quarter was 18.9 versus 21, SG&A being down 1.5 points. We really watched our spending, and John will talk more about some of the things he has done on trade spending, and how we're spending it more effectively. But we really control the costs as we see other costs going up.

Our operating income, 12.5 million versus 8.5 -- that is adjusted, of course -- 47% increase. Our earnings per share, adjusted earnings per share, $0.20 versus $0.14; and that is up 43%. Shares outstanding, 37 240 versus 36 936.

Our cash conversion on inventory, which we have worked hard at -- and you have heard us tell you about how we really put a major focus on it -- we have gone down 17 days. So 75 days. From 86 days down to 75 days, which I think has been a tremendous improvement within the Company. And we have really brought our inventories down, which tells you today we are turning our inventory into cash much quicker.

In the quarter, which I am real proud to say, we were able to achieve these results; at the same time, we had higher fuel facing us, and it's even going to get worse, I think, before it is going to get better. Our fuel is $1.00 a gallon higher this year versus last year at the same time.

We had, as everybody had, and which we absorbed in the quarter, higher Sarbanes cost. We completed 404, so that is the good news. We had much higher interest rate in the quarter of almost $1 million, which Ira will talk about. So still, with all those higher costs and some higher commodities, we were able to absorb them in the quarter.

About the year, our fiscal '05 year that ended, our sales were 620 million versus 544, up 14%. Our gross margin basically was flat for the year. Our SG&A, 20.2 versus 21. Our earnings per share, $0.89 versus $0.74; and that is up 20%. So that is about the year.

A little bit about the quarter. What did we do? Well, last July 1, we initiated a price increase, and we thought that would be enough. The price increase really took about six months to get through fully. We also just initiated another price increase effective June 1. That is through, and that is effective.

We really controlled our spending. As costs keep going up, we really watched how we spent our trade money with consumers, with the trade, and making sure we have been effective with it. And John will talk about some of the stuff that he did.

SKU rationalization, which is something that we have did within this Company, we eliminated 4 to 500 SKUs, about $15 million of sales, and a lot of it started in this quarter. By the way, a lot of the excess inventory or SKUs that we're not going to be using we will be sending to the hurricane victims, and that is something that we are going to spend some time on, looking at products and inventories that we can send there.

But this is the first time that we really implemented a major SKU rat. A lot of these products were products that we acquired during acquisitions over the last five years, where sales declined, or we didn't put focus, or we didn't discontinue the products. And as we looked at new hurdles.

And the SKU rat was very important for us, because it really had to be an integrated program with our sales organization, our distributors, and our retailers. Because we wanted this space back for new products, and that is something that we are able to do and able to get. Our sales personnel, with our distributors, with our brokers, and with our retailers really worked on a good program here. So not only did we take sales out, we are able to replace these products with faster-moving SKUs and newer products coming into place.

On a cash conversion, you heard me talk about our inventories and reducing our inventories. Last year this time, we were talking about soup out of stocks. We were talking about getting back in stock. Our company service level worldwide ran at a 98% service level. We never ran that those types of service levels in the Company. And what that does, right through your P&L in regards to freight shipments, warehousing, efficiencies, is just tremendous.

We really -- as costs keep going up, and we can't control the cost of fuel or commodities, we can control the cost of SG&A. We really focused on our SG&A within the Company. I have got to tell you, I really feel good about completing 404 successfully. Of course in the quarter, we did divest Kineret. But with that, we had all our higher costs.

Some of the things in the quarter with the brands. Our Terra business was up 25%. Our Garden business was up 23%. That, with our Terra business being up 25%, taro -- which is one of the main ingredients in our original products -- pricing on that product has gone from $0.30 a pound to almost $1.00 a pound. We have been sourcing elsewhere all over the world. We have been looking at other products, and hopefully we can contain that price and look for other opportunities.

Garden of Eatin', as you heard me say, up 23%. But with a lot of private-label coming out and other tortilla chips, Adam and his group have just done a great job of seeing this brand grow.

Brands like good old, reliable Arrowhead Mills, DeBoles, up 7%, 16%. Earth's Best, which just continues to be a rocket for us, and this includes the whole introduction of Earth's Best Sesame Street products, up 61%. Imagine Soups, up 13%. Celestial Seasonings up 4% on shipments. Our European business in the quarter was up 20%; and JASON's was up 10%.

In the quarter, our Health Valley sales were down. But we are coming up against comps where last year we were replenishing soup of two to three quarters of out of stock. We're also coming up against major sell-ins last year on WestSoy into the mass market. We started to ship our aseptic WestSoy into the mass market. Last year in the quarter we also had Carb Fit, which we shipped quite a bit in this quarter; and we now have discontinued the whole Carb Fit line. So without Carb Fit, our sales overall would have been up 12%.

Consumption is high, which -- a plan for us is to ship to consumption. I'm just going to give a few consumption numbers, and consumption is actual purchases off-the-shelf. Our consumption is probably the highest it has been in the Company. I will take you through in a little while some of the things happening in the industry and how we are shipping or outpacing the industry in shipments.

Earth's Best -- in natural we're up 15; in grocery we were up 28%. But what is important in grocery, being up 28% on shipments, we're really only in 25% of the ACV in grocery. There is a big opportunity for us to grow our distribution on grocery. Our Terra Chips -- natural up 7.3; grocery 21%. Garden of Eatin' -- 15% natural; and grocery 14%.

John will take you through some of the things on soy, but soy we are down 11% on natural and 12% on our grocery. But we also, as you heard me say before, started to ship into the mass market in a bigger way. Our rice milk business continues to be strong both on shipments and consumption; consumption in natural up 8%, grocery 10.2.

Health Valley soups, which we hurt ourselves and worked hard to get it back. This is an important number. Natural we are up 14%, and grocery we were up 9. Remember, we were out of stock for almost six months. Throughout last July, through December, we were showing negative comps here because a lot of consumers switched to other brands when they could not get ours. So the group worked hard on getting our business back.

Our Celestial Seasonings business is up 6% on natural and 8% on grocery. From a consumption standpoint with Tazo, Bigelow, Lipton’s, Twinings, and a lot of tea business, our guys in Boulder really did a great job on tea and it shows with our consumption numbers. Now with coffee beans going through the roof, hopefully people drink more and more tea.

Our JASON's business, on a consumption, was up 9%.

So about the year, on shipments -- and this is dollar shipments -- Celestial was up 6%; JASON's was up 18%; Europe was up 36%; our Canadian business was down 3%, and I will talk about that in a little while; our snack business was up 13%; and our grocery frozen business was up 10%.

Some of the things happening at Celestial. We really for the first time came out with a lot new bag teas, new flavors. Our chai in a bag has done extremely well. Flavors like apple, chamomile, vanilla, ginger. I think what is important is people are looking for innovative flavors in tea and new products. We have gone to a 10-count. This is the first time there has ever been a change in a pack size in tea. Both organic -- and we have launched a whole new line of organic teas under Celestial, and we have also launched a whole new lie of Hispanic teas.

Last year this time, owning JASON's for a few weeks and literally only a few weeks, we did not know what we were getting ourselves into. Whole new area for us. Many people questioned, said -- what are you doing? You're getting into the food side, or you are diversifying into the food side. Well, first of all, the whole body area, body care is growing double digits and has been a great growth category for us. Owning JASON's and Zia for one year has been a great entry for the Hain Celestial Group. The category grew 13% on consumption; we grew 18% on consumption.

What we had to do with JASON's, we had to reformulate the products, as a lot of the products went to organic, which we had to improve the quality, the stability. We had to improve packaging. We had no new products in the pipeline. Andy and his group introduced new shampoos, new moisturizers; a whole new line of products called Red; a whole Temptations lip moisturizer. And one that is near and dear to my heart is the Earth's Best whole new baby line, and we started to ship that just in April.

The success rate both on Red and Earth's Best has been tremendous so far. We also discontinued over 400 SKUs at JASON's, which is just tremendous. We really also changed the way we're going to market in our spending. So real excited about our growth and that category of the whole body area.

Europe, we really focused in Europe here. Where was our big opportunity in Europe? Our nondairy business almost doubled in Europe. The only real player in Europe is Alpro, and with rice and soy we have really gone after the market there with Rice Dream, Soy Dream, and Lima Natumi. So that is what we're seeing. But we are seeing also good growth with Biomarche, which is organic produce, organic salads.

Our Lima business grew 7, 8% and we're really in the midst of consolidating business, looking to take cost out of the business there. Jim Lemsky, who was with us for numerous years, went over there as Vice President of Sales and Marketing. And Jim working with Philippe, we're pretty excited about the opportunities in Europe. We look to do some future acquisitions in Europe. We are in the midst of launching Terra in a bigger way over there, and we are looking at some of our other products to sell within European. We are also -- Lima, which is a whole salt line and condiment line, we're now starting to sell that in the U.S., and if you go into whole foods you will see that.

Last year this time we did not have a frozen business. John and his group took on the assignment of the new frozen entity, which was Rosetto and Ethnic Gourmet that we acquired from Heinz. It came along with two plants. We're in the midst of consolidating it down to one plant. We're pretty excited with Ethnic Gourmet growing 19% over the year; and Rosetto, which had about 18 quarters of continuous decline, was flat for the year. So they really did a great job.

At the same time with the frozen organization we were able to introduce Tea Dreams, which is a frozen dessert with the Rice Dream product. So look for a lot of new products coming out of the frozen area for us. And now going into one facility, and we have invested capital in new types of packaging equipment, that we're pretty excited with there.

Canada, you heard me say, down 3%. Most of that came from our Yves business in the U.S. All I can say is, in regards to our Yves business, it was all execution. We have a new head of Canada, and we feel good about what we're doing there. We're making some changes. We're moving our Canadian headquarters to Toronto, where it was in Vancouver before. In our facility we are three hours behind always. You know, from Vancouver we were away from our major customers. We're moving our Yves U.S. business here to the U.S., and we will be -- from a sales and marketing standpoint.

So we are really focused on our Canadian business. Steve List and his group along with Dena are really looking at a lot of new products in Yves, whether it is into the refrigerated salad dressing business, into refrigerated soups, we really have a big opportunity to expand the Yves names into other vegetarian products because we're sold in the produce section.

So our fiscal 2005, our 11th year of business, is behind us. What did we accomplish? We grew sales 14%. Adjusted profit we grew 20%. With all the sales increase -- with all the cost increase coming at us, our margins were flat. Our SG&A was down 80 basis points. We launched several new products, new categories. Our service levels, 98%. We have gone through the first time a major SKU rat on a lot of acquisitions that we did and a lot of products. We really upgraded the people in the organization.

We integrated JASON's, a whole new area for us in skin care, hair care, personal care. We integrated a frozen business. We acquired one of the fastest-growing areas in natural foods to date, a chicken meat business. That was July 1, of course, and we are pretty excited about the opportunities there. We made an investment into Yeo Hiap Seng, which is our Asian partner; and we look for a big opportunity in the Asian market to sell our products, to source products, and for us to sell some of our products there, and actually look to manufacture.

We completed 404, which is a monumental task within ourself; and that is one I feel great about. We took our Rice Dream and our Soy Dream brand on the refrigerated side, and especially Rice Dream refrigerated that it was growing nice, and one of our biggest challenges against Silk and General Mills on their refrigerated, we just did not have the distribution. This allows us to focus on aseptic where we can make a lot of money and we can grow it. We license it to Heritage. It really will help the brand tremendously, and I feel pretty good about that.

We sold Kineret. As we look to divest brands we're not going to focus on. You heard me talk about our cash conversion improving to 17 days. Last but not least, a week ago we announced the acquisition of Spectrum, which is a great brand in a great category with a tremendous amount of growth. We look to close that sometime in November, and we're pretty excited about the opportunity with Spectrum.

Let me just talk about the natural food category and the organic category. There is a lot of buzz out there. There is a lot of growth. There is a lot of excitement about the supernaturals. The category last year, and this includes supplements, grew 7.5%. So we as a Company grew 14%. Grocery grew 9.9 -- grocery frozen; we grew 10%. The snack category grew 11; our snack category grew 13. Tea and coffee grew 14.3; we grew 6.1. Personal care grew 14; we grew 18. One of the fastest-growing categories you heard me say before is fresh meat and seafood -- grew 18%. What an opportunity with us with Raised Right that we have. In these numbers come from natural food merchandisers.

I hear a lot of times we have way too many SKUs or way too many brands. Some people also tell me I have way too many children, but that is not true and that is the same fact with our SKUs and our brands. We want to be what P&G is to Wal-Mart. We want to be that all-around supplier. As costs go up, what we can do is capitalize on being that lower-cost provider.

We today have well over 1,000 viable SKUs in supernaturals. With that, a lot of these SKUs -- and they are all viable -- absorb a lot of freight cubage on trucks. We may have two or three flavors of soup, and they do a lot of blocking and tackling, and you know what? We do have the October, November, December, soup season promotions that are in the stores.

Ten brands make up 80% of our sales. If you include Europe and Canada, that is 85% of our sales. So when we go back and look at all our brands and all our products, we as a group are focused on Canada. We as a group, between Europe and Canada, are focused on that. And that makes up 85% of our sales.

So 2006, two months are already gone. We all watch what is going to happen with higher fuel cost. We sit here today knowing higher fuel cost is something that is part of doing business today, whether it is more rail, more backhauls, relocating some of our distribution centers, it is something that we're not going to get caught with, and we are all over it.

We're also looking at that instead of taking price increases, because that is something we just don't want to do. It's the easiest thing to take a price increase and keep driving up retails. Where do we do surcharges? And how do we deflect surcharges? How we drive down our SG&A to offset some of those surcharges? We will continue with the SKU rat, as that will be an ongoing process. In 2006, you heard me say about new businesses, whether it is Spectrum, whether it is our chicken business, and whether it is growing our whole body section of the area.

Our sales for July and August have been probably the strongest, which shows you people did not buy in for our price increase. Our sales for July and August, our orders were up 24%; and July and August are traditionally our slowest months. Our shipments are up 19% in those two months. So with September usually being our biggest month with back-to-school and people returning from vacations, the category and our business continues to be very strong.

As we look at our numbers for fiscal '06, our sales number. How we get to our sales number of 650 to 670, we start at 590, and we chop off about $30 million of sales. That is taking out Kineret, taking out our sales for our refrigerated Rice Dream and Soy Dream, and taking out our sales for our SKU rat. That adds up to $30 million, which brings us back to 590. Our sales projection for fiscal '06 is 650 to 670, which is 10% to 13% organic growth.

From an earnings per share standpoint, $0.98 to $1.05, which is 10% to 18% growth, which I think is something that is very achievable for us and pretty good growth in today's day.

What I would like to do is turn it over to John Carroll and let him take you through what John and his group have accomplished within a year in the grocery frozen group, which is are biggest group within the Company. Thank you.

Thank you, Irwin. Good morning. FY '05 reflected a year of significant progress for the Hain grocery and frozen business across all areas. As I stated in our previous calls, Hain grocery and frozen had four FY '05 strategic objectives to improve our business. First was to drive profitable growth in our six core categories; second, improve margins by driving out costs; third, improve our working capital management; and fourth, and perhaps most important, just improve our execution.

As I said before, our goal was to make meaningful progress every quarter against these objectives, and Q4 represented a continuation of the positive trends we saw in Qs one through three. More importantly, a review of the full year shows significant progress across all four strategic objectives. In FY '06, with the implementation of our SKU and brand rationalization, the divestiture of Kineret, the licensing of our refrigerated beverages to Heritage, and the pending acquisition of Spectrum Organic, it will show the transformation of the grocery business into a more focused portfolio with significantly greater top line, margin, and income growth potential.

Now, going back to the Q4 review and starting with our first objective, profitable growth in our core categories, as Irwin discussed previously, we entered into Q4 this year knowing that we had three year-ago comparison issues. First, we got about 3 to $5 million in a price increase buy-in last year which we did not want to repeat this year. Second, we had over $2 million in Wal-Mart nondairy beverage and soup pipeline shipments. Third, we had over $3 million in SKU rationalization discontinuations. As a result, Q4 grocery and frozen branded sales were down slightly on an absolute basis, but up 7% when these one-time issues are factored out.

Importantly, trade spending was down as each of these year-ago volume hits came with a high trade spending price tag. The result was a more profitable volume mix for grocery and frozen. Importantly, we did not eliminate any spending support. And I want to say we did not eliminate any, again, spending support that was driving sales to the consumer. This is evidenced by our strong consumption growth in the last 12 weeks in almost all of our core brands and categories.

These are combined grocery and natural numbers. But our consumption for the last 12 weeks in combined grocery and natural number was -- for Imagine Soup was up 34%; Earth's Best, up 20; Rice Dream, up 9; Arrowhead Mills, up 7; Westbrae organic vegetables, up 23; Ethnic Gourmet, up 10.

And for the first time in a year, we are starting to see growth on Health Valley. Health Valley soups, as Irwin said, they are up 12% in the last four weeks, up 2% in the last 12. So we're starting to turn the corner there. Very importantly, on Health Valley cereals, we saw 1% growth in grocery after a year of decline.

Also, our Q4 Sesame Street sales were 126% above budget as that brand continues to gain momentum and distribution. As Irwin discussed we're still seeing softness on our WestSoy and Soy Dream brands; but we're shipping new improved organic formulas and improved packaging, and we expect consumption trends to improve thereafter. Also, the consumption data does not pick up that we continue to see volume growth on our Soy beverages in channels not measured by Nielsen; i.e, mass merchandisers and Trader Joe's.

Moving on to our second strategic objectives, in the area of improving margins, we saw 120 basis point improvement in Hain grocery and frozen Q4 organic gross margin. This was driven by, first, the more profitable volume mix we talked about and, second, improved PPV. This offset an almost 20% increase in distribution and warehousing costs driven by increasing fuel cost. We also saw a 200 basis point improvement in SG&A costs. These improvements reflect the impact of cost-savings programs implemented at the beginning of the year which are really starting to get traction now.

We are continuing to drive additional productivity initiatives to build margin in FY '06 in the face of increasing fuel and organic ingredient costs, including, as Irwin said before, we implemented a 3% grocery price increase effective on June 1. We are implementing a frozen production consolidation, which will ultimately consolidate our frozen meals plant into our frozen pasta plant in Westchester, PA, with a high-speed production line.

We also have done a grocery full truckload reverse auction, which we completed in Q4, which along with the Q3 LTL auction has identified 10% in freight savings before fuel surcharges and is being implemented in Q1. We're also doing a frozen logistics consolidation with a few other frozen companies that will decrease overall frozen distribution and warehousing costs by 7%, while improving our customer service by increasing delivery frequency. Finally, as we have discussed before, we are implementing our SKU rationalization which, when completed, will eliminate over 20% of our SKUs and drive annual savings of $2 million.

Now while these initiatives will reduce costs, there is no way that these will fully offset increased fuel cost if oil goes to $70 or better a barrel for a sustained period. As we discussed, we're looking to increase the use of cheaper transportation alternatives, such as rail. We are also investigating the potential to put a surcharge on all delivered orders. This is becoming an increasing topic of discussion not only at the Hain Company but at companies throughout the industry.

Now moving onto our third strategic objective, which is improving working capital management, we saw improvement across all of our key cash management metrics, but most notably inventory. That is what we really focus on. Melville inventories were down 14 days versus year ago for the quarter, driven by a significantly improved FNOP (ph) process. We expect to see continued improvement in this area as our shipments are now becoming more and more closely tied to consumption and also we start to experience the benefits of SKU reduction.

Finally, as we looked at our fourth strategic objective, which was to improve execution, our progress in this area is best illustrated by the continuing improvements in our customer service rates. Q4 service levels for non SKU rat SKUS were up 98%, which was up almost 5% versus year ago. This was achieved despite the decrease in inventory that we just discussed. In fact, as we look forward to FY '06, it is this area -- which is improved execution by the entire Hain grocery and frozen team -- that gives me the most optimism for the future.

As we walk into FY '06, we have a more focused and profitable Hain grocery and frozen portfolio. We also have clearly defined roles for every category and brand within the portfolio. We have consumption momentum on almost all of our core categories. We have very little year-ago top-line hangover from unprofitable distributor buyouts, as our shift in emphasis from trade to consumer has diminished the incentive to buyout. We also have product and marketing improvements for those lines where consumption trends need to be reversed; i.e., soy milk.

We also have our strongest slate of new products in years and a much more disciplined process to drive new distribution against both existing and new products. We also have a supply chain function that has begun to demonstrate the ability to service the consumer and to drive out costs. We have significantly improved working capital management, and a team from top to bottom that has a can-do attitude and the ability to leverage our scale to bolt-on an acquisition such as Spectrum Organic and drive increased profitability.

So to close, Hain grocery and frozen is important to Hain Celestial Group as it accounts for 50% of the Company's sales. And, as Irwin said before, it is important to our retailers, as we have either the number one or number two brand position, or in some cases both, in the core natural organic categories we compete in.

FY '05 represented a year of significant progress for Hain grocery and frozen as we made significant progress against all of our key strategic objectives -- top line, margin, cash management, and execution. The business is now a more focused and profitable business than it was a year ago. With the significant scale in the natural organic categories it competes in, it is poised to accelerate its top line, margin, and operating income growth in the future.

Now I will turn in over to Ira Lamel, our CFO, to review our Q4 and FY '05 financial performance.

Thanks, John. Good morning, everyone. As Irwin discussed earlier, we continued to see strong revenue growth in the fourth quarter this year, with a 10.2% increase in our sales to 151.3 million, up from the prior year's fourth-quarter sales of 137.3. For the full year, our sales reached $620 million, or 14% higher than last year's 544 million. The 620 million in sales represents a record for the Company.

For the fourth quarter, diluted earnings was $0.20 per share when adjusted for the SKU rationalization and non-cash compensation charges we announced in June. In last year's fourth quarter we earned $0.14 per share. So earnings growth per share in the quarter was 43%. After deducting the fourth-quarter impact of $0.27 for those charges, we did incur a loss of $0.07 per share on a GAAP basis. Our share count in the quarter was 37,240,000 shares, up from last year's 36,937,000.

For the full year, we earned $0.89 per share on an adjusted basis against $0.74 last year. After deducting the $0.30 for the charges we have discussed, our GAAP earnings were $0.59 for the year. The full year share count was 37 million 153 against last year's 36 million 407.

In whole dollar terms, our adjusted net income was 7.4 million for the fourth quarter this year, versus net income of 5.1 million in last year's fourth quarter, and reached 33.1 million for the full year, versus 27 million last year.

As Irwin discussed, our gross margins, when adjusted for the portion of the SKU rationalization charge which impacted cost of sales, have been maintained at 27.2% in the fourth quarter this year, registering only a 10 basis point change from last year's fourth quarter. For the year, we had a 40 basis point drop.

We met numerous challenges this year, absorbing the impact of increased ingredient costs, including the high cost of main ingredient in our Terra Originals; skyrocketing fuel costs; and as we have discussed in the past, the changing mix of our sales. Our ability to maintain the gross margins in this environment is due in large measure to the success of the price increase which we implemented and the savings we have realized from the initiatives we have put in place across our operations.

Our SG&A, again adjusted for the SKU rationalization costs that are included in that line, was 28.6 million in the fourth quarter this year or 18.9% of sales, compared with 28.7 million or 20.9% of sales in the prior year's fourth quarter. For the year, SG&A was 125 million or 20.2% of sales, compared with 114 million or 21% of sales. The full year drop with our sales rising and our dollar spending on SG&A control shows that we're realizing significant reductions in G&A as a percentage of sales, as we continue to benefit from integrations of acquired companies and other efficiencies we have been putting in.

Operating income as adjusted for the quarter this year was 12.5 million, an increase of 47.3% over last year's 8 million. As a percentage of sales, operating income as adjusted improved to 8.2%, up from last year's 6.2%.

In this year's fourth quarter, interest expense and other expenses net totaled 1.3 million versus 417,000 last year, an $870,000 increase that cost us almost a penny and a half of earnings in the quarter. For the year, interest and other amounted to 3.7 million versus 2.5 million in the prior year. The interest portion included in this line was 4.4 million in the current year, and that amount was offset by the net of various miscellaneous income and expense items.

Our higher interest expense is the result of higher interest rates on higher average borrowings. The higher borrowings come from acquisitions we have made, and the higher interest rates of course have been experienced by everybody in the financial community. At June 30 this year, our weighted average interest rate under our credit facility is 4.3%, while at June 30 in the prior year our weighted average rate under the credit facility was 2.4%. That is a reflection of those increased rates in the marketplace.

EBITDA as adjusted amounted to 15.6 million in the quarter versus 11 million last year, and 69.4 million for the year versus 55.8 last year. Depreciation and amortization in this year's quarter was 3.2 million as compared to 2.4 million in the prior year, and totaled 13.9 million for the full year versus 9.8 last year. The increase in depreciation and amortization results from the higher investments in fixed assets in acquisitions of businesses with their own manufacturing facilities, which has been the case in acquiring Ethnic Gourmet, Rosetto, and JASON's.

Our recently implemented focus on improving our working capital management by becoming more disciplined in managing our cash conversion cycle has resulted in an improvement to 69 days in converting to cash, a reduction of 17 days from the fourth quarter last year and a reduction of nine days from the third quarter this year. At June 30, our receivables were at 42 days; our inventories at 62 days; and our payables at 35 days. Our SKU rationalization program was a major initiative in our working capital management and was a significant contributor to this reduction in the number of days in the cash conversion cycle.

Our balance sheet continues to be very strong. Our working capital was 125 million at a current ratio of 2.8 to 1 this year. Our stockholders equity is now at 528 million; and our debt as a percentage of equity continues to remain at a very low 18%.

As Irwin mentioned, with the conclusion of this year we have successfully completed the implementation of our initial Sarbanes-Oxley internal control project. This has been an extremely expensive undertaking, with outside consulting, legal and audit fees, and the incalculable cost of the amount of time expended by our Hain Celestial employees. Since the implementation of the project in the second half of 2004, and continuing into our current fiscal '06 first quarter, we have incurred outside consulting costs and audit fees totaling almost $3 million and have incurred additional inside costs including the major amount of time spent by our people. I just want to take this opportunity to thank everybody at Hain Celestial, each one of our employees, because this project has touched everyone. I think they have really put out a terrific effort.

As we look to fiscal '06, as Irwin mentioned, our guidance for sales is 650 to 670 million; and earnings per share guidance of $0.98 to $1.05. This implies organic sales growth of about 10% to 13% as we adjusted the base, as Irwin discussed earlier, for SKU rationalization sales, for the disposal of our Kineret brand, and for the reduction of refrigerated nondairy sales that we have now licensed to Heritage.

We believe gross margins will remain flat with our new poultry venture contributing lower than average margins, offsetting the margin improvements we expect in other areas of the Company. We're also forecasting higher interest rates consistent with the rate changes that I mentioned earlier. We're anticipating an effective tax rate between 38% and 39% and a share count of 37.75 million shares. We have assumed nothing in our guidance for our pending acquisition of Spectrum Organic.

Given the acceleration of the vesting of all outstanding options in June, resulting in the stock compensation charge, we expect there will be no further stock option expense in 2006 with the implementation of the new stock compensation accounting rules. Currently, we're working with consultants on new compensation models for the future. At this point, we can open up the call for questions.

(OPERATOR INSTRUCTIONS) Greg Badishkanian with Citigroup.

Nice results, guys, and good effort in helping the hurricane victims. I just had a few clarifications. The 650 to 670 revenue guidance, I assume that excludes Spectrum. Right? The acquisition.

Absolutely, Greg. Yes.

Good. That gets you the 10% to 13% organic. For the quarter, I'm sort of coming up with a high single digit, excluding SKU rationalization and acquisitions. Is that about right for --?

Absolutely, yes.

Good. Could you also just -- the orders were up 24% and also shipments up 19. Can you talk about the differences between those two metrics? Also, it is a very nice acceleration. What do you attribute that to?

First of all, Greg, we probably -- it takes us about five days between the time we get an order and we ship it. So it is just five days of extra orders in there that have not been shipped yet. But that is the difference between orders that come in and shipments. The end of the quarter, it all evens out. But the big thing is you got the orders; we will ultimately get shipped. That is the key thing we focus on. Your second question?

What do you attribute that to? It is a really nice acceleration.

I think what is important, a couple things. Number one, our consumption is strong. Number two is, it comes back to show that the way we changed our promotional spending and put it towards consumer and scan-downs at retail, it did not allow distributors to buy in against trade promotions. Coming up at the end of a quarter, it shows that they are buying to orders, they are shipping to consumption.

I think the other thing is, which is really helping, a lot of the new products that we are shipping and getting out there and taking the space of some of the slower-selling SKUs through SKU rat is really helping our sales.

So in this quarter, what we really see -- and July and August usually being the dog days of summer -- it is showing how SKU rat is working. It is showing how we really are managing our spending towards the consumer is working. And it is really showing how we are working in order to build brands with consumers; and our consumption numbers are up. So that is what is driving July and August. We feel very good about it.

Also you heard me talk before about the category, and that was 2004 numbers when I referred to the category in natural food merchandiser. But just more and more people are shifting towards healthier natural food.

Just finally, just a price increase; it was effective June 1. How much of that did you actually benefit from in the quarter?

Minimal. The price increase was effective June 1. There was promotions out there. Our big thing, and the reason we won the June 1 -- last year it really took us till the end of December to really get it effective for the full year. It took us six months, because of promotions. If we could start the clock sooner, when the promotions ran out we would just get it effective sooner. So we're still, even though we took the price increase June 1, everything that was on promotion for 60, 90 days is price protected. So it's not 3% effective immediately across the board everywhere.

Right. When it is fully implemented, what percentage of your portfolio and what type of increase maybe would you expect from that?

This year was mostly just Melville business (multiple speakers) John and our snack business. He did not take a price increase. Europe did not take a price increase. Canada did not take a price increase. That is basically -- so it is mostly snacks and the grocery business took a price increases.

Right, right. Great, thanks.

Scott Van Winkle with Adams Harkness.

A couple of questions. First, is there any one, two, or three brands that are most affected by the SKU rationalization?

I would say Health Valley, nondairy, Scott, and probably to some degree if you add up the Westbrae beans and Bearitos and stuff like that, that is probably -- and it showed in the quarter. Nondairy we really, between WestSoy and Soy Dream and Rice Dream, really have cut back on SKUs. As you heard me say, this goes back to brands during acquisitions where we never got rid of all the SKUs. When we bought Rice Dream, Soy Dream, they had a big pudding business and they had other stuff that we got out of. But this is really -- and the case there, our co-packer didn't want to run SKUs any longer unless it was certain runs and stuff like that. So there's multiple dollar savings there.

Same with Health Valley. So Health Valley, Rice Dream, Soy Dream, WestSoy, and some of our Westbrae product lines would be the biggest effective. And of course all of our Carb Fit product went away, which at one time Carb Fit was close to $10 million of sales.

Right. I would assume that 95% of the SKU rationalization goes is affecting the natural channel.

Not necessarily. Not on WestSoy and Rice Dream and some of the Health Valley cereals. But the majority definitely is. As you heard me say, there are still 1,000, 1,100 SKUs that we still have in the natural food channels. We had brands out there -- whether it was ShariAnn's that was acquired by Walnut Acres; Walnut Acres Health Valley soups -- so we look to consolidate some of those smaller brands at the same time too.

Okay. That 19% shipment data you gave us for July and August, is that compared to last year's July and August total sales? Or last year's July and August adjusted sales after the SKU rationalization?

That would be compared to adjusted because we are not shipping -- we would pull out all of SKU rat products. So it is apples-to-apples.

Right. So it is not a reported basis; it is apples-to-apples.

It is apples-to-apples. That is shipments. That does not include any acquisitions or anything. That is just apples-to-apples.

Okay. Question for Ira. If we look at the guidance, you're assuming revenue growth in maybe the high teens. You're assuming a flat gross margin. You're assuming higher interest expense year-over-year. So the incremental earnings growth above revenue growth is all coming from SG&A reductions, correct?

It is coming from SG&A reductions. It is also coming because we are going to have incremental margin on the higher sales. Remember we're looking at a higher sales number. If you just run the numbers based fairly closely on a flat margin and a flat SG&A number, you're going to come out what we talked about, and then adjusted for that interest expense differential that we are going to have. The other thing you're going to get is the share count increase. So I would say you are largely correct, but there's some small nuances in there.

What you said flat SG&A, you meant flat dollar SG&A year-over-year?

I was using pretty flat percentage of sales. As we go forward, we will continue to get some consolidations in the SG&A. We don't only have G&A. There's selling expenses. We will continue to make investments in selling on that selling line. We have some consolidation of administrative functions planned. Europe is going to be starting to consolidate some of the functions into one location. We will just continue to see these things help us on that G&A line.

Scott, what happens here after a certain number, as the sales increase, a much bigger chunk of it comes to the bottom line. I think as we expand our sales for the 670 number, that really has the ability. But in the meantime, one of the things, as you heard us say before, chicken for us from a margin and a profitable is not right now -- if anything it would be a dilutive business. But we are going to invest in it and make sure it becomes antibiotic free. We are going to invest in the whole organic chicken nugget and chicken fingers.

So some of our dollars here absolutely will go back into reinvesting in some categories today that may not be providing income but are big growers. You heard me say before fish and meat are growing 17%. So I feel good about the base, I feel good about where we are in the top line. And this allows us to invest some money back into the businesses.

I was just getting clarification. You're going to see naturally your gross margins should come done because Celestial becomes a smaller piece of the business, as we have seen for a couple of years. So a flat gross margin I would think is a fairly good performance.

I think the other thing where there's an opportunity -- which you're right -- is whole body becomes a bigger part of our business. There's some opportunities there. That being already a $45 million part of our business, we're looking it to become a $100 million business over the next year or two.

Okay, thank you.

Ed Aaron with RBC Capital Markets.

I want to ask you a little bit about the impact of commodity inflation on pricing in the channel. Between the price increases that you have taken over the last 12 months and the fuel charges that have either been implemented or people are contemplating being implemented throughout the supply chain, what is the point, do you think, how much tolerance do you think the consumer has to higher prices in the category? Is there a point where you think that it might affect demand?

That is a good question. We really, and I tell you, put a lot of effort into pricing when we take a price increase. We study traditional products, we study competition out there, we study pricing elasticity, we do focus groups with our consumers. We really push the envelope here.

You got to step back. We took a 3% price increase last year. Now we didn't have it for the full year, and we saw the sales growth that we saw. You know, I am concerned with Terra, taking a price increase on Terra and just watching the pricing there. The easiest thing to do is take a price increase. What we need to do as a Company -- and I think if anybody had asked me, what is my biggest concern? It is saying, wow, this pricing is just way out of whack. We just can't buy this anymore.

So it is our job to -- a couple things -- really look to drive our SG&A down. It is our job to look at other alternatives out there. We are today one of the biggest sources of organic fruits and vegetables and grains. One of the biggest sources of potatoes. We're looking at multiple ways today on fuel and freight. This is where having 1,000 or 1,500 SKUs helps, because we don't want a truck at $0.70 a barrel for fuel or $3.00 a gallon -- we don't what a truck ever leaving empty today any of our warehouses. Or we're looking at every bit of backhauling with customers, incentive there. That probably has something to do with customers today, too. They want to make sure they fill trucks.

So we do not what to take another price increase because we are concerned. The other thing is, which is going to help us tremendously, Ed, is on the way we spend. If pricing goes up, and we are reducing it at retail because we're spending the money back towards the consumer and getting price reflection at shelf, that helps offset the higher prices.

That actually kind of leads me into my next question, just on the consumer promotions front. Talk about what you're doing strategically there that is different from what you have done in the past. There are certain categories where I think you can see -- I mean, Earth's Best is probably one that stands out. But just maybe give us a little bit of some of the highlights of what you have been doing on the (multiple speakers).

I'm going to let John, I will just talk about Celestial and Terra.

Ed, on the grocery and frozen pieces, it is really simple. Basically what we have done is move our emphasis on our spending from previously driving distributor sales to actually pulling through at the retailer. So we look to put the majority of our spending against elements that are going to be reflected at retail, so the consumer sees a better value. That is real basic. We have identified key customers that we want to drive our volume against, and we are seeing it respond in our consumption.

What we're doing at JASON's, Ed, when we acquired the business, there was a time the whole line was on sale at 25% off. We're focusing on categories and looking at categories. The other thing we're doing is baskets and shippers. So we have changed the way we have gone to market and making sure it is at retail.

In regards to Terra, our whole strategy on Terra is pounds on the floor. That has been Adam's strategy. As we look to go to the categories and really promote at retail there, as pricing on Terra is high -- and at Celestial the same thing. As we really focused on our green teas and our herbal teas by categories, instead of having it going through the distribution and sometimes not getting passed on at retail. So either scandowns or looking to do our segments is something the way we have been trying to spend our consumer dollars now, our trade dollars.

Just one last quick one. With the SKU rationalization, you kind of mentioned in the press release that those products are going to be phased out over the next 12 to 18 months. Will there be some revenue booked from those products, as well as the refrigerated soy products in 2006?

Minimal on both. We are in the midst of transitioning already our refrigerated. There's products out there that we will ship, but we are being very careful because we don't want to ship a discontinued and end up getting it back, because it costs us reclamation and whatever. So it is better than we ship it to New Orleans or Mississippi right now, because the cost there and what it can do is a lot better.

Thank you.

Ken Goldman with Bear Stearns.

A couple quick questions. I am just wondering if you could flesh out a little bit your Asia strategy in the long term. Obviously you're making some maneuvers there. I know it is both on the selling and the sourcing side. But I am just wondering if you could help us understand a little bit better where you see your strategy there in a few years.

Number one, as we look taking Hain Celestial global, I think we have a good footprint in Canada today. We have a good footprint in Europe. Asia today is where the U.S. was eight to 10 years ago on organic and natural foods. As you see the bigger supermarkets, whether it's Carrefour, Wal-Mart, Delhaize expand into Asia, and being in Beijing and Shanghai and Hong Kong, the demand for these products is tremendous and there is no real branded products. Another thing, commodity products. Nobody is really doing anything from an organic or a natural standpoint over there.

Yeo Hiap Seng, which is about a $215 million Asian company, is big into soy and big into other natural condiments and products. They have sales structure all throughout Asia. They have five plants throughout Asia. So basically our strategy is for them to sell certain of our key brands throughout Asia. Where it make sense we will manufacture our products over in Asia.

At the same time, with higher commodity prices right now, we're looking to source some of our ingredients in Asia today. We're looking at manufacturing some of our products in Asia today. Going into the oil business and some of seed that we need at Spectrum, some of the things are coming from Asia.

At the same time, Yeo Hiap Seng has numerous Asian products. In the U.S. there is a whole other market that we are not selling into today in the Asian market. There is a tremendous amount of Asian supermarkets out there. We look to sell their products into the Asian market. We look to take through that distribution system some of our products into the Asian market. So it's a big opportunity for us. We have both exchanged equity into each other, and that will be completed next week, so we both have a stake. I think it's an excellent strategy for us and an exciting one.

Thank you. My next question is pretty quick. Just about Whole Foods in Louisiana. Last time I heard there were two or three that were shut down. I am just wondering what the worst-case scenario would be for you? I know it is early and there may not the anything you can pinpoint, but just curious what you are thinking right now.

I think it's actually two right now. One of them -- I go from two to five, I am not sure. But Whole Foods is an important customer, a big customer; and five stores is important to us. So it definitely affects shipments and that into United Natural. It definitely affects some of our sales. It definitely does.

You're not quite sure long-term yet.

Way too early. The only thing we have mentioned, talking about the hurricane, we do have our major pasta facility in Shreveport, Louisiana. We were down a day or two because of water and electricity, but we're back up and running. Our big thing today is, how can we help? We have a tremendous amount of food, and that is a big issue there. We are looking at it today and how we can ship a lot of close to code or SKU rat product there. That is our big thing that we're focused on now for the hurricane.

Great. Thanks, Irwin.

Eric Larson with Piper Jaffray.

A quick question on your revenue guidance again. The poultry acquisition, you will be consolidating that revenue, will you not, at 50.1%?

We will be, Eric.

Okay. You have not anniversaried all of your acquisitions yet.

Yes we have, Eric.

You have? Okay. So then that 590 base is the real base? I thought you still had a little bit of revenue left coming from other ones.

No. Let me just take you -- the volume on chicken is somewhere -- is 15 to 20 million. I am being careful on chicken, because in that chicken business there is commodity chicken business; and we are looking to get out of commodity chicken business and mostly move it all to antibiotic free. Okay? So there is a small piece in there for chicken.

The only other acquisition is Zia. Again, Zia was approximately an $8 million, 7 or $8 million acquisition. We are going to go through some major SKU rat on Zia. So that is the only two that we are overlapping here.

Okay. Okay. Finally, Irwin, can you just give us a few thoughts regarding your future compensation programs? Are you thinking going more toward restricted stock, or a combination of restricted stock and options, or -- ? Right now our thoughts are kind of hanging out there as to how you are going to compensate your executives.

Eric, it's Ira. I said in our remarks that we have retained compensation consultants that we're working with right now to kind of help us develop our compensation programs for our people going forward into the future. We have not made decisions yet. I think the answer to your question really is we're considering all of the above, everything that you said.

We are looking at restricted stock. We are looking at reconfiguring our compensation in terms of face and incentive compensation for our people. When we make the decisions on that, we will certainly come to the Street and let them know what we're going to be doing. But right now, no stock compensation for options will hit '06, unless at the conclusion of the study we make different decisions.

Eric, one of the things I think today, no matter if it is options or restricted stock, it is all P&L and all noncash. We want to see what is the best way to go here for our employees and our shareholders. That is why we hired a firm to come back and do a study on this here and what is best. So right now, even though we are into 2006, we do not have an incentive stock option or restricted stock plan in place for 2006 today.

Okay, thanks.

Rob Campagnino with Prudential Equity Group.

Based upon your comments it seems that the SKU rat is not just a onetime event but rather an ongoing process. Can you just give us a little idea what the criteria for the recent efforts were, and what sort of business criteria you would be using looking at the brands and the SKUs going forward?

Rob, it is a onetime event; it just doesn't happen today and it is all over tomorrow. What happens is throughout the year, whether the SKUs are on promotion or the SKUs are already on the shelf that we did not want to take back -- but not every quarter and not at all next year will we be doing SKU rat.

So SKU rat for us, the criteria for SKU rat was this here. Slower-selling SKUs that -- from a hurdle standpoint here. It was SKUs that, when we went to our co-packers, drove our pricing up and did not meet minimums with our co-packers or in our plants anymore. At the same time, as we looked at new SKUs that did not have enough shelf space, and as we looked at new SKUs we looked at faster-moving SKUs that we wanted to replace that space with. And last but not least, it was duplicated SKUs that we had in certain brands.

The other thing is, was what was spoiling on us and what we were throwing out. Because the minimum run was 500 cases and we were only selling 300, we were throwing out 200 cases. So that was, as we went through -- and it took us about nine months to do this, to do it right. Because one thing on our balance sheet is equity, and that is shelf space, and that is something that is very, very important to us.

So when we say we will continue over the next 18 months, you are not seeing every quarter where we are going to say this is SKU rat, this is SKU rat, this is SKU rat. It does not all stop and all of the products are out of the system June 30. It takes us 12 to 18 months to get the products out of the system.

Okay. I appreciate that answer. Just one quick question. The corrected release is not a change to plan or anything; it is just obviously a --?

It was an error that was caught this morning.

Okay.

We did not over the night up the guidance already, by no means.

Rob, I would like to go back to your question just for one additional comment on the SKU rationalization and why it is not, a SKU rationalization itself, ongoing. What is ongoing is that we are always looking at our line of products, and developing new products that get added to the line, and taking older products that get removed from the line.

Those older products have hit our P&L in the normal course throughout our history. This was a program to look at the specified criteria that Irwin discussed. I can tell you that in the first quarter and the second quarter of this year, and underlying the third and fourth quarter, there are normal product discontinuations that are not included in the SKU rationalization charge. That will continue as we go forward as well.

I appreciate the clarification. That was more the direction of my question. I thank you for your time this morning.

Okay Rob. Welcome to Hain coverage.

Thank you.

As we have been running about an hour and half now, what I would like to do is take one more question and then closing comments.

Mark Chekanow from Sidoti & Co.

A little big-picture on the SKU rationalization. I wonder if you have given any thought to category rationalization. Over the past several years, you can point to something like Health Valley cereal and probably snack bars and cookies that there seems to be a lot of competition; it is easy for new entrants to come in; there is a lot of emerging brands. Have you given serious thought to exiting specific categories where you don't think the required investments to deliver growth is really going to make a -- is really the best use of resources? Maybe exiting certain areas in general and not just specific SKUs?

Good question. You have heard me say before what I am looking to do, as I look at the categories today, what was a hot category for us seven years ago may not be that hot category today. I think one of the things when I see Hain enters another category, or Hain goes into whole body or chicken, from a big-picture standpoint, we as a Company are looking for emerging categories. You heard me talk before about seafood and meat. You heard us talk before of whole body. Where today there is a heck of a lot of competition in that cereal and cookie category. And go into whole foods at Time Warner, and stand in front of that case, and look, and you will say -- whoa.

So from our standpoint, from my standpoint, what is important to us is that we identify categories, we identify the right categories, and we get out of categories that we really can't make a difference in. A perfect example was on refrigerated soy and Rice Dream. We just did not have the infrastructure. On Kineret we were not focusing on that kosher market anymore for us. As we look at Estee today.

You know if it had made sense for us to divest, not get out of the category, of Health Valley cookies and cereals because of the competitiveness, the margins, and it was not a growth category, we would definitely consider that and look at that.

Also shifting now, I hope this is not too sore a subject, but if we talk about Carb Fit a little bit, I guess in hindsight when we look back a lot of companies threw a lot of money at this and a lot of new product launches. So if you want to kind of take inventory now and say, lessons learned -- on the next emerging trend that will come about at some point, do you think you would want to be the leader again, with investments in new product launches? Or maybe see how it pans out at first?

Because from what I have seen, it seems like the companies that did the best really were the ones that actually did the least as far as addressing it, and just let it come and go. So I guess how would your -- I know you wanted to be a leader and first in the space with all the new products. How would that potentially change when the next emerging trend comes along?

I think, number one, we're good here, but we're not that good to predict what would happen here with the whole carb area. Okay? A lot of other companies other than ours got hurt in much bigger ways. We went into the low carb area as a major defensive move. Whether it is pasta, cookies, cereals, snacks, that is all carbs. So we had to go into it to protect our business.

At the same time, we developed it internally. At the same time, it was a hot category. It is like going to a casino. You're lucky or you're not. And this one here, the category change, is not something that we did. But the thing is, what is important, Mark, the first guy in, if it is a good category, wins. The fourth guy in, nobody needs him.

So if I had to do it again, the only thing which I have learned here -- I probably would not have done 60, 70 new products. We might have rolled it out to natural food stores first. but when you have Safeway and Wal-Mart and people calling you for this here, it is hard to say no, no, no. At the same time when you've got Atkins and everybody else coming after you, you kind of say -- whoa. This is one I think not only us, the world was fooled by, and a lot of bigger and smarter companies than us came out with a lot of low carb.

Did it cost us a lot of money? It cost a few million dollars at the end of the day. But many companies come out with new products, and just on slotting along don't work, and discontinue them in the first year. I would have to say this was probably -- in our 11-year history, if I had to say what is some of the biggest abomination of new products -- not that this was an abomination of the new products; it's just the category, what happened there.

So absolutely a lot learned. But if I had to do it again today I would want to be the first, because the third and fourth don't have a chance to get in. Maybe do it in a smaller way next time.

Okay. Just one last thing. With the drought conditions that have been in the news, and now with the hurricane, are there any specific pockets of organic crop production that you are concerned about?

No, I think we are well protected out there. We are hedged out and we are bought out against commodities. So the only thing that is affecting us and every other company in America is fuel. Other than that, there is nothing out there today that we see an issue with on commodity pricing coming to affect us.

Thank you.

Thank you. With that being our last question, fiscal 2005 had a lot of good things happening, a lot of challenges. I feel we really did a good job of overcoming the challenges. Whether it is our distributors consolidating warehouses, and we had one major customer that probably closed somewhere between five to seven warehouses. When warehouses close a lot of volume comes out of our system. At the same time, as we change our trade promotions and the way we go to market, volume comes out of the system.

We have taken price increases where we could. We fought off price increases. We caught our SG&A where we could. Still we had good growth both in the quarter and good growth in the year.

We launched multiple new products. We really launched a good SKU rat which is something that is very very important to us and will be important for the next couple years at Hain. We have gone into two new, three new categories, whether it is frozen, the whole skin care, whole body area, and now the whole protein area which is an emerging market for us.

So with that, I am excited about 2006. I am excited about the prospects. But I think the most important thing is we really are in a good category with really good brands and, you heard me say before, about 10 brands making up 80% of our sales. I think sometimes as we get looked at, that we have all these brands, that is not necessarily so.

Last but not least, I probably have the ability and the opportunity to work with one of the best management teams and people within Hain today; and with that also coming with the people, we have done a tremendous job in improving our relationships with our co-packers, our distributors out there, and our customers just by improving service levels to 98%. So today, we probably have -- we do have some of the best people. We have the best relationships we have ever had with our co-packers, our distributors, and our partners out there, which makes riding a lot smoother.

I want to think everybody for -- I know was long today, an hour and a half -- for your time. But we had a lot of good things to say. Have a nice Labor Day weekend. Thank you.

Ladies and gentlemen, thank you so much for your participation in today's conference. This does conclude the presentation. You may now disconnect. Have a great day.