Hain Celestial Group Inc (HAIN) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you very much for your patience and welcome to the fourth-quarter 2007 Hain Celestial Group earnings conference call. My name is Bill and I will be your conference coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS)

As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the call over to your host for today's conference, Ms. Mary Anthes, Vice President of Investor Relations. Please proceed, ma'am.

Thank you, Bill. Good afternoon. I am pleased to be with you today to introduce our fourth-quarter and fiscal year 2007 earnings call to discuss our financial results, which were issued after the market closed 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.

The Company undertook during the past quarter a review of past practices in connection with grants of stock options in response to a notice it received from the SEC that it was conducting an inquiry into the Company's stock option practices. This review is being conducted with newly engaged outside legal counsel for the specific purpose of the investigation, at the direction of a group of independent directors.

While counsel's review is substantially complete, the Company is not yet in a position to file its annual report on Form 10-K for the year ended June 30, 2007. The financial information disclosed today remains unaudited, and certain items on the balance sheet, such as stockholders' equity and deferred tax accounts, are subject to the conclusion of the review. Pending completion of counsel's review, we will be unable to respond to further questions about stock options.

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 an hour, so please limit yourself to one question and a follow-up 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, our President and Chief Executive Officer. Irwin?

Thank you, Mary. Good afternoon, everybody. Let me take you through our Q4 numbers and our full year fiscal '07. And pretty excited about what I am about to talk about today on our business, the fundamentals, sales, margins, etc. So let's get into it.

Our sales were $222.320 million for the quarter versus $194.7 million, up 14.1%. For the full year, $900,432,000 versus $738.557 million, up 21.9%. Our gross margin, 27.9 versus 26.5 for the quarter, up 1.4 bps. And I want to talk in a little while about how Celestial affected our margin, but still great margin improvement, with a lot of additional costs coming at us. And for the full year, 29 versus 28.9.

Our SG&A, 19.4 versus 18.2, and 19.7 versus 20. And again, our SG&A was up with our additional acquisitions. EBITDA, which is a number a lot of people look at, are $26.5 million versus $21.4 million for the quarter. And for the year, $104 million versus $83.9 million, up 26.2%. So good performance on that EBITDA number.

Our net income, $12.3 million versus $8.7 million, increase of $40.2 million. And for the full year, $47.9 million versus $37 million, up 29.4%. Earnings per share for the quarter on GAAP, $0.30 versus $0.22, a 35% increase. For the full year, $1.17 versus $0.95, up 22.5%.

We have started and undertook a couple years ago to start working on our cash conversion, our operating free cash. As we said back there, there was plenty of gold in those hills and we found quite a bit of it. And we still have more to find.

So our operating free cash for the year, $55 million versus $38 million a year ago, and that's versus $25 million back in 2005. So a 224% improvement, and as I said there is more cash to go. Our debt-to-equity 31% -- at 31%, and that shows what capacity we have to do deals and other acquisitions and other opportunities for us out there.

Let's go back and look at the quarter. Good, strong sales. Good, strong consumption. I'm going to take you through some consumption. John is going to take you through some of the consumption on Grocery, Frozen and Snacks, and Personal Care, and we can see what is happening there.

Celestial product line for the quarter, we completely cleaned up the product line. When I look at the Celestial brand, I will take you through what we have done and how we introduced new packaging and new products. Our Terra, up 12% for the quarter; Imagine, up 14%; Arrowhead Mills, up 17%; Earth's Best, up 35%. Celestial, as you heard me say before, was down 14%.

Our European business up 9.5%. Our UK business, which was strong, up 7%. Our European business up 9.5%. And our protein business -- and I'll talk about it in a little while -- our most recent acquisition that we announced today -- up 7.5%. So good growth in the quarter from our brands, except Celestial, and I will touch on that in a little while.

So let's go back and look at the year. Sales up strong, 22%. Margins up. Good turnaround at Terra, and John will talk about that. As we went into the year, we knew we had a lot of costs facing us and we knew we had a lot of cost productivity savings to go look for. And the Company this year got somewhere between $6 million to $8 million in productivity savings to help us reduce some of those costs.

Last year in April, we acquired from Heinz the Luton facility. In June, we acquired the Linda McCartney business. With that, allowed us to build a real good, strong platform in the UK business. And both of those businesses performed extremely well this year and were good profit contributors within Hain.

2004, we acquired Jason; then we acquired Zia. Then we acquired Queen Helene. In January of this year, we acquired Avalon and Alba. And what great brands to acquire, as we now build on a great platform in the Personal Care. And will be, within Hain, one of the second biggest profit contributors within the Company and one of the biggest growers -- growth in brands. And we are pretty excited what is going on within Personal Care.

We talked about divesting non-branded businesses. In August of last year, we divested the Biomarche business, which was organic produce, and good decision there. Multiple new products, multiple new categories. We really focused on controlling our SG&A costs and will continue that in fiscal 2008.

We stayed disciplined on our acquisitions. We looked at multiple acquisitions, and a lot of them we just could not compete with private equity multiples. I think that is going to change drastically. And with our strong balance sheet and our debt-to-equity, there is plenty of capacity for us to go out there and look at additional acquisitions, and there is plenty to look at.

So let's take a look at Celestial. Q4 was down 12%. Our full year was down 9%. Margins for Q4 were down 8%. Margins for the full year were down 4%. Our trade spending was up 32%. So what faced us? We had a warm winter. We had a crowded category. We had a promoted category. Our packaging was somewhat confusing. And I believe we did not have one of the greatest promotional plans in place, and at the same time, we did not have a lot of new products going into fiscal '07.

So what did we do? We made some management changes. In Q4, what we decided, we cleaned out the inventory of retailers and reduced inventory to distributors by $2.1 million. We had an incremental trade spending of $1.3 million to move product out of the stores for a combined hit of $3.5 million.

So what (technical difficulty)? Celestial now in July has rolled out six to eight of its new packaging. We are now shipping our new Sephara pyramid bag, our fair trade organic tea, which will start hitting the stores now. Our coffee is starting to ship in October, and pretty excited about that, and so is the trade. You heard me say before we are working on a ready-to-drink concept, and we will be able to talk to you -- that soon.

In July, we reduced our overhead by $1.3 million. We brought in a new head of sales. And very important, I think as you heard me say before, going back to shelf and looking at our sales, looking at our SKUs and really getting our shelf space in order was a big challenge for Celestial and we have made a lot of headway on that.

We're in the midst of bringing in a new head of marketing. And we have gone out and announced a price increase effective October 1 of 3.5%. We're in the midst of rolling a new advertising campaign, and already we're seeing results. July/August shipments up 12%. Nielsens for the last four weeks, the category up [4.3]; Celestial up 5.5. Our herb tea up 12.5%. And where we were seeing still declines and we're seeing declines in the category is the green tea category. We think people there are switching over to the ready-to-drink green.

In natural, where Celestial has not grown in the last two years, the category is up 14.4%; Celestial is up 16%. And that is great to see, because we lost the number one position in the natural category, and it is great to see that coming back.

Let's talk about Europe. You heard me say before we are focused on branded business. We had a private-label rice cake business which we put together in a joint venture last year. We sold that business the end of July, and they will continue to make our branded, but we will no longer be making private-label rice cakes.

Our European sales for the quarter were up 9.5%. For the year, you heard me say 15.4. Our Lima business, again a branded business, up 12.3, and our Rice Dream Soy business up 18.4. Our Grains Noirs business is our only nonbranded business today in Europe, in our Belgium area, and we will evaluate that over the next three to six months and decide if we need to divest that. We'll also look at other businesses and other opportunities in the Europe market, and there's plenty there for us to look at.

What we have done is we've taken the business and consolidated it. The European business used to run our UK business, and we've moved that over to the UK operation, and UK now will run all the branded business that is sold in the UK under the UK operation.

So let's talk about UK. UK business for Hain this year was a big upside. Our Luton business was up 7%. Our Fakenham and Haldane business up 7%. We improved margins at Luton. We launched the McCartney brand, repackaged it, a whole new formula, and seeing some good results from that.

In December, we announced the acquisition of Haldane from ADM. We are in the midst right now of integrating three plants. We will sell off a small business called Barrow, which we will ultimately complete very shortly. Our Newport Pagnell Plant, which is closed, we're in the midst of integrating this into the Haldane business. And what a great opportunity from the Fakenham facility to take out multiple costs. In June, we were all over there for the new Whole Foods opening, and should help the category and help a lot of things going on in the UK market. The UK market for Hain this year has just been one stellar performer.

Let's look at Canada. Our Yves fourth-quarter business up in Canada was up -- I'm sorry, for the quarter was flat, was up for the year. We control -- we have an 86.7 share of Yves in the Canadian market. We've introduced multiple new products. And one of the big things in Canada this year, they took over handling our Celestial Seasonings business, and we're seeing some good results from that, seeing some good results from Terra, our Soy Dream, and Spectrum.

It was a tough year in Canada, with Loblaws going through a lot of changes, being our biggest customer up there. Ultimately, we're expecting some good things happening going into this year.

In July -- in June of this year, we acquired from Dean Foods the White Wave tofu business. And as we continue to evaluate that business, there are some good opportunities to integrate some of that business into our Canadian facility in Vancouver in regards to Yves.

The Protein chicken business, it was a tough year on commodities and corn. Our sales were up 11.2% for the year, up 7.5% for the quarter. Our profit was up almost fourfold for the year on our chicken business, and that is with our corn price costing us an extra $1 million this year. We introduced new branded products -- chicken nuggets, burgers, strips -- and continue to roll out value-added products.

We've announced today that we have acquired Plainville, the number one all-natural, antibiotic-free turkey producer in the Northeast, and number three in the U.S, located in Plainville, Syracuse. Family-owned business for six generations, and the antibiotic-free category is growing at 17 to 20%.

The products that we will be looking at there are natural whole turkeys and cooked deli products. And again, looking for that branded product and looking to move more and more into that deli category. A lot of synergies with our chicken business, a lot of great opportunities, a lot of value-added opportunities.

And what we're seeing today is a reduction in the meat category and stronger growth within the protein category in chicken and turkey. So good opportunity in growth, good opportunity in branding. And a great family business that we have acquired, and a lot of the synergies there.

So let's go back and look at fiscal 2008. Coming off a good year, and what are we going to follow up in an encore? From a standpoint, I feel great about the category, I feel good about our brands. I feel good about where we're going from a strategy standpoint. I feel good about the retailers out there and the focus they are really putting on this category.

So from fiscal '08, $1.025 billion to $1.050 billion from a sales guidance, and that is an 18% to 21%. And from an earnings per share, $1.38 to $1.42; that is 18% versus 22%.

You know, as I sit back today, here we are the end of August. Business is strong. We have had a very, very strong first quarter. You heard me talk about our tea business, but July and August supposed to be some of your slower months. Our business has continued to be very strong in those two months.

Whole Foods/Oats, I know it is a question going to be asked of me later -- what is the benefit for Hain? I think it is a great combination and I think the strength of Whole Foods taking over Oats, really improving those stores, will drive a lot of additional sales. And actually, we had a lot more products within Whole Foods than we did within Oats. So I look forward to the combination of those two categories.

You heard me say before about acquisition. We have announced in June TenderCare. Pretty excited about that category, and I think there is such a great opportunity to take the Earth's Best brand into the diaper and to the wet wipe business, and hoping to close that in October. And tremendous amount of expansion, because today most of TenderCare's products are sold within natural, and we have a lot of excitement and a lot of calls on that.

The turkey business, great expansion, great value-added and great opportunities. The ready-to-drink within Celestial is a category we're looking at and look to move into other categories there.

The whole cleaning supply area, a big opportunity. We continue to look at categories there. We continue to look at multiple categories in Europe and the UK. We think with the blueprint that we have developed here, there's plenty of opportunity.

In regards to our people, I must say Hain today has one of the strongest management in place. We always need to add and will continue to add this year and build the infrastructure, because it is a different infrastructure at $1 billion than it is at $0.5 billion. And as we continue to grow, we need to continue to build the infrastructure, and that is something we will continue to invest in.

Going into this year with higher costs, whether it is fuel, whether it is commodities, we also have taken on multiple productivity studies to reduce costs, and John will talk about some of them. But this year, we have reduced, as you heard me say quite a bit, and we will continue to do that. And we will take price increase where price increase is needed and will continue to do that.

Asia, big opportunity for us. We've talked about our partnership or relationship with Yeo Hiap Seng. And one of the things we're seeing today with all the scares coming out of China, there is more demand for Western foods to ship to China than there ever had because they are afraid of their own foods. And only a little bit -- and I think it is less than 1% of any of our ingredients come from -- 2%, I am being corrected here -- come from China. So we have little or no exposure to anything coming from China.

What I would like to do is turn it over to John. He will turn it over to Ira, and then we will be back for questions. Thank you.

Good afternoon. Today I'm going to cover the following areas. I am going to give you an update on Hain Grocery & Snacks Q4 and FY '07 highlights; talk to you about the Avalon and Jason Personal Care Q4 results; and give you an update on our Personal Care integration progress.

Let's start first with Hain Grocery & Snacks. Hain Grocery & Snacks had a very strong Q4, which capped off a very strong FY '07. Top-line growth was up 6 to 7%, which was primarily organic, as the Spectrum acquisition was lapped in Q2. Importantly, we saw growth across the brand portfolio, and including Earth's Best, Sesame Street, Rice Dream, WestSoy, Arrowhead Mills, DeBoles, Imagine soup, Health Valley soup, Hollywood Oil, Hain's, Spectrum Natural, Spectrum Essentials, and Terra.

Key to note is the continued turnaround of the Terra brand. Q4 was the second quarter in a row that we saw growth, after being down for a year. For the last 12 weeks, consumption trend was up 9%. Our Costco MVN promotion, which we discussed in the last call, was a big success with strong sellthrough. Our new Terra Stripes & Blues, which was the centerpiece of our July 4 promotion, is achieving our fastest distribution build in years.

Turning to the middle of the Hain Grocery & Snacks P&L, Q4 gross margin was up 200 basis points, as productivity, pricing and reduced trade spending offset continued rising commodity and fuel costs. We are challenged by rising costs for organic corn, soybeans, and wheat, as well as rising canola oil prices. Our purchasing team has leveraged our scale and long-term relationships to minimize the impact, while at the same time, our Q4 productivity savings totaled over $1 million and our trade spending declined as a percentage of sales, driven by our pay-for-performance promotion strategy. Finally, our Q4 SG&A was down 30 basis points, due to again the Spectrum synergies, as well as continued discipline regarding added fixed costs.

So overall, FY '07 was a very strong year for Hain Grocery & Snacks. We showed strong year-on-year growth every quarter and we continued the momentum started in FY '05. A few other full-year highlights included we saw a 30% gain in our new product sales, driven by such products as Earth's Best formula and aseptic milk, Health Valley microwavable soups, Imagine low-sodium broths and bistro soups, Terra Stripes & Blues and unsalted chips, and Rosetto pesto and butternut squash premium ravioli.

For the full year, we also achieved margin expansion over 100 basis points. We delivered over $4 million in productivity savings, double what we had in the previous year. We executed the successful startup of the Westchester frozen entree line, which ran at 104% of standard in Q4. And we executed the successful turnaround of Terra, which we already discussed, and Spectrum Essentials, both brands which were down 10% and now are growing almost double digit.

Just as importantly, as Irwin said, Hain Grocery & Snacks is off to a strong start in Q1, as our snack turnaround is continuing, along with continued growth in our Grocery and Spectrum businesses.

Our key FY '08 Hain Grocery & Snack challenges that we are addressing are, first, we need to restart growth in our frozen brands, which was flat. And we are putting an aggressive action plan, including some breakthrough innovation, in first-half '08, which should show a strong second half benefit.

Second challenge we have is offsetting continued cost of goods pressures across the business, continuing margin expansion. We will accomplish this with an even more ambitious productivity program, along with price increases where we need to take them.

Finally, we need to secure additional production capacity for our fast-growing Earth's Best, Imagine soup, and Spectrum brands. Earth's Best is the biggest challenge, and the way we're going to address that is we will be packing an additional $10 million to $15 million of inventory during the September-through-December fresh pack season. That is when the vegetables and fruits come up right out of the ground.

This will drive an increase in our year-on-year inventory; however, it will reduce our costs as well as secure supply, as the cost per case of producing the fresh fruit and vegetables is significantly less than doing it with purees. And we should get a better product as well.

So to conclude on Hain Grocery & Snacks, Q4 was a very strong quarter, capped off a very good FY '07, and we are positioned to continue profitable growth in FY '08.

Moving on to Personal Care, Q4 saw solid top-line growth for Personal Care, driven by our three top brands, Jason, Alba, and Avalon Organics, all of which were up 20 plus percent for the quarter. Growth was driven by a combination of factors, including consumption growth in the natural and grocery channels, increased distribution as more and more retailers are putting stronger emphasis on natural Personal Care, and new product sales, including Alba Hawaiian lip gloss, TerraGloss, and Jason fragrance-free skin care and oral care extensions.

We continue to be, as Irwin said, very pleased with the Avalon acquisition, which closed for us on January 11. For the stub year, Avalon has delivered against the acquisition document targets for net sales, income, and operating synergies; maintained its consumption momentum for Alba and Avalon Organics brands during the transition; it continued to expand distribution into new channels and new customers, such as CVS, Walgreens, Long's Drugs, Loblaws and Zellers in Canada. They have developed a strong new product queue that we will be introducing throughout FY '08. And they have displayed excellent management and operating talent across all functions.

We are moving aggressively to integrate Avalon and Jason to create the new Hain Personal Care. As we discussed in the last call, Hain Personal Care will offer a portfolio of well-differentiated Personal Care brands that will provide a one-stop solution to retailers looking to expand their natural Personal Care presence. We will also have the scale and leverage to drive more efficient consumer and trade support, as well as achieve significant operating synergies.

Now, as promised, we initiated the Avalon and Jason integration in Q4 with the following initiatives. We put in place a new Hain Personal Care management team, combining the best talent from Avalon with two individuals currently on the Hain Grocery & Snacks management team. This is a team of proven professionals that will bring a higher standard of performance to our Personal Care business and implement the performance metrics that we use here at groceries and snacks.

We also integrated the Jason and Avalon sales and marketing groups into one team to drive profitable growth across all brands by focusing on retailers and consumers, not distributors, aggressively expanding distribution, introducing innovative new products, and leveraging a pay-for-performance trade promotion strategy and our own category management expertise.

In Q1, we continued moving forward with the integration by executing a reduction in force that eliminated organizational redundancies and will reduce ongoing annual SG&A by over $2 million. We also consolidated all back-room functions, finance, accounting, customer service, and IT. And as we move toward putting one face to the customer, we set in motion to transition to one IT platform for the unit, with a system cutover target date of October 1. And we initiated a supply chain cost improvement program to leverage our scale and drive margin enhancement and operating efficiency.

A key focal point of this effort will be a cost improvement summit that will take place in early September at our Jason Plant, with the objective of identifying opportunities to streamline procurement and production across all of our brands, the Avalon brands as well as the ones we already owned.

We are also evaluating an aggressive Personal Care SKU rationalization program, similar to what worked well for Hain Grocery & Snacks in '06. Our objective will be to reduce business complexity -- the usual, too many SKUs, too much inventory, service account challenges, too many copackers, shipping locations -- we are going to go through all that to see if the SKU rationalization could potentially drive more margin enhancements.

As we enter FY '08, Hain Personal Care has, as all businesses do, some challenges in front of it. Namely, we need to restart growth on the small but high-margin Zia brand. We need to improve our service levels. And we need to step up our operating performance standards.

But overall, we feel very good about the future of Hain Personal Care, as the Avalon acquisition is delivering its targets; consumption on our key brands is strong and the category is healthy; we have a good management team in place; the Avalon/Jason integration is on track; and we have significant margin enhancement opportunities to pursue.

I will now turn the call over to Ira Lamel.

Thanks, John. Good afternoon, everyone. We saw strong revenue growth in the fourth quarter this year with 14.1% increase in our sales to $222.3 million, up from the prior year's fourth-quarter sales of $194.8 million. For the full fiscal year, our sales reached a record $900.4 million, or 21.9% higher than last year's $738.6 million.

Fourth-quarter earnings per share were $0.30 versus $0.22 in the prior year. Included in the fourth-quarter earnings this year is the full reversal of this year's first-quarter charge taken after an unfavorable VAT decision in Germany. We subsequently succeeded in recouping the full $2.2 million in VAT from our wholesale customers after the unfavorable decision by the appeals court. This reversal increased fourth-quarter earnings by $0.03 per share. The VAT charge and the reversal completely offset within the fiscal year, and therefore had no impact on full-year results.

In last year's fourth quarter, we earned $0.24 on an adjusted basis. Our share count in the quarter was 41,706,000 shares, up from last year's 40 million 107 shares, an increase of 4%, impacting our earnings per share by $0.01. For the full year, we earned $1.17 per share on both a GAAP and an adjusted basis versus $0.95 per share last year GAAP and $1.02 per share adjusted last year.

Our share count for the full year was 41,108,000 shares this year versus 38,912,000 shares last year, an increase of 5.6% on the share count, with a $0.06 per share unfavorable impact on earnings.

Our gross margins for the fourth quarter this year was 27.9% of sales, compared to last year's 27% adjusted. And last year, we had the completion of our SKU rationalization flowing through the full year. The improvement this year was achieved despite the challenging environment and the reduced margins at Celestial Seasonings.

Additionally, the $3.5 million that Irwin referred to in his remarks cost us $0.03 in earnings this year. Celestial Seasonings represented 180 basis points lower as a percentage of our consolidated sales this year in the quarter than last year.

For the full year, gross margin was 29.2% compared to 29 last year, and improvements came from the positive impacts of the 2005 SKU rationalization and from price increases we have implemented, plus productivity improvements across our operations. These were offset by the same effects at Celestial Seasonings in the challenges the Irwin discussed.

Our SG&A in the fourth quarter this year was $43.2 million, or 19.4% of net sales, compared to $35.5 million, or 18.2% of net sales, in the prior-year quarter. For the year, SG&A was $176.9 million, or 19.7% of sales, compared with $147.9 million, or 20% of sales. We continue to carry some duplicative SG&A from our recent acquisitions of Haldane in the UK and our Avalon/Alba operations in northern California, as John discussed.

Other increases in SG&A as a percentage of sales came from increased amortization of acquired intangibles resulting from our numerous recent acquisitions and increased professional fees. We are continuing to work on our consolidation plans, which we expect to complete during fiscal '08.

Operating income in the quarter this year was $18.8 million, an increase of 15.8% over last year's $16.2 million. As a percentage of sales, operating income improved by 12 basis points to 8.44%. For the full year, operating income reached $84.5 million, an increase of 29% over the prior year.

In this year's fourth quarter, interest expense totaled $3.4 million versus $2.2 million last year. For the full year, interest expense amounted to $11.3 million versus $6.5 million in the prior year. The higher cost this year resulted from increased borrowings for acquisitions, along with $150 million permanent financing being outstanding for the full quarter this year versus only two months in the prior year's quarter.

EBITDA for the full year came in at $104 million, an increase of 25.2% over last year's $83.1 million. EBITDA for the year was 11.6% of sales, increasing from 11.2% of sales last year. Depreciation and amortization totaled $15.7 million for the full year. Our operating free cash flow, as Irwin mentioned, was $55 million this year, compared to $38 million last year, an improvement of 45% in the one year.

Turning to the balance sheet, our financial position continues to be strong. Our working capital at June 30 was $200 million, and our current ratio was 2.7-to-1. Our cash conversion cycle went to 77 days at the end of this fiscal year versus 72 days at both the end of the third quarter and the end of the prior fiscal year.

The net increase in days resulted principally from higher levels of inventory carried in the Personal Care unit, an inventory buildup in the United Kingdom as we prepared for the integration of the Haldane frozen food factory into our Linda McCartney facility, and increased inventory resulting from taking positions in organic fruits and vegetables used in our Earth's Best baby food products. Additionally at Celestial Seasonings, we built inventories for the launch of our new packaging in the first quarter of fiscal year '08.

Despite today's increase in cash conversion, for the specific reasons I have outlined, we continue to focus on improving these metrics. Our debt totaled $216 million at June 30 this year, which is 31% of equity. Our net debt, which deducts cash and cash equivalents, was $155 million, or 22.3% of equity.

We are providing fiscal year 2008 guidance today. We expect our sales for fiscal year 2008 to be in the range of $1.025 billion to $1.05 billion. This includes sales of the Plainville Turkey Farm operations we announced earlier. Our earnings per share range is $1.38 to $1.42. We expect some margin expansion through continuing productivity improvements and that that expansion will take gross margins to 30% on a worldwide consolidated basis, all units in. We are anticipating a 38 to 38.5% effective tax rate, and our expected diluted share count is 42.3 million.

We expect CapEx to be a bit higher in fiscal '08 that it had been in the recent fiscal years. We have initiated a new IT implementation for our Hain Celestial Canada unit, which will add approximately $1 million to our capital spending. We also anticipate approximately $2 million in capital spending in the UK for the integration of the Haldane operations.

With that, I will open it up for questions.

(OPERATOR INSTRUCTIONS) Edward Aaron, RBC Capital Markets.

I wanted to ask you about the new Protein acquisition. When you did the last one, that came in at a pretty low margin, so there was some dilution for a period of time. It sounds like this one is going to be a little bit different. Could you maybe talk about the margin profile of this business?

And then I think you might have touched on it earlier and I might have missed it, but just in terms of the synergies on the sales and cost side between this and the prior one.

Margins should run around what our normal margins are, the 34, 35% margins. Much value up -- from our value-added products, all antibiotics. So you're not going to see us add in Q1 on an adjusted basis if we didn't own chicken and we did own chicken. So margins should not be dilutive with Plainville.

In regards to synergies and savings, we think there's tremendous synergies on the sales part. Today, they sell some of their chicken products -- they sell some of their turkey products where we do not sell our chicken products and vice versa. Also, we think there's tremendous synergies in utilizing one sales organization.

And we think there is a big opportunity with the branding of Plainville. It is not one of the greatest, savviest brands out there, so we think with FreeBird, there is just a great branding opportunity.

But just as important today is moving into that whole deli category. Applegate has a big, big category out there to itself. A lot of value-added products in bacon, dogs, ground beef. So we see some great opportunities. And the category, you heard me say before, is growing 16 to 20% and some great growth at Plainville.

So we are pretty excited. Family-owned business, and just a lot of cost and a lot of growth opportunities here.

Great, helpful. Thank you. Then on the inventory side, you (technical difficulty) increases this quarter. John, you mentioned some additional increases coming from Earth's Best. Presumably some of the sources of the increase from the fourth quarter are going to be worked down by the time the Earth's Best inventory comes online. Do you think that the rate of increase that we saw in Q4, is it going to be higher or lower than what we saw in Q4 on a going-forward basis?

I think you will see for the first two quarters on the Grocery & Snacks business that the inventories will be -- the rates will continue as they currently did the fourth quarter, because that is when the significant fresh pack will happen. Then it will work down.

Okay -- in aggregate for the Company?

I think the aggregate for the Company, our inventory will stop dropping a little bit, other than some seasonal impact from building inventories, such as the (indiscernible) unit for soups or in the Celestial Seasonings tea unit for the winter season. But they will stop dropping because the inventories we built at the end of June will start to be utilized for the purposes we built them.

So I think the cash conversion date is a temporary five-day drop, and I think we will get that back over the next six months.

And you're going to see also that change dramatically with Celestial as we move into our winter months there. Also, with the Patriot Act, we ran into problems just getting products into the country, and we built up on inventory -- on raw materials and inventories at Celestial. So the exact same there.

Okay. One more quick one, if I could. The Celestial price increase, it seemed a little counterintuitive to be able to take 3.5% price in what has been a pretty challenging environment. How comfortable are you that that will stick?

We haven't taken a price increase in four or five years, and the prices have gone up dramatically. We had to, and I think there's a couple things. We invest it back in the business, number one. Number two is we've come out with a great new look, great new packaging. And it is hard to understand how anybody can't take increase with corrugate and fuel and raw ingredients going up the way they are.

So we're not the only one out there taking a price increase. But the big thing is we've got to invest it back in the business, and that is where a good part of it is going to go.

Thanks.

Scott Mushkin, Banc of America Securities.

Okay, a couple questions. The 10-K, I guess delayed. Any idea when that is coming out? Will we get -- I guess it looks like it was delayed because of the options, the internal investigation on the options. Should we expect some news on that as well when it is filed?

Yes, there will be an update. We filed an extension and I expect to be back to you with more details on it.

Okay. I know some of you -- John talked about kind of going to the fresh to pack. Any idea about what you are going to do as some of these brands become larger -- and I know you have one plant that you opened up last year for the frozen -- about actually opening up more of your own manufacturing and bringing this in-house?

And how would you handle it if you did it? Because I know last year you took some charges because of it -- or the year before. Is that kind of how we would look at it going forward, or are there not many plants and that is not a concern?

As far as new plants, there's not many plans today. But if we were to go out where we saw the opportunity and it made sense is use CapEx and build a plant. And that is we did at West Chester last year, where we took some charges were more startup charges and we got the plant going.

But I think as we step back today, we want to control our own [destiny] in growth brands and there's a lot of them out there. And where it makes sense that we can't get continuous supply or quality copackers, we're going to look to make sure we have our own manufacturing facility and we will invest in capital to do that.

Then one final one, maybe for Ira. The intangibles that you referenced as higher than expected, how much did that lean on the fourth quarter? Do you have -- do you want to share that?

Yes, it cost is about $0.01 in the fourth quarter. We did some acquisitions and valuations came in a little bit higher than we expected with regard to the valued intangibles. There's a lot of technical writings out there about how you value certain things, and it just hit us a little higher than we expected it would.

Was it the Avalon acquisition? Was it related to that? Or was it --?

No, it was acquisitions other than the Avalon acquisition.

All right, perfect. Thanks, I appreciate it.

(OPERATOR INSTRUCTIONS) Stephen Kron, Goldman Sachs.

Irwin, I guess first just to start out is how you're thinking about acquisitions in the current environment. I know you referenced, obviously, an acquisition you made and announced today. But you talked about plenty of capacity out there, and it seemed as though maybe a renewed sense of enthusiasm about the environment, given, as you said, maybe the private equity bid [updating] a bit.

Has your outlook for -- call it the next 12 to 18 months from an acquisition and what might be out there for you -- has that changed in the last three to six months, considering what has gone on?

I think a couple things. Number one, our acquisition plan has been out there. I think what has happened is some of the acquisitions that we have been participating in over the last couple months either have been delayed or we think we have a better chance of succeeding now because of private equity either bowing out or private equity not having the opportunity to pay some of the prices with synergies and financing.

So I think number one is we are seeing a lot more activity and we're getting calls. And we're getting calls when we have decided to bow out, just recently, as do you want come back in.

But I think the first thing is we got some great brands. You heard me and Ira come out with guidance for next year; it is a pretty significant increase at both top and bottom line. If we don't do one acquisition next year, I think we have got some pretty exciting things happening. But I feel good about the opportunities in acquisition, both here in the U.S., in Europe, and even Canada, and some pretty good categories.

Okay. And then a follow-up in the Celestial business, maybe two quick ones there. First, it seems as though, as you referenced, July and August off to a good start, and the category seems to be improving. I guess would you characterize that as improving because you're lapping some easier numbers and you've thrown some more money into the brand support? Because it does not seem as though at this point you've really introduced the new products. That is the first one.

Secondly, as it relates to the sales and the inventory, I guess, workdown that you have had, has that been, I guess, sold at discounted prices at all?

Let me come back on your first question first. I think July and August, number one, being up 12, 13% in July and August, I want to be up to 12, 13% in December, January and February, the cold months. Okay?

But, what I have got to come back with, number one, let's get excited about the consumption numbers, because consumers are taking product away and you're seeing both growth in natural and grocery. And what you're seeing is good growth in herbs. So that is what makes me feel good.

Number two is, coming back, what we have been able to do in reducing our shipments into distributors and pushing the old product off the shelf, we spent a lot of money to get the old product off the shelf. In July, we've shipped now six to eight of the new packaging out there, so the new packaging is on the shelf.

So number one is a lot less inventory at distributors. A lot of the old packaging has moved out, and the new packaging is on there. And it is great to see the tea category growing. That is one of the most important things.

Your second question --

Was related to the inventory workdowns that you referenced.

You know, the inventory workdowns, we spent extra trade dollars in the quarter, and that is ultimately price points. I wanted to get it out in July and August -- or June -- to be ready for tea season. Tea season starts roughly September.

Okay. And if I could just slip one last one in there. Historically, every now and then in your quarterly filings, you provided an organic growth rate. Do you care to maybe comment on what the organic growth rate for the top line was this period?

You know, I am going to let you do your work and you figure it out.

Steve, the information that we provide in the quarterly filings is not representative of organic growth. It is simply the acquisition footnote that follows the GAAP rules on disclosure of acquisitions we've made, without any adjustments to the numbers for what we as management do with a particular acquisition.

So I would not take the footnote disclosures in those quarterly or annual filings and interpret that as representative of organic growth.

Okay, thanks very much.

Greg Badishkanian, Citigroup.

Just looking out at your guidance for next year, $1.38 to $1.42, it is 18 to 21% EPS growth. It is a bit higher than the Street, and it implies 14 to 17% sales growth. Just wondering, first, just in terms of maybe what you think internal -- what is implied in that for internal growth for next year. And also, maybe two or three of the big things that you have to get right to achieve your target.

Good question, Greg. I think, number one, we're looking for 8 to 11, 8 to 10% organic growth. We're looking for some good integration on the Personal Care business, and we think there's some good opportunities. I think what is important here, we're looking for 6 to 8% growth on Celestial, and I think that is key. And yes, we are coming off a smaller base, but I have got to tell you, I'm feeling pretty good about what we have going -- new packaging, the Sephara, the coffee line, and the management team that is in place there.

And where we have taken price increase, we think we have got a good handle on covering where we see some pricing exposure. If we get hit by ten hurricanes in the next three weeks, God forbid, I mean we can't predict [fuel] prices. But I think we have really got a good scope on costs and commodity costs and feel pretty good about that.

In Europe, we got some good growth coming in Europe -- in the UK and Europe -- like what we see there. So with that, I think controlling costs, getting the sales number, really focusing on the margin piece, and we should be in pretty good shape for next year.

Great. And just looking at organic growth for the quarter, I am sort of coming out with a number of unadjusted sort of mid single digit. Ira, maybe last year or in the acquisitions that you recently made, are there some adjustments that you can think of that stand out in terms of SKUs that you cut and some things that you did that we can make for our acquisition or organic estimates?

Greg, it would be very difficult to parse through each individual brand and the management of those brands as we acquire them. We have had our first full fiscal year in '07 with a number of acquisitions. We have had some partial acquisitions in the year. We sold Biomarche at the outset of the year. You know, the SKU rationalization continued to impact the '06 fiscal year, so the sales number that you see there does not represent the base for '06.

There are all kinds of management decisions that have been made that impact that. So it would be almost impossible for me to walk you through it on a call like this. And let's wait until that 10-K is filed and we can talk about the base note that is in there.

Sounds good, thank you.

Christine McCracken, Cleveland Research.

Just on Personal Care, you obviously referenced you've made a number of changes here recently in that segment. It sounds like some big management changes, and you're going through kind of the review process of what to do next.

I am wondering as you look at that business, where are we in terms of the consolidation of those brands and what can we look for in terms of sequence of improvement from a margin perspective over the next year?

A couple things, Christine. This is John. First, the management changes, you are right; we did make some pretty significant management changes. Secondly, though, we're not sitting here trying to figure out what to do next. Quite frankly, this is a pretty well laid out plan on what we're doing here.

And we're going to drive some pretty significant synergies from three big buckets. First one is SG&A, which we start to start reaping some of the rewards of that with the reduction in force that we just executed. Second thing is in the area of supply chain. And that is a huge area for us, because as you look at this business, we have -- we are just putting into place plans to start joint procurement and also look at opportunities for internal manufacture, and then even potentially some logistics opportunities.

Then the third piece is on the trade side, and it is not in the area of just cutting trade. The flip side of it is it is finding out where we can get more out of our scale to drive some pretty significant trade execution, as well as reduce it as a percent of sales.

So those are the three buckets that we have laid out that we're going to go chase after. We've got a good strategy in terms of how to sell our portfolio to not only our existing customers, but new customers looking for natural Personal Care. And I expect that you'll see some strong impact on this business starting in second half of '08.

Okay. In terms of potential for margin improvement, I know that it is already one of your highest margin businesses, but I am curious what you're looking for there.

At this point, we're not willing to publish any targets. That is consistent with what is in the FY '08 forecast. But look, margin improvement has been a huge piece of the turnaround on Grocery & Snacks, and I expect to see the same sort of progress, if not more, in Personal Care.

Just think of the opportunities on manufacturing. You've been through the Jason plant, and moving other manufacturing in there, procuring together, buying together, whether it is labels, ingredients, there is -- ultimately today, we are in different warehouses, shipping on different trucks. There is just a lot of costs and a lot of synergies. And last but not least, you're seeing some good growth in those businesses. So that is a big opportunity to help the margin, too, and scale.

All right. It sounds like a big opportunity. I'll leave it there.

Eric Larson, Piper Jaffray.

I will start with my follow-up question. Price increase on Celestial October 1, it is a long lead time. You're going into the key selling season. Retailers are going to be buying anyway. Is the recent strength maybe buying ahead of the price increase?

I do not think so. You know, I think if it is, you'll see it in September. I think as I go back now, it has been replenishing what got sold hopefully in May and June. So that is what we are seeing. And we are not seeing where customers have really bought in.

So -- the other thing is you're not going to see it because I think most of the customers want the new packaging, and they're going to wait until the new packaging totally comes into the marketplace.

But just come back. Don't just focus on our shipments. Focus on consumption and growth in categories, okay?

Sure, I understand (multiple speakers).

And that is the big thing, because there's been a big turnaround in the whole tea category. And the tea category has dragged for -- over last year. So seeing consumption in natural and mass-market, chain drug and food, drug and mass has been very helpful. And that is important for the strong sales.

Yes, sure. But it seems consumption would still be lagging your shipment growth at this point. Would that be correct?

Well, no. My consumption -- consumption numbers -- do not forget, as we ship into distributors, okay? And what I said, consumption in Grocery, the category is up 5.5 -- category was up 4.3; Celestial was up 5.5. And in natural, the category was up 16; Celestial was up 18. So I mean, we are seeing it keep up somewhat, if you take out what is being shipped to distributors versus what is being shipped direct.

Okay, that's fair enough. Then in Ira's comments, just one -- shares outstanding for the year of diluted EPS $0.06. The bulk of those shares were used for acquisitions, so are you saying that the net effect of acquisitions was dilutive $0.06 a share for the year? Or is that before you add in the earnings contribution from the acquisitions?

It is actually not related to acquisitions. This year, the increase in shares comes from basically three different places. As is typical, the base employees exercise options as the year goes along, so the number of shares outstanding goes up.

Number two, we had a second tranche with our YHS partner, so shares we issued in that exchange with YHS caused our shares to go up.

Then for the remaining outstanding stock options, we get a higher dilutive effect when our share price goes up. And our share price was higher this year than it was in the prior year, because there were more shares assumed to be converted into outstanding shares.

So it does not come this year from acquisitions. The '05 year was the last time we did an acquisition with a significant issuance of shares, when we acquired Spectrum. Excuse me -- that was in December '05, the '06 fiscal year. But not in this fiscal year.

Okay, thanks for the clarification.

Andrew Wolf, BB&T Capital Markets.

Congratulations on the year, by the way -- and the quarter. I just need some clarification, if you would, on a lot of the numbers you put out, on what happened with Celestial in the quarter. The $3.5 million, which line items in the P&L does that affect? Because I think you also talked to how it hurt sales and could just somebody run down the P&L --?

It is all going to be in one line item. Because as sales slow waiting for the shelves to clear, our sales are reduced. And as we spend more promotionally to the trade and to the retailers to get product off the shelves to make room for new product in the first quarter, those are expenses under those EITF rules that we have talked about frequently --

That is the net sales reduction.

And it goes into net sales. So everything that we're talking about is on the sales line, from that discussion that Irwin mentioned.

And that was $3.5 million?

That is about where we think it came in. (multiple speakers)

That gets you to the $0.03 hit?

Yes. When you take it down to margins and so on (multiple speakers). Yes.

Did you say it was 180 basis points? I'm sorry -- I have not able to hear all the call.

The 180 basis points is, as we grow the Company in total, Celestial Seasonings continues to just be a smaller part of our total business as a Company.

Oh, that's how much less it was --

So it is now 180 basis points lower in the quarter. Now, do not forget, part of that results for some of the activity that we just talked about -- as revenue comes down.

As revenue comes down and spending went up, that is ultimately going to fix -- affect the margin.

Let me -- look, one thing that we can say ultimately, Celestial is now falling in the 10, 11% range on total consolidated sales. And if you remember when we first acquired Celestial, it was well over 20% of consolidated sales.

Yes. Have you maintained the shelf space that most of the core Celestial business had?

Absolutely. And I think one of the things -- what was important for us here -- and I think if you go back and refer to my third-quarter comments, we said this -- we wanted to clean up shelf space. We wanted to clean up what was at distributors. And we wanted to make sure we got new packaging on the shelf. And I'm not sure if you have seen our new packaging -- some is out there; some is not.

But to ship another $2 million into distributors and wait to get the new packaging out, we ultimately felt that would affect us. So one of the big things you heard what I said before, we hired a new head of sales. We had not had a great trade program out there, and we missed a lot of the promotions last year in tea season, and I think we ultimately lost some SKUs.

So, a couple things. We've picked up some good distribution, but going into this year's tea season -- in our fall, our holiday promotion is a big part of our number and a big part of our growth, and last year, we just did not have the success in that. And we are seeing some great hits on our holiday teas and our promotions going into October, November, December.

So we have not lost space. And if anything, we have picked up a ton of our promotional space.

And just the last one is also on Celestial. You talked about the sales expectations and, first of all, I wanted to ask on that sort of the budget there. If you were to break that out between the existing categories, bag tea basically, and the new stuff, coffee and ready-to-drink, how would -- is it 80/20, because the new stuff is coming on (multiple speakers)?

Absolutely 80/20, and, number one, high margins on our existing product line. So far in coffee, just launching in October and September, are ultimately a small part of the growth next year.

Lastly, on the earnings pickup from Celestial, obviously it's an easy comparison since it was a down year for Celestial. Could you speak to what kind of pickup you're looking for in Celestial? I assume it is probably -- I don't know what to assume here. I assume you're going to support it a lot, so it may not be as great as the pickup in sales. I'd just like you to speak to that --.

Any growth that we see coming in Celestial as we go through what is called a rebound here is already included in the guidance that we have given, both on the sales line and the earnings line. We do not -- we are not going to give out what the earnings targets are specific to units, our reporting units. But it is all in on that guidance.

To rephrase it, I guess it is fair to assume you're going to support Celestial, given that it is -- (multiple speakers)

It needs to be supported with all the new stuff coming out, and we are looking for high single digit growth. I think what is important to see going into fiscal '08, with the growth of our brands, the diversification of our brands, and great growth within Europe and Personal Care and our Grocery, Frozen and Snack, I have said it before -- we can let off on Celestial, invest in the brand, invest in the products, and get the performance elsewhere to be able to put up the type of numbers that we're looking for next year.

Fair enough. Congratulations.

Ken Goldman, Bear Stearns.

A question on cleaning supplies. Obviously, a growing category in terms of -- I see Mrs. Meyer's everywhere. I see Seventh Generation everywhere. You did mention it on the call. I guess my question is how you think about it in terms of whether to make or buy. Recently, Irwin, you have been very strong in buying brands, perhaps a little bit less focused on building brands from scratch.

So how do you feel about your ability, if prices for cleaning supply companies are too high, about introducing a new brand from scratch? Would you likely leverage an existing one? Would you introduce a fresh new brand? How comfortable are you with management and sales's ability to, I guess, give birth to a brand, so to speak.

I know why you're saying giving birth right now. Congratulations.

Thank you -- I guess it is on my mind, yes.

That is why we went into the diaper business, Ken.

I will be a consumer of that.

And wipes.

That's good, for quite a few years.

Number one, step back, you think about it. We feel very good about where we're going in the Personal Care category. Number two, as we move into diapers and wipes and other products in that category, we think there is just a great opportunity in the whole cleaning supply area. We have had multiple discussions with a lot of our customers. Somebody is not -- somebody needs to consolidate that category. Somebody needs to become a category leader.

And today, with our technical people, our scientists out there -- matter of fact, Jason's was into that category with a brand called Heather's, and has a lot of the formulas that are good, clean formulas, because there is a lot of confusion out there today. Believe it or not, what is a clean formula in cleaning supplies, okay?

It is a category we like. It is a category we're spending a lot of time looking at. Other than that, I am not about to say whether we're going to go from scratch or buy. But it is a category that we think has tremendous growth. And you talk about chemicals and chlorine and that in a category that is bad for you, that is one.

Okay, thanks.

Thank you, Ken. Congratulations.

Scott Van Winkle, Canaccord Adams.

I will say my follow-up first, follow-up to the other question about how you build guidance for next year. Did you give an interest expense number, Ira, for next year?

No, I actually did not quote one. So let me get you (multiple speakers).

I think, Ira, you just need to add to it. That did not include any equity (inaudible), which we did not mention in guidance.

Yes. Interest expense, we modeled about $12 million.

$12 million for the year?

That is correct.

Is that a net number, including other items?

No, it is just pure interest expense.

Pure interest, $12 million.

When it comes to the other interest expense items, we cannot anticipate what is going to happen with the various other items that flow through there.

Okay. And another question is -- I guess for you, Irwin, you're talking about picking up the pace a little bit with what has happened in the credit markets and private equity markets out there on the acquisition side. At the same time, you're kind of going through a little more aggressive cost control, efficiency improvements, some management changes.

Do you feel like you have the executive management time and ability to allocate to all of this, or is John Carroll just working 100 hours a week?

John Carroll is working 100 hours a week, but a good question. John Carroll has in place with him an incredible team that is working 100 hours a week along with John, while John is out in California. Working that 100 hours on Personal Care and coming back to work the next 100 hours on another business.

Scott, as we reach that $1 billion milestone, we are going to put some infrastructure into this company in multiple departments -- in finance and sales and marketing. So we are looking at where we need to beef up, and we are continuing to do that. We're not going to look and pass an opportunity because we do not have people. And the good news is a lot of people love this category and love to get into this category, so there is a lot of good people out there to hire.

So we're definitely looking to beef up and looking to look at acquisitions that make sense for us. And like Avalon, one of the good things at Avalon, the acquisition, Scott, there was a good management team and some good people that came along with that. So looking at some of the acquisitions, not only do you get some good opportunities and good products, you get some good people that have helped us here. We got some great people from the Spectrum acquisition. So -- we got some great people from Hain Pure Protein and we expect to get that from Plainville.

Okay. Good answer. If I could, just one more quick follow-up in here. Do you know what percentage of your end sales, obviously it goes through you and FI, end up in Wild Oats?

You know, it is not a lot. It is small. It might be about 2, 3% of that. But you heard me say before, and I think I know where you're going with that, I think that is a great acquisition, and I think Whole Foods is going to do a good job with those stores. If anything, our sales were declining there, and even though there may be less stores, I think we're going to see some good pickup.

Great, thank you.

Pablo Zuanic, JPMorgan.

Just a couple of general questions. I think about a year or a year and a half ago you had talked about overall market growth for organic and natural products decelerating in the natural channel, but accelerating in the traditional channel, and that overall the category growth was accelerating. Can you give us an update on where are we there? Has growth accelerated in the natural channel? What is happening with mainstream?

And a reminder in terms of where is your mix of revenues? How much is coming from what we call the mainstream traditional channel, and how much from the natural channel?

You know, I think right now what we're seeing is in the natural channel -- let's step back and take supernaturals and all the other natural food stores out there. If you took the pie, there's natural food stores, there's Whole Foods, there's Wild Oats, there's Trader Joe's. And then if you get into mass market and then supermarkets.

So today, the supermarket category -- the supermarket business and the supernaturals, the natural food stores, are about the same size today. Ultimately, what is happening is you're seeing a lot of product lines going into the mass market and chain drug. Where I see ultimately a lot of the growth coming from is the supermarket, with 33,000 supermarkets out there and a lot more stores putting in a lot more products.

On the other hand, today, we now will have a good-sized retailer out there with a lot of stores. We have a big UK retailer coming in that is opening up over 100 stores that is going to focus on natural organic. So there's puts and takes. But supermarkets are focusing on it, and what we're seeing happen in supermarkets, where there used to be the natural food section, they are moving a lot of the products over to the mainstream aisle, where we're seeing a four to six time increase in sales when it moves over from the natural section into the mainstream section. So we are looking for some good, favorable growth over the next years.

Okay. And just to follow up on that, it sounds to me that if the growth isn't to come from, as you say, the supermarkets or more traditional channels, the category strength of your brands, the strength of your brands within those categories becomes very relevant. Because for example -- because (indiscernible) cereal, maybe Whole Foods or the natural channel may have a lot of cereal natural organic brands, but a Kroger or a Safeway probably have one or two only. So (inaudible) if they do that, they are going to have Kashi.

So what I'm trying to understand here, if you (inaudible) in terms of your top three, four product categories, how well can your brands travel? Am I wrong in saying that, for example, obviously Earth's Best is very strong within its category and can travel well, but can Health Valley and Arrowhead Mills travel well through the traditional channels? Just briefly on the top three or four categories, remind us of your category strength within organic, and whether some of them may not travel as well because they are not necessarily Kashi.

Good question. If you go into supernaturals today, we have anywhere from 1100 to 1400 product SKUs. If you go into a supermarket today, we could have anywhere from 200 to 600. So not every SKUs goes into a supermarket.

But I think if you step back today, Terra Chips, Garden of Eatin', Imagine soups, Rice Dream, Soy Dream, our Yves products, Earth's Best, of course, Arrowhead Mills, Spectrum, DeBoles, I think they all travel well. And we are -- private label is something that will come out with and come up against us. But they are brands that are only known for natural, have grown up within the natural category. And I think we've seen where brands have gone both ways, have tried to be natural or organic and ultimately have all the other ingredients into it, have not been successful.

And with that, we have to support those brands in different types of advertising strategy, as we take them over into the bigger arena and play over there. But what we have seen -- and Earth's Best is a great example -- Earth's Best basically was in supermarkets. When we acquired the brand, we focused totally on natural food stores. We had an 83% share in natural food stores and gave up on supermarkets at that time.

And what happens is people shop supernaturals, where that creates brand equity and brand demand. And they go to their supermarkets, starting to ask for those products. And that is when we get the call and say, can we get that product in the store.

Just one last one. In Earth's Best, going from baby food and frozen foods for kids into diapers, isn't that like overextending the brand? I am sure you have done your market research, but isn't there a big risk there in terms of [shorting] that brand on the food side?

We have taken Earth's Best today from food into toddlers' food and we've taken it into infant feeding. We have taken it into Personal Care, and now taken it into diapers. And I think what is important is we have been consistent in all our products being organic and totally clean. Where we're going in diapers today is in a chlorine-free diaper and a flushable wipe.

I think what is important, if you go back and look at the diapers sold in natural today, there is nothing from a branded standpoint. And the only other branded diaper out there is sold in cleaning supplies or paper goods, etc., okay? So you come back and talk about it, one of the most trusted names within Hain today is Earth's Best. If you're going to feed your baby and trust our food, you damn well sure will trust the diapers that you use for your infant or toddler.

Actually, the average infant/toddler goes through four to six diapers a day, where it is not the same in infant food. Infants and toddlers wear diapers until they're four years old. So I think there is a good longer spread, because we bring in new users every nine months in the infant food category.

Okay, that's fine. Thank you.

With that, that was our last question. I want to thank everybody for joining our call this afternoon. I want to thank you for listening to our fiscal 2007 fourth quarter and our fiscal 2007 full year.

I think we completed a great year, and I have really got to thank the management team, who have truly executed. Everybody knows about headwinds of cost, commodities etc., and it is great to sit here with this group and talk about being a $1 billion company next year, and it is great to own the brands that we own and be in the category that is growing the way it is.

I could spend the next 20 minutes talking about how everybody is concerned today about the environment and what we do from the environment standpoint, and we have taken multiple initiatives -- sustainable agriculture, biodegradable -- from our packaging to our products. From our brands, as our brands continue to get known around the world, and we have global brands today, whether it's Celestial, whether it is Terra, whether it is Earth's Best, Rice Dream, it is pretty exciting when these brands were $10 million, $12 million brands and are on their way to $100 million, $200 million brands.

As we -- you know, the first two months are behind us in fiscal 2008, and we feel good about the category and where it is growing and the beginning of our fiscal 2008. We are focused on growth. We're focused on margins. We're focused on cost. With that, hope to be sitting here next year and talking about our fiscal 2008 with some great numbers.

Everybody enjoy what is remaining in the few days of your summer, and have a great, safe Labor Day weekend. I'll speak to everybody soon. Thank you very much.

Thank you very much, sir, and thank you, ladies and gentlemen, for your participation in today's conference call. This concludes your presentation and you may now disconnect. Have a good day.