Hain Celestial Group Inc (HAIN) 2010 Q4 法說會逐字稿

Good afternoon. My name is Bonnie, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth-quarter conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a quest and session. (Operator Instructions). Thank you.

Ms. Anthes, you may begin your conference.

Good afternoon. Thank you for joining us today and welcome to the review of our fourth-quarter fiscal year 2010 results.

We have several members of our management team here today to discuss our results -- Irwin Simon, President and Chief Executive Officer; Ira Lamel, Executive Vice President and Chief Financial Officer; and John Carroll, Executive Vice President and Chief Executive Officer, Hain Celestial United States.

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 2009 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.HainIcanCelestial.com under Investor Relations. Our call will be limited to approximately one 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 further discussion.

Now, let me turn the call over to Irwin Simon, our President and Chief Executive Officer.

Good afternoon everybody. I hope everybody had an opportunity to review our press release that we filed this afternoon.

As you can see, we're pretty excited about the market, what's happening out there. Let me take you through Q4 and the full year, and then we'll talk about next year.

In Q4, sales were $222.788 million versus $223.269 million. In that quarter, as you're well aware, we discontinued doing business with Marks & Spencer in the UK, and that was approximately $10 million for the quarter and approximately $35 million for the full year. The full year was $917 million versus $957 million. So all in all, in the quarter, being almost a flat quarter with $10 million less in sales in the year, $917 million versus $957 million.

We were down about $80 million in sales. That's approximately from deloading almost $40 million and then what I mentioned from the Marks and Spencer piece in losing that business.

Overall, our earnings per share, $0.26 adjusted for the quarter versus $0.21 a year ago.

So what happened in the quarter? What's going on out there? What is the world feeding us? What I can tell you is the trends are moving, continuously moving in the right direction in regards to brands. The trends are moving in the right direction for natural organic food.

Our consumption continues to grow and John will talk about that in a little while. Our consumption up 4%, and he'll take you through some of his brands in other categories, but that is really good to see considering that consumption was down last year at this time, and the different channels that it's growing in.

Our margin growth on all businesses except the UK was up 270 basis points. But let me talk about the UK. We are moving in the right direction. It was a tough year, a tough economy in the UK. Our Fakenham business went from approximately a GBP14 million business to a GBP20 million business and on the run rate to about a GBP30 million business this year.

I feel we made a lot of moves on our food to go consolidating our Covent Garden business into our Luton facility with our Daily Bread, and we should definitely see some good movement coming in the UK. We're seeing food service, we're seeing eating out coming back in the UK, so looking forward to that.

At June 15 or June 16, we did the acquisition of Sensible Portions. I'm pretty excited about the growth, the opportunities with Sensible Portions. It gets us into the baked category in a bigger way, which is double digit growth. It gets us into classes of trade in a bigger way, which we are not today.

We also for the UK did a Churchill acquisition, which gets us into British home stores, [Little] and [Fly-d], which is an airline, and brings volume into our Luton facility which will help overheads. But it also helps the opportunity to bring the Daily Bread brand into these retailers. So I am excited about the opportunity there.

Hain Pure Protein divested Kosher Valley and sold it to Empire, which today is combined. Hain Pure Protein owns 15% of Empire Kosher chicken and has the ability to go up to 20%. Empire has been around for numerous years, a leader in the kosher chicken and turkey business. We look forward to getting the benefits -- or Hain Pure Protein looks forward to getting the benefits from Empire.

We closed on a bank deal -- $400 million -- which gives us the opportunity to go out and do acquisitions, enhance our balance sheet, which already was pretty strong. With current market conditions today, it shows what kind of value banks put on Hain in regard to the bank deal that we had put forth.

Good brand growth on Celestial, 15% Terra, 20% in Yves, 11% just to name a few. And brands like spectrum and Garden of Eatin', Avalon and all (inaudible) about which John will talk about, good brand growth and good consumption growth coming from them.

In July of this year, we went ahead with -- and acquired Greek Gods. It's our first entry in a bigger way into the refrigerated category. It complements our (inaudible) tofu from a refrigerated standpoint; it complements our Yves business. In my opinion, I'm pretty excited about the growth in the Greek yogurt categories of Mediterranean -- as the Mediterranean yogurt continues to grow tremendously. I was with a retailer last week in one of the fastest-growing categories today that he has seen is the whole yogurt category, and especially the Greek yogurt category.

I think there's just a lot we can do in the Earth's Best category with yogurt, Celestial Seasonings and some of our other businesses. So it's a good entree for us, and there's a lot for us to do and a lot for us to learn, but really a good category and be in this business for a long time. I've seen a lot of categories, and this is one I'm quite excited about.

I feel we are really making good headway into Europe. I'll talk about that in a little while.

Asia for us, as we launched in January and in our first six months, we really saw good headway into our Asia markets with our partner, Hutchison Whampoa. We will be launching infant formula and baby food come November, and we'll continue to expand our distribution on personal care products into other parts of Asia. I'll talk about in a little while our expansion into other classes of trade.

Let me just touch on some of the markets John is not going to touch on. Our Canadian business grew 8% year-over-year. Back in February, we participated in the Olympics, which helped us tremendously, and changes like Loblaw (inaudible) control 27% of the market we grew 8%. In our Wal-Mart business, we grew 129%, our Costco business we grew 7%. So good growth in the major retailers up there.

MaraNatha, our personal care business, Celestial and Yves, which controls 80% of the meat free category, showed good growth in that market. So we're happy with our Canadian business.

Our Hain Pure Protein, which I talked about before, the divestiture of Kosher Valley and merging it into Empire, which, again, Kosher Valley was some good growth but the losses that happened with it helps us to get rid of those, but allows us to stay a part of Empire, the kosher protein business and being part of Empire.

The antibiotic free chicken business continues to be very strong in the quarter. It was up 16.3%. Hain Pure Protein's turkey business was up over budget by almost 20%, and that is totally antibiotic free, where last year, they were selling commodity and conventional. Hain Pure Protein has bought out corn, well positioned for up-and-coming Thanksgiving, and well-positioned for the growth in the antibiotic free category that continuously drives the protein growth among the category.

You heard me talk about Europe. Europe for the quarter was up about 5%, 6%, driven by Lima, Rice Dream. We continue to expand Celestial and Terra in those marketplaces. Our big markets that we're focused on there is Belgium, Netherlands, Scandinavia, Ireland, Israel, Poland, Iceland, France and Germany. We are really seeing some interesting growth and pretty good excitement. I really feel Europe is really on the right track.

You heard me talk about the UK. We do have some real good momentum on our Fakenham business, and we're just in the midst of our season now and a launch of our baked goods over there -- our Linda McCartney brand, our Ross Brand, Fakenham, which continues to bring more and more business on, and our expansion of our food to go into British home stores, [Fly-b Little]. It just gives us tremendous opportunity in the Daily Bread brand. It looks for some good growth.

So plants are running well. I look for this to be a good year within the UK.

So as I come back and I look at our full year, last year this time, as we looked into a crystal ball, not knowing where the world was going, as a lot of consumers look to trade down to private-label and look to eat conventional food, we've really seen where eating healthy comes back to be a big part of our everyday life. What we're seeing is good consumption growth across all channels.

As a company, we dealt with a major inventory reduction. That's over $40 million between two major customers -- dealt with walking away from a major customer in the UK, so dealt with $80 million of reduction in sales. I think we did a good job with it by having flat sales basically.

We worked on margin. You heard what I said about margins before being up in the quarter, all business except the UK, and John will take you through his. As a company, we have less debt today than we did last year this time, and we did two acquisitions. So we really focused on our debt and you saw in the quarter -- or for the year our free cash almost $60 million versus $8.6 million a year ago. That's with some losses in the UK, so we continue to really work on that.

We really develop good growth strategies in the mass-market as Hain diversifies its distribution opportunities. Our brands are being accepted through more and more doors out there, and will continue to be big opportunities.

We launched the Martha Stewart brand of cleaning in January into Home Depot, our first launch into Home Depot. We've got some work to do on the brand and we will continue to do that but we see some good opportunities in that whole cleaning category.

The Hutchison Whampoa deal with Hain in China, I really feel China has some big opportunities. We recently have seen about infant formula and baby food products being going public in evaluations. We will launch our Earth's Best product in November, which is being made in Europe, Asia, and we see some big upside there, not only with Earth's Best, with our other products, and some good distribution gains.

You heard me talk about our bank deal. As a company -- productivity, there's about $[70] million to $[80] million in savings that we went through on productivity this year worldwide. That's with production, looking at opportunities, consolidation of plants and distribution centers, and really looking at our co-packers and really looking at the opportunities there.

Hain Pure Protein sold its Kosher Valley to Empire, you heard me mention. The Celestial Seasonings group launched a very successful SKU rationalization. That's why you see their sales up. They continue to expand distribution. Our [current] K-cup has continued to expand distribution. [We've been] to so many office buildings today, we did so many places, and you'll continuously see the expansion of the [Courig] K-cup of Celestial Seasonings tea.

We did two acquisitions in this fiscal year and, again, one in July. Good brand growth and that is something that you look for in today's day is brand growth. And flat is just not acceptable down. There are good some good things that we have had.

So from a Company standpoint, we really managed our balance sheet. We really looked at what our free cash and how we pay down debt and how we use that. But today, you're hearing about product recalls out there, and it's on everybody's mind.

What are trends out there today? The whole meat-free category continues to grow. organic -- and the consumer walked away from organic for a little while but the consumer is really coming back. In all the data we see, some of the fastest growing category back in organic today.

We're working on a bunch of products with fiber, and fiber in your diet and high fiber is something very important, and it continues to be a big part of the trend. We'll talk about that in our next conference call, but just some of the things we're focused on.

Low-sodium gluten-free, the whole dairy free category, we're focused on packaging sustainability and they are things that very much the consumer is focused on, and they are things that we will continue to focus on.

So looking forward to fiscal '11, which I said to the Group yesterday there's only 10 months left in it, and how quick time flies. Our consensus is $1.24 to $1.31 and $1.025 billion to $1.050 billion. Ira will take you through some of that in a little while.

But why do we feel good about it? We feel good about the consumption growth. We really feel good about the channel expansion and channels that we've sold very little product into that really can expand our products and our brands. We feel good about going into the year with three unique acquisitions that, with our distribution power and our marketing power and these brands and the people that came along with it, we did really get some good people to come along with these acquisitions to help us grow our business. We're expecting, over the next two, three, four, five years, some good growth in these businesses.

So with that, we've got some great brands; we've got some great new products. We've got a great balance sheet to do acquisitions. So we are really ready for fiscal 2011 to make some good things happen.

What I want to do is turn you over to John, and he'll take you through what happened with his businesses in Q4. John?

Good afternoon. I'm pleased to report another strong quarter and another strong full year for Hain Celestial US.

Starting with the fourth quarter, our highlights included, to start with, growth in the overall US consumption of 4%, which reflects continued improvement versus our previous 12 and 52-week period. Importantly, we experienced consumption growth across the US portfolio with 12 of our top 15 brands showing improvement in the quarter. Terra and MaraNatha lead the way with double-digit consumption gains.

Now, our US sales were flat versus year ago as growth on grocery and snacks and tea offset a personal-care decline. The personal-care decline was primarily due to our decision to not repeat an unprofitable club program.

Additionally, in Q4, we saw gross margin expansion, due in part to improved plant utilization and productivity savings. Our SG&A decreased on both an absolute and percent of sales basis, driven by the personal-care consolidation savings and continued tight cost controls. Finally, our US inventories went down 6%, freeing up more of our cash.

So our fourth-quarter results topped off another strong year for Hain Celestial US. Now, our US business model and our focused strategy enabled us to overcome the toughest consumer, retailer and distributor environment we've ever experienced. Think about it. Despite a topline challenge by the significant distributor inventory reductions that Irwin talked about, Hain Celestial US delivered another full year of gross margin expansion, decreased SG&A, lower inventories. It all drove down to double-digit income and operating free cash flow growth.

So as we look at F '11, we are really bullish about the US business. Now, look. We know there are challenges ahead. We there is some inflation on key categories like wheat and almonds. We know there is probably one more quarter of distributor inventory adjustments. We know there is some lingering consumer uncertainty out there.

Look, the positive signs outnumber the negatives for Hain Celestial US in F '11. Some of those positive signs are, one, we talked about our improved US consumption trend. Q4 marked the second consecutive quarter of consumption growth.

We also are seeing improved distribution trends, particularly on our top 15 brands. We've seen some significant distribution wins in the last 12 weeks across a variety of channels. We have a strong slate of innovative new products that are rolling out now. We continue to find new margin expansion opportunities. We have an efficient SG&A structure that gets more efficient every year, and we have two terrific acquisitions in Sensible Portions and Greek Gods in the US. These acquisitions bring us exciting new brands and new product platforms; they bring us channel expansion capabilities that we did not have before. Importantly, they bring us talented management. So we look forward to talking more about these acquisitions on future calls.

So, look, to close, Q4 and F '10 were strong for Hain Celestial, highlighted, as I said before, by another year of margin expansion and double-digit income and operating free cash flow growth. As we sit here two months into F '11, we're very bullish about our prospects, especially given the improving topline and consumption trends, our increasingly efficient US business model, and our two exciting acquisitions.

So with that, I'm going to turn it over to Ira Lamel.

Thanks John. Good afternoon everyone.

In the fourth quarter this year, we earned $0.16 per diluted share versus $0.03 last year. Our adjusted earnings came in at $0.26 per diluted share in the fourth quarter, compared to last year's $0.21. We've put last year's earnings number onto the same basis as this year by conforming last year's adjustments to this year's presentation. Therefore, we've excluded last year's adjustments for stock compensation and unabsorbed overheads. As you know, we no longer add these items back when we give current-year earnings comparisons.

In this year's fourth quarter, we incurred $0.06 of costs in the P&L related to our acquisition activity. We also incurred $0.02 of plant consolidation costs in the UK. In the UK, we have now surrendered the lease at New Convent Garden and exited the facility and the process has concluded. As we go forward, however, we will incur costs to consolidate the Churchill plant into our Luton facility.

As announced in May, our Hain Pure Protein joint venture sold its Kosher Valley brand to Empire Kosher in exchange for the 15% equity interest in Empire. As a result of that transaction, HPP's financial statements reflect the results of Kosher Valley as a discontinued operation. In the fourth quarter, that discontinued operation incurred losses that flowed through to the Hain financial results and impacted us by $0.01 a share.

During the fourth quarter this year, we recorded unrealized losses on foreign currencies substantially related to translating intercompany notes due from foreign operations. We've added that back for $0.01 a share. The last item we've added back relates to our income taxes. During the fourth quarter, two discrete items occurred. We recorded a benefit in the fourth quarter which resulted from the closing of a tax examination. Offsetting that benefit was a charge which arose from stock compensation, where [Grant Eight] market prices were higher than the market prices on the date of vesting or exercise. These two items netted $375,000, or $0.01 per share, benefit in the quarter. Our adjustments removed that benefit.

In addition to the discreet tax items I just described, our effective tax rate for the full year, excluding the results of the UK, which provided no tax benefit, was lower than we expected when we prepared our third-quarter estimated tax rate, principally due to higher than anticipated tax credits available to us. As a result of the lower rate for the full year, the catch up in rate that benefited the fourth quarter amounted to $0.02 per share.

We generated $28.4 million of operating free cash flow in the fourth quarter, bringing our full fiscal year operating free cash to a total of $59.6 million. That's a $51 million improvement year-over-year.

During the full year, we paid down $33.4 million in debt, reducing the total outstanding debt to $225 million, of which $75 million is outstanding under our credit facility and $150 million is outstanding under our long-term non-amortizing fixed rate notes due in 2016. The $75 million outstanding under our credit facility includes approximately $50 million related to acquisitions we completed in June. With our new unsecured $400 million credit facility, our current cash levels, and operating cash flows, we are well-positioned to support our current needs and to support continuing growth in our business and with acquisitions we might make.

We've given you our guidance for the full fiscal year in 2011. We expect our net sales to be in the range of $1.025 billion to $1.05 billion. We anticipate earnings per diluted share will come in at $1.24 to $1.31.

Some of the significant estimates we used in arriving at our guidance include our estimate of consolidated gross profits for the year, which are expected to be in the 28.5% to 29% range. Our SG&A rate as a percent of sales is estimated to land at about 19%, and we've also estimated that our effective annual tax rate will approximate 38%. The last major assumption in our guidance is that our share count will approximate 43.5 million shares for the year.

As we completed our acquisition of Greek Gods in July, we will have acquisition costs in the first quarter. With this and other recent acquisitions, we expect to continue to incur integration expenses during the year as we bring those businesses together. Our expectations include improvements in our results which will grow by quarter with the first-quarter improvement over last year expected to be a bit lower than the improvements we expect to get in the remaining quarter of the year -- remaining quarters of the year.

We will now open it up for questions.

(Operator Instructions). Greg Badishkanian, Citigroup.

Great, thanks. Really nice quarter guys.

One day they will get your name right.

A question first just on -- actually, we are only allowed one question. So on organic sales, you saw a nice improvement. Actually, it's holding up pretty nicely and you talked about the current trend also. I'm just wondering. I'm assuming that is kind of industrywide. You see other consumer segments; you're seeing a softening over the last few months. Why do you think the natural food industry is holding up?

I think a couple of things. I think, as I said before, there's more and more concerns today with eating healthy, and you heard me talk about trends, whether it's sodium, whether it's fiber, whether it's non-dairy, whether it's gluten-free. So that's number one Greg.

I think the other thing out there is the consumer went to conventional items and really came back and saw that they were either not great products or there was just no benefit to them.

Then last, I think there was such a big drop-off in organics, and we are really seeing strong growth come back to the full organic category. You heard me before talk about Hain Pure Protein's business and what's going on with antibiotic-free chicken. I think that as the consumer trades down from red meat and just will only eat antibiotic-free chicken or antibiotic-free turkey. So we're seeing some of the strongest growth come from our organic category. Whether it's Earth's Best or Garden of Eatin' or Imagine, that is where a lot of it's coming from also.

Just as a follow-up, distributor deload and retail deload, how much of that did you see this quarter? What do you expect that to be over the next few quarters?

Not -- as they ramped up and started to deload in the December quarter and the January/February quarter -- not a lot in this quarter will be overlapping next year in the first quarter. And hopefully that's it.

From a retail standpoint, as they started to bring their inventories down last year and the previous year, I think that is definitely behind us. My whole thing is Greg, I hope consumption grows, that they need to bring their inventories up a little bit (inaudible) they brought them down too far.

Thanks and nice job again.

Scott Mushkin, Jefferies.

Everybody, this is actually Mike Otway in for Scott. A quick question on the personal care business -- John, I know you talked a little about it there, and maybe how we should think about that side of the US business for fiscal '11.

I expect to see growth both on topline and bottom-line on personal care in '11. Our consumption trends for personal care are consistent with what we saw across the entire portfolio, up about 4% for Avalon, Alba, and JASON.

That category took a hard hit, and that was seeing double-digit growth, went to negative consumption, negative growth. The good thing is you're seeing Whole Foods really get behind this and there's a lot we're all doing on ingredients for the consumers not confused. I think the other thing is we all work on pricing the product.

The other big thing is John has said in his previous script. It's expansion of distribution where it makes sense where before this went into drug channels and other slower moving channels. That's not where the focus is today. We would rather be in less channels but channels where we are going to see growth.

The other big thing is John and his group have launched tremendous amount of new products and some real good stuff that is getting some great traction.

Perfect, thanks for the color. I'll jump back in the queue.

(Operator Instructions). Andrew Wolf, BB&T Capital Markets.

Thank you and congratulations on managing through and it looks like out of such a tough year. I just wanted to ask you a couple of questions related to guidance. First, on sales, you can sort of -- if you use the midpoint, you get to about a midteens sales growth with the acquisitions. Again, if I use the midpoint, I get to just roughly around maybe around 5% ex-acquisition, maybe a little less, 4% to 5%. Is that about -- is my math right? Because I don't think we've seen exactly what the acquired sales were.

I'm going to let Ira answer, but you're right on that. From a growth standpoint, I would say 4% to 6% is what we're looking at, and then some growth with the acquisitions, and then hopefully some growth on top of the acquisition -- growth from the acquisitions.

I just want to ask a follow-up to Greg's question -- or your answer to Greg's question, Irwin, on the retailers looking at maybe their planograms and adding back inventory. I assume, by that, you're not really saying buffer stock. You're actually saying that maybe they cut their categories down too far maybe, and are looking at the categories and adding back items and so on. Is that the right way to interpret it, that your sales calls are more productive and you're getting items back on the shelf and new items on the shelf more quickly?

I think what happened was, back in 2008 when we saw the world change a lot and the consumer head towards conventional private-label, as you saw organic sales drop, I think you saw lot of retailers take organic products out of their stores and make more and more space for conventional or private-label. As you saw private-label and conventional items slow, and you've seen Whole Foods sales grow the way they are, they're realizing that's what the consumer wants.

So I think there's two things. There is two things -- number one, the expansion of more organic and natural products in the stores, bringing natural organic products back and expanding the sections, and with consumption growing the way it is, where they reduce their inventories, not being out of stock, in between deliveries is something that we are hoping that inventories get brought back up.

You're seeing that in conventionals too. I guess that's really where I was trying to focus, and I should've been more specific on conventional supermarket chains looking to get back more seriously back engaged in these categories now that they look over at Whole Foods and see the consumer is interested again.

This is John. Yes, what we're seeing is for about -- to Irwin's point, in 2008 and much of '09, we saw them shy away from adding organic and natural products into their categories, and even cut down the size of the categories. We are now seeing them talk about we're going to add four feet here. We're going to do this; we're going to do that. So we are seeing stronger response to our distribution presentation in the conventional grocery side.

My follow-up related to guidance as well. Could you give us a quick walk through how the gross margin improvement, maybe rank order and what are the major -- where most of the gross margin improvement is coming from? You can do some quick math and see obviously if you're going to have a good year, a better year in the UK and get to break even, a lot of it is from that. But what the major components of the gross margin improvement are planned to be?

I think we're going to see improvements in margin pretty much across the board, even though some of them will be just incremental while others will be much wider.

Sure. Ira, can you specify maybe the one or two or three greatest areas or --?

I'm about to get there. I think John's group in the US is going to expand margins. They're going to get a nice improvement out of the personal care category, given all the plans that John and Irwin just talked about. It was a challenged year in personal care, so margins should start returning to improving levels.

The other place you mentioned, the UK, you're absolutely correct. We should see improvement in margins in the UK where our margins had been almost nil. Then the two acquisitions we have made in the United States between Sensible Portions and the Greek Gods are margin-accretive for us going forward. It's one of the line items that we found very attractive when we were in the diligence phase and qualifying whether or not we wanted to go forward with those deals. So those are the areas I'm looking for very good margin growth.

Great, thank you.

(Operator Instructions). Eric Larson, Soleil Securities.

Good afternoon everyone. Just a couple of follow-up questions -- your guidance of $1.24 to $1.31, I believe you said that it does not include anticipated acquisition costs and integration costs. Given sort of the recent nature of three acquisitions, obviously you won't know what your acquisition costs or integration costs are for things you haven't done yet. But is there any sort of feel at all for what you might be absorbing in maybe even the first half or first quarter of what acquisition costs are on things you've just completed?

As you said, we've just completed those acquisitions very recently and we are setting out the plans now. So we don't have the full scope of what we are going to incur as we go forward this year. We will be, as we said in the press release, we will be identifying those costs as we go through each quarter's release going forward. The guidance we have given is guidance that includes those items as addbacks, whatever they might be. Since we don't know what they will turn out to be today, the guidance is what might be characterized as the adjusted guidance. We will take the expense for those items and add them back as they come.

Then a follow-up question -- in John's remarks, he said that there is potentially one more quarter here of inventory destocking possibly. Can you identify what that is, maybe how much, or -- but I think I heard that correctly.

What I am talking to is two things. One, the leading distributor a year ago, this was their last quarter of a forward-buy program. So we will climb over that. Secondly, the two distributors that consolidated last year, they are going to take out a handful of warehouses in this quarter. So those are the two events we're going to climb over. At this point, I cannot quantify because I do not know what the inventories are in those warehouses and specifically which warehouses will be closed.

Eric, that's built into our guidance. That's not over and above or anything from that standpoint. So that's already built in.

Yes, no, I fully understand that. I mean I'm just trying to understand why we are continuing to see quarter after quarter of it. I assume that's in your guidance. I'm just wondering if there's something broader out there that we need to understand.

No, I think what happened before. It started to happen in the second quarter, and third quarter was the big one and some in the fourth. We are just overlapping. So it's basically one quarter. But again, we come back, we mention it. I don't want anybody after next quarter to come back and sort of say "Why are sales [this here] as we look at comparison quarters?" I think we're pointing it out that is out there.

In regards to integration costs and stuff like that, as we look at acquisition costs today, whether it's legal fees or investment banking fees, we pretty well know what they are in the fourth -- or in the first quarter of Greek Gods, but then there is other costs that will go along with it for the long term of the business. I think that's what Ira was saying, is until we really look at the integration of the costs and the savings, all these businesses are accretive immediately, the two that we acquired already, and of course the Greek Gods one. So I think that's what's important with good growth.

When Ira's comment on the first quarter, you're looking for up first quarter. Is that with -- is that on a GAAP basis or on an adjusted basis?

That's on an adjusted basis. Again, because we don't know all of those integration costs that we are going to incur, we did not include them in our guidance. So, the numbers we have given are adjusted. We obviously have to take those charges on the GAAP and we will add them back to get to these numbers.

All right, thanks.

Andrew Wolf, BB&T Capital Markets.

Yes, I just wanted to follow-up on the destocking questioning. Specifically with I guess [Kayhee] and [Tree], are you seeing or perhaps anticipating kind of any disruptions or any categories where the ordering is light, or are you just looking for them to efficiently execute some facilities downsizing?

Again, not at all in disruptions of categories, not at all in disruption of business, I think no different than we are talking about integration. All integration, they're going to consolidate warehouses, they've said it. When you close a warehouse, it just takes inventory out. But again, that's all built into our numbers; that's built into our growth numbers; that's built into our consumption, and our overall guidance. So it's what we are expecting out there. It's not anything new or different than it was.

This is John. I would add the point -- look, we have seen no interruption from them. Their integration has been very efficiently executed.

Good to hear that. Just the last -- on the flip side of the deflation and the lack of inflation, there's some price -- commodity prices are starting to tick up, especially in wheat. We will see where that leads for organic commodities. But if there were to be a return to inflating prices, maybe not this year but sometime in the future, could what we've seen on the destocking side kind of flip back to the distributors and some of the bigger retailers perhaps as well, getting back into a forward buying mode and actually an acceleration of sales as inflation comes in?

You mean by that they might be buying forward in order to avoid future price increases, have it in stock at what might be the lower prices?

Yes. That's a known behavior for as long as --.

I agree it's a known behavior. One of the things I think that's different in today's models at most companies is that the financial managers have kind of taken over and said that it's more expensive to carry the inventories than it is to buy forward and get a discount. I think that's something that will stay as part of the model going forward, so I'm not so sure that will happen.

That's coming from a financially responsible guy.

Well, that's an interesting perspective, Ira.

I think, at the end of the day, what we all want to do is put fresh inventory in. Today, measuring inventory in some of our biggest retailers, they order weekly. So no different than we are talking about inventory reduction. I would not want our distributors to go back to buying in if costs -- what happens there, dollars that when they buy out are not spent back on the consumer. Where this model is today in regards to inventory, lower inventories, and yes there was some pain -- it is the best thing for our business and the best thing for shelflife, best thing for quality, best thing for spending the right dollars to the consumer. So I like where we are in regards to inventory levels at distributors.

Got it. Thank you.

(Operator Instructions). Greg Badishkanian, Citigroup.

Just to follow up, you had some pretty good cost savings in your fiscal 2010. I'm wondering, for 2011, do you think there's still some more opportunity to cut costs?

I think, any time when you are looking at your productivity, and I know Jim Myers and his group, and we've gone across every division within the Company, Greg. We're looking at always better packaging, better ways to ship our product, better cost of goods, from a labor standpoint how we're getting more efficiencies, how we invest capital to get better productivity there. So built into this budget there is definitely productivity savings. It's something that I think not just from a dollar standpoint, but just how are we getting a better product and a better packaging and a better way to ship it and to get it to our consumer and customer center. So the answer is yes.

Irwin is right there and he is talking about what's really on the cost of goods line and where we can get productivity and cost savings there. We continue to have opportunities to get cost savings in the G&A line as well, and we are looking at those lines. But just be aware that, with these acquisitions, they have separate platforms for the time being. When that happens, they don't necessarily line up at the same rates of G&A that we have. So there may be some fluctuation in the G&A rate until we get those acquisitions lined up with our model.

As you saw in our last quarter, we had some big G&A savings across the Company, and we are continuously doing that. So we are always looking for savings. Those dollars that are saved are -- go drop to the bottom line, but the more dollars that we can do there, how to spend it back on the consumer?

Great, thank you.

With that being our last question, I want to thank everybody that listened to our call today in the last lazy days of summer, as they say.

In a tough economic environment, I feel very proud of the team, what we've delivered in fiscal 2010, and as John said, one of the toughest economic environments in retail history -- at the same time dealing with inventory deloading, dealing with the fickle consumer, dealing with the consumer converting between conventional private-label and now coming back to organic and natural. It shows you the power of our brands. What really shows the power of our brands of how we have taken our brands and really focused on natural organic retailers and the growth we are getting in natural organic retailers, and that's our base. That's something that Hain will continue to expand upon. But again, which shows you how our brands can grow up and grow into other classes of trade, and there is a lot of runway there for us. And not every brand, but again, you hear people talking about how many brands we have as you walk into a Whole Foods today. I am proud to say we have 1400 to 1800 SKUs in a store like Whole Foods. As you expand across mass merchandisers, we may only have 100. These are some of our fastest growing brands. So yes, we have some smaller brands, but they are just dedicated to natural food retailers in the natural food channel.

I can tell you -- it says here and I said it before -- I hate to call the categories we are in trends, because trends seem to have shelflife. I don't believe they are trends. I believe they will continuously be the way we live, and every day we hear about the cure for diseases and the prevention is food. Today, we have a 67% obesity rate. More hours are lost from the workforce today from obesity than from cigarette smoke. We have a 32% obesity rate today within children. The average consumer today is ingesting 4200 mg of sodium where the recommended is 1500 mg of sodium. Rates of diseases are up because of obesity. If you look at staggering statistics in regards to if there is one obese parent, what are the chances of one of the children or all of the children being obese today? You see every school system trying to fight this. You see all healthcare plans trying to do things. From a standpoint, Hain is right there with its brands and its product. So we are definitely in the right space. We are definitely in the right categories; we are definitely in the right categories as we value engineer a lot of our products, as we look at different types of packaging. A couple of years ago, you never heard the word "BPA" and how that has come to light in regards to packaging.

So from that, I really feel good about where we are. I really feel good about the brands. I feel good about -- as global brands in countries where we have our products today, our expansion into Asia, our ultimate expansion more and more into South America, our expansion into other classes of trade.

We have three good acquisitions heading into the year with that I think, again, we need time to grow them and time to cultivate them and really time to expand them with our infrastructure. We'll do that.

But with that, I look forward to a very, very exciting 2011. Along with the brands, you really need a good team to execute. I must say this here that with the current team we have and a lot of the personnel that came along with these acquisitions, we are truly ready to go ahead into 2011 and make some good things happen. So thank you for your time, enjoy the rest of your summer, be safe and eat healthy. Thank you.

This concludes today's conference call. You may now disconnect.