Hain Celestial Group Inc (HAIN) 2011 Q3 法說會逐字稿

Good afternoon, my name is Misty, and I will be your conference operator today. At this time I would like to welcome everyone to the Hain Celestial third-quarter fiscal year 2011 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question-and-answer session. (Operator Instructions). Ms. Mary Anthes, you may begin your conference.

Thank you, Misty. Good afternoon and thank you for joining us today and welcome to the review of our third-quarter fiscal year 2011 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; John Carroll, Executive Vice President and Chief Executive Officer, Hain Celestial US; and Pete Burns, General Manager, Celestial Seasoning. 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 2010 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 1 hour, so please limit yourself to 1 question with 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. Irwin?

Thank you, Mary, and good afternoon, everybody. I hope everybody had the opportunity to review our press release that was released at 4.00 today. As you can see, our headline is it's a record third quarter, and really probably one of our best quarters within The Hain Celestial years that we've been reporting quarters. $288 million versus $222 million, up 30%. Our gross margin, and with the face of commodities, higher fuel costs, 28.6% versus 27.7%, and in the quarter -- John and Ira will talk about it -- we probably had about 80 BIPS of commodity costs that hit us in the quarter, over $3 million worldwide, and we were able to absorb them. So volume and growing your top line is important in times like this when commodities keep moving.

Our operating income, $30.8 million versus $19.3 million, up 60%, and earnings per share GAAP $0.38 versus $0.06 a year ago, and it adjusted $0.36 versus $0.26. So good fundamentals, good growth, good gross margin contribution, even with commodities and fuel and diesel being up almost a dollar a gallon higher than it is right now, our corn prices, $3.25 versus $6.50 to $7 with basis and even higher, and multiple other commodities.

Looking at our business and some of the other metrics that make us feel good, our cash conversion at 78 days versus 97, our inventories came down, and that is with 4 acquisitions, our receivables came down. Our net debt, $210 million versus $184 million the same time last year, and that's doing approximately $100 million-plus dollars in acquisition, which shows you that amount of free cash that we throw off here. So just about the quarter -- and John and Peter Burns from Celestial will talk about some of the great things that are happening in our Us operations -- but strong sales. And the good news is we have seen that continue into April, and very impressed with what we've seen so far in April.

Our snack business up 14%, our grocery and non-dairy business up 9%, personal care up 19%. And you heard Jim Meyers talk to you about personal care in our last call. Celestial Seasonings, which Peter will talk about, up 7%; Earth's Best up 24%; brands like Inspire up 45%. And last year at this time we did not own Greek Gods, we did not own Sensible Portions, but both of those businesses on acquisition growth have almost doubled, and just great businesses, growing nicely, growing into other channels and we're very, very happy. You've heard other companies talk about their soup business. Our Imagine soup business up 6%, and we look to continue to see a lot of other growth.

When it comes to new products, that is something that I pride ourself on and our team and the research that we do behind it, and not using genetically modified ingredients, not using -- watching what our sugar -- not using sugar -- white sugar, of course, but our salt intake, and I'll talk about that in a little while about some of the other things. But I just came back from Anaheim in March, which is the big natural foods show, and this year we've introduced close to a 100 new products; worldwide it was probably a little more than that. It's contribute almost double digits to our sales.

And some of the big things that come back is Coconut Dream, pouches on Earth's Best. We've taken Earth's Best into frozen meals. Almond, our gluten-free soups, have been very, very successful. Just launched in April, which is an exciting product, and I've been after it for years, is our Earth's Best yogurt. And last but not least -- just to mention a few of our products -- our Earth's Best ready-to-drink formula, which we think is a big, big opportunity.

So looking at the landscape out there and dealing with commodities, dealing with fuel and freight and fuel effect us in so many different ways. You heard me say before, it costs us over $3.5 million in cost in this here quarter, but we dealt with it. We dealt with it on higher sales, we dealt with it on productivity, we dealt with it on really watching our expenses, and we will continue to do that to make sure that we cover those commodities.

What are we seeing out there? The consumer, absolutely, is focused on health and nutrition, consumers reading labels. We see some of the things, whether it's gluten-free, whether it's sodium, whether it's calories, but the consumer is really into more and more health products. We believe, in some of our research, the consumer's staying home more and more and cooking at home, but cooking healthier meals. We'll talk about a little while where we see the consumer eating a lot more chicken than eating red meat and pork and see our consumption in the protein category continually grow.

Around the world what we're seeing where the consumers shopped at the supernatural and continue to do that within Whole Foods. There's over 2,000 Hain products, but you're starting to see more and more demand for natural organic products in more and more classes of trade, and the consumer is looking for those products in other classes of trade. What we're seeing from our Internet strategy and consumers buying over the Internet and buying more and more products from an Internet strategy, and we will continue to target that growth there. Our Canadian business up 12%, and that was driven by Rice Dream, MaraNatha, Imagine, Terra, Casbah, and our Canadian business is operating nicely. Our European business also was up 12%, and great growth from Lima, Grains Noirs, our Terra Chips, our Rice Dream and our tea business.

In the quarter we acquired Danival and GG. We will really look for some great things out of Danival. We have some exciting products, exciting packaging that we would bring here to the US, and through the Danival operation we looked at some of our products. There's a product that's 100% organic, fits right within our sweet spot.

In regards to the UK, I really feel good what's happening in our Fakenham business, which is a frozen meat-free facility and a frozen dessert business, and our sales there for the quarter overall up 25%, and our gross margins in Fakenham were up 21%. So I really feel good at what we've accomplished in the business that we've won in our Fakenham business.

Our Food-to-Go is making progress. Our sales were up 11.9%. We've still got -- and that's ex-Marks & Spencer that we still had some business last year at this time, and includes the acquisition of Churchill, which we acquired in June. We've got some work to do, but I see some good signs at the end of the road. I see us accomplishing a lot, I see us working on some things on innovation, and we expect some good things coming out of Food-to-Go, but we've got some work to do. And I think we've done that the same at Fakenham and we've accomplished a lot' we should be able to do it at Food-to-Go.

We had a small non-dairy business in Manchester, which was no more than GBP5 million. We've decided to consolidate that business and close it. It was basically a private-label soy milk business, which does not make sense for us to be in any longer, so we will close that business. It was, like I said, less than GBP5 million.

You heard me talk about protein. Our overall protein business is up 12%, and now 90% of our sale at a protein is antibiotic free, and that will continue, and same with ingredients, same with deli products. And our sales and our profitability were basically flat with last year, and that is with grain prices year-over-year up about $18 million for us. And what I said before, you're seeing good growth in chicken and turkey, where you're seeing a decline in red meat. So we're seeing some really good things happening there.

In regards to Asia, we like what we see in Asia. We continue to see good demand in our Asia business for our formula, and we'll continue to expand that. I've said before, by the middle of this year -- or by the end of this year, we will be in 110 cities, and continue to expand that. We will continue to expand our personal care products into [Watson.] We now have a 10% share already in the Hong Kong market, so that will be some interesting growth for us.

If you look at health and nutrition in our minds and what we keep hearing, consumers are looking at packaging, consumers are looking -- told to eat less, and we're smarter snacking, more and more natural whole grains, like our sprouted grains. Not white grains, or not white flour, smarter beverages, iced green tea to Kombucha and they're the categories that we're in today. Local and organic, the whole thing with GMOs, and that's on everybody's mind today. The big thing in personal care products today is [parigan] -- petroleum-based products and chemicals and that has helped our growth substantial in our personal care products, and John Carroll will mention that in a little while.

The whole thing about sustainability environment is really a focus. The FDA just came out and have talked about artificial colorings in flavoring. It's just something that we have them in none of our products sit right within our sweet spot. We promote healthier life styles. We're focused on gluten-free. And at the end of the day, most important is our products really, really taste good, and that's why you've seen our sales growing in the manner that we are. So we're positioned well with our products; we're positioned well with our brand. The consumer is well-educated and positioned for our product, and I'm excited with a lot of the new products that we'll be putting out there. What I want do is turn it over to John, and he'll take you through some of the things that he's doing, and then Peter will take you through our tea business. Thank you.

Thank you, Irwin. Good afternoon. I'm pleased to report a very strong Q3 for Hain Celestial US. We had many highlights in the quarter. I'm just going to call out a few and I'm going to start with our 30% US sales growth. This was driven by healthy growth on all in the US units; groceries and snacks, personal care, and Celestial Seasonings, which in some part due to lapping last-year's distributor inventory reduction, but also coupled with very strong sales gains from the Greek Gods and Sensible Portions acquisitions.

Another third-quarter highlight was our US consumption growth of 6%, which is driven by gains across the portfolio. This growth was driven by several brands with double-digit increases, and as Irwin mentioned, Earth's Best, Spectrum, Health Valley soups, MaraNatha, Dream Frozen, Greek Gods, and Sensible Portions.

Importantly, our US grocery channel consumption -- and remember, this is a channel that continues to be a struggle for many CPG manufacturers -- was up 5%, which is our third consecutive quarter of growth in this important channel. Also in the quarter US gross margin increased, despite absorbing almost $2 million incommodity and fuel-driven inflation. We were able to offset these increased costs with productivity savings, and the Q2 price increase that was mentioned in previous calls.

Additionally, US Q3 SG&A as a percent of sales was down, reflecting the increased sales and better leverage of our marketing, trade, and headcount investment. Now this improvement's quite meaningful, given that this year's SG&A includes acquisition amortization costs and the in-store demo expenses to support the Sensible Portions club business. As a result, the SG&A as a percent of sales for Hain Celestial US, ex-acquisitions, was down significantly to offset these costs. Finally, our Q3 US inventory, ex-acquisition was flat, despite supporting a 30% sales increase. This inventory leverage, coupled with our accounts receivable improvement, was a major driver in the Company's improved cash conversion metrics.

So we continue to see strong momentum across the US businesses, and this dates back to second-half 2010. As a matter of fact, we started to see the real strength start in Q3 of 2010. We believe it is sustainable, despite the turbulent commodity and fuel cost environment, and we believe this because of 5 key factors. The first one is our continued US consumption gains and Q3 was our fifth consecutive quarter of consumption growth. Importantly, our 2-year comps are now showing a robust 9% growth.

Second, we're seeing strong sales from our Fiscal Year 2011 new product launches. Q3 product sales were up almost 30% versus a year ago. Additionally, at Expo West we announced a really, really (inaudible) innovation, including some great new products, like our Terra sweet potato cinnamon spice chips; our Garden of Eden sweet potato corn tortilla chips, because sweet potato is so hot right now; our Earth's Best puree food baby pouches that accompany our Earth's Best smoothie pouches; our Earth's Best refrigerated baby yogurt.

Greek Gods honey vanilla and honey blueberry yogurt; Celestial Tea antioxidant max wellness teas; the sprouted products from Arrowhead mills that Irwin mentioned; our Queen Helene royal curl shampoo and conditioner; and my personal favorite, our Alba Hawaiian body wash cocktail, featuring flavors like pina colada and mai tai. I personally believe this year's innovation is even stronger than last year's, so we expect a lot of growth from these new products.

And the third factor that keeps us very bullish on the business is our continued strong performance from our Sensible Portions and Greek Gods yogurt acquisition. As Irwin mentioned, both brands delivered outstanding growth versus a year ago. Additionally, both businesses continue to pick up new distribution and key accounts over the US and Canada, further strengthening our conviction that both Sensible Portions and Greek Gods will be strong national brands.

The fourth factor is that we continue to offset commodity and fuel increases. As I mentioned in previous calls, we had taken inventory positions for most of our more volatile commodities into at least our third quarter, and for some, the full fiscal year. Now this strategy has helped us avoid many of the commodity cost increases through the first 3 quarters, and we have some Q4 cost pressure on oil, dairy, and of course fuel, but, again, we have a full slate of productivity initiatives, coupled with the Q2 price increase, to help offset the rising costs in Q4. Now additionally, just like other CPG manufacturers, rising commodity and fuel costs will continue to be very tough on us in Fiscal Year 2012 and will require us to take additional pricing to offset the impact. Toward that end we announced in April a 5% price increase across the US businesses that will be effective in Q1 of Fiscal Year 2012.

The final factor is our Celestial tea business. Our Celestial Seasonings tea business is having another great year, and Peter Burns and his Celestial Seasonings team have created a tremendous momentum on the support business. I'm going to now ask Peter to give you a quick overview of Celestial's strong performance, as well as the outlook for the future. Peter?

Thank you, John. Good afternoon, everyone. We're very excited about Celestial Seasonings year-to-date performance, particularly during the important October through March hot tea season and its prospects going forward. When I got here, we focused the entire Company on 4 main objectives; driving consumption on our core tea business, expanding distribution and presence at retail, driving innovation within bagged tea and beyond, and expanding margins. The results against these objectives have been excellent, and I'd like to share them with you.

First, Celestial consumption for this year's hot tea season was up 5%, almost double the category growth of 3%. Importantly, we grew our largest segment, herb tea, in both consumption and share. In fact, by the end of the hot tea season Celestial herb tea share grew (inaudible) percent. The consumption in share gains were driven by superior sales execution, evidenced by meaningful distribution increases. As an example, distribution at Kroger grew by 19%, Publix grew at 7%, and Stop and Shop grew at 6% for the season.

On the innovation front, we leveraged the expanse of our wellness tea line to drive profitable growth. Wellness is the largest segment in the natural channel and Celestial is bringing wellness mainstream by leveraging our Sleepytime brand name with products such as Sleepytime Extra, Sleepytime Throat Tamer and Sleepytime Sinus Soother. Our wellness consumption is up double digits with plenty of runway for growth.

Additionally, our strategic partnership with Green Mountain Coffee on both hot and iced K-Cup offerings continues to grow our business. Over the last 12 months, our K-Cup consumption is up well over 100%. We are very excited about our brew-over ice products that will be expanded into grocery this spring and summer, and this will give the brand some visibility outside of the normal hot tea season.

We continue to support all of this distribution growth and innovation with our comprehensive marketing programs. Our decision to focus on high-value couponing has worked and driven consumption gains. Our combination of efficient trade spend, couponing support and display activity has been our recipe for success. During all this time, we continue to expand profit margins by focusing on driving productivity savings across the entire supply chain, while at the same time eliminating inefficient trade spending.

Based on our Fiscal Year 2011 results to date and our momentum in the market place, Celestial is well-positioned to continue profitable growth, particularly with our distribution opportunities, again, focused on wellness teas, and our K-Cup distribution, new product offerings. As Irwin mentioned, we were at national Product Expo in Anaheim, where we launched 5 new products for the upcoming season and new categories. Currently we're selling Kombucha in 3 markets, and we have a lot of different ideas for the future that we hope to be talking to you about soon.

So, in summary, you can see that the Celestial business has had an excellent hot tea season and is very well-positioned for solid growth well into the future. And with that, I'll turn it over to Ira.

Thank you, Peter, and welcome to the call. Our net income in the third quarter this year came in at $16.8 million compared to $2.7 million in last year's quarter. We earned $0.38 per diluted share on a GAAP basis this year versus $0.06 per diluted share last year. Before acquisition-related items and integration costs, adjusted net income was $16.2 million compared to $10.6 million last year, improving by 52.7%, and adjusted earnings per share was $0.36 per diluted share compared to $0.26 per share in last year's quarter, improving by 38.5%. Our share count increased 3.3 million shares as compared to last year's third quarter, with approximately 1 million of that increase coming from share equivalents in the earnings per share calculation, and the reminder coming principally in connection with acquisitions.

Net sales reached a third-quarter record at $288.4 million, an increase of 29.8%, compared to $222.1 million last year. We saw strong increases in sales across all of our operating units, coupled with the addition sales from our acquisitions that have not yet lapped. Foreign currency had a minimal impact in this year's quarter as compared to last year. Gross profit in the third quarter this year improved by 94 basis points to 28.6% on a GAAP basis, compared to 27.7% in the third quarter last year. We realized improvements in our gross profit performance from a more favorable mix of sales worldwide, which together with productivity improvements overcame the challenges of the increasing input cost environment. Inflation in product inputs amounted to an 80 basis point drag on gross profit this quarter as compared to last year's quarter.

Our SG&A in the third quarter this year was 18.6%, versus 19% in last year's third quarter, on a GAAP basis, and versus 18.3% last year as adjusted. The SG&A rate this year includes 40 basis points of store-level demonstration expenses at Sensible Portions that we did not have in the prior year, and a 31 basis point increase in acquisition-related amortization of intangibles. Our GAAP earnings of $0.38 per share includes income of $0.02 from items related to acquisitions and restructurings. We incurred $2.3 million of acquisition-related expenses and interest accretion. We also incurred $520,000 of restructuring expenses, including those related to the Manchester closure Irwin mentioned earlier.

As required by accounting rules, we performed an evaluation of the estimated contingent payment liabilities we had recorded at acquisition dates, and have reduced those liabilities to prior owners by $4.1 million. This reduction has been included in our P&L. The net of all of the above items accounts for the $0.02 difference.

Operating income for the quarter this year was $30.8 million, or $10.7% on a GAAP basis, compared to $19.3 million last year, or 8.7%, improving by 198 basis points. On an adjusted basis, operating margin was 10.1% this year, versus 9.4% last year, improving by 66 basis points. We continue to focus our attention on improving our working capital turnover and generating improved cash flow. For the trailing 12 months through March 31, 2011 operating free cash flow was $61 million this year versus $59.4 million for the prior 12-month period. Day sales outstanding was at 43 days versus 50 days at the same time last year. Inventory days are down year-over-year to 75 days from 91, and our payables have shortened by 3 days. As a result, our cash conversion cycle is down to 78 days, a 20-days reduction as compared to March 31 a year ago.

In the past year, we have expended $102.7 million on acquisitions, and in the same period, as the result of our focus on cash management, our net debt has grown by only $27.6 million, which indicates that the lion's share of our acquisition funding, or $75 million, has come from operating cash flows. Depreciation and amortization in this year's quarter was $5.9 million as compared to $4.7 million in the prior year, with the increase coming from our acquisitions. Stock compensation in the quarter was $3.4 million, compared to $1.9 million last year, and CapEx amounted to $3.1 million this quarter. As we disclosed in our earnings release, we have updated our sales guidance for the full 2011 fiscal year to $1.095 billion -- a range of $1.095 billing to $1.115 billion. Our earnings per share guidance on an adjusted basis for the entire year has been updated to $1.30 to $1.34.

At this point, let's open it up for questions.

(Operator Instructions). Your first question comes from the line of Terry Bivens with JPMorgan.

Good afternoon, everyone.

Good afternoon, Terry.

And congratulations on the quarter, Irwin, very nice one.

Thank you.

Could I get you to just disaggregate the sales line, which obviously came in a lot better than some of us were looking. Could you quickly break that down into core growth, pricing, I guess about eight points of acquisitions still?

I would say, Terry, probably about 12% is coming from acquisitions. The remaining is coming -- and there's two parts to the acquisitions. There's -- there is the acquisitions that organic growth in the acquisitions, and then there's organic growth.

Okay.

And so, to come back and break it down, there's good double-digit organic growth in the quarter. So it basically comes down to 15% organic growth, 15% acquisition growth.

Okay. And just a quick follow, and I'll pass it along. Is there any channel in particular where you really got disproportionate growth this time?

I think we got it all over the place. It really came everywhere, and it came all around the world. And you heard me talking about double-digit growth in Canada, double-digit growth in Europe, good growth from McCartney, great growth out of personal care, great growth out of tea business, really saw some exceptional growth coming out of club stores for us, coming out of mass market, Whole Foods. Our consumption was up dramatically at Whole Foods, so it really came everywhere.

Okay, great. Thanks, Irwin, I'll pass it along.

Thank you, Terry.

Your next question comes from the line of Greg Badishkanian with Citigroup.

Thanks. Yes, great quarter, guys, and I'm just wondering --

Hey, Greg, someone's going to figure out your last name one day. (laughter)

That's right. And so you had a nice -- you raised guidance, beat numbers, so what do you think is the primary driver for that, and why do you think the natural organic food industry is doing so well, particularly over the -- looks like over the last few months?

Well, I think, number one, it comes back to strong brands and that's what you've got to focus on. And you really come back and you look at what Peter Burns talked about in regards to what has happened at Celestial, what he's done and his team with Green Mountain. You heard Jim Meyers talk about personal care, and really what's happened with personal care. John and his group and Jason and the guys from Greek Gods, what has happened in our club store business, what has happened with a brand like Sensible Portions. Sensible Portions has almost doubled as a brand year over year, and has expanded its distribution, where originally it was -- the majority of the business was through club stores, where that's not the case anymore.

When you look at our Greek yogurt business, which I just think is a phenomenal product, a phenomenal business, and now with that going into Earth's Best how big that can be. And last but not least, when you really come back and look at the base of our business, listen, we're growing on snacks -- overall snacks. Terra chips up 16% and the overall snack business is up 13%, 14%. When you come back and look at soup business, what we're doing, some of the innovation on gluten free, some of the things -- Earth's Best -- and I'm glad you had a new baby to help that, but Earth's Best up over 24% and some of the innovation on the pouches and some of the new products. Some of the frozen meals that we're doing for Earth's Best.

And last but not least -- and someone just held it up to me to remind me, which they didn't have to do -- is people, I think we just have a phenomenal team around here that are really executing on so many cylinders. And when you look at what's going on in the world with commodities and being faced with $3 million to $4 million of costs coming at you and you've got to absorb them, you can't take price increases, and to get the growth I just -- I could sit here and boast about the team and the products for the next two hours.

Great. Thank you, Irwin.

Thank you.

Your next question comes from the line of Scott with Jefferies & Company.

Hey, guys, just wanted to -- I think what stuck out when Ira said you faced 80-basis points of pressure from higher costs, but yet you still put up some very good numbers and gross margins were up, so I guess what I'm trying to understand is, if we faced this three years ago, I don't think the results would have been the same. In other words, I think you guys would have had a harder time digesting that. So I want to understand a little bit better as we continue to see those pressures, what's difference about the organization now versus three years ago? And if we get this sustained run up in costs, is this something you guys are able to replicate that you feel like you can handle this type of cost pressure as we go forward?

Well, first and foremost, I'll come back and say you can have the best systems, you can have the best plants, but you've got to have the best people to operate them. So number one I come back with people. Number two is, at the end of the day we've got some great brands that consumers see good value in, and we really are driving home those brands and the way we're getting to the consumers about those brands. And last but not least, you come back and you look at our cash conversion, and you look at our inventories. Volume, volume, volume drives it and I think what we have established is the partnership with our customers out there as the category leader in the natural organic industry, and looking for someone to take the lead, where this industry before, Scott, was a very fragmented industry.

And when you're introducing Earth's Best baby formula ready-to-drink when there's never been one out there, and you've got to stand behind it, and everybody wants it, at the same time, when you're coming out with pouches and really coming out with changing the packaging on baby food that's been around for 100 years and educating the consumer, it is really out there being in front of it. The other thing is, listen, we've done some great acquisitions. We've passed on some acquisitions, but Sensible Portions, Greek Gods, Danival, GG, MaraNatha, Spectrums, and seeing some of those work where people thought we were a little crazy when we were buying those. And the overall thing is the consumer, which I have said the consumer wants healthier products, and the consumer will continuously want healthier products, and I think that is something that will continue to grow.

So -- thanks, John, for that color, I appreciate it. So I wanted to get into the sales line for a little bit, just to understand the 30% growth in context to the 6% consumption. I think you said 15% was organic, 15% was acquisition, and maybe this is a simple question here, but the difference between the 6% and the 15% on the organic side, is that channel penetration? Is that how I should net income about that?

It's channel penetration, and that 6% consumption growth on the US, some of the growth was higher in Europe and Canada, so I think -- and then if you come back. Some of the growth was higher on sensible Portions organic Growth and Greek Gods.

And maybe this is for John. John, in the US do you feel like to you still have a lot to go on building channel penetration, or are we three-quarters of the way through the hockey game here?

No, Scott, we're not even fully into the second period yet. You've got a long way to go here. Think about this, I always say this, our top 100 products average -- in the grocery snacks group average less than 33% (inaudible) in grocery stores. There's plenty of runway.

Hey, Scott, I think we're in the first five minutes of the hockey game because if you come back and think what's out there in food today -- and you heard me talk about natural snacks, whole grains, whole grains, whole grains, you heard me talk about white flour, your heard me talk about gluten-free, you heard me talk about obesity, and if we had 10% of what we have in Whole Foods in most of the retailers across the country, it changes our business dramatically.

And then one final one, maybe, Irwin you mentioned this at the beginning. The losses in the UK, were they down quarter to quarter -- I mean year over year, or were they similar, or where were we in the UK? I'm sorry, I missed the first two minutes of the call.

From our cash situation, we are down substantially year over year, and we're making (inaudible) --

The line anyway.

Yes.

Okay. Thank you. Appreciate it.

You're welcome.

Your next question comes from the line of Ed Aaron with RBC Capital Market.

Afternoon, everyone, great job on the quarter. I wanted to ask about the mix of channel business a little bit. I was surprised positively by the grocery number up 5%, which is almost at parity with the overall US consumption growth. I guess that would imply that other -- some other channels must have moderated since the grocery channel had an acceleration, wondering if you could shed a little light on that, please?

Yes, what you saw there, Ed, was grocery at 5%, but basically you're seeing everybody hovering right around the 6%. The natural independents are a little lower, massive and club is a little higher.

Okay. And then I just wanted to ask my follow up just about the price increase that you announced, the 5%. It sounded just from your prepared remarks like every single product got the same price increase, but I would imagine that not every product has the same type of input cost inflation, and maybe not every product has the same tolerance at the retail or consumer level for taking price, and so I was just wandering how to -- how could I think about that a little bit bitter?

Ed, that's a blend number. And to your point, it varies by product line based input costs, as well as what room we had to take price and elasticity.

And is, Ed, that's not worldwide, okay, that is our US-based businesses, so that's not necessarily worldwide.

Okay, and if I could just sneak one more in real quick. It's -- just from your 15% organic and 15% from acquisition, it implies a $30 million -- $33 million approximate acquisition contribution number for the quarter and I think that compares to about $19 million from last quarter. I know you had a couple of deals that came into the mix this quarter, but I'm just struggling to understand where the $14 million sequential increase comes from?

Well, is the acquisitions that came into the quarter were basically in March, so they were install, they were a couple of million dollars, so you're basically -- what you're saying is you're pretty close to that number.

Okay. I'm still a little confused, so we can handle it off line. Thanks.

Okay.

Your next question comes from the line of Andrew Wolf with BB&T.

Hi, thanks. Congratulations, good afternoon. On Ed's question, I wanted to ask that. The 58% increase you spoke to when Terry asked you about acquisition growth he said he thought was 8% to 9%, just what you acquired -- that's my number, too, I'd say 9% or something -- so sounds like 6%, the acquisitions grew year over year 6% over the base. Is that a reasonable way to say think of it?

That is right, Andy, and that is exactly.

Okay, so that's the 15%, I just wanted to scrub that out. The other thing I want to ask about is this -- the grocery channel reaccelerating is great news. Is that -- how do you look at that versus the velocity improving of existing items, versus -- clearly it sounds like you're getting a lot of shelf space, as well -- how you would break that down? And you kind of referred to it in the early innings, but grocery follows the economy in terms of their commitment to natural merchandising. I think they're back into a reexpansion. Could you just talk about that generally? And then the other part is pricing. I think it's been -- I've observed and others have recorded that Kroger, in particular, has tried to get a little tighter on pricing in natural, and what you think that effect, if that's helped the consumption for that channel?

Andy this is John, I'll take the --

Kind of a multi part and you can --

Yes, we'll split it up, Andy. I'll take the velocity versus distribution. Basically one-third of the growth is coming from distribution, and the balance of it is coming from velocity.

Great, thank you.

And, Andy, I think it comes back to -- consumer demand helps the velocity, and what's happening out there is, as other retailers are seeing, the growth in the supernaturals, they're looking for more and more natural products within their stores, and as is a company, there are certain retailers that are doing great, there's certain retailers in the supermarket that are struggling. And if there's 33,000 supermarkets what we have done is gone narrower with those supermarkets and focusing on the top ten supermarkets within the United States that are growing, and before we might have had 400 products in the store and were selling two a week.

Yes.

Now we might only be in 10,000 supermarkets, and we may have 300 in there, but we're selling a heck of a lot more. And the other thing is, I think price is key and value is key, and we focused on that on how we promote our products. So that has helped tremendously. At the same time, you heard, in regards to the first question, we have done a great job in building our brands. We've done a great job in developing products that the consumers want.

Okay. And I can appreciate your reluctance maybe to comment on a specific customers pricing, but do you feel the channel -- grocery channel in total is trying to get its pricing a little more sharp, and maybe with Kroger's leadership there? And secondly, are they relu -- are they asking for vendors for any help in that regard?

Andy, number one is, listen, I have enough trouble worrying about my own margins, let alone the retailers, okay, so that's number one. But I think the to other thing is, what retailers realize today, I can't put 40% margin it and put on the shelf, I don't want to collect dust on it, I want to sell product because that's what the customers wants. And now, if I'm too high-priced here, there's so many other places to get that. Whereas before that was not the case and they looked at natural food is I'm going to make 40% and I may sell two a week. If the rest goes out of code then tough luck. That's no longer the case.

I think what every retailer is looking at -- and there's some retailers that you've mentioned -- have created their own section, have their own department, and it really put a major focus behind it. Some have is a store within a store, some have major sections, and I've got to tell you, we get all the ads, we see what's going on, and when we drop coupons, we know where redemption rates are and we track zip codes, they're competitive.

Yes. Okay. Thanks for that flavor. Thank you.

Your next question comes from the line of Amit Sharma with BMO Capital Markets.

Hi, good afternoon, everyone.

Good afternoon, welcome.

Thank you. First of all, what was the impact of Easter shift on this quarter's top line, if there was any?

It's minimal. We're not a retailer and it was the last week, Passover and Easter. We ship in to the customers two or three weeks lead time, so it's very minimal for us.

Okay. And, second, there's certainly good evidence of accelerating growth in the grocery channel, improving the velocity of your product, as well. I just wanted to see what are some of the changes you're doing internally, (inaudible) from strong brands structurally, if you're changing your distribution or sales, so what are some of the changes that makes this improvement more sustainable? Some people talked about economy having an impact on grocery channel consumption, but wanted to see if some of that is sustainable, even if operating environment doesn't continue to be as favorable in future?

I come back and say this here. Number one, we are selling to a consumer who is educated, we're selling to a consumer who will pay a higher price for product. We are selling to a consumer who is reading labels and like what we're putting in our labels -- or putting in our boxes and in our bottles and stuff like that. And last but not least, we make damned good products that taste good, and we're very much out there in value, and our team has done an incredible job of getting more and more distribution. And that is an example of consumption growth, volume growth, where you can find our products today, where you couldn't.

And last but not least, the retailer has bought into natural organic and has bought into Hain being the category captain, and if I want to be in this category, whether it's food, whether it's personal care. And you talked before -- we talked before of productivity and efficiencies, we're able to do that with the scale of our products. And last but not least, with the amount of products, the amount of SKUs, and, yes, our business has some complexity to it, we still ran at 98% service levels in this here quarter in servicing our customers, and that proves to your customers, your retailers, hey, these guys know what they're doing.

Great, thanks for the color.

Thank you.

(Operator Instructions). Your next question comes from the line of Andrew Lazar with Barclays Capital.

Good afternoon.

Hey, Andrew.

Hey, Irwin, I know it's too early to get into too much detail on fiscal 2012, but perhaps you can maybe give us some high-level color on maybe some things, maybe some of the key puts and takes that you'd expect, or things that we can't necessarily tell, but you know there are headwinds with, whether it be the kind of inflation you'll see? Obviously you've taken some additional pricing, what you expect to happen around the profitability, perhaps in the UK, can that be a swing factor? Anywhere you see some big swing factors plus or minus, and perhaps the type of organic sales growth that you feel comfortable with going into next year?

Hey, Andrew, I'd love to answer that, but my lawyer's shaking her head no. (laughter) Listen, I think I come back and I haven't given guidance, so it's hard for me to come out with what my organic sales growth will be. Just in regards to the UK, we're see something good things happening in the UK. You heard me talk about Fakenham and really humming along there. I think we've made it very clear, we are going to get Food-to-Go in the right order, or Food-to-Go will not be a part of us. And from a standpoint of our brands, I think demand just keeps growing and going up. I wish I could look into that crystal ball and tell you if fuel's going to $80 a barrel, or it's going to $130 a barrel. And some of the other things that we've had to deal with, we do some production in Canada today. The Canadian dollar is a $1.03 to $1.05, which costing us more.

But, on the positive side like what I see happening in Asia for us. I like what I see happening in Europe for us. I like the opportunities with Danival. I think our Greek God's yogurt business -- and you see where the two Greek competitors or growth the opportunities for us and our ACV on Greek yogurt today got to be in the teens. The opportunity and growth there. Our tea business and growing 6%, 7% and the opportunity with Green Mountain and food service is tremendous. I am really excited finally to get a ready-to-drink baby formula that we've worked on hard for years. You look at the snack business, and what's going on in snacking, and the opportunities there.

So there is a lot of great growth categories. The focus by club stores, the focus by Amazon on food, Whole Foods expansion and the amount of stores they plan to open. So there's a lot of good things going into 2012 that will ultimately -- will come together for a good growth number and a good bottom line number. At the end of the day, I hope commodities don't go much higher than today. If anything I think there's probably dollars or so in there for speculation. I don't see why fuel is where it is today, which is going to help us all. But I think at the end of the day, where the credibility comes back here, we really have some great brands and great product, and we've really executed well on productivity.

And last but not least, a lot of times people have come back and said look at your margins. We probably lose 10% to 15% on our margins because we outsource 50% of our products, but what happens is, Andrew, is we're not plant slaves, and I think in the soup business today, one of the reasons you're seeing growth going on in soup business, it's moving towards aseptic packaging and we're not locked into a can soup that's cooked in it, where other soup manufacturers are, and that's the same with bagged snack. So I really see us positioned because of our manufacturing mix of outsource and what we do ourselves. I really see from our packaging, our products, our opportunity to sell around the world, in a good position going into 2012.

Got it, and then just is a follow up on productivity. Any reason to believe based -- or maybe you can give us some insight into what your pipeline of productivity looks like. So any reason to believe that changes dramatically one way or the other in terms of ability to generate incremental cost saves again in fiscal 2012 versus the levels you've been generating this year?

Listen, volume, volume, volume, and volume helps get a lot of efficiencies out there, okay? I think when I come back and say the people that we have in place today, and we know where to go and know where to look, and whether it's freight, whether it's warehousing, et cetera, and how we're moving loads around. The other big thing in productivity is, as we become that one-stop supplier to a lot of these retailers, we can consolidate, only ship full trucks, really look at mix. As we have sales organization going in there, we're looking at multiple ways on value engineering. The whole thing today is educating the consumer. We basically -- 98% of our products today are GMO free, and educating the consumer on the value from GMO free, and what we're doing.

And, Andrew, one of the things I keep saying is this here. When you look at the new food labeling laws and you look the new dietary guidelines, and you go back and look at the consumer on-front packaging in regards to additives and food coloring, we've been doing that forever, and finally the consumer's waking up and saying this really was in food? So I think there's a lot we can do with productivity, there's a lot we can do with our products. The other big thing is, it's 17 years that Hain's been around, and we are one of the largest sources of organic fruits and vegetables out there. We're one of the largest sources of natural ingredients. So we're -- with age we get a little better at it.

Okay, thanks very much.

You're welcome.

(Operator Instructions).

Operator, if there's no other questions, thank you. What I would like to do is thank everybody for your time today in regards to the questions. And I've always said this. In starting Hain back in 1993-1994, I've always stuck to four key building blocks; great people, great brands, strategy and how we return to our shareholders and investors, and 17-years later we're about brands. A very, very, very small part of our business label, or doing other people's products for us minimal. And you come back and really look at brands today where we feed infants and toddlers their first food within Earth's Best. We serve 1.8 billion tea bags a year. We serve over a 100 million jars of baby food. The amount of Terra chips. When I see kids today eating Sensible Portions, or Greek Gods yogurt, gluten-free. We have over 400 gluten-free products today.

And this happens to be Ciliac's month, and a big opportunity within that, the whole dairy free. And one of the big things where we as a company have moved quickly, the soy milk category was a category been around a long time and tremendous growth, double-digit growth. Now with our Alma milk, our coconut milk, our rice milk, and they've surpassed soy milk, but we've really been out there in front to look for the next soy milk. And that's something that we continuously do, because people's -- consumers tastes change, trends change, and we are really focused on that. And what I never want to become is -- there's an old saying out there, when you're green you're growing, when you're ripe, you rot, and as a green Company I always want us always to be green.

So from my standpoint, congratulations to the team, I just get to deliver a lot of the news. And thank you for your support, and I look forward to talking to you again soon. Have a good day.

This concludes today's Hain Celestial third-quarter fiscal-year 2011 conference call. You may now disconnect.