Hain Celestial Group Inc (HAIN) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2007 Hain Celestial Group earnings conference call. My name is Lisa, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded for replay purposes. I would now like to turn the presentation over to Ms. Mary Anthes, Vice President of Investor Relations. Please proceed, ma'am.

Thank you. Good afternoon. I'm pleased to be with you today to introduce our second-quarter fiscal year 2007 earnings conference call to discuss our financial results which were issued after the close of the market today. 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; and John Carroll, Executive Vice President.

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 the factors which may cause results to differ are listed in our publicly filed documents, including our 2006 Form 10-K filed with the SEC.

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 one hour, so please limit yourself to one question. If time allows, we will take additional questions and management will be available after the call for additional follow-up.

Now let me turn the call over to Irwin Simon. Irwin?

Thank you, Mary, and good afternoon. I hope everybody has had the opportunity to look at our press release on our Q2 '07, and let me first say I can remember when we did $200 million in a full year and I can remember we did $200 million in two years. And I can remember us earning $15.5 million in a full year also, so this year being our biggest quarter ever in the history of the Company both on sales and bottom-line and both earnings per share.

Our sales for the quarter are approximately $231 million versus $186.2 million, up 24%. Gross margins on an adjusted basis, and Ira will take you through the adjustments, 31.9 versus 31.2, and that is up 70 bips. SG&A, and we have talked about our SG&A, as we continue to integrate acquisitions and looked to get the efficiencies and the benefit of acquisitions, 19.4 versus 19.9, and that is a 50 bips savings. Our EBITDA, which you have heard me talk about quite a bit where I want to get my EBITDA up to 16, 17% of sales, today is running about 13.5, 14%, $31.2 million versus $24.6 million percentage increase of EBITDA 27% versus a year ago.

You heard me say before about net income, but earnings per share on an adjusted basis and the two adjustments are things we have talked about earlier, which we completed our Westchester facility refurbishing and our new lines and actually are running quite good and John quite well, and John will take about that later. So $0.38 versus $0.33, an increase of 15%. And one that we have tracked and we start tracking other metrics and look at other things in the company, our operating free cash, which gives us cash to do a lot of things, acquisitions and CapEx, etc., $61 million versus 23.5.

So, as we talked about in earlier quarters, we would focus on margins. We would focus on the SG&A. We would focus on, of course, net income and earnings per share. We would focus on operating free cash. We have really delivered on that.

So let's step back and let's look at the highlights of the quarter and let's look at what happened. Every quarter absolutely has issues and challenges, and this being one of the warmest winters in 112 years, but there is no excuse for weather and unfortunately weather is a fact of life, and it looks like we are in a weather pattern now where the weather is going to continuously get warmer. With higher input costs, higher corn prices, all these things affecting us, I think we have proved that Hain today has changed dramatically as a company.

You know, Celestial at onetime, and this being one of the biggest quarters, for the Celestial Seasonings tea company this quarter and next quarter, used to be about 20% -- approximately 20% of our sales and even somewhat higher. And today Celestial is about 13, 14% of our sales, so you can see how much we've diversified and just how our business has changed.

If you look at our business today, we have two businesses today that are $100 million global brands, and that is Celestial Seasonings and Imagine. And when we bought Celestial, it was $100 million. We curtailed it down with getting rid of supplements and other products, and today Celestial is well over $100 million and so is Imagine on a global basis. If you come back and look at categories that we have really built-up today and new categories as we diversify our business, our Personal Care business today in these numbers will represent about an $80 million business, and with the acquisition of Avalon and Alba, which were completed in the middle of January, we will now have $125 million or $130 million business. And with our UK business, which I will talk about in a little while which great things happening in the UK, and a lot of new organic products, a lot of new organic fresh products, we have now created on a run-rate an $80 million UK business, which I'm pretty excited about and pretty excited about the growth over there.

Just to step back, Earth's Best, when we acquired Earth's Best, it was a $14 million business, and you have heard me say this before, today it is over a $50 million business, and I think this is a business that easily, easily has the potential to be a $100 million, $150 million business just over the next couple of years. Spectrum, the same thing. (indiscernible) one year the integration has gone extremely well, and Spectrum branded products over a $50 million business has grown under our watch 21% in this quarter as some exciting things happening.

Terra, the same thing, is a $50 million business today. When we owned it or when we first bought it, it was approximately a $9 million business, and we've had some challenges on Terra Chips recently, but we've had some good things happening with Terra Chips, which John and I will touch on in a second.

Health Valley, over a $50 million business today. WestSoy and Westbrae over $50 million business. So if you really come back and look at Hain and look at the $50 million brands, the $100 million brands, and the categories doing $80 million to $100 million, that is over 70% of our sales today. So we are well, well diversified.

And just in the quarter, some good things that really helped our sales growth. We had some good growth at Earth's Best. As I said before, Imagine, Arrowhead Mills, Spectrum, our chicken business grew 11% in the quarter, our margins continue to grow. Our antibiotic free as a percentage of sales is about 85%. When we acquired that business, it was probably in the 40, 45%.

Celestial in the quarter was down 6%, which I will talk about in a little while. Terra was down in the quarter, which I will talk about in a little while. So we did have some challenges in the quarter, too, but all-in-all there were some real good things that happened.

So you heard me talk about good sales growth, you really heard me talk about margins enhancement, and that is a big focus here. Margins being up 70 bips with input costs still coming at us with higher corn products, higher commodities, and we're still continuously focusing on margins. My objective is with Personal Care, with cost savings, with other initiatives to get to that 33, 35% ultimate gross margins.

SG&A savings, we have really got to get the savings if we're going to integrate these businesses and do acquisitions. And from 50 bips, we are really focused on the SG&A.

One thing I can really feel good about is our trade spending disciplines. We have really focused on trade spending. We have not cut trade spending, but what we have really done is focused on trade spending, and we're getting the benefit for it. I think other times out there we spent the money and did not get the benefits for it, and that is why you will hear some of the consumption numbers and seeing some of the growth numbers that we're talking about.

What that allows us to do is get consumers to buy our products, allows consumers to really get the chance to try organics. I happened to be watching NBC on Sunday and they talked about organic products or organic prices doubling the conventional. It is not true, and I think that's just a bad misnomer out there, and 10 to 15% is normally what you will see a price parity from conventional. But it is our big challenge to make sure that we get good pricing out there via consumers to buy our products. And just as important, you have heard me talk about spending more money on brand equity, and as I said, a lot of the dollars, incremental dollars and accretion that comes back from Avalon is going towards advertising. Even though we did not own Avalon in this quarter, we spent $2 million more on consumer advertising this quarter to get the word out, to get consumers to buy our products.

This was a good quarter for new products. Some of the first, you know, Earth's Best Organic Milk, Organic Soy Formula, multiple new low salt chips, and sodium is a big issue. We today have over 150 gluten-free products. We have introduced some new tea products, so really we have focused tremendously on new products, and that is a big part of our business as we go forward.

Let me talk about Celestial and what is going on. You heard me say before weather was a factor, but weather should never be an excuse. And I step back today and say, weather was on our side. Instead of a great quarter, it would be just an unbelievable blowup quarter. Celestial today being 12% of our sales or 14% of our sales, and that continues -- will continue to be a smaller percent of our sales.

The good thing about Celestial, our high margins at Celestial continued to stay where they are, and we're not getting any margin erosion even though with absolutely a lot of competitive pricing. So, for the quarter, the tea category was down 6%, and some of this being down also had to do with inventories coming out of the system and reducing inventories. The category was down 2%. Celestial was down 4%, but that 4% is in channels that are tracked by IRR or Nielsen's, and Celestial today sales 33% of its sales into on track channels. And these channels continue to grow on double digit numbers.

The good news is our herb business was up 2%, and herb is 59% of our sales and our highest margin business. What is our strategy? We cannot do anything about the weather. Focus on herb and you heard me say before high margins and the biggest part of our business, we need to focus on green. There has been a lot of green entries in there. There has been a lot of pricing on green, and we're really doing some things to make sure we keep up with competition to focus on green. And green tea today is one of the second-biggest parts -- one of the biggest -- second-biggest segments within the category.

We're continuously focused on foodservice, continuously focusing on black tea, and we will continue to focus on the wellness category. Some new things that we're working on, we're working on some unique new things at Pyramid Tea, which I am not ready to talk about yet. We're focused big time on organic free trade teas and actually working on a lot of new things on packaging and new looks. There are ultimately some unique things going there.

We have introduced some powders, Zingers to Go was a product that came out last year. Our Go Stix, which is kids type product, which has 50% less sugar than juice products, we have just introduced in December, and we are looking for some good things out of there.

January, the first two weeks in January, and I know in New York City alone it was 70 degrees the second Saturday in January, the weather has gotten cold, and their tea business in January is looking a lot better as weather continues with the (indiscernible) be a factor.

In regards to Terra, Terra was down 6%, consumption down 2. And one of the things with Terra is reinventing itself. And under John's group, there's a lot of new things happening. I think from their whole new low sodium, quality was somewhat of an issue here, but that had to do with crops coming out of the Dominican Republic. Now we really got that under control. We have come out with a 15% more in the bag. We ultimately have launched numerous new products, and with the Anaheim Expo coming up in March, ultimately a lot more things will be coming out of there. And that is more just distribution and products so -- and John will tell you our Garden of Eatin' business up 18, 19%. This weekend I was watching the Super Bowl, thinking about healthier snacks and eating those other snacks with trans fat and hydrogenated oils, and you will feel a lot better about your team winning. So make sure you pick up Terra or Garden of Eatin', and I don't have to pay $2.5 million for that ad.

You know, on our UK side of the business, really excited about what is going on in the UK. Our sales are up 8%, and again, that is our fresh business going into Marks & Spencer. We are about to launch Marks' first whole new line of organic sandwiches, one of the first, and I have got to tell you one of the freshest sandwiches and best tasting sandwiches, 100% organic sandwich.

So really that investment in the UK has been a great investment for us. David Arrow and group have really done a good job on our Luton facility and will continue to expand that fresh category into multiple other products and multiple other categories.

The Linda McCartney brand, a lot of exciting things happening with that. We're in the midst of getting ready to launch the new Linda McCartney products. We have worked very closely with the McCartney family on formulations and products and relaunch, and we will start to present that product. As a matter-of-fact, I am there next week. We will start to present that product in February and March, and we will start to look at new categories. And every bit of feedback I have been hearing, is Trader waiting for us, as one of our biggest competitors today, has a big percentage of the category and Trader are looking for an alternative over there.

With Whole Foods opening up their new store, a lot of new products going into there, and a lot of our products from the US go into a Whole Foods, which have not been in the UK market, and we're excited about that.

Rice Dream in Europe continues to be a strong brand, and Rice Dream globally, as you heard me say before, is a $100 million business for us. And it was at about half the size when we acquired it, so a lot of good things happening with Rice Dream, Soy Dream Terra Chips, our Lima brand in our European continent, and we will continue to focus on that.

The acquisition of Haldane, which was completed in mid-December, we have some work to do on that. We will integrate that within our (indiscernible) in the facility. We have three facilities today. We will be closing some facilities. We will be integrating our soymilk. There is a Manchester facility. We do own the name White Wave over there, and with that, we will be introducing fresh rice milk, we will continue to have fresh soymilk and really focus ultimately after integrating closing facilities so there will be some great synergies coming out of this acquisition. They have some incredible technology on meat analog products that will help us not only in the UK but will help us here in the US and Canada.

In December we announced the Avalon/Alba acquisition, and with that we ended up closing on January 14, and we're pretty excited about there. A great category and really, really some good products fair. I spent some time out there this week, and I'm real happy with the products, the synergies, and Gil Pritchard is on the phone today. Gil and his management team. I want to welcome Gil and the management team to Hain. And I got to tell you I spent Tuesday there with John, and you've got 45 people that are just eager and hungry to help the Hain Celestial in multiple other areas and really excited about the products and the categories and the growth and where they are going. And when I left here, they handed me a playbook, and I thought I really was going to the Super Bowl with that playbook. And ultimately my plan, along with John, is to create a global strategy for our Personal Care business, and that is taking some of our existing products and growing them in Europe, growing them in Canada where we are today, doing acquisitions in Europe, doing acquisitions in Asia, which will all be part of our global product line.

So a lot of good exciting things happening and a lot of good exciting things happening for us on a global basis and as we integrate.

In regards to our guidance, we are up in guidance to 119 to 121 (multiple speakers) 116 to 121. See I am raising guidance even higher for the rest of our fiscal year, and Ira will give you the sales number in a few minutes.

So what I would like to do is turn it over to John, and John will take you through his Grocery, Frozen Snacks and Personal Care business, and then he will turn it over to Ira. Thank you.

Thanks, Irwin. Good afternoon. On today's call I will be covering two topics. I will give you the Hain Grocery & Snacks Q2 results, which reflect another strong quarter, and I will give you an update on our Personal Care business, including the Jason Q2 performance and the Avalon Natural Products acquisition.

Regardless of which business we're talking about, whether it be Grocery & Snacks or Personal Care, our four key strategic objectives remain consistent. We look to drive profitable growth in our core categories. We look to improve our margins by driving out costs without sacrificing quality. We look to improve our working capital management, and we want to be the best in the natural/organic class execution.

Starting with Hain Grocery & Snacks, our Q2 sales net of SKU rationalization and divestitures were up 20%, including Spectrum. Our growth is driven by two key factors. First, we continue to see strong momentum in our alternate channel businesses, i.e. Club, Trader Joe's, Babies and Toys "R" Us -- very strong business for us.

Secondly, we see continued strong natural and grocery consumption trends net of our SKU rationalization on our key brands in the last 12 weeks, including Earth's Best up 38% with Sesame Street; Mountain Sun Juice, up 35; Imagine aseptic soup, up 19; Ethnic Gourmet frozen meals, up 17; Spectrum Essentials, a business that was declining when we bought it, up 10%; Garden of Eatin', up 8; Spectrum Naturals, up 8; Westbrae vegetables, up 7; Health Valley ready-to-eat soup, up 4 -- and so note that both of our soup businesses, Imagine and Health Valley, were up despite very warm weather -- Rice Dream, up 4; Arrowhead Mills, up 3 and Imagine frozen, up 2. We expect to continue growth in all channels as we continue to innovate in our core categories.

In January we began shipping several first-ever products for the natural/organic category, including our Earth's Best Organic Soy Formula with DHA and RHA for lactose intolerant babies. New Earth's Best Organic 2% milk fortified with vitamins A and D and in an aseptic container for lunch packs and things of that sort. New Garden of Eatin' blue and yellow corn chips, so you don't have to eat the national brand corn chips that is not quite as good for you. Earth's Best Sesame Street frozen meals. Spectrum Organic Flax with DHA and new Rosetto gourmet ravioli.

As we talked before, this smaller and more focused new product lineup in the past as we are continuing with our less is more new product development strategy. This strategy is working as our first-half '07 new product sales are up 60% versus year ago.

We also continue to be committed to our news for SKUs product improvement program. In January we accelerated Health Valley's evolution to an organic brand with the conversion of Health Valley bars and crackers to USDA organic status. We will ultimately change the brand name to Health Valley Organic to reflect its improved products.

Finally we will leverage our scale and marketing support as we will be executing our second annual multibrand marketing event in April. This event accelerated our key brand's consumption growth last year, and we expect this year's promotion to be even stronger.

Now, as Irwin said, we are not without our challenges as Terra consumption was down. However, we have implemented our Terra turnaround program at retail, which includes a 15% bonus pack, which has a big 15% free banner and addresses a perceived value issue; a product quality improvement that is targeted to deliver more of the root vegetable chips that consumers like best; exciting innovation like new Terra Stripes and Blues, which will begin shipping in March; improved consumer and trade promotional support; a new larger sized club pack to improve our value equation versus competition and a distribution drive in all channels. We expect to see a turnaround in Terra trends in the second half.

Turning to our second objective about improving margin, we achieved over 100 basis point improvement in Hain Grocery & Snacks' Q2 gross margin as SKU rationalization savings, productivity and pricing offset higher raw materials and packaging cost. This margin improvement was achieved despite observing Westchester startup costs of $600,000.

Key to offsetting these costs were the benefits of the FY '06 SKU rationalization and our commitment to making productivity a priority. Our lower SKU count and resulting higher sales per SKU yielded supply chain efficiencies. Our Q2 productivity savings from a variety of initiatives were over $1 million, and we expect to drive similar quarterly savings for the balance of FY '07.

Regarding Westchester, we're still on track to begin realizing $1 million to $1.25 million in annual savings in Q3. The plant ran at 93% of standard in Q2 and is targeted for 100% of standard in the second half.

Moving onto our third strategic objective, improving working capital management, our focus at the reporting unit level continues to be on driving inventory efficiency. Our Hain Grocery & Snacks Q2 inventory including Spectrum was down 14% versus year ago while driving 20% sales growth. This improvement is due to SKU rationalization and the continued focus on just simply reducing the levels of inventory required to operate our business.

Finally, as to the fourth strategic objective, which is to deliver the best and natural organic class execution, our Hain Grocery & Snacks service levels continue to improve as our Q2 fulfillment rate was over 98%, up 2.1 percentage points versus year ago despite 14% less inventory.

We also successfully implemented the grocery 3% price increase and had all key accounts paying the increased rate by the end of Q2, thus benefiting our second-half results.

And finally, our first full year of Spectrum ownership concluded with sales, gross margin and operating contribution all above the acquisition model target. The result of a well executed integration and successful turnaround of the Spectrum Essentials business.

As we enter the second-half '07, Hain Grocery & Snacks continues to have good momentum. There are some headwinds in the coming months. We talked about rising ingredient costs from California frost, restarting Terra consumption growth, etc. that we will need to overcome. But we believe we have the innovation, the support programs, and the productivity initiatives to overcome these hurdles and deliver our second-half '07 financial targets.

Turning to Personal Care, our Jason business continues to experience double-digit topline growth, driven by the same factors driving the Grocery & Snacks business, including strong consumption trends in the natural channel led by Jason Body Care, which was up 11%; Jason Hair Care, which is up 10, and Jason Oral Care, which is up 8, and increasing growth from non-natural channels in this case led by grocery as more and more chains realize the consumers are not only becoming more aware about what they eat but also about what they put on their body. We expect these growth trends will continue as we drive innovation against our Personal Care business with exciting new products, including our Jason Fragrance Free Facial Care. This is a fixed SKU line that is targeted at the 15 to 30% of the population that is sensitive to fragrance and is not being currently addressed by other natural organic offerings.

Also, we introduced Jason Cranberry Body Wash, Satin Silk and hand and body lotion. This was our most popular holiday item, and now we're going to have it available everyday. We also introduced Zia Brilliance and Microdermabrasion Skin Care due to new products that deliver spa quality skin care everyday. We're also pursuing news for SKUs product improvements on Personal Care with the paraben free Zia Basics and Treatments relaunch in Q4. This addresses a key opportunity for the brand, and coupled with the Brilliance and Microdermabrasion launches should accelerate Zia consumption.

We have also strengthened our focus on Hain Personal Care margin improvement and cash management with two key organizational changes. Jim Meiers has assumed the responsibility for Personal Care supply chain, along with his current operations responsibilities for grocery and frozen. Marla Hyndman has assumed responsibility for Personal Care, Finance and Accounting in addition to her Grocery & Snacks accounting responsibility. These two people were key leaders among others on my management group in Grocery & Snacks gross margin and inventory improvement, and we expect they will strengthen Personal Care's performance in these areas as well.

Turning to Personal Care acquisitions, we have now fully integrated the Para/Queen Helene business and have now also begun innovating against this line as well. We're currently introducing new Batherapy Cold & Flu, as well as Queen Helene Teatree Cream and Lotion and Aloe Scrub. As Irwin said, we closed on the Avalon Natural Products acquisition. This is a very exciting business that was attracted to Hain and I might add to many others for several reasons. It adds on trend brands like Alba Botanica and Avalon Organics, which complement not compete with our current Personal Care brand. It creates a portfolio that positions Hain as the first stop for retailers looking to enter into natural/organic Personal Care. It creates an opportunity for operating synergies as Irwin alluded to, particularly in the supply chain area, and it gives Hain access to a strong management team led by Gil Pritchard and adds depth to our management ranks in all functions.

We have initiated integration of the Avalon business into Hain Celestial in conjunction with the Avalon management team. This business will continue to be managed by Gil and his team, but will tap into Hain's scale and resources to accelerate profitable topline growth and margin improvement. We look forward to sharing more about this exciting business in upcoming calls.

Now I turn the presentation over to Ira Lamel.

Thanks, John. Good afternoon, everyone. Our sales in the second quarter this year reached a quarterly record of $230.9 million, up 24% over the prior year's quarter sales of $186.2 million. GAAP net income was $14.8 million or $0.36 per diluted share -- both Hain Celestial records -- versus $12.3 million or $0.32 per share. On an adjusted basis, we earned $15.6 million or $0.38 per diluted share. We have adjustments this quarter for two items. Each of these has been discussed on previous earnings calls in the first quarter of this fiscal year and for the fourth quarter of our last fiscal year. The first adjustment is $641,000 pretax or a $0.01 per share added back to the startup costs at our Westchester frozen foods facility. As John discussed, during the second quarter, we successfully completed the startup phase of the new manufacturing alliance, and therefore, we will not have the Westchester startup adjustments in the future.

The second adjustment is $723,000, again pretax or a $0.01 per share, added back to the mark-to-market adjustment in connection with the FAS 123R requirement to record compensation for the contractual commitment to grant stock options under an employment agreement regardless of whether or not those options have been granted. We have not granted these options, and because our stock price at December 31 was higher than in the previous quarter, we were required to record this charge. The adjustment will continue until the stock options are granted or otherwise resolved. It is an adjustment we are not capable of predicting, and therefore, we do not include it in any earnings guidance we issue.

Diluted earnings were calculated based on 41.2 million average shares outstanding during the second quarter this year versus 38,434,000 shares in the prior year's quarter. Diluted shares increased by 2.8 million shares or 7% over last year's average shares, which reduced both our GAAP and adjusted earnings by $0.02 per share. In this year's quarter, diluted shares increased 1.2 million shares or 3% over first quarter shares. That is our immediately preceding quarter. This quarter's increase came from higher shares outstanding and higher equivalent shares due to a higher stock price.

Our gross profit for the second quarter this year was 30.6% on a reported basis as compared to 31.2% in the same period last year. These percentages are before the 20 basis point impacts on gross margin of the Westchester startup costs and before a 110 basis point impact on gross margin from the inclusion of the UK operations. On an adjusted basis, or apples-to-apples to last year's quarter, our gross margin improved by 70 basis points this year to 31.9%. SG&A in the second quarter this year was $44.8 million or 19.4% of net sales compared with $37 million or 19.9% of net sales in the prior year second quarter. On an adjusted basis, SG&A improved by the same 50 basis points.

We continue to realize reductions in G&A as a percentage of sales as our sales base increases, and we continue to benefit from the synergies of integrating acquired companies. Operating income for the quarter this year was $25.8 million or 11.2% of sales as compared to 21.2 million or 11.4% of sales last year. If you adjust fully, including adjusting for the UK operation, operating income went up 120 basis points over last year.

In this year's second quarter, interest expense and other expenses totaled $1.8 million versus 1.3 last year. Interest expense was $2.3 million in the quarter versus $1.3 million last year. This was offset in part by higher interest income totaling $900,000 in the quarter versus only 200,000 last year. Other expenses net amounted to $400,000 and include such items as foreign exchange gains and losses and a minority interest on our consolidated joint venture.

As in the first quarter and as we had estimated when we gave our annual guidance in September, our effective tax rate came in at 38.6% in this year's quarter compared to last year's rate of 37.9%. Adjusted EBITDA amounted to $31.2 million as Irwin discussed. Our working capital was $214.5 million this year with a current ratio of 2.95 to 1 at December 31. Our total assets are now $938 million, and our stockholders equity has reached $652 million. Our debt as a percentage of equity remains at a very low 23%.

In January, in connection with the Avalon acquisition, we used $50 million of our cash on hand and drew 75 million under our credit facility to fund the acquisition. Going forward, therefore, our net interest costs will be higher. As of today, we have $35 million of cash on hand. Our cash conversion cycle stood at 67 days in the second quarter versus 71 days in the comparable quarter last year. Days in receivable was at 39, inventories were at 65 and payables stood at 37 days. We have generated $61 million of free operating cash flow in the trailing 12 months ended December 31, improving by 160% over the 23.5 million in the same period of the prior year.

As we stated in our press release, we have updated our guidance for fiscal 2007. We have increased our earnings guidance to a range of $1.16 to $1.21 per share and have increased our sales guidance to reflect the addition of Haldane and Avalon to $900 million to $920 million. We anticipate that these acquisitions will be close to neutral for the fiscal year earnings guidance as our incremental interest cost and higher diluted shares outstanding will almost offset our estimates of their operating contributions. We expect that they will become more accretive during the fiscal year 2008.

At this point let's open it up to questions.

(OPERATOR INSTRUCTIONS). Ed Aaron, RBC Capital Markets.

Nice job in a tough environment this quarter. I wanted to ask you to give an update on how you're managing the channel conflict? Obviously there is a lot of mass-market command that is out there, which is obviously good for you. But, of course, the flipside of that is that your bread and butter natural channel customers will need more and more differentiation in that type of environment. I just wanted to get an update on how you're going about approaching that with your business?

Good question. You know, I think the good thing about Hain and I think what you heard me talk about before, we are such a well diversified company and having -- sometimes when you see Hain having so many brands and having so many products, I think people look at it as a negative, and I think it is very much a positive. Because today in the snack category, whether we have Little Bear, Bearitos, Garden of Eatin', Terra Chips, Boston Popcorn, Arrowhead Mills, so I think if you go into a natural or supernatural today, we have anywhere from 1100 to 1500 products within those stores. If you go into a mainstream supermarket, we would have somewhere between 200 to 400 products, and you go into a mass merchandiser, we have anywhere from 50 to 100.

So I think ultimately we will look at it a couple of ways. We will look at it by product. We will look at it by category. And I think more important than anything is we've got to really focus on the supply with organic ingredients being somewhat of a scarcity and growth in organic. I mean we really got our start in natural foods, and that is where our base business is, and we will never ever sell out our natural food consumer and the uniqueness there. And with the growth of supernaturals with the new stores opening, there is a major focus and sure that we support that.

As we look at other channels and other categories, we look to grow our business. It is a good problem to have because consumers today are switching over to conventional brand -- from conventional brand to organic brands. And a perfect example is just Earth's Best. The growth of Earth's Best is coming definitely from supernaturals, but you heard John talk about club stores, Babies"R"Us and places like that today where you are becoming big, big customers of our baby food.

So it is something that we have to manage. We have to manage supply. We have to manage on making sure that we do have uniqueness because you hear me talk about brand equity, brand equity and making sure you're not going to find us in the mobile station is something that is important to us.

Okay. And one quick one for Ira if I could, the guidance increase for the year. You mentioned in the press release that it is basically to reflect the acquisitions, but those I think you said are going to be pretty much neutral. Are there a couple of other pennies that we're getting for the year from the base business, or is it impact from the acquisitions?

No, it is really from the acquisitions. I just characterized it that way because I think generally people are expecting more from the Avalon acquisition than we're going to get immediately, and it takes some time to go through our strategic review before we finalize our plans for that business. And one of the things, of course, is that the interest carry on that acquisition price pretty much takes away in the first six months or so the operating margin that we will have. We do expect a $0.01 or so out of it, maybe $0.02, and that is why we increased the guidance in the range that we did.

And just on that, which I want to add to, I mean you know because we increased it and we feel good about the business and good about the growth, really focused on margins. I think we're seeing some good things coming out of the UK and Europe. But we're not without headwinds. You know, the weather has changed on Celestial, and this is not a one quarter thing also being concerned, and we were out there the other day looking at fruit and vegetables coming out of the ground in Northern California and corn prices. So coming up a $0.01 or $0.02 is pretty good considering some of the additional headwinds that are out there and that we feel are going to cover those also. So I mean we feel pretty good about the business, the category and the growth and the acquisitions to get some of the benefits. But there are some headwinds out there, too.

Scott Mushkin, Banc of America Securities.

Nice job considering the headwinds you had in this quarter to tell you the truth with the Celestial business. So I guess one of the questions I get from a lot of people is that clearly when you look at the natural/organic space you have you guys and United Natural and Whole Foods. Both of those guys seem to be slowing to a degree. Obviously Whole Foods (inaudible) speculation they have slowed quite a bit in the past. What do you think -- does that eventually filter through to you guys, or is it enough with the growth in the other channels to offset it? How do you guys kind of feel about that, and do you think it is a risk factor as we go through the next couple of quarters?

Well, listen, if you step back today, Whole Foods, Wild Oats, United Natural's are big customers of Hain Celestial. But, on the other hand, we're pretty excited about a lot of the new store openings and that Whole Foods and Wild Oats are doing, and also Joe's. So even though business is slowing and consumption at their stores, and I think what is happening out there, the category is not slowing. And there is more and more channels today selling natural/organic products, and it is what our job is. But our job is to expand our distribution, expand our product line, both domestically Canada and Europe, at the same time not lose our uniqueness, not lose our brand equity. And I have seen brands out that there were once in the natural foods -- were once in the natural food store, and now they are in every gas station and every display across the country.

So I think there is that opportunity growth for us and put Terra Chips in every gas station and every truck stop across the country, but I think a couple of things. We will look to build our business where it makes sense. We will look to build the brands, and we're going to make sure we can support the supply.

At the same time, pricing is somewhat important to us to keep that 10 to 15% premium and not have prices that are either double or ridiculously low. So I feel, as we look at business today, the group here feels good. We know we have some challenges with tea, but Celestial needs to redefine itself. We have been there before, we will be there again, and I think we are well on the way to do that.

One quick follow-up on the pricing. There was a report out yesterday, I think it came across my desk that someone speculated that one of your big customers has actually been raising prices quite aggressively on branded item and pushing private-label. Have you seen that type of activity, and do you have any comments on that?

Well, listen, I think that is something again -- private-label is something that is out there, and John Carroll and I just took a sweep through the West Coast, and we absolutely have seen private-label.

What we're seeing on private-label is private-label becomes a bigger part of the business. They are eliminating other branded products and having private-label in one of the brands. And the good news is we have been the brand because of the support and the brand equity within the brand. And what that does to Hain is forces us to ensure we have good products and we're supporting our brand, and more important, listen, we are focused. We wake up everyday and thank god, and we focus on natural/organic foods. And where you're going -- what you're seeing out there in private-label, I mean there is -- everybody has got a private-label pasta, everybody has got a private-label cereal, everybody's got a private-label bar. I think what we made to make sure we focus on are good brand of products and new and unique things, and when you come to Anaheim in March, you're going to see all the new exciting things that we're going to have (technical difficulty)--. That is what will separate us, and that is what we've got to want consumers to buy.

Right. Well, fantastic. Thanks for taking my questions and thanks for putting up $0.38.

Terry Bivens, Bear Stearns.

Irwin, just a little bit on the UK business, which seems to have been a pleasant surprise. Can you give us a better idea of the dimensions of the business sales wise? Where do you think or I should say what do you think Linda McCartney might add? And is this something that may have some uses elsewhere over in the European theater? I just wanted to get a better feel for the UK and where we can go with that.

Let me break the UK down as a couple of businesses today, actually five businesses. Our Luton facility today, which does prepared and fresh foods, major customer there is Marks & Spencer. That facility today is growing in high single digits, and not only growing topline but the margins and the operating income coming out of that facility is better than we ever budgeted, better than we ever planned. We feel that facility can do a lot of other products, a lot of other branded products, and we're focusing on that today.

In regards to the Linda McCartney business, we are relaunching the Linda McCartney line of frozen entrees in a natural line within the next couple of months. And so far the (inaudible) and Tesco's that we have talked to have been pretty excited about it. We are totally cleaning up the line -- no hydrogenated oils -- and the McCartney's themselves have been very involved with reformulating the product line.

At the same time, we're looking to take the Linda McCartney brand into the Yves type of fresh products. So we're looking to do Linda McCartney in fresh soymilk. We're looking to do Linda McCartney into fresh dinners, soup, etc. So everything under the brand will be vegetarian, and the next phase of products we look to do under organic. At the same time, Linda McCartney will ultimately come to the US, even though it is here today, and we will look for that to be our big vegetarian brand.

In regards to other products in the UK, today we have somewhat of a Celestial Seasonings business. Herb teas in the UK are not a big part of the business but continue to grow. But Rice Dream and Soy Dream and Rice Dream being the big brand in the UK today, and we're in the midst of introducing with the Haldane acquisition fresh soymilk and fresh rice milk. With the Haldane acquisition, we will integrate all of the businesses within our existing businesses, integrate the factories, went into the (indiscernible) factory and integrate our soymilk businesses within our soymilk business within Germany. So we're looking for some pretty good things out of the Haldane brand and the White Wave brand in the UK business.

Also, our Terra Chips business, we are in the midst right now of working with one of our distributors over there to put in a vacuum fryer at Terra Chips vacuum frying, and we're probably introducing -- how many new products? (multiple speakers) Quite a few brands that are currently not sold in the UK into the new Whole Fools that will be UK labeled when the new store opens in June.

So, if I took the UK business and looked at it, UK business excluding Europe, it will be about $100 million business for us over the next 12 months. And we look to expand the Linda McCartney brand and some of our other fresh products across the rest of Europe. So it is just not going to be focused on UK. So big, big focus, and I got to tell you I'm feeling very, very, very good about the UK operation and the opportunities there.

Andrew Wolf, BB&T.

If you addressed this, I apologize. Just on input costs, with what is going on in the conventional food manufacturing world with grains up because of ethanol and also more recently the cold weather hitting the Central Valley in California, what do you see -- is that part of what you're talking about with generalized headwinds? Do you expect input cost inflation there in ingredients for the next -- going forward?

First of all, we are praying for cold weather, so you can't pray for it and then pray not for it. You know, when I talk about input costs and higher corn costs, number one, what happened on the West Coast, a lot of our organic ingredients come from Northern California, and we hoped a lot of the crop that was in the ground was able to come out of the ground. And so number one is some of the organic crop we're continuously working on.

Secondly, in regards to corn products, ethanol and organic corn is not somewhat of a match right now. But you don't know where fields are going to go. And I think that is some of the headwinds that we are talking about. We're still absorbing and will absorb some of the higher cost of price increases that were given to us in the first and second quarter. And, as you heard John say, we just got the benefit of the full price increase at the end of the second quarter.

And also just to give you a couple of numbers on that, we experienced increases in input cost, which had a 50 basis point drag on our margins. So the numbers I gave you, that adjusted 31.9, was challenged by a 50 basis point drag on margins due to input costs.

Okay. Do you think like when you look at proteins like chicken or brief or whatever, the organic or natural channel at least on the production side does not seem to have the same -- it may have cyclicality, but it does not seem to be the same cyclicality as conventional. So I heard what you said Irwin that maybe some organic fields could switch, but at this point, I would think that the organic wheat prices and corn prices would not be going up necessarily in lockstep with conventional because, as you said, they are not being -- there is no ethanol demand on them.

First of all, there is a supply right now in crops. It was a good year. I think it was the second or third-best year for corn crops, and I have in the room here with me Ben Brecher, who is my veteran corn grower. He tells me that everything seems -- on organic corn, everything seems to be in very, very good shape.

Okay. I have one other question. I actually wanted to follow-up to Ed Aaron's on the broader distribution into various channels, food mass --

You're going to be penalized for three questions. You are not going to be allowed to ask the next --

I will get back in the queue if you like. I apologize. I missed that instruction.

Go ahead. Finish it. We just won't let you on the next two calls for questions.

Didn't take my fish oil today. (multiple speakers). How is the overall profitability in mass? In the past some of these trade partners have -- there has been sliding fees, which you really don't see in the natural channel. There are sometimes demands for various promotional allowances and all kinds of stuff that has kind of made the channel fairly inefficient in a certain respect. I have not heard much of that. Is it not happening as much? Maybe the sales are just so good that they don't want to mess with a good thing, or could you sort of elaborate on that?

Well, I think first and foremost I think what is important for us is to grow our sales. And along with growing our sales, I think we have done a great job of really improving our margins and really improving our SG&A. But more important -- I don't know if you heard the beginning of my call -- we have really enforced and put in place good trade spending disciplines to allow us to get benefits and to get sell-through for our spending on trade. And with that, I think we look at our overall business. Sometimes we have to and everybody does investment spending. And whether it is a supermarket, mass market, but as a company we look at our business as a total and not totally as a class of trade where one is a loss leader or there is one to fill up a plant, etc. So perception out there that it is a loss leader in mass market is not true, and that is not how we look at our business.

Christine McCracken, Cleveland Research.

On tea you clearly highlighted that weather has been an issue, but tea has been weak for awhile, long before we had some of these issues with weather. I'm wondering how much of this you attribute to the weather and how much is really a category issue? I mean I know you highlighted consumption trends, but maybe you could elaborate a bit further on what you are seeing there.

Good question. I think I was with the founder of Celestial about a week ago and his comment is, whenever Celestial -- whenever weather is a factor, it is immediately 7% on the total tea category the way it affects. But weather is not something we can control, and weather is not something I have any power over. If I do, then I would not be sitting here.

I think the tea category has been over skewed. I think there's a lot of new entries into the tea category and not necessarily really have grown the tea category. If it did, you would see the category not down 12% -- not down 2%, okay? So I think there is some lackluster in the tea category.

I think at Celestial we except some of the blame for it because I don't think we have been out there innovating enough, and when you are the leader in the specialty tea category, you're the one that's got to lead the innovation. And to some degree, we at Celestial need some change. We need some innovation, and we need some redefining. That is happening as we speak on products, promotion, people, numerous things. And tea is one of the healthiest drinks out there. Think about it. We heard yesterday Starbucks what their overall store consumption is up, and I would say a big part of that is lattes and tea drinks, etc.

So part of what we need and part of what we're working on is a lot of new boxed tea products, and I challenge everybody on this call go into your supermarket today and look how many brands and how many SKUs of tea are in the tea section. There's teas in there from $2.00 to $19.00, and how do you shop a tea section from $2.00 to $19.00?

So from our standpoint, there's some things we need to do. I don't want Celestial to become my father's Oldsmobile. There is some younger generation we need to go on, and I refer to Celestial sort of a lot like the Apple Company where we redefine not just our computer but what is the next iPod within Celestial? So I accept or we accept some of the blame for the category being down because I don't think we have innovated enough, and there are some things we need to do there.

Well, I mean you have done a lot. If you go through the list of things that you introduced just in the past year in tea, I mean it seems to be an awful lot.

Well, I think it is all tea. I think there's some packaging changes that need to come in. If you go back and look at the tea category, the boxes and the boxes and the box forever. I think some of the new pyramid teas, some of the new prettier teas that are out there.

So I think a big thing is if you look today, there are some loyal consumers drinking tea, and how do we get people -- if everybody on this call today drinks three cups of tea a day instead of two, our consumption goes up.

So I think there's a couple of things. How do we get our consumption up? How do we get tea users -- and what happens it is interesting. The average person has six blocks of tea, and they are paying (indiscernible). When the weather gets warmer, you know, the lower users -- the lower users of tea continuously fall out of drinking tea. So there's a lot we've got to do, and there's a lot we've got to do in refreshing our core line. I mean, you know, has Sleepytime become too sleepy? So I think we do have a good plan in place on packaging products, people and positioning and getting that shelf space in better shape.

All right. Just on tea, it seemed like you mentioned that [deload] was bad an issue? I mean part of that --?

Well, when I say a deload, one of the big problems is you sell in for your tea season, and you know, not a deload what I said is here you sell in for your tea season, and we have the promotions, we have the displays, and when we have all those things, when you don't get the weather, it is not being pulled out of the stores and not being pulled out of the cupboards, okay? The good news is the weather getting cold in January forced a lot of that tea out, and hopefully in February/March we will start replenishing those outlets in your homes.

Fair enough. Well, it has been cold enough out here for sure.

That's good. Let it get colder.

Greg Badishkanian, Citigroup.

A question just I believe that you had (technical difficulty)--

Are you on a speaker? Because it is coming through with a lot of static.

No, I'm not. (technical difficulty)-- can you tell us -- I'm backing into about high single digit organic. Does that sound right? (technical difficulty)

Greg, I can barely hear you, and I'm not saying that because you are asking me about organic growth. (multiple speakers) But Greg? Greg? Can you just pick up the receiver?

(technical difficulty)--

Greg, I heard what your question was on organic growth. Basically, again, as I step back and you know we have been asked numerous times and especially after our last call on organic growth, and as we look at our business, a perfect example is Spectrum in the quarter up 21%. We discontinued a ton of Hain oils as the Hain productline somewhat was down.

So our organic growth in the quarter was in the single digits, in the high single digits or mid single digits. And with that, I think it is hard to pinpoint exactly what our organic growth is because the puts, in and outs of all our brands and all our products. So it is hard when I say to an exact number, and I think that is something I continuously have talked about and continuously will focus on is the growth of our overall businesses.

Eric Larson, Piper Jaffray.

If you're searching for some cold weather, I would invite you out here this weekend. We can show plenty of it to you. It's not supposed to get above zero for the next four or five days.

Maybe we can go snow fishing.

We can take the dog sleds out and we will go ice fishing. That would be a real treat.

I will bring the tea.

You are going to need it. My question is on Terra, and I think the issues with Terra, given the numbers that you gave, certainly are not what they were, let's say, several years ago. I remember two years ago, as I recall correctly, or thereabouts, you had significant price point issues with Terra. Is that part of it here as well? I know you cited quality of some of the ingredients you sourced out of the Dominican Republic, but is it a broader issue than just that? Is it price points again that you have to address, or how do you fix Terra going forward?

Well, I think one of the things a product called Terra, which is a major ingredient within Terra and all our product used to come out of the Dominican Republic. At one time it went from $0.20 a pound to about $1.00 to $1.10 a pound, and that kept us taking price increase after price increase after price increase. And in order to make it somewhat affordable, we had to start changing some of the mix within the product. Today we're buying products in other countries and not buying anything basically from the Dominican.

So I think we have done a good job in fixing the quality. We have done a good job in fixing the productline. So that is the first thing. We have not taken a price decrease. What we have done is went to 15% more on the productline.

And the third thing we have done we have introduced a no-sodium or low-sodium productline, salt free line which big demand for it, doing quite well. We're in the midst of introducing some new Terra original flavors. We have introduced a good product called Sweets & Beets.

One of the big problems not having ingredients almost for a year forced us to stop introducing new products and kind of just make sure we could get out the existing products. So pricing, quality and the new product pipeline somewhat dried up. And now with that behind us, you're going to see a lot of new products coming out. You are seeing 15% more, and then you are seeing a lot of new products coming out on the original line.

Shawn Tesoro, BlackRock.

Irwin, you mentioned the softness in tea, but it sounds like the soups business held up relatively well. I am just wondering what you are seeing here, and have you added some SKUs?

You know, I think with soup it is a couple of things. I look at soup today, and you know, we have soup as a meal, an appetizer, you cook with soup, and I think we have introduced -- and we have aseptic soups under the Imagine. We have the Health Valley soup. And we also have Health Valley; we also have Walnut Acres Organic.

I think somewhat again you're coming into baking season with our broths, and soups are a lot less seasonal when it goes into broths. And I tell you, we consumed a lot more soup in my house than teas with the weather being the way it was. So I think we've done a great job, and we have seen some great consumption on our soup business.

And how about on the low-sodium side, are you seeing good sell-through there?

Sure. We actually launched three new low-sodium SKUs on Imagine, and they have been really strong for us. Actually we're seeing good consumption and good numbers on the low-sodium chips and the low-sodium soups, and that just brings up a good point. Low-sodium for us will be an area that we will continuously focus on. The other area today as you heard me say before gluten-free, which is really actually a big growth area for us, and we have today 150 plus products. And a big thing I would tell you with gluten-free products, you've got to make sure you test and they totally are gluten-free. I mean there's no room for error there, and that is a big growth area for us. Our low-sodium soups have done extremely well for us.

Yes, it sounds like you have quite an advantage against the competitors in terms of just the low-sodium and more towards the gluten-free with your kind of stamp of approval, your name on it versus some of the mainstream competitors.

Well, that is a big thing, too. I mean they look for gluten-free products. They look at ingredients in it, too. I mean it is hard not to -- it's hard for somebody to buy a gluten-free product that has other process ingredients in it or adds a destabilizer. So Arrowhead Mills and DeBoles pastas are some of the big gluten-free, and ultimately our Rice Dream is a gluten-free product and will start to contain the gluten-free symbol, and other products that we have gone through the testing will now contain -- some of our soymilks are gluten-free, and some of the Health Valley products are gluten-free. So that is going to be a big, big focus for us. And the low-sodium products also.

One of the things, just from a Hain standpoint as you got me on this, our Health Valley soups, we would get complaints on our Health Valley soups they don't taste the same. Well, we do not put more than 500, 550 milligrams in our Health Valley soup. So it is hard to call a soup Health Valley with 1100 milligrams of sodium in there. And yes, it somewhat affects the taste, but if you want to add salt, you know where the sold shaker is.

(OPERATOR INSTRUCTIONS). John McMillin, Prudential Equity Group.

Maybe I will at least try to follow the rules by just asking each person one question. The key goal was 4% growth for the year. What is it now?

Well, I think you know, John, I think if we can be flat to last year, and I got to tell you the month of January with again half the first part mean being quite warm and you know with pantries and stores with good inventory, in the month of January we were flat to last year. So if it continues to be cold and hopefully with the weather and -- we really had some good promotions, good positioning that out there for February and March. So if we can get to a flat, then maybe we will get lucky and get up a little bit, but that is where I would like to be.

Okay. And, Ira, you know, the Company has been much more consistent in the last year and a half, but you still have kind of a track record of occasional inconsistency looking back. And $0.015 or to take guidance up a $0.01 or $0.02, you know almost suggests the predictability of Kellogg. And given these headwinds, was there much internal debate about doing this?

John, when we give guidance, I guarantee you that everybody in this room is onboard, so the internal debate is just ordinary. A $0.015 and a $0.02 of guidance increase when you split the middle of the guidance we put out reflects what I discussed earlier in answer to somebody else's question. We have acquired Avalon. It is a profitable business. We're going to have it in tow for a little less than six months. It is going to provide us with incremental operating income. That operating income is going to be diluted by our interest carry costs. And as Irwin took on a supplemental part of that answer, yes, we are looking at tea being a little flat like he says, and therefore, Avalon probably would have added more than a $0.015. But on a net basis and then including the incremental shares we have outstanding, it comes in at the guidance we gave. If you want to put us in the same category as Kellogg in terms of maturity, then what we set out to achieve here a few years ago has been accomplished, but we're not ready to pack it in. We have got more to go.

David Palmer, UBS.

Congratulations, everybody. A quick question on your SG&A spending over time. This quarter I guess you were approaching 19% or so. I guess I suppose that was an adjusted basis. But that is down over the last several years. And I think you are spending about a point of that in advertising spending. My question is, is there going to be a point when you are going to want to increase your rate of investment or reinvestment back in marketing or even innovation spending behind your top focus brands in order to boost that core business growth, or do you see SG&A continuing to be a source of leverage as it has been over the last couple of years?

Hey, David, I have a bunch of people in the background cheering yes, yes, yes, and you know, they are marketing people in regards to increase the spending.

You heard me say in this here quarter we increased our consumer spending by $2 million. If you step back, I mean the SG&A and the big savings is going to come from the G&A as we continue to integrate these businesses. We're not going to have multiple headquarters all around the country, and we are not going to have multiple facilities.

At the same time, we, with a lot of competition coming into this category, we recognize whether it is private-label or some of those other big companies like Kellogg, Kraft, etc., we need to spend on brand equity. And with spending on brand equity, you know, we are, and you heard me say this before, next year we feel there's a lot of good dollars going to come out from the synergies and the savings of Avalon, Alba, Jason's, Zia. But there is a lot of that money that is going to come out of there and not go to the bottom line that is going to be spent on building the brands and building that category.

So yes, we're going to continuously spend more and more on that, and I think the bigger we get we have to. But the big savings, David, is going to come from the savings on people and the savings as we integrate the business and continue to spend on advertising. It is important to do.

One of the things, I just want to add one comment on that just in terms of statistics. The additional $2 million that we spent on consumer is just under 1 full point on our total consolidated sales. And remember, although we may not have said it in this call, our business in the UK that we added on this year does not have high consumer spending because of the nature of that business. So the $2 million that we spent incrementally is not on the entire business. It is on concentrated parts of the business. So it is a much greater impact.

Pablo Zuanic, JPMorgan.

Congratulations on a good quarter.

Welcome to Hain.

This is actually Akshay Jadale dialing on Pablo's behalf.

Same welcome.

Thank you. Regarding you talked a little bit about the channel mix and how you are seeing a lot more growth from the conventional channel in some of your brands. Can you talk to the competition once your mix starts moving more towards the conventional channel, how you think of the competition from the mainstream players? And then I have a follow-up to that.

Actually this is John Carroll. We are seeing strong growth from all channels, and we are not seeing specifically more from nonnatural channels. So I want to just address that.

I think just on that what we're seeing is, and from a base business, we had zero base in those before. And that is all-new businesses. We expanded other classes of trade, Babies"R"Us, etc. like that. That is where some of the new growth, but on a percentage basis (multiple speakers) on an absolute basis, we're not seeing conventional on that grow faster than the supernaturals.

Okay. And then just getting back to the question about organic growth, I think you said something to the extent that it was high to mid single digits this quarter. Then if that is the case, then it would be fair to say that organic growth has slowed down from the 11% or so rate that it was over the last three or four quarters. I cannot imagine that all of that came as a result of weakness in tea? What are we missing there?

Well, I think -- and that is why, again, as I step back, why when I talk about organic growth, it is hard to pinpoint an organic growth number. And, as you step back, you can figure out if you take away some of our acquisitions where are our organic growth. And you know what, I don't look at our organic growth quarter to quarter. I look at our growth for the full year, and there are certain promotions that happen in January that did not happen in December.

So step back for a second, tea being 13% of our sales, down 6%, that is a lot of volume. So I don't think our guidance for the year on organic growth was somewhere between 9 to 11%, and that is what it was for the full year. I think by laying out what our growth was among our brands and laying out among the top brands, we are seeing good growth. John talked about some good consumption. I think one of the things people have got to step back and look at, a lot of our business that goes into distributors, as distributors -- and we look to reduce our inventories, that has an effect on shipments. So I think it is not fair for you to come back and look at it that way. And I looked at our growth for the full year.

Yes, and particularly seasonally in the second quarter, the percentage of our total sales that we expect out of Celestial Seasonings is greater than in any other quarter. So when Celestial Seasonings comes in soft the way we have reported to you, it has a far greater impact on the organic number than when you look at it on a full-year basis. So I would not take away this quarter's estimate and suggest that the Company has slowed. It is particular to what happens within a season and a quarter.

Robert Smith, Center for Performance.

Congratulations on a good quarter and thank you for keeping your eye on the bottom line. I'm grateful for that. Just a few perhaps choice words on the acquisition landscape, how it appears to you, the possibilities there and the prices being paid?

You know, I think there is some unique stuff out there, and there is some expensive stuff out there. And what we are looking at in acquisitions in categories where it makes sense, it is actually complementary to our existing business, and we know we need to be in it like Avalon and Alba where there are good brands, good products, good management. You know, on the surface, it looked like we paid a good premium, but we got good management, good products with good growth there. So we're not going to go out, and there is a lot of interest in this category, and there's a lot of things we are looking at. To some degree, we're going to look at some smaller things in the $10 to $20 million range that we think we can growth through our infrastructure. There's not a lot of big, big things out there today that is lapping around, but there's a lot of unique new startup things and a lot of unique things that we think we can grow through our infrastructure. But we are going to be disciplined on our acquisition purchases, and I think we have been.

Thanks very much. Good luck.

Last question.

Alvin Concepcion, Citigroup. (technical difficulty)--

I don't think there is anybody there, and I think there is a problem with his line, operator.

With that, I think let's wrap it up. Hello? (multiple speakers) Okay. Thank you very much for your time today, and thank you very much for listening to all of the great things happening at Hain. As I said before, we have had a really good quarter with good sales growth; good margin enhancement; good SG&A savings; really disciplined on our trade spending and our trade performance; really good discipline in the way we are going to spend our money and build our brand equity; a lot of new products; a lot of good integration, and this management group across the country, across all of the brands, all the businesses have really, really executed tremendously.

As we look to move forward, I welcome the Avalon/Alba team, which I already have. Look for some great performance out of there. Look for some great performance out of our existing Personal Care line. I am pretty excited about the UK business, pretty excited about our current Europe business. We've got a lot of good things happening in Europe. [Phillipe] and group have hired some new personnel over there. Looking for some continuous good things from our protein business.

So we will get Celestial back on track. We need some momentum. We need some weather. We need some heavy-duty flu and cold season, and we need some new and uniqueness going on there. So, with that, I feel we will get Celestial back on track and redefining itself, and it is not a brand that is totally broken. It is just some innovation that is needed.

So I feel real good about the category, really good about the supernaturals and their growth, and someone mentioned before about them slowing down. They are growing in mid single digit numbers, the biggest one out there and there is not too many retailers growing in mid single digit numbers today. So I like that growth, and there's multiple new stores opening up both here in the US and abroad.

So I feel good about the category, and I feel good about how the retailers are expanding in the category, and I am excited going into next six months of our year and making sure that we deliver what we committed to shareholders.

Everybody have a good day, and those remaining on the call, make sure you by Terra Chips and Garden of Eatin' for the Super Bowl, not that other national brand, and it is supposed to be cold, keep drinking tea. Thank you very much.

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