Hain Celestial Group Inc (HAIN) 2006 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Hain Celestial Group fourth-quarter and fiscal year 2006 earnings conference call. My name is Onika and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen this conference is being recorded for replay purposes.

At this time, I would now like to turn the call over to Ms. Mary Anthes, Vice President of Investor Relations.

Thank you, Onika. Good afternoon. I am pleased to be with you today to introduce our fourth quarter and fiscal year 2006 earnings conference call to discuss our financial results which were issued after the close of the market. We have several members of our management team here today to discuss our results, including Irwin Simon, President and Chief Executive Officer; Ira Lamel, Executive Vice President and Chief Financial Officer; John Carroll, Executive Vice President and President, Grocery and Snacks and Maureen Putman, Chief Marketing Officer, Grocery and Snacks.

Our discussion today will include forward-looking statements which are current as of today's 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 materially from those projected and some of those factors which may cause to results to differ are listed in our publicly field documents, including our 2005 Form 10-K field with the SEC.

This conference call is being web cast 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 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 Chief Executive Officer.

Thank you, Mary. Good afternoon everybody. I hope you have had an opportunity to look at our press release that was released at 4:00 this afternoon talking about our fourth quarter and our fiscal 2006 numbers.

Our sales for the fourth quarter, 195 million versus 151, up 29%. Sales for the full year, 738 million versus 620 million, and that is up 19%. Now if you that for SKU rat and divestitures, we started with a base of the year at 590, so that's up 25%. Our gross margins, and you hear me continuously -- gross margin enhancement -- and we've been working on our gross margin enhancements, for the quarter are 28.4 versus 27.2, 120 bps improvement, and for the year, 30.2 versus 29, again, 120 bps improvement.

Our SG&A, as we watched our expenses and we looked for integration, and yes, we have acquired a lot of businesses and we're looking for additional efficiencies, but 19.6 versus 20.2, 6 percentage points, or 6 bps better than a year ago.

Our EBITDA as we achieve to get to my 15%-18% EBITDA number, 83 million versus 69 million, a 20% increase. And as I have said, my operating margins, my EBITDA number is something I focus on a lot.

My adjusted net income for the quarter -- for the year, sorry -- $40 million versus 33 million, up 20%. And earnings per share, including -- excluding charges, is 102 million -- $1.02 versus [102] -- I'm getting ahead of myself -- $1.02 for the year versus $0.89, or up 15%.

If you look at our free operating cash for the year, up 38 million -- up to $38 million, up $10 million versus a year ago, and this year, Ira will talk about it later, we spent a lot of money in building our Westchester facility, our frozen food facility.

So let's look at the full year. It was a great year. It was a tough year as we encounter our fuel up $0.60 a gallon, up 29%. We also encountered 4% to 6% price increases on packaging. We also encountered health care costs being up 15%. In some of our businesses, we were able to take price increases, and some of our businesses we weren't. So in the businesses that we just could not take price increases as we are sensitive to retail prices, we really focused on our margins and our costs and how we took additional costs out of the business. John or either Maureen -- John is on his way back from a funeral. If John does not make it, Maureen will talk to you about our frozen -- and grocery and snack business, but with fuel and packaging being up the percentages that I talked about before, we were able to take two price increases -- one in July and one in October, and actually we took another one in July this year that will help us in fiscal 2007.

An incredible program that we undertook last year that we announced last June was a major SKU rat, and Maureen or John will take you through it, but we eliminated over 400 products, we improved our service levels to 99.1%, we improved our margins 2%. We were able to introduce many new products much quicker because we had the space for it, and our consumption levels are at the highest level they have ever been on the grocery-frozen snack business.

We acquired Spectrum in mid-December. We integrated it totally within a full -- within two quarters into our business. We have grown the overall Spectrum business up 14%. John has put together a solid management team and that solid management team has totally executed thoroughly in the grocery, snack and frozen business. As I said, we will we will go into more in a little while with either Maureen or John.

Let's talk about our Celestial Seasonings business. It was a tough year for us in [Boulder]. We had warm weather, a very price-competitive category and the green tea category are also being a very competitive category. Our overall shipments grew at 2% while the category was down 3%. This is the first time in 15 years that the specialty tea category was down. Last year -- and we're coming off an up 9%. So what did we do to get our growth to compete with the warm weather, which we cannot change the weather, and a very competitive category? We watched our expenses, our gross margins were up a half a point on our tea business, we were not able to take pricing as we were up against some very competitive competitors out there. So we spent money to go into new channels, mass market, club stores, dollar stores, our international, and we got some good growth on our food service on [K counts]. We've introduced new products, a Zinger to go type product which you add to water which we think is similar to a vitamin type water. We've introduced other new products, like [Assi] berry, Goji berry, some new flavors in that from tea, and we're in the midst of reviewing all Celestial right now, packaging products, and we're all set for our fiscal '07 and we're all set for a real exciting year at Celestial this year.

Our personal care business, our JASON brand grew 30%. Our consumption was up in double-digit numbers with skin care with -- being the highest-margin products growing the most. We did take some price increase last January, not this January, so overall we did not take a price increase. We've introduced many new products on the JASON line, fragrance-frees and natural salon, [Brillion], some new [micro version] flavors, new (indiscernible) products.

We closed on our Para business the end of March, the beginning of March, and we have integrated totally into the JASON business -- our finance, our customer service, order processing. We've closed down the building that it was housed in and everything has moved to California. So as we look at our personal care business, we're pretty exciting about the things happening there. We're really excited about the category and we're really excited about the overall expansion to other classes of trades and other channels that our personal care business can grow into. Because right now, 80% of our JASON's business is mostly sold within the natural foods channel.

We look at our chicken business, we have owned it one year, and what a year to own a chicken business or a protein business. Any pure protein has probably had one of the toughest markets that it has ever had in the protein category. But we made money, demand is strongly, we expanded distribution, we are moving into a lot of value-added products. Our margins improved 2% and we are looking to get to a 10% margin in this business. And we have been able to improve mix, we've been able to get some price increases. So after a year, I feel pretty good about the protein business and where it can go and where the category is growing and the demand for this category.

Our Canadian business, including our Yves U.S. business, was up 11% after being down in '05 and '04. Our Yves Canada business has an 88% share of the meat analog business in Canada. We have had good consumption on soy, rice milk and soups, Earth's Best and Terra. We're looking to grow our Canadian business to $100 million, and under the management team that is in place today, both the Canadian business and our U.S. Yves business, we're looking for some exciting things to happen in both the meat analog business and our Canadian business.

A lot of changes have happened in our Europe business. We grew our European business for a full year over 10%. Our European strategy is to focus on brands. As you read in our press release, we sold our Biomarche business, which was an organic produce business with much lower margins, no branding. We were able to get a good price for it. It was approximately $18 million in sales and one of our lowest-margin businesses. From a European standpoint, we will focus on our Lima brand. We will focus on Natumi, which is our soy milk business, Rice Dream, Soy Dream, Celestial and Terra. And we will look to expand in certain countries into Europe and really focus on our branding opportunities there.

UK, a big opportunity for us. In April, we formed Hain Celestial UK under our general manager David [Harrell]. So far, we're seeing some good exciting things happening. Our fresh business, which mainly supplies Marks & Spencer, had a good summer as we have had some good weather in the UK market, good growth. And we are working with Marks & Spencer's to introduce multiple other new products, and actually, we're working in the UK market to introduce a lot of the other Hain products. So we're pretty excited about the UK market and the opportunities there.

The Linda McCartney brand, which we acquired in June, we need to spend some time to stabilize the product. We're in the midst of redeveloping the packaging. We're converting the product to a soy base from a wheat base and having multiple meetings with the family, the McCartney family. They are committed and behind this brand and will help us relaunch this brand which will probably take until next February or March to do it. But some pretty exciting things under the Linda McCartney brand and we're pretty excited about that.

We're looking at other acquisitions, other branded acquisitions in the UK market now that we have the infrastructure under David and look to go into that with a lot of growth coming out of the market and a lot of demand for organic and natural where natural was not strong in that market before.

So let's go back and look at 2006. Let's look at the accomplishments. Great management team in place, solid earnings, solid sales. We hit that dollar a share, we executed a very effective SKU rationalization which enabled us to improve our service levels, improve our margins. We have managed trade spending effectively where we have benefits for trade spending which help offset some of the price increases. We got two price increases through on the grocery frozen snack last year and the a third one that happened in July. We completed the acquisition of Spectrum, which great brand, great products which grow 14% for us since the acquisition. We completed the acquisition of Terra, we completed two UK acquisitions and we acquired Hain Pure protein, the chicken. So we've been pretty busy in regards to acquisitions, but it's great to acquire. We've done a great job of integrating and a great job of operating these businesses.

We've put in place permanent financing, and if you look at it today, there was some of effective rates and some good financing for us. So let's look at 2007 and see why I am excited about going into fiscal 2007. We have in place a great management team. We have in place some great brands in some great categories. We are looking to move these categories into a lot of other channels. And continuously, I have heard -- is the natural food category slowing? Absolutely not. What we're seeing is multiple other channels looking to get into this category. We have strong international opportunities, strong international growth. We have a good start to fiscal 2007. We have had a very strong July and August and look for that to continue into September. Good consumption numbers overall, as I said, the strongest consumption numbers within Hain's history and Maureen will talk about that in a little while.

Going into the year, we've had a lot of new products, whether it's Earth's Best infant formula, whether it's some key products, whether it's of the some personal products. So pretty excited about some of the new products that we have coming out that we're launching and multiple new products at the natural food show that will be in October this year. And next year, or 2007, we will have a full year for acquisitions that we look to grow and look to integrate and look to get multiple efficiencies out of, because in acquiring some of these acquisitions and only in a couple of months, they could be somewhat dilutive as you take on all the expenses right away and don't get all the benefits from them. So we look to get a lot of benefits from it in 2007.

In regards to new acquisitions, some of the things that we're looking at today [are] smaller deals or incubator types of businesses where we can roll it out through our infrastructure. A pretty good example is Hain Pure Protein where we have expanded distribution with our existing customers. We've -- the mix of antibiotic-free versus conventional we've helped improve. So we like to look at smaller incubator for the multiples are not as high as some of the other types of deals. Our Asia business, same thing where we've made an investment in Yeo Hiap Sing and looking to roll out some of the Hain products in Asia and looking for some manufacturing opportunities over there.

In May of this year, we made an investment into a natural organic pet food business, small business of about $5-$6 million, and we look to look at that whole pet area as we think there's a growing opportunity there and look to some things like that. And last but not least, in future acquisitions, we still think there's some big opportunities in Europe and Canada.

So in moving ahead and looking at next year and looking at our guidance, we look at $880 to $900 million in sales and look at $1.15 to $1.19 in earnings per share growth next year. So pretty exciting for 2007, but pretty excited how we finished the year at 2006 and all of the accomplishments out there with headwinds in our face in regards to fuel, freight, packaging as we have absorbed a lot of cost within this business.

What I'd like to do is turn it over to Maureen Putman, who is filling in for John, and who knows this stuff pretty good who will talk about the grocery snack and frozen business.

Thank you, Irwin. Good afternoon. Hain grocery and snack Q4 results were strong, especially within the context of the four strategic objectives which John talked about on our last call. First, drive profitable growth in all core categories; second, improve margins; third, improve working capital management; and fourth, deliver best-in-class natural and organic execution.

Now starting with our first objective -- profitable growth in core categories. Hain grocery and snack's Q4 top line was up 23%. Our growth was driven by three key factors. First, strong momentum in our alternate channels businesses, including clubs, Trader Joe's, Babies 'R' Us and [Nat]. Second, successful execution in Hain grocery and snack's first-ever multibrand promotional event which encompasses 13 different brands. And third and more importantly, continued strong natural and grocery consumption trends net of SKU rationalization on our key brands in the last 12 weeks. And I am proud to deliver you these numbers -- Earth's Best up 43%, Ethnic Gourmet frozen meals up 31%, Imagine aseptic soup up 26%, Spectrum Naturals up 24%, Garden of Eden up 22%, Westbrae up 12%, Health Valley ready to eat soup up 11%, Soy Dream up 10%, Rice Dream up 8%, Arrowhead Mills up 8%, Spectrum Essentials up 4%, Imagine frozen up 3%, Health Valley bars up 5% and Health Valley chili up 4%.

We expect to see our growth continue as we continue investing behind our brands. Such initiatives include Earth's Best national advertising campaign on the national PBS show Sesame Street, Imagine soup's strategic alliance with Martha Stewart program and Body & Soul Magazine and continued innovation to fill unmet natural organic consumer needs. Our exciting '07 new product lineup is currently shipping and features several first-ever products for the natural organic category, including Earth's Best Organic infant formula, Health Valley organic microwavable soups, Imagine organic low-sodium broth, Imagine Kid's Dreams soy and juice smoothies, Earth's Best organic semolina pasta, Terra low salt seasoned chips, DeBoles' organic whole-wheat pasta with flax, Celestial's Tea Dreams nondairy frozen novelty bars, Spectrum Omega 3 salad dressings and Spectrum Organic refrigerated vegan mayonnaise. Many of these, as we mentioned, are first. And last but not least in driving profitable growth in core categories is our news not SKUs initiative with significant product improvements in our core categories. Some of these include Soy Dream, which is now USDA organic with improved taste. So now the Soy Dream brand is 100% organic. Health Valley chili also upgraded to USDA organic and reformulated for a better taste and texture, DeBoles' pasta and new impactful packaging highlighting key segments, such as gluten-free, which is an important segment right now; Earth's Best junior line reformulated for taste improvement and now with an added protein claim.

Turning to our second strategic objective, improving margin. We achieved over 200 basis point improvement in Hain Group (technical difficulty) Dream snacks Q4 gross margin as pricing, improved mix, SKU rationalization savings and slightly lower trade spending offset higher raw material packaging and distribution costs. This margin improvement was achieved despite diesel pricing being up 26% versus year-ago, driving increased Q4 fuel related costs of $2 million. In FY '07, we anticipate fuel-related costs to continue moving upward. In August alone, diesel fuel was at $3.05 a gallon, up 7% versus Q4 and 22% versus year-ago.

We announced a 3% grocery price increase effective August 14, and this along with key productivity initiatives, will be required to offset these costs and maintain margins. We continue to make progress on major productivity margin improvement initiatives across all categories, including -- and this moves us into our third strategic objective -- improving working capital management. Starting with SKU rationalization, this key initiative had a positive impact on our working capital and positively changed the growth profile and margin structure of our entire business. We have achieved all of the project's objectives, including rationalizations of over 470 SKUs, improving service levels to 99%, all while reducing inventory working capital by 4 million and reducing co-packers and unsalables too. This project was the key driver behind increasing our sales per SKU over 20% and driving over 200 basis points in gross margin improvement.

Frozen productivity consolidation. We have consolidated productions of all frozen meals and ravioli on high-speed lines in our Westchester, Pennsylvania facilities, and finally as to our fourth strategic objective, delivered best in natural organic class execution. Our second-half service levels were the highest in company history as our case fulfillment rate was 99%.

Additionally, our Spectrum integration is complete and the business is achieving operating results ahead of the acquisition model. Our improved new product development process drove our most focused and innovative new product lineup ever and it is shipping on time. We have executed our first-ever grocery and snack multibrand promotional event successfully which we will repeat in FY '07 and we offset over 20% increase in fuel costs.

To summarize, Q4 was a strong quarter for Hain grocery and snacks as we delivered significant improvement in our top line consumption margin and key cash management matrix. We introduced a strong lineup of innovative new products and other business-building initiatives to drive FY and '07 future growth. We continued to make progress on key margin improvement and productivity initiatives and executions despite rising fuel and integrated Spectrum on time and on budget without loss of business momentum. As we look forward, Hain grocery and snacks will continue to be challenged like everyone else in consumer packaged goods. Cost inflation is driven by fuel prices. We are confident we have taken the necessary steps to offset these costs in Q4 with our August price increase and productivity initiative. More importantly, Hain grocery and snacks continues to be focused on delivering sustainable quarter-on-quarter top line and margin growth. We believe we have the team, the momentum and the strategic initiatives necessary to continue delivering on that promise. Now I will turn the presentation over to Ira Lamel.

Thanks, Maureen, good afternoon everybody. We saw strong revenue growth in the fourth quarter this year with a 28.7% increase in our sales to a record 194.8 million, up from our prior year fourth-quarter sales of 151.3. For the full year, our sales reached a record 738.6 million, a 19.1% increase over last year's $621 million. For the fourth quarter, diluted earnings were $0.24 per share when adjusted for the completion of our 2005 SKU rationalization and the non-cash charge taken for FAS 123(R). In last year's fourth quarter, we earned $0.20 per share. After deducting the fourth quarter impact of $0.02 for the charges this year, we showed earnings of $0.22 on a GAAP basis versus the loss of $0.07 last year. Our share count in the quarter was 40,107,000 shares this year, up from last year’s 37,000,247 -- excuse me -- 37,240,000 shares, showing an increase of 7.7% impacting our earnings in Q4 by $0.02.

For the full year, we earned $1.02 on an adjusted basis versus $0.89 last year. After deducting $0.07 for this year’s charges, our GAAP earnings were $0.95 for the year. The share count for the full year was 38,912,000 shares versus last year's 37,153,000 shares, an increase of 4.7% with a $0.05 effect on earnings. Our gross margins when fully adjusted for the charge for the completion of the SKU rationalization came in at 27% in the fourth quarter this year. When we adjust for the Hain Pure Protein joint venture and our new fresh prepared foods unit in the United Kingdom, each of which earned lower margins than our other units and each new this fiscal year, we had gross margins of 28.4% in this year’s fourth quarter. The 28.4 compares favorably to last year's adjusted gross margin of 27.2, giving us a full 120-basis-point improvement.

For the full fiscal year, gross margin fully adjusted came in at 30.2% compared to 29% last year, also a 120-basis-point improvement. These improvements came from the positive impacts of our '05 SKU rationalization where we saw both cost savings and improved margins from accelerated sales on better-performing SKUs. Margin improvements also came from the price increases Irwin discussed which we implemented and from the productivity improvements across our operations. We met numerous challenges during the year with petroleum prices for the full fiscal year up an average of 29% and health and welfare costs continuing to experience double-digit increases each year, representing just two areas where costs have risen at increasingly high rates.

The direct and indirect impacts of petroleum on our business cost us $7.5 million more, or 100 basis points of margin, this year over last year. Our ability to improve gross margin in this environment is due largely to the success of the SKU rationalization and our ability to implement these price increases.

Our SG&A adjusted for SKU rationalization costs which were included in the SG&A line in 2005 in the fourth quarter of this year was $34.7 million, or 17.8% of net sales, compared with 28.6 million, or 18.9% of sales in the prior year fourth quarter. For the year, SG&A was 144.6 million, or 19.6% of sales, compared with 125 million, or 20.2% of sales. With our sales rising and our dollar spending on SG&A control, we are realizing the reductions we expect from G&A as a percentage of sales as we continue to benefit from integrations of acquired companies and other efficiencies.

Operating income as adjusted for the quarter this year was 17.9 million, an increase of 44% over last year's 12.5 million. As a percentage of sales, operating income as adjusted improved to 9.2% from 8.2%. For the full year, operating income as adjusted reached 69.6 million, an increase of 26.6% over last year's $55 million. As a percentage of sales for the year, operating income was 9.4 versus last year's 8.9.

In this year’s fourth quarter, interest expense and other expenses totaled 2.2 million versus 1.3 million last year. For the year, interest and other amounted to 5.9 million versus 3.7 million in the prior year. The higher costs this year resulted from higher average borrowings and increased interest rates. As we move forward, as we announced in our third quarter release, we have fixed our borrowing rates with the issuance of 150 million in 10-year 5.98% fixed rate notes in a private placement. At June 30th, we had $49 million in cash and an unused $250 million revolving credit facility available to fund future acquisitions.

EBITDA as adjusted amounted to 21.5 million, or 11% of sales in the quarter, versus 15.6 million, or 10.3% of sales last year. For the full year, EBITDA came in at 83.3 million versus 69.4 million last year. Depreciation and amortization in this year’s quarter was 3.4 million and for the year totaled $12.5 million.

Our cash conversion came in at 71 days this year versus 69 days last year. We did two days better coming in at 40 days on receivables. We were flat in accounts payable at 35 days and we were off four days at 66 days for inventory. Inventories at June 30th were 105.9 million this year, compared to 76.5 million last year. The $29 million increase in inventories reflects the addition of 22 million of inventories brought on with acquisitions this year, including 13 million from Spectrum, 4 million from Para, 4 million in the UK and 1 million from Hain Pure Protein. We have also made significant inventory investments in numerous new products introduced in the fourth quarter of the year, including Zingers To Go at Celestial Seasonings, new lines in personal care, including the fragrance-free line, salon online and Brilliance line, as well as our all-new, all-natural Quit Bugging Me insect repellent in personal care. We also introduced in grocery and snacks all of the new products that Maureen discussed earlier. Each of these introductions required investments in new packaging and ingredients which increased inventory days by the four days I noted.

Operating free cash flow for the year increased by 10 million to $38 million. CapEx for the year was 15 million. This year, our CapEx was higher than usual with a major investment of over $5 million expended in Q4 to build out our state-of-the-art Westchester frozen foods facility. This project is not yet fully completed and will impact our go-forward Q1/Q2 earnings in -- somewhat. I will discuss that a little later on.

Our balance sheet continues to be very strong. Our working capital is 174.4 million and we came in with a current ratio of 3-to-1 at June 30th. Our stockholders equity is now at 616 million and our debt as a percentage of equity is at 24.7%.

Now for my favorite topic. A year and a half ago, the CFO of another very well-known public company opted to retire citing, and I quote, "the lunacy of U.S. accounting regulations." I am not retiring, but I do have to discuss with you the effects of FAS 123(R) which has become known around here as "accounting for accountants." Included in our SG&A in the fourth quarter and for the full year is a non-cash charge for FAS 123(R). We were required to adopt the provisions of 123(R) at the beginning of our fiscal year, July 1, 2005. The charge amounted to $795,000, or $0.01 per share in our 2006 fourth quarter and $3.2 million, or $0.05 per share, for the full 2006 year. The charge is caused by an unusual provision of FAS 123(R) that requires that expense related to stock options be charged even though the options have not yet been granted. We have not granted any options to either our CEO or anyone else in fiscal year 2006 principally because we had insufficient options available to grant them to our option plans until December 2005 and because we have been conducting with the help of outside compensation consultants a project to determine how best to use the limited number of shares available for options and other equity awards and to help design our overall compensation strategies. Despite the fact that there have been no grants, 123 rules dictate that because there is a provision in an employment agreement with our CEO that schedules option grants each July, we are required to expense those scheduled but ungranted options using fair value accounting over the course of the year leading up to the scheduled grants. Since there was a grant scheduled for July, 2006, we have had to take a charge to our earnings during the year ended June 30, 2006 based on a provision of FAS 123(R) contained in the appendix thereto that says that contractually scheduled grants are earned in the period prior to the grant, such period representing the requisite service period. As a result, each of the first three quarters of our year have been adjusted for this non-cash charge, causing an expense of $800,000, or $0.01 per share in Q1; $500,000, or $20.01 per share in Q2; and $1.1 million, or $0.02 per share, in Q3. As I said earlier, these adjustments are required even though the Company has not granted these options.

A similar circumstance existed at July, 2005 when options were also scheduled to be granted but were not at the time and have yet to be granted. No charge for these options has been made since the theoretical requisite service period ended prior to the implementation of FAS 123(R). The Company has not yet determined what cause of action will be taken with regard to these ungranted options. There are a number of potential paths that may be taken, ranging from granting the options to settling the grants with other forms of consideration to never granting the options at all. The ultimate action taken will determine the accounting treatment to be taken in the future. With regard to the options scheduled for July, 2006, the expense has been recorded and no further expense will be recorded, except that we are required to mark to market the fair value of the ungranted options each quarter. That change will go through the income statement. As for the July 2005 ungranted options, an expense will be recorded on the date they are granted, if they are granted. And if these ungranted July, 2005 options are never granted, we are advised that an expense will be required to be recorded at such time it is determined that they are not to be granted.

As we look to fiscal '07, our guidance for sales is 880 to 900 million, showing growth of 19 to 22% over our reported 2006 sales. Growth after adjusting the base for the sale of Biomarche is 22% to 25%. Our earnings is $1.15 to $1.19, showing 13% to 17% growth over our $1.02 this year. We anticipate an effective tax rate of 38% to 39% and a share count between 40 and 41 million shares. This guidance does not include any further expense under FAS 123(R) as we continue to work with our compensation consultants on new compensation models. The guidance also does not include the cost of inefficiencies we have incurred in Q1 and will continue to bear during the startup phase of our Westchester facility. We expect that Q1 and Q2 will be impacted by $1 to $1.5 million for these startup costs. These costs did not impact Q4 as the facility was in the buildout phase and had not yet started full production on the products that it will be producing, has been producing now and in the future.

At this point, we will open it up for questions.

(OPERATOR INSTRUCTIONS). Scott Mushkin, Banc of America Securities.

Hi, guys, thanks. I just wanted -- the last point you made, Ira, that these startup costs are not (indiscernible) housekeeping. I was just kind of back in there for a second I guess. 1 to 1.5 million are not included in the guidance -- is that what I heard, on each quarter?

No, it's only for the first half of the year, Scott. We haven't included it because we have not completed the startup phase. So startup costs oftentimes don't come in on a particularly predictable basis. And we're just expecting it will be about 1 to 1.5 million and when we get to Q1 report, we'll certainly say what they are.

And Scott, just to add to that, we're pretty excited about this Westchester plant. We now have a state-of-the-art frozen food facility that now produces our entrees, our pastas. It gives us the ability to go into Earth's Best frozen dinners, other frozen categories, and we expect to run our Linda McCartney line. So with any startup of any plant, which started actually in July-August, there will be some efficiencies and some startup. And just to be clear, it's 1 million to 1.5 million total, not each quarter.

The total hitting somewhere in those first two quarters?

Exactly.

Okay that clears it up, thanks for that. The second thing is, I just want to talk about the grocery and snack business. You guys have obviously taken a lot of costs out, done a lot of great things with that business. I wanted to look going forward though. How are you looking -- are there other possibilities of really taking some major costs out or streamlining that business? How are you approaching it going forward?

We do have John here, but I think I'll let him talk in a second. But I think number one, what we're doing as we combine, Scott, we took a grocery business that was running separately, we took a frozen business running separately, a snack business and now Spectrum. So now you have a business that's close to $600 million in sales, you have a consolidation on spending. And you heard me say before, one of the good things that was able to deflect a lot of the price increases at retail, we really got benefits for our spending. We're going to improve spending tremendously at Spectrum where their spending was much higher than ours. We've been able to take the Spectrum sales and integrate it into our frozen and into our grocery business. We are able to, as we go into other classes of trade take a lot of other product lines in there. Today we're shipping out of one warehouse.

So just come back and think, we did a SKU rat about 400-plus products, we improved our margins almost 2 basis points in one year. We improved 99% service levels. Now that we add onto that the Spectrum business, and during the year we will be continuously doing SKU rat that is part of our everyday business. We see a lot more opportunities in costs. And hey, you know, the way fuel is going right now, who knows, maybe we'll get a break. John, you want to add anything?

I would just add four things, Scott, on this. First of all, as Irwin said, acquisition synergies, we have a good platform here, we have a management team. At this point, we're not adding any more chiefs when we acquire a company, we're adding transaction-related heads. Secondly is productivity. We have now really put an emphasis on [Jim Meyers]' group working with Maureen to take costs out of the products themselves without impairing quality. And a good example of that is what Maureen's group has done with operations on Health Valley Chili where we improved the texture and made the product organic without -- while decreasing costs and being able to hold the same price point. The third thing is, we're looking to margin up via mix, and Earth's Best Formula is a perfect example of that.

And lastly, just to drive some more savings, the more inventory we take out of this business, the less our cash carrying costs are. So those are four areas that we look to continue to take costs out of the business. And by the way, all of that happens while the business taken, the consumption, combined consumption in the last quarter, was up 12%. So consumption is strong.

It's just a perfect example. In the last quarter, Scott, we integrated the whole broker network. There was almost a 3-point savings on commission what we're paying to the Spectrum brokers versus what the Hain grocery snack brokers were. So this being our biggest division and John and Maureen and Adam knowing this, every time we get a point in margin savings here, it throws a lot to the bottom line.

That's great. I just wanted to -- Earth's Best obviously has just been a huge home run for you guys and you've used the brand to kind of go outside what originally was just baby food. I was wondering, as you look through your brand portfolio, (indiscernible) a little bit about this kind of what we think is kind of the power brands, is there another one that you kind of look to and say, hey, this is kind of a diamond in the rough, that we could really put some ad or marketing behind it and drive it, drive it forward?

Absolutely. Number one, if you take Imagine, you come back at Rice Dream and Soy Dream and our frozen business today, if you look at our Imagine soup business, our Imagine soup business is as big today as our Rice Dream, if not bigger, and growing in the same type of numbers that Earth's Best is. If you take Celestial Seasonings, you see we came out with frozen desserts in Celestial Seasonings Tea Dreams and in frozen novelties. You can look at Ethnic Gourmet, we come out with ethnic types of teas under the Ethnic Gourmet brand. And we're looking at Terra, whether it can go into a confection type bar or products like that. So there's multiple other areas because if we are spending money on the brand equity, why not to go into other categories. And also, we're looking at the Celestial Seasonings name in just some personal care areas. So definitely, there are some of the other areas that we're looking. But just in Celestial, on Earth's Best strong growth on personal care, infant formula, Earth's Best Sesame Street kid's products and stay tuned for some of the other new products that you will see at expo being launched under the Earth's Best name, and frozen obviously being one of them.

Perfect. Thanks very much.

Thank you Scott.

Greg Badishkanian, Citigroup.

Great, thank you, and good quarter guys.

A few questions here. First one is just organic sales, I'm trying to -- I'm looking at about 11% organic sales growth, is that about right?

With the Spectrum acquisitions in there, when I say Spectrum acquisitions, the growth in whatever, you're getting up around the numbers.

Okay, good. And that does not exclude SKU rat, so I'm looking -- would there be some -- also some adjustment there which would bring it up sort of in the mid-teen range?

No, that would include the SKU rat. I definitely included the SKU rat and divestitures.

Okay, great, so -- okay, including that's about --okay, good. Secondly, the 22 to 25% sales growth which excludes the divestiture, what type of internal growth rate would that imply?

We've said we're looking for 9 to 12, 9 to 13 internally, and the rest would come from acquisitions. That is our internal growth nine to 13 to 9 to 12.

Okay, great.

That's our internal growth -- 9 to 13, 9 to 12.

And also, what processes do you have in place that sort of give you comfort in terms of just accounting for options?

When you say accounting for options, I assume you're talking about all the cost that is out there these days?

Yes, the price that's out there (multiple speakers).

First off, Greg, not to make light of the media coverage of this issue all over the place, when you don't grant options, you don't have to worry about any of those issues. So we haven't granted options on a large scale since August of 2004. But to give you a comfort on what we've done, we did our own internal review, it was very detailed. We went all the way back to the beginning of this Company's existence and we've done that in concert with our Board of Directors and we came out with no issues that we had to deal with. In fact, in looking at that, we found that everything this Company has done has been very transparent in terms of disclosures at the time options were granted. There was even a time when an option required an accounting charge and it was taken back in 1997. So everything that we have done to perform that review has given us a very solid sense of comfort that all of the procedures here, while certainly not perfect in the world of brand-new company at its beginnings, have been solid and all is well.

Great, that's helpful. And just a final question. In the press release, you talked a little about incubator businesses, investing there. I can see sort of the synergies that you can provide those companies -- expertise, also distribution and capital, et cetera. Some of the growth areas I guess that we're seeing, sort of the (indiscernible) foods, vegan, [super] foods, what type of partnerships are you creating and what type of dollar investments and just how close are those sort of relationships? How much are you actually helping that on the expertise level?

On chicken, we go back to that, we have basically operating control of the chicken business and actually spend a lot of time with it from a vertical integration standpoint, from using our relationships to expand into supernaturals, into club, and it has worked. Basically, we have taken our mix of antibiotic free and conventional and over the last year have doubled it, and we're almost (indiscernible) total capacity on antibiotic-free and organic chicken. So with our relationships and our distribution and commitment to supply has been a big thing, Greg. We have been able to help the business tremendously. Our investment is not substantial, it's not more than $5 to $7 million in that one. In regards to the pet business, it has been a $5 million business. Our investment there is less than a few million dollars and we'll look to the expansion, we see a tremendous opportunity in that total category.

So it's utilizing minimal capital and it's utilizing our distribution network. And what comes along with some of the partnerships here is some of the expertise that we don't have and utilizing that. Whether we buy the whole thing later will be one thing and what we do with it. But so far, we are happy what we have seen happen with chicken, our Asia deal, and as I said in May, it's the pet food area, which is our first entry into that. And we had some other interesting ones that we are seeing in the fresh category that we're excited about where they are not multiples that we've seen in other categories that we just want to stay away from.

Great, thank you very much guys.

And we hope to see a lit more at the natural food show opportunities too.

Sounds great, thank you.

Andrew Wolf, BB&T Capital Markets.

I just wanted to ask you about the sales. They are so healthy. There is sort of this creeping idea out there that I have an opinion about that I want to hear yours about this notion that the natural food channel itself is somehow slowing down. And folks like Safeway are getting more into the business since drugstores and even Wal-Mart is having a material impact on the whole natural food sector. You guys are well positioned if that were to come to pass. But I just want to get your perspective on that. Obviously you're getting new distribution and new doors and so on and so forth and new sets in traditional -- I mean in nontraditional -- or nonnatural place distributors, such as supermarkets and drugstores and so on. But I mean simply put, we'll start there, do you see any material slowing at your business in natural, or is it just a lot of expansion in the other stuff?

I think you heard me say Andy before, July and August, in our overall business we're very strong (indiscernible) in our overall business. What we're seeing, and if you're referring to supernaturals, if that's what you're referring to (multiple speakers).

Supernaturals, independents, just the whole natural -- traditional natural side of the business, I see personally a little bit of slowdown from spectacular to just something less than that, so just great. But there's this sort of notion out there that the market share might be shifting. I just want to get your perspective on it.

I don't think the market share is shifting at all. I think if anything, the market share is shifting more from conventional products to more and more organic products. And we are seeing that as we move into other classes of trade. And as you look at our numbers from -- as you refer to it, it's healthy numbers, we've had a great quarter selling to other classes of trade other than supernaturals. And you walk into club stores today, you'll see more Hain products than you've ever seen. But let me make it very clear -- we're truly committed to growing with supernaturals as they open up more and more stores. And as you look at what Whole Foods and Wild Oats and Trader Joe's open up, there's good growth in those, good growth from existings. But I think other retailers are realizing what dollars they're losing to them and need to be in this business. And our consumption growth on Imagine soups or Earth's Best or Garden of Eden is coming from other channels, but the demand through supernaturals too.

Just to make the question a specific, and then I will move on to another question and that will be it. Do you see much, looking at [Spin's] data and other data you have access to, do you see the natural channel slowing significantly or just kind of a tweak down?

We're not seeing it slowing at all, so not a tweak down or not significantly. We are -- we wouldn't know how to report the sales. If that was slowing, we would not have picked it up from traditional groceries and other classes of trade. So we like what we continuously see in supernaturals.

Great. I want to ask you about pricing. You may have broken this out and I didn't hear it, but I just want to -- are you able to discern how much of -- first, I wanted to ask you, this you may have said as well too and I didn't hear it. I estimated 12.7% as the internal sales growth for the quarter. Did you say what it was, or could you confirm whether that's --

I (multiple speakers) what was it, but it was not that, it wasn't far, but [Greg] said close to what it was.

Okay, a little less than that, alright. How much did pricing contribute to that number, and how much did -- might it have contributed to the gross margin?

The only pricing that we really took last year really across the business was John's grocery snack and frozen, and he had two price increases. And again, he took a price increase in July which he announced which he probably did not get the full price increase until January, and then he took another price increase in October which he probably did not get totally in effect until the end of March. John, do you have what's your full effect for pricing?

It's between 2 and 3 points

2 and 3 points.

Over the -- but [0] in the new fourth quarter.

Yes, but not for the full year. It's probably a point, a point-and-a-half for the full year, Andy, just on the grocery snack and frozen business. We did not take a price increase on tea, but we improved our tea business by a 0.5% margin. We took a price increase at JASON in January of 2005, so we did get some effect from it in this year. And we start to take some price increase in chicken, not until this year in July. And Canada, we took a little bit of pricing, and Europe we did take a little bit of pricing. So overall, if you looked at the whole company, we probably got 1.5 to 2% effect on pricing. And I wish I only had 1.5 to 2% on price increases across the Company affecting me on fuel and packaging and other input costs.

Okay, that's kind of what I had on my (inaudible). And that's a bit skewed, it's a little higher contribution rate currently, is what I think heard you say, in grocery.

It's absolutely much higher concentrated on the grocery/frozen snack business.

If that 1.5% averaged, you might have been 1% in the first half of the year, now 2%. In other words, it's growing, the price contribution to --

Right, exactly.

Lastly, maybe my internal sales growth estimate was too high because I didn't have the Heinz Fresh UK contribution right. Did you break that out, or could you tell us what that was, the number that Heinz Fresh UK had for the quarter?

We didn't break that out.

Could you say how many weeks it was in the quarter?

What happened was, we acquired the Heinz Fresh business in April (multiple speakers) and we acquired the Linda McCartney (multiple speakers) I was going to say, about 10 days left.

Got it. Last one, I just wanted to ask for Ira, how are you calculating free cash flow?

Cash flow from operations off the cash flow statement, minus CapEx.

And you're excluding -- it looks like you're excluding acquisition, right, so that's (multiple speakers)?

Yes.

Thanks, and congratulations on the quarter and the year.

Christine McCracken, Cleveland Research.

Just a follow-up question on inventories. You kind of walked through business-by-business where you've seen a big hit on inventories. Can't you talk about if there is any structural -- anything structural about those businesses that would keep those inventories relatively high, or do you expect to work those down over time?

Well, Christine, the numbers I quoted were from businesses that we acquired during the year, so I tried to roll it forward from last year's inventory balance to this year’s. What we typically see when we acquire a business over some time is we're able to reduce the business -- the inventories in those businesses, so we expect that to happen as we move forward, particularly when we acquire businesses from privately-held concerns because they're not as focused on reporting to the outside world. And that's also where we sometimes reduce the actual sales base because we'll knock out some of the product lines or SKUs that businesses we acquire come to us with. And I think I mentioned that it was about 22 million of increased inventories coming only from acquisitions this year.

And, Christine, I think we have some work to do on inventories. I think we can make some improvements (indiscernible) personal care, bringing down our inventories. And we within probably the fourth quarter were a little higher on tea as we went to roll out our Zingers To Go and sales being a little softer on tea than we anticipated. So we absolutely have some work to do on businesses, but there's nothing wrong with inventories or anything like that. It's -- we know we have some work to do. We built up a lot of inventory on the JASON side as we were introducing all those new products, and plus some major rollouts. So we know where there's some opportunities on inventory too.

Any kind of target on inventories?

We would like to have none, but I don't know if that's possible. And here's the Catch-22 here. You heard us, what we said before, we got to 99.1% service levels, which this company has never heard of. We have run at 93% service levels and we had some very angry, disappointed customers where it cost us multiple inefficiencies. We want to get our inventories down 60 days and work at that. And I think we learned a lot about Spectrum. It took us some time to do that. Our inventories at chicken, if you don't sell it, you ultimately end up smelling it, but we saw that quickly. So chicken is not an issue. Personal care is one we have to work on. And our fresh business in the UK is one that our inventory goes out on a daily basis. So 60 days is a big focus for us because that cash conversion is a big important number that I'm measured upon and the team is.

Right. And then, just on the tea business, I think John you had just mention that (indiscernible) expected maybe seasonally it's not as important, but as you head into the fall and winter, obviously, you have a good program put together. But I'm wondering, can you give us a better idea of the competitive landscape as you see it right now, especially given how competitive that category was in the last year?

A good question, because I don't think we could have, and I never should say don't think, we could never have had a tougher tea season than we had last year with weather, pricing, the green tea category having a lot of pricing activity and not for the first time, not growing like it did before. And you heard me say before, the tea category was the first time that it declined, the specialty tea category, in 15 years, plus we came off some higher consumption numbers. Everybody in Boulder knows this was the most difficult year we've had in a long time. You know, there's nobody out there that grew like we did from a shipment standpoint. The other thing is, which we have done, is expanded our distribution into other classes of trade, like dollar stores, increased our sales in chain drug, mass merchandiser, club stores, foodservice. So -- and we are focused on some major overhauls on packaging product. So there is a lot of energy in Boulder right now in tea.

Is there anything structurally about the category that's leading the weakness? Are people looking for other beverage alternatives? What do you see as the main threats?

I think what has happened is, there are so many -- it became somewhat price in certain categories, you know very conventional. And green tea, you could buy 60 bags of green tea for $2.99 and was a good quality, was a good product. I think there's a couple of things. Celestial stands for good quality, well-trusted. But one of the things that we have at Celestial which is unique, we have Zingers, we have Sleepy Time, we have some unique flavors. And a lot that we are doing is banding around or putting the band around some of the uniqueness there and not getting caught up into the commodity type or the everyday conventional type teas, and that is how Celestial ultimately wins. And I think this year, we were up and we had to spend some trade dollars against it.

So, number one, first of all, let's start and hope for a good cold winter. I think we have some good things in the Zingers To Go. I'm not sure if you've seen what has happened with the vitamin water, but the Zingers To Go is just positioned to water. We have a lot of other things coming out in that category. And I don't think there has been a lot of innovation in the tea category, and that's how Celestial would be a leader and an innovator in that. But it's still a very, very profitable business to Hain. It is our single biggest brand, and we still grew what we did with Celestial only being up for the year a couple of percentage points. So it shows how a couple of years ago how important this was as part of Hain and still is very, very important. But we can pick up some of the slack. And we plan to spend some more consumer marketing dollars against this brand this year.

Just lastly then, you touched a little bit on trade dollars. I think in your prepared comments, Maureen, you talked about trade dollars in grocery and snacks actually being down. But at the same time, you talked about this multi-brand promotion you're in being quite -- I guess successful. So I'm just wondering if you could talk about how you're shifting dollars and kind of as you go into the next year how are you evaluating where to spend that money?

Our trade last year was down $2 million and 1.7 percentage points. But the important thing is, and Christine, we actually talked about this when you were here. As we got out of some of the bad practices we had before, we were able to take the same trade dollars and use them more efficiently by employing them at retail. And so more of our dollars are now reflected in price everyday, as well as the promotions that supported the multibrand event. That, coupled with we're increasing our consumer investments out of some of the trade savings to fund things like the Earth's Best program or the Imagine program we're doing with Martha Stewart. So we are decreasing our trade spend, but it's not all just dropping through.

I think that's important where our trade spend goes back towards the consumer or off-shelf where the consumer is getting it and where before -- and that's why we're seeing the consumption driven that way it's being driven, where before it was not being passed on or not being effective at retail. And even though we have had all of the price increases that we have had, we have not seen our prices at retail go up substantially because of those trade dollars being passed on at shelf.

Good to hear. Thanks a lot.

Eric Larson, Piper Jaffray.

A quick question on the integration of the broker sales force, the timing of that, and I know that can be very incrementally positive to savings -- what was the timing of that and --?

It happened with Spectrum, and it's in the first half. This is July to the end of December, Eric.

So it's strictly based on the Spectrum sales?

Yes. And it's 2% to 3% savings coming out of the Spectrum operations.

Okay, good. The final question is -- in your 200 basis points of margin improvement, I know it's difficult because everything kind of blends together. Obviously, a chunk of it was from the SKU rationalization. And then was there any benefit from just having -- let's say a faster sales -- better sales mix from personal care products in the mix of business, or how would you break out that 200 basis point improvement?

The 200 -- our gross margin improved overall this year from SKU rationalization, a better mix -- a better mix in regards to our product portfolio. Number three, number three was our personal care. Number four was some pricing that we were able to take on John's side of the business and ultimately, some better -- a lot more efficiencies that we have been able to get out of the business. And if I continue on those five things on a company-wide basis, Eric, my objective is to get to 34%, 35% gross margin for overall Company, excluding our fresh businesses. And they're the five that if I can get a point from each of those over the next year, year-and-a-half, that's how I get to 35%.

Okay, so obviously, the big vast majority was your SKU rationalization?

It was SKU rat, but personal care, as that becomes a bigger part of our business, we have taken a lot of efficiencies out of the business and there's been a lot of consolidation. The group at Celestial did an incredible job of getting a half a point savings in margin there and spent it back on trade to help them get their 1.5%, 2% growth. And that is buying better, getting efficiencies. And, again, that is with them having all of the input costs that we have all had here and not taking a price increase.

That makes sense. (multiple speakers) obviously the floor of growth rate relative to the corporate total of Celestial probably then took away from gross margin as well or [as some] basis points?

Well, number one, Celestial used to be a bigger part of our business, so it helped our margin; and number two, the slower took away from it. So good pickup on that.

Thanks guys.

Ed Aaron, RBC Capital Markets.

First, I wanted to ask a couple on the acquisitions. I think we have pretty much anniversaried the chicken acquisition. Would you expect any incremental negative margin impact in fiscal '07, or should we actually see an incremental benefit on margins since we've fully anniversaried it and you said I think that in order to see margins recover there, albeit from a lower level?

We have anniversaried. July 1, '06 was the date that we -- the first anniversary of the Hain Pure Protein venture. We expect to see some margin improvements in that business as we go forward, but in that business, margin of a couple of points improvement during the year significant to the business itself is not going to have any kind of an impact on moving the margin needle on a consolidated basis. So I am expecting that the approximately one-point adjustment we've been seeing will continue to impact our overall margins. On a comparative basis year-over-year, that should pretty much be the same. As we do increase the size of our business overall with other acquisitions, that chicken business will be a smaller percentage of the total.

And one of the things we're looking to do in our chicken business you heard me say before is to get our overall margin to 10%. And when you look at chicken, everything is in -- that's it, it's margin. There's not a lot of SG&A within that business. So you cannot totally look at it like our other businesses. So number one, we're looking to get to a 10% margin; number two, we're looking to do value-added products where a frozen line that we'll be looking to do in our Westchester facility, and anywhere from chicken nuggets to chicken fingers to chicken dinners and whether it's Earth's Best or whatever. So we're looking for some higher-margin products that will become a part of that that will help the overall margin also.

So it seems like the only real kind of incremental margin drag this year is the fresh business in the UK because you just brought it on midway through the fourth quarter of '06.

And not a drag, I think it's investment in new categories at fresh businesses. I think what you have to look at those is, number one, yes, you'll look at the margin, but there's no real G&A in those businesses, and that goes back before to what I said. As we get into incubator categories and new categories, and I think one thing that Hain has been able to identify, Ed, is where is there new categories and opportunistic categories to get into and be a leader and an innovator. And it's going to affect our margin, but we cannot sit here and not jump into these categories. And I have to tell you, last year was a tough year in the total protein category and I think -- I had breakfast with someone the other day, and if anybody made money in the protein category this year, you were good. And we made $1 million basically in the protein category this year with a tough year and a tough margin in front of us. So I see some big opportunities there. And also, we guarantee supply on our existing product lines, whether it's our soup, whether it's our frozen Ethnic Gourmet that need chicken, so we see opportunities from a vertical integration standpoint.

Just looking at the guidance that you have for '07, it seems to imply like maybe a little bit of margin contraction next year. And just with all of the efficiency, you know, gains in productivity effort that you have in place, and it really doesn't seem like there are that many kind of incremental -- incrementally negative items that are popping on the screen for '07 in terms of the margins. And I'm just trying to get my arms around why you wouldn't actually see some margin expansion in '07.

The '07 guidance on the bottom line you have to remember includes a couple of things that are outside of the margin line. First of all, we have to get through integrations of all of the businesses we have acquired so that the synergies start coming through. It's not fully loaded, if you will, just giving us benefit out of every sales dollar we have added. The other thing you also have to look at is, while we think it's an absolutely outstanding financing arrangement that we have made, we are going to have some higher interest costs if for no reason other than higher borrowings for these acquisitions we have made. And then, lastly, we are modeling in higher share count. We are modeling in 40.5 million shares; I mentioned 40 to 41 million, and that's a big increase over the '06 average share count for the full year. So all of those things are going to take a little bit off the EPS line, even though the sales dollars certainly are growing very, very nicely.

And Ed, we're still seeing $0.60 a gallon higher on fuel without the price increase being effective on our grocery snack and frozen business. So we're absorbing and probably are going to have to absorb it into the second quarter. So the same four or five reasons that I said before on margin enhancement, you're going to see throughout this year. Yes, we're going to get a lot of the benefit out of Spectrum. We will not get real benefit at the Linda McCartney business until March or April until we relaunch. We expect to see a lot of benefit coming out of our [luten] and our fresh business really starting in the second and third quarter, but seeing some great things happen there.

So I disagree with you -- we should see some good margin enhancement and good opportunities from our margin. You heard me say before, one or two points on the grocery frozen business will help a lot to the bottom-line. And if fuel prices and that come down, we will be the first to tell you about it when it -- going to the bottom line and ultimately increase in our earnings per share if that happens.

Just one more question for you, I might have missed this in your prepared remarks, but the SKU rat charge that you added for the fourth quarter -- what exactly (technical difficulty) that this quarter?

If you remember last year, we took a charge of 12.143 million for SKU rat, and in affect what we're saying with the $900,000 charge in the fourth quarter this year is that we missed our estimate of 12.143 million by some 7% to 8%, or 900,000. When we finished the full SKU rat at the end of '06, we found that we hadn't produced as much finished goods in the products that we had identified in the SKU rat, so we had a little bit more inventory left over than we initially anticipated. And in order to make sure it was all cleaned out, we had an additional charge of that 900,000. Every one of the SKUs that that charge relates to were in the SKU list that was rationalized in '05. There are no '06 discontinuances on that list, so it really, purely goes back to the estimate being off by just a few percentage points on where we thought we would come out.

Thank you.

I would like to thank everybody for listening to our call. It's probably tough being (indiscernible) here after Labor Day. It feels like the beginning of school and hopefully we were able to teach you some good classes today or talk to you about some good numbers.

I feel great 2006 behind us, headwinds in regards to fuel, freight input costs, a lot of other things, but I think we have navigated through and putting up some pretty good results. Here we are the end of August, beginning of September and our first quarter is almost over already and a pretty good start to first quarter. Some good things happening. We talked about our Westchester facility. Yes, there is some initial minimal startup costs but we're going to see some great things coming out of that frozen category. And (indiscernible) being a major leader out there. We see a big opportunity in the frozen category, and there has been a lot of people asking us to come out with more and more frozen items, so we're pretty excited about that. Pretty excited about a lot of the Earth's Best things coming out of next year, pretty excited about our snack business. You heard Maureen and John talking about two years ago, we had with some issues with Health Valley soups. Our soup consumption is up over 11% on Health Valley. Some good things happening with Health Valley cereals. So where we have had our issues, we have worked through them and we have been able to make some good accomplishments.

The team at Celestial is coming off a tough year and they're charged and know what their challenges are and know where their opportunities are, and every night before they go to bed, they pray for cold weather. Our personal care business, some good products and some good exciting things for us to go after, some good news areas for us. And if anybody has not tried our personal care products, at the beginning of the summer, I sent out to numerous families 50 baskets of products for kids, sun care products, Quit Bugging Me. And I have to tell you, I have never got so many compliments on our products, the effectiveness of our products and these are harsh critics. So I am pretty excited about our personal care products.

You heard me spend some time on our protein business and the opportunities there. So we're pretty excited. If you have to come back and highlight is our European operation, [Felipe] and David and [Guillian] and the team over there, a real, good, effective team on our European operation and we should see some good things coming from Europe next year as today it becomes almost $150 million and a major part of our business. And with Whole Foods opening up their first store next year and a major emphasis on natural organic with Marks & Spencer, we should see some good things.

With the team in place, the overall 2500, 3000 employees at Hain who are totally dedicated, totally committed, and that's why we're delivering what we are today, and that's why we are the world's largest natural organic products company out there and today happen to be in one of the most exciting categories. We will continue to focus on margins, continue to focus on consumption and continue to focus on good fundamentals and good corporate governance within the Hain Celestial group.

So number one, I'd like to thank all of the Hain Celestial employees because I know some of you are listening for all of your contributions through fiscal 2006, because there was a lot. And last but not least, I want to thank all of you guys for your support and commitment to being a shareholder of Hain and writing about Hain over the past year and look forward to continuing that. Have a great evening and the rest of September. Thank you.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Thank you and have a good day.