Hain Celestial Group Inc (HAIN) 2012 Q1 法說會逐字稿

At this time I would like to welcome everyone to the Hain Celestial first quarter fiscal year 2012, earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (Operator Instructions) Miss Anthes, you may begin your conference.

Good afternoon. Thank you all for joining us today and welcome to the review of our first quarter fiscal year 2012 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 such 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 that may cause results to differ, are listed in our publicly filed documents, including our 2011 form 10K filed with the SEC. This conference call is being webcast and an archive of the webcast will be available on our website at www.hain-celestial.com under Investor Relations.

Our call will be limited to approximately an hour, so please limit yourself to one question 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. Irwin?

Thank you, Mary and good afternoon, everybody. And, hope everybody had to -- the opportunity to review our results on this dismal day in the market. And I hope we can brighten the day with our results. I also want to welcome to the call Rob Burnett, who is the CEO of Daniels and will become the CEO of Hain Celestial UK and Rob happens to be in Scotland listening on vacation, well deserved. So, welcome, Rob. And you guys will get to meet Rob later on.

Anyway, first quarter for fiscal 2012. $292 million in sales versus $257.9 million, up 13.3%. Our gross margin 27.3% versus 27.2% up 13 bips. And our SG&A, which we've really have -- as we have talked about integrating businesses, we've consolidated the Fairfield snack facility, Sensible Portions into Melville. As you do acquisitions and consolidate business and get the efficiencies out of it, 18.9% versus 19.4%, 55 basis points. That is what's important in doing acquisitions, is really getting the efficiencies, the consolidation, the backroom, and then just the strength of the whole Hain infrastructure. Our operating income, $24.6 million versus $20.3 million, up 21%, which is a great number. And then our EPS $0.29 versus $0.25. And the $0.29 includes some acquisition, integration costs up 16%.

Our free cash, operating free cash is $82.5 million for the 12 months. And one that we are really focused on are inventory turns. And our inventory turns 4.8 times, which we are turning our inventories. And again, this is with additional acquisitions and running at service levels of 98%. So, the team has really done a great job of focusing on our inventories, but more important, is just focusing on make sure we are well in stock and that we have good variety and good selection.

So, let me take you back. I want to talk about our focus, our business, the quarter, Europe and then I want to spend some more time going back through Daniels, which we talked about last week, which is an acquisition we are pretty excited about. Our focus is on brands, our management, which we believe we have first class, and now with the addition of Rob on the UK. We are really focused on diversified categories, not being in one category, but being in a good, diversified categories. If you come back and look at our customer base today in the mass market, supermarkets, supernaturals, food service, convenience stores, we really have a good representation of a customer base of customers and where we have opportunities to grow.

And last but not least, we have a product line, a product line today that the consumer wants and the consumer demand will continue to grow. As living healthy, eating healthy and being healthy is not a fad not a trend, and will continue to be a bigger part of our lives. And our six steps to our success and our health success as a Company, we have major focus on calorie reduction. And we will reduce over the next 5 years, 5% of all the calories in our products. And that is major for us. And it is a total team that will be focused on that, led by Dr. Gerry Amantea and Ellen Deutsch. A 5% reduction in sugars in our products. And again, sugar, sugar, sugar. And that is a big part of a reduction, and we will really focus on that. As a Company, we have participated in the national salt reduction and will continue to focus on that across all our products.

Our major label improvement, that just makes it simpler. One of the big things we hear from consumers today, is we really don't understand labels. And that is something as the largest natural organic food and personal care Company, we really have to take a lead on. And the whole thing today, if you come back and look at personal care products, really we have taken some high standards and won an NSF initiative and the standards on personal care. And that is similar to the standards that the organic association and which we have today in regards to food. And there's really no standards have been out there and what Hain has adopted with other companies is an NSF. And we are really focused on what are the ingredients in our personal care products? Whether they are chemical free, paraben free, but and we have come out and reformulated all our product to come back and formulate towards the NSF standards.

In regard to our protein business, which I'll talk about in a little while. Antibiotic free and organic, animal welfare something a major focus on us from a standpoint there. And we are focused on reduction and packaging, and how we improve the environment, our recyclability. So, major, major steps within Hain that we will continue to focus on. And last but not least, we hear a lot of standards out there about natural. We as a Company will take the highest, highest level of standards in natural, and we really can say natural. We make a claim that our product is natural.

About our quarter, and John will talk about the US business in a little while. 12 of our brands are up well over 15%, four well over 10%, and five, 10% or below. And we have a lot of brands that are growing. And we have some brands that were flatter, some declines, and that is with promotions that would moved over to some of the quarter -- our second quarter that was not in first quarter. Our consumption overall is growing. And John will talk about his high single digit consumption growth. And that's great to see it in all classes of trade.

As a Company, innovation, we have introduced a lot of new products under all groups and will continue to do that. As you remember last year we had over $50 million of sales that came from innovation, new products. And that's the same with Daniels in the UK and there will be a lot of sharing of new products and ideas there. Health and wellness, eating at home is becoming more prevalent. And we continue to hear that. And we like a few more snowstorms like we had this weekend, and cold weather as people soups season and tea season kicks in pretty quickly.

In regards to our Canadian business, our net sales grew 7%. Our operating income doubled. And great brand performance from our personal care, Terra chips, Spectrum, Greek Gods has just been a great growth story all over the place. But Canada's the same thing and John will talk about Greek Gods here. And as you remember, we announced in October the acquisition of Earth's Best and we are in the midst of integrating -- Europe's Best, sorry -- and they are in the midst of integrating that into the business right now and we're looking for some good things from that. Our European business -- and you have to remember, we are now announcing earnings, here we are November 1. Remember July and August, what the markets were like, the world was like, and here we are talking about earnings today, here we are talking about Europe. Our European business grew 10%. We have integrated the Danablu business into the Lima business and we've integrated the sales teams throughout France, Germany, the Benelux and a lot of synergies.

We've introduced a lot of new non dairy products. And we just announced that we are opening up a new non dairy facility just outside of Cologne, between Cologne and Frankfort. And tremendous saving synergies, about EUR4 million to EUR5 million savings a year. We are totally out of capacity. This will allow us to introduce more and more non dairy products, Almond Dream, Oat Dream are just to name a few. So, our commitment investment in Europe in our non dairy and growing our businesses there are something that we will continue to do. Our UK business, the Linda McCartney business up 30%. Our Fakenham which includes our private label, meat free and our dessert business up 40%. Our food to go business was down about $600,000 and we see a lot of opportunities with Rob and his team and the Daniels team to really grow our sandwiches and go more and more into the mass market instead of some of the smaller food service. And that's where we saw some of the decline. So, plenty of productivity, efficiencies with the Daniels group.

In regard to Asia, good growth, our business doubled there. And we spent close to $800,000 or $900,000 which we doubled, tripled the marketing expenses, which we had a loss there in the quarter but we will continue to invest in the Asia market, because we see great opportunities, great growth coming from formula and our other products. And we have expanded our personal care products and a lot of our other products into the Asia market.

The protein business, Hain Pure Protein, good, strong sales. Turkey up 9%, chicken up 11%. The earnings were up 16% and this is with corn prices almost double where they were last year this time. The ABS story continues to be strong. Here we are, we're into chicken, turkey, months in season right now, and this will be the biggest quarter for Hain Pure Protein, especially November with Thanksgiving.

So last week we announced the whole Daniels acquisition, and a little bit about Daniels' 5 core categories. Focused on natural, fresh and chilled, soups being the biggest with New Covenant Garden's approximately $80 million in sales. Fresh squeezed orange juice and smoothies under the name Johnson's Healthy Drinks, and represented about $60 million in sales. Our fresh fruit business, under Johnson's and [Sunrite] about $40 million in sales. Desserts, Love Tub, Farm Fare and that was about 10%, $25 million in sales. And then our chilled meals which was about $80 million in sales which totaled about $290 million of sales. As I said, all this participates in the fresh, chilled market, which represents about 50% of the overall grocery sales in the UK and total chilled is up about 4%. And if you go back and look at each of the categories, whether it is soup, grew 18%, fresh squeezed juice and smoothies up 12%, fruit up 16%, desserts up 5% and chilled meals up 20%.

So, there is a lot of opportunity. And as I said, taking some of the current Hain brands and the Linda McCartney brand, the fresh sandwich brand, there is a lot of growth in these categories. So, if you look at the Daniels portfolio it is for breakfast, mid-morning, lunch, after school, evening meals and bedtime. And so just a lot of great opportunities. If you look at our key strategies, brands, brands, brands, and New Covent Garden is the number 1 brand in soup. Johnson is number 1 in juice and Farmhouse Fare number 1 in hot eating dessert. So, we have some great brands there and some great opportunities to grow these brands.

And if you come back and look at what I said before about channel diversity. You never want to have all your eggs in one basket. You never really want to have one customer where you have a large percentage of sales. If you look at our channel diversity today, 50% of it goes to the retail trade, 20% to convenience and 18% to food service. So, we really have a good mix of customers. Anywhere from Sainsbury, Tesco, White Rose, Asda, Morrisons, Prata Margaret. So, really, go across many, many channels, many areas.

Rob, who I introduced earlier, has a real strong management team underneath him. We closed on this Tuesday. We've already started to look how we integrate the Linda McCartney Fakenham facility and our Luton facility on there with Rob, later on in the week. And we will get this integrated and get the overall UK management team in place pretty quickly. And I have to tell you, we have done a lot of acquisitions and this is one that we feel we've really inherited a very strong management team to help us in the UK and it is a place where we needed help with management. And we will look to integrate both the Fakenham and the Luton facilities pretty quickly and get all the synergies and savings from that.

A lot of innovation coming out of the Daniels group. And it's innovation that we will share all around the world with our operating groups and vice versa. There's a lot of innovation that comes out of the USA today and Canada that we will share back in into the UK. So, looking for a lot to come from both groups. And I think as I said before, there is just a lot of learning that we will share between UK, US, Canada and Europe. As I said, Daniels has six plants, and a lot of opportunity, capacity needed in some of these plants, which could pick up some of that capacity either through Luton and Fakenham and gives us the opportunity to manufacture additional products and get a lot of efficiencies out of it.

So, we're pretty excited, we're also pretty excited, as I said earlier on in the week, you get a lot of efficiencies, which I said last week, which I get a lot of efficiencies out of the Hain's brands, whether it's Earth's Best kids meals, and snacks, Terra, Sensible Portions, Celestial Rice Dream, et cetera. So, that is a quick overview on Daniels which I gave last week on the call. But I wanted to go over it again, because we are excited about it and we look for some great things coming. What I want to do is turn it over to John. As he has some of the just as great -- he has great, exciting things coming out of his US business. John?

Thank you, Irwin. Good afternoon. I am pleased to report a very strong Q1 for Hain Celestial US. There were many highlights in the quarter. What I want to start with is our 12% US sales growth. And importantly, this was driven by strong gains across all US units. Grocery and snacks, personal care, Celestial Seasonings, Sensible Portions and Greek Gods. Another Q1 highlight was our US consumption growth of 7%, which was led by gains across the portfolio as Irwin mentioned. Importantly, our US grocery channel consumption was up 7% as well. And up 1 point versus where are we landed in Q4. So, this marks the fifth conservative quarter of growth in this important channel which accounts for 40% of our measured consumption.

Also in the quarter, our US supply chain absorbed over $6 million. I want to just repeat that, $6 million in commodity and fuel driven inflation and yet still maintained gross margins equal to a year ago. We were able to offset this inflation with over $3 million in productivity savings, lower sales promotion expense and favorable pricing. Additionally in Q1, our SG&A as a percent of sales was down in line with the Company's decline, reflecting the increased sales and better leverage of our marketing, trade and headcount investment. Our US inventory was up only 7% despite supporting over 12% sales growth. And finally our US operating free cash flow was up significantly versus year ago.

Now, as we look at the fiscal year to go, and I have said this before, we continue to be very bullish about the US business. We continue to see strong momentum across the business. And we believe it is sustainable, and here I am going to give you five reasons why we believe it. The first reason, and this is the one I always site first, is our continued US consumption gains. Q1 was our seventh conservative quarter of consumption growth. Importantly our two-year comps are showing a robust 12% growth. The second factor is the positive response to our F12 innovation. We are in the natural organic category.

Innovation is key because our consumers are early adopters. This year's innovation is off to a strong start led by Earth's Best new puree pouches and our baby yogurt, our Celestial Seasonings Kombucha energy shots, our new Garden of Eden sweet potato tortillas and our Queen Helene royal curl. And our innovation que continues to be full with exciting new products like our new great tasting Almond Dream, non dairy refrigerated yogurt. Now when we mentioned this launch at our recent investor conference, we immediately got calls from several retailers asking when is it going to be available. The answer is, it will be available in January. But we expect a lot out of that launch.

The third reason we feel bullish about year to go is the continued momentum on our acquisitions from last year, Greek Gods and Sensible Portions. Now the Q1 consolidated results from these acquisitions, remember now it's fully lapping year ago, blew away year ago and exceeded our forecasts. Both of these brands have a lot of distribution and innovation runway ahead of them. And the fourth reason we continue to be bullish is our US positioning relative to input inflation. We are well positioned to meet our supply needs for our key organic and natural commodities. We are long where the crop is in short supply, or where we believe we have an opportunity right now to buy below standard. And we are short in commodities in ample supply where we think the market may move further downward.

Now, don't get me wrong. We still will incur significant inflation in F12. Even with some of the recent commodity pricing pullback's, we still incurred $6 million inflation in Q1, and two key commodities, class 2 milk and fuel are still up 35% and 24% respectively versus year ago. But with our opportunistic approach to procurement on some key commodities, along with our (inaudible) productivity and pricing, we expect to offset much of this inflation.

Now, our final reason to feel bullish about the F12 year to go is what we call our US sales force reinvention. I want to give you a little background on this. In April we appointed Peter Burns to the Chief Sales Officer position for Haines Celestial US, in addition to his duties as President of Celestial Seasonings. And when we did this, we gave him a mission to reinvent our US sales function, to make it more customer centric for our evolving customer base. This reinvention was a mandate to ensure profitable growth for our US business in all channels, from natural to conventional to eTailers, because our customer base continues to involve more types of customers than we ever had before. Now Peter has already made significant progress against this objective. By first, he's created one Hain's sales face to our key customers by consolidating five independent sales organizations into one Hain US sales force.

The second thing he has done, is he's co-located Hain US key account sales teams, staffed with sales leads as well as analytical and supply chain support at seven of our leading retailers. So, we are in the same geographic area as these seven leading retailers, so we are talking to them all the time on how best to improve our business with them. The third thing is he's been upgrading our sales talent across all key sales functions to meet the changing demands of this evolving customer base. These new customers that we are working with are very demanding and we need to make sure we're up to what they are going to ask of us.

And fourth, he has implemented all of this within our existing SG&A budget. So, we are already starting to reap the benefits of the Hain US sales organization reinvention that is in progress. We are already achieving distribution gains and exclusive product launches at some of these key customers that will help us sustain our consumption momentum. I expect to report further progress in the areas of new products, speed to shelf, improved merchandising and trade spending efficiency in future calls.

So, in summary, Q1 was strong for Hain Celestial US, highlighted by double-digit top line growth. Gross margin maintained despite absorbing $6 million in inflation, lower SG&A, double-digit income growth and significantly higher operating free cash flow. And we continue to be bullish about our year to go prospects given our strong consumption trends, the response to our F12 innovation, the continued momentum on Sensible Portion and Greek Gods, our position relative to commodity inflation and our Hain US sales reorganization. With that, I will turn it over to Ira Lamel.

Thank you, John. And good afternoon, everyone. Our net income in the first quarter this year came in at $11.7 million, compared to $9.1 million in last year's quarter. We earned $0.26 per diluted share on a GAAP basis this year versus $0.21 per diluted share last year, improving by 23.8%. Before acquisition related items and integration costs, adjusted net income was $13 million, compared to $10.8 million, improving by 19.9% and adjusted earnings per share was $0.29 compared to $0.25 per share in last year's quarter, improving by 16%.

As our recent acquisitions of the Daniels group in the UK and Europe's Best brand in Canada took place after September 30, they had no impact on our first quarter. Net sales reached a first quarter record of $292.4 million, an increase of 13.3%, compared to $258 million last year. We saw strong increases in sales across all of our reporting units. Our gross profit in the first quarter this year improved by 13 basis point to 27.3% on a GAAP basis compared to 27.2% in the first quarter last year. We realized improvements in our gross profit performance from a more favorable mix of sales worldwide and effective spending which together with productivity improvements, offset the challenges of the increasing input cost environment.

Inflation on a consolidated basis in product inputs amounted to 4.5% this quarter compared to last year's first quarter, and thus had a 289 basis point impact on gross profit this quarter versus last year's quarter. Our SG&A in the quarter this year was 18.9%, versus 19.4% in last year's first quarter. In addition to growing our top line, we remain focused on managing and maintaining SG&A by leveraging our sales and marketing organizations, as well as our corporate overheads across our increased sales base.

Operating income in this year's quarter increased 23.3% on a GAAP basis, and 20.7% on an adjusted basis over the prior year quarter. Operating income for the quarter this year was $22.9 million, or 7.8% of net sales on a GAAP basis, compared to $18.5 million last year, or 7.2% of net sales, improving by 63 basis points. On an adjusted basis operating income was $24.6 million this year, versus $20.4 million last year, or 8.4% this year versus 7.9% last year, improving by 52 basis points.

Depreciation and amortization in this year's quarter was $6.3 million, as compared to $5.9 million in the prior year, with the increase coming principally from last year's acquisitions. Stock compensation in the quarter was unchanged from last year, at $1.8 million. We saw very strong performance in cash generation this quarter. For the first quarter, we had operating free cash flow of $20.8 million, improving by $35.3 million over last year's first quarter. For the trailing 12 months through September 30, 2011, operating free cash flow was up 48% at $82.5 million, versus $55.9 million for the prior year. Day sales outstanding was 46 days. Our inventory days are down year-over-year to 76 versus 79 days. And our payables have shortened by 4 days. CapEx amounted to $2.5 million this quarter.

Last week we issued new guidance for the full fiscal year 2012 to reflect our recent acquisitions of the Daniels group and the Europe's Best brand. We expect our net sales to be in the range of $1.455 billion to $1.480 billion. We anticipate that our earnings per diluted share will come in at $1.63 to $1.73. Our guidance now reflects the following underlying metrics. We now estimate that our gross profit rate will approximate 27% to 27.5% for the full year. This change in rate will be substantially offset by improvements in our SG&A rate, which we now estimate will approximate 17.4%.

We also see a reduction in our tax rate as we reap the benefit of lower UK tax rates. We now estimate that our effective annual tax rate will approximate 37.6%. And we have reforecasted the number of diluted shares for the year to now be $45.750 million. We have funded the Europe's Best acquisition with available cash and the Daniels acquisition using our existing credit facility. We continue to have adequate availability under our credit facility for additional strategic acquisitions with the agreement to find leverage ratio well below 3 times. We estimate our interest expense for the full fiscal '12 year should increase by approximately $6 million over our prior guidance levels.

Finally, we estimate that our earnings will continue to be strongest in the second and third quarters of our fiscal year as New Covent garden soup has its strongest months during those quarters. Please keep in mind that for our second quarter this year, we will only have two months of results from Daniels group. At this point, we will open it all up for questions.

(Operator Instructions) Your first question comes from Greg Badishkanian from Citigroup.

Great, thanks. Nice job on the quarter. Just on the consumption, I think you mentioned 7%. I think that is about similar to last quarter. And I am just wondering, with all the economic problems and sort of the stock market volatility, why do you think it held up so well?

So, Greg, coming back, and you heard what I said, here we are November 1 and come back and look at July and August, they were some turbulent times. I think again you come back and focus, of course we're biased, we think we have good products, good brands. But we think, as I said before, our brands today, and you heard what John said, it was across all channels -- so, it is expanding our distribution, and you know, and just really where the consumer today is continuously focused on natural organic products. And we think the consumer is staying home and eating more and during these times. Went out and bought better food products. I think the other thing is what, John has said before in regards to our sales organization, just better shelf presence, good promotions at shelf level, good displays, and the big thing is distribution.

Sure. Makes sense. And also, in terms of, you're hit with a lot of inflation, you do have some pricing coming in. When do you get the full benefit of the pricing?

We have about $1 million that we got in this quarter. We will probably get some in the second quarter, but in the third quarter and fourth quarter is when we will pick up the rest of it.

Right.

But, you know again, just to go back to that, as you heard John say, Company wide, we probably had $6 million or $7 million of inflation that hit us. And productivity and pricing, we got $1 million and the rest was made by productivity and the rest was just absorbed. So we absorbed a lot of inflation worldwide in this quarter.

Yes.

Actually it was $8.5 million of inflation worldwide which translated into that 4.5%.

Right. Great. Good job. Thanks.

Your next question comes from the line of Edward Aaron, of RBC Capital Markets.

So, Irwin, I think you said in your prepared remarks that there might have been some effective timing of promotions in the quarter on certain brands. I was hoping you could maybe give us a little color on that.

Just what I said in regards to Terra Chips brands that were down versus last year, were promotions that didn't happen in September are going to happen in October, and we just didn't get the sales in this quarter. We will get them next quarter. Mostly club stores.

Okay. Great. Thank you. And then just as a follow-up on that. I wanted to ask about the updated gross margin guidance. I guess maybe I didn't fully appreciate the difference in the gross margin profile of Daniels versus the existing business. I just wanted to confirm that the guidance changes on gross margin is 100% attributable to the acquisition as far as the base business goes, there's no change. I just want to make sure I had that straight.

You got that about right, but remember we are getting most of it back in the SG&A rate and we are getting it back in the tax rate because of the benefits we will get out of the lower UK rate. So, on the net income line, it is a very small change.

But the margin is not changing on any other business.

Right.

And to be -- what you are asking.

Okay. I think I have one or two more. But I will jump back in the queue.

Our next question comes from the line of Andrew Wolf, of BB&T Capital Markets.

On the US price increases that were -- you talked about last quarter and I think you said they would be coming through some time around now. Clearly they didn't come through in this -- prior and the current quarter, because it didn't match, but I guess, for John, if the input costs don't accelerate, it is a big if, but if they don't, when -- I think you said it was a 5% increase, correct me if I'm wrong -- but when does the price increase, that you did announce to the trade when does that sort of go above the input cost inflation pressures, or match it?

Sure, Andrew. Two quick things. One, it is a 3% to 4% price increase. Secondly, in the Q4 call, what I said was that we would -- it would fully be realized at the very end of Q2. So, then your full realization in terms of a quarter basis will be in Q3 and Q4.

I guess the quick math I did was that inflation in the US business was about 2.5% to 3%. So, once you fully realize it, if that cost inflation doesn't increase, the gross margin for the business will be on a selling basis will be up even before productivity gains?

Actually, to our calculations, it is more like between 3% and 4% that we saw this period. But to your point, we expect the pricing to offset much of this, along with productivity gains.

Okay. Well, I like your numbers. And then, the differential in the US growth, factory growth of 12% versus consumption. How do you -- is that new doors, is that some unmeasured channels that are really growing faster and they are just not in that consumption number? Could you help us understand that?

Sure. Actually you are hitting on the two key points. One is non-measured customers -- non-measured channels. For example, Amazon is a very fast growing customer for us that is not captured. Trader Joe's and the club stores are not captured. The other thing is pipeline on new products, as well as new distribution. Those are the 2 key factors, with the bigger factor being the unmeasured consumption in the customers I mentioned.

Thank you. All right. I will jump back in the queue as well. Thank you.

Our next question comes from the line of Jessica Schmidt of JPMorgan.

So, you'd mentioned that mass is beginning to be a greater focus for the Terra Chip brand. And I was just wondering if this brand was a driver of some of the expansion you have seen this quarter?

Terra Chips brand and all brands are expansion across all classes of trade. But as you heard me say before, the Terra Chip brand in this quarter was down slightly, and it is just promotion and timing. But Jessica, Terra is growing across all channels today and all classes of trade, from anywhere from up and down the street business, to natural, to food service, to mass market to grocery. And along with Sensible Portions in Garden of Eatin'.

Okay. Great. And then just another quick question. How much are you estimating in productivity savings for the year now?

Without Daniels, I mean, and we have not gone through that yet, but we are looking for somewhere around $13 million to $17 million that we have said worldwide, excluding the Daniels acquisition and anything from Europe's Best that we are looking from productivity.

Okay. Great. I will pass it along.

Our next question comes from the line of Sean Naughton, of Piper Jaffray.

When you look at that 13.3% sales increase, I mean, if you break it down on percentage points, how many -- how much of that was driven by brands that were acquired after 9/30/2010.

Very little. I mean the only two brands that are in there after 9/30/2010 would have been Sensible Portions --.

No, not Sensible Portions. Daniels -- Danival and GG Unique.

Which is less than $4 million, $4.5 million.

Okay. Thanks. And then on the pricing, I think you did take some pricing late in the quarter. Any read on early acceptance on the price increases that you are seeing in retail right now?

Yes, actually, Sean, we have seen that we have gotten it across our customer base, so, we are very comfortable that it has been accepted across our customer base.

Okay. And then I guess lastly, when you look at your domestic market, I think you talked about distribution being a big part of the growth in the quarter. How do you think about that in terms of your comp doors versus distribution growth? How would you split that down between kind of some of the -- on a percentage term how much of the growth came from those two?

What we are seeing is probably about 30% to 40% of our growth is coming out of new distribution and the rest of it is turn.

Okay. And so is that across the board, kind of the partners that you already have, new doors, and then some in the club channel, obviously?

Absolutely.

Okay. Great. Thank you.

Our next question comes from the line of Scott Mushkin, of Jefferies & Company.

Good afternoon, everyone. This is Mike Otway in for Scott. Thank you for taking our questions. Ira, I think this is probably a question for you. Thinking about Daniels, could you walk through how we should think about the cadence of revenue contribution this year, understanding that it is probably, I think you guys said highest in the second and third quarter, but perhaps a little more color on that would be great?

Let me just turn to one thing here. Daniels is going to give us about -- as you look through a full year, about 25% of its sales in our Q1, and in its Q4, it will be less. Our Q4. And then you can split the difference between Q2 and Q3. You are going to get somewhere in the neighborhood in the second and third quarter of about 30% to 35% of its sales. There are ranges, so it may not add up to exactly 100 as I've just stated it, but you will get stronger sales in Q2 and Q3.

Okay. And then on the -- I guess on the cost side, are we going to see some higher marketing spend up front, or could you maybe talk a little bit about the -- how costs are going to roll through the year from that?

We will see marketing spends -- there has been a recent re-launch of the New Covent Garden brand, so there is spending going on for that, and we are going to make some of our own investments in addition to what they've budgeted on that. You are going to see stronger margins in Q2 and Q3 on the gross margin line out of that business because of its seasonality and the absorption it's going to get through its production plants. I think that is what you are looking for.

And again, Mike, we -- I said, only in a week, we are looking at investing back in the brands. On the other hand, what we have not focused on yet are the savings and synergies and that from our current business and the efficiencies there, so.

Okay. That is really helpful. Thank you. And then sticking with Daniels, and maybe this is a more of a 500-foot level question, but if down the road you guys are able to leverage that business here in the US, is that something that could be done with minimal incremental cost or capital spend? Just kind of thinking in terms of capacity and distribution and things like that?

Well, we are in the soup business in many ways here in the US. The big thing is how we do fresh soup and packaging. But it is interesting, we have had calls from lots of our customers knowing New Covent Garden, looking for fresh soup. So, if we think it is a good category growth, which we do, and it took capital investment for us, it would make sense. And it would not be a lot of capital to invest for the type of equipment that is needed to make New Covent Garden.

Great. That is really helpful. Thank you. I will jump back in the queue

Our next question comes from the line of Andrew Lazar, of Barclays Capital.

A couple of quick things. One, in the quarter you just reported -- well I know you are going to have inflation obviously in fiscal '12 -- would this be the quarter where you think you had the peak impact of inflation, or based on where you are hedged and where you see things going, potentially the quarters to come would be a greater impact?

Actually, we expect greater impact in Q2 and Q3 because, Andrew, we were still purchasing off of some of last year's contracts through this quarter. So, for example, we did not get hit by any of the increased cost on peanuts, because we were buying off a year ago contracts.

Got it. Okay. Good. Very helpful. And then, John, you mentioned in the sales force reinvention that you will get back to us over time with some of the opportunities on some different buckets, including sort of trade-spend efficiency. And that has been something some companies have been able to get after pretty successfully, and the numbers, when done right, can be really sizable. Others have talked about it a lot, but it is one of those things that can be harder to do than to talk about. I am curious, is that something that you really believe you have an opportunity to get after? If so, is it potentially a pretty sizable opportunity, and how do you sort of get after it and how long do you think that takes?

Yes. Here, Andrew, I think that is a key part of this whole sales force reinvention. Hain as a Company is not a very heavy trade spender. We are probably in the moderate area. However, we have multiple brands, each with trade spending budgets. And what we want to do is work with these key customers and create key customer events to move the entire line. So, I don't -- I am not saying to you, you will see reduced trade spending. What I am looking for, and Peter is pushing for, is increased efficiency and lift off of our current trade investment by putting it against key events at key customers, as opposed to spreading it like peanut butter across all the different brands.

Andrew, I think the big part also, the trade is one. But, you know and I think you saw this week's FSI in the paper, there was a Health Valley FSI and as we went in to sell that, it was a part overall Hain. And I think, as we got scale and size today, walking in with one sales organization in classes of trade just allows us from so many different efficiencies, whether it is distribution, whether it is broker, whether it is spending, whether it is overall Company involvement in events. So, there are many, many way to get efficiencies, and there are many ways to really manage the spending at the account level, where before we were going in there and maybe duplicating up on similar promotions or similar programs from the same company. So, there is a lot of efficiencies, and at the end of the day, we want to spend less, get more for our money, and get additional growth for it.

All right. Thank you. Then last thing would just be a broader question, Irwin. We have seen a bunch of transactions announced just really in the last week in the small- or mid-cap space. I am just curious if that is just coincidental, or do you think something has changed in the broader M&A landscape where there is just this pipeline that seems to be coming more into play at this stage?

I think the deals that have been announcing, including ours and some of the other ones -- I think good, strategic, bolt-on acquisitions are smart in good categories. Cost of money is pretty cheap in regards to borrowing, but at the end of the day from a Hain's standpoint, the two acquisitions that we did really followed what our overall strategy were about brands, people, categories, diversified classes of trade.

But it really, in Europe's Best, really strengthened and gave $25 million additional sales to our Canadian organization, and Daniels really gave us scale and infrastructure in the UK. And you have to get scale and infrastructure today to compete. I think that is what everybody is looking at. At the same time, how do I take costs out of my business and integrating without a lot of people and how do I get a lot of efficiencies. I think that is why you will continue to see deals. I think a lot of people do deals looking just for growth. That is not in our case, but I think that is why some deals are being done also.

Thank you.

Our next question comes from the line of Amit Sharma, of BMO Capital.

Continuing on the SG&A leverage, this is the seasonally weakest quarter for you guys, and sales at 55 basis points of SG&A leverage. As sales pick up during the second and third quarter, should we expect more leverage on the operating line, or is this the kind of level that we should be looking at?

Well -- go ahead, Ira.

In our guidance, of course, we've adjusted our SG&A guidance so that --

I meant on an organic basis. Like if you exclude Daniels. Just on the core US business.

All right. On the core business we have always been somewhat seasonal on our SG&A rate because we have a higher level of sales in second and third quarter. And that, of course, leverages over the fixed G&A that we have to incur on an ongoing basis. So, yes, you would see generally better leverage in Q2 and Q3. When you look at Daniels coming into the portfolio, obviously with my taking SG&A rates down to 17% and a bit, you will see better leverage across the consolidated portfolio, as well.

Got it. And, Irwin, looking at last year's transcript, last year you said core brands -- organic growth in core brands could be 4% to 6%. Now we are raising it to 9% to 11%. And this is a core business without Daniels. So, if you look at that, this is an environment where most companies are not looking for this kind of growth. Now, structurally, has anything changed? What is the structural change that has enabled you to raise this growth outlook profile?

I think it goes back to what I said before. Focus, focus, focus. But we are --number one is the management team and, as John talked about, his focused sales organization, restructuring the marketing groups and how we are focused on the businesses, across all our businesses, whether it is Canada, Europe with Philippe and his group and how we have done that, and now the UK.

The other big thing for us is distribution and across a lot of channels here. And really focus our growth across whether it's supermarket, mass market, supernaturals, you know, convenience stores, food service. And again, is going in as a company, as a category manager, as going in with the expertise in natural organic and the consumer really focused has given us the opportunity to grow our share. And to grow our overall organic growth. And we are quite happy with where our organic growth is today. In a tough, tough economic climate and a tough market out there.

And again, we are back talking about July, August and September. And the only thing we can remember then, it was warm, but it was a tough climate out there. And we had some exceptional organic growth in the last quarter.

And just one final quick question for Ira. Ira, the accretion from the Daniels. What is the assumption of amortization of intangibles in that?

We have to wait for our full valuations to come in. But we are looking at, on a full year basis right now, approximately $13 million. Not just for amortization of intangibles, but incremental depreciation and amortization. Remember, we are bringing on 6 plants, So, we will have a higher depreciation than we've typically had.

Got it. Thank you very much.

The next question is from Scott Van Winkle of Canaccord.

So, my question is kind of and add-on to the last question about there's some type of change in the structure of the industry. I guess I wonder, it seems like some of the bigger brands, yours and others seem to be growing generally at a faster rate. And I think the category growth has been pretty consistent. Are we seeing kind of a consolidation of what used to be a fragmented industry into larger, bigger brands? Is there less innovation of new companies? I'm wondering if that is tilted away from this being an industry of a lot of small brands to maybe a smaller number of larger brands.

Scott, you are going to get two wise men to answer that. First myself, then John, and he is the wiser of the two. But, I come back and I say this here. Number one, I happen to agree with you. This being a very fragmented industry for many, many years. A lot of smaller companies out there, I think economic downturn has caused a lot of these companies to go away. A lot of food recalls have caused these companies to go away and a lot of the bigger retailers just don't want to deal with them. And, prior to this, anybody in their basement could put a food product together and put it in a box and go out there and sell it.

And you know with FDA and USDA regulations today, it's really separated the real big companies out there that really get behind and promote their products and that is where we have seen a lot of the growth is the fragmentation. And today with Whole Foods with 317 stores, and United Naturals not wanting to deal with some of the smaller companies that have not been there to stand up behind recalls, there is a lot of benefit for it. And last but not least, again, I think we have some great brands with great products. John?

Two other points. One is that we are also seeing that the conventional players are adding distribution again of natural and organic products. During the post-2008 time, they were trenched in the natural organic space. But now they are being aggressive in pushing natural and organic, because they are seeing the growth rates that the natural channel's enjoying. And the second thing is Irwin already hit it. Look, we're focusing on our strongest brands. And these brands are starting to gain scale and gain recognition. And a lot of those smaller, new brands don't have that as an asset to grow their business.

Scott, I think the last of that, is, a lot of the big consumer packaged goods companies got into this with, whether it is Kellogg's, General Mills, Kraft, and you know, when you go out there and acquire other companies, you are focused on these categories today, and I think that has also some benefit to us. Where when we wake up every morning that it is our only focus is natural organic categories.

Do you think it is attrition of some of -- a $5 million or $10 million brand, or just few of those popping up?

I think it is both, but you can't come back and say this here, the category is growing also. So, there's new users coming into the category. And I think something that you are not overlooking is this here. I mean, a perfect example is in this here quarter, our Earth's Best was up over 25%. Birthrates are down 3.2% overall in America. Why is it up if the birthrates are down? There has to be moms feeding their babies, and why are they feeding them Earth's Best and what are they trading from? So, I think that is a pretty big indicator of where the growth is coming from.

And then, Irwin, quick follow up on a question earlier about your acquisition strategy. So, you did a scale acquisition in the UK. You had a nice opportunistic acquisition up in Canada and you bought a couple of categories last year. You used to walk around with a list of like the top 15 categories and you were kind of checking them off years and years ago. Is it still that way, are you still looking category by category? Or are there multiple different goals and dreams in the organization of what you can bolt-on?

I think, Scott, if you step back today at what I looked at to get to scale and look how we have a good infrastructure in place today in Canada, and if you add somewhere -- you could add another $100 million of sales there without adding a lot of infrastructure. That helps your overall business, the same with the UK. If you come back and look at that scale there.

I think you come back and we are seeing a lot of acquisitions. But, just to do it, an add-on today doesn't make sense. And yes, Greek Gods and Sensible Portions were two phenomenal add-ons. Our criteria today is a lot different, and if you can introduce $30 million to $50 million in new products like we did last year, why not create them internally and grow them instead of going out and buy them and use our capital for that. So, it has changed dramatically; our criteria. And I really don't have a big shopping list anymore, Scott.

Thank you.

(Operator Instructions)

I think this will be our last question, operator.

And the last question will come from Andrew Wolf, BB&T Capital Markets.

Okay. Well, thank you. Making out some more Euro-centric in our focus. So, with that in mind. You were asked about cadence of sales. But what about in Europe, as this whole crisis with the Eurozone and Greece has been so top of the mind over there, and apparently their economy is slowing. What has been the cadence of sales in Europe and in the UK more recently?

Well, I come back and say this here. Andy, I think number one, nothing has changed since last week when we did the deal. Two days after we did the deal, they were booked to sign a deal in Europe. You know, we again, have focused on you know our five key strategies. We have some great brands. We are in great diversified categories. We have five good plants, we have a good diversified customer base.

The big thing here, again, is also, we have to look at Hain as a global Company, not just look at it as Europe or the UK. And the opportunities that we have to bring our brands there and vice versa. So, with that, we -- and go back and look at Europe was up 10% for us and July and August were some pretty tough times in Europe. And our Linda McCartney business and our Fakenham business was up 40%, and July and August and September were tough times.

So, I am not saying it is a cake walk and I'm not saying it's going to be easy and it doesn't affect us. We are not in the banking business, we are not in the retail business. But on the other hand, I think we have a lot that we can do there in expanding our brands our Hain Celestial brands, expanding some of the fresh categories, which is the biggest category, but it is not going to happen without a lot of work, a lot of innovation and an exceptional management team behind it. And we have it on all ends of the world now.

And the same with, Andy, Asia. You saw us in this quarter invest close to $1 million in marketing. We doubled our business in Asia. Yes, we lost some money there, but we believe that Asia is going to be a major emerging market for us in formula, personal care and food products. So, we are looking for the long term commitment and long term returns and we are pretty excited about it. As I said it earlier, eating healthy is not a fad, not a trend. Living healthy is not a fad, not a trend. Living longer is not a fad, it is not a trend. It is what everybody wants in life. So, I really feel that we are absolutely in the right space for that.

Okay. And the only follow-up was, in Europe -- I think you announced you are going to build a non-dairy facility that is going to result in EURO4 million to EURO5 million or dollars in productivity savings?

EURO4 million to EURO5 million in productivity savings that will be built over the next year, year-and-a-half.

So, in terms of thinking what that nets out to, we would just net out an interest charge against the capital cost and that would be the savings there?

And Andy, that is not till our fiscal '13 and '14, so I wouldn't look at that now. I mean the facility is just starting in the midst of starting to get built. It should take a year to get built. But right now, again, we don't have enough capacity, and our current capacity, we process the non-dairy milk and send it elsewhere to be repacked. So, it will be tremendous efficiency and synergies and it will help our organic growth.

Can you tell us what the CapEx for that project will come to?

It is somewhere between EURO6 million to EURO8 million.

Thank you.

With that, that is the end of our call for our first quarter earnings. As you saw, our net sales up over 13%. Our GAAP net income over 28.5%. Operating margins increased. Our diluted GAAP EPS $0.26. Adjusted EPS of $0.29. We really had a great quarter. And come back as I said numerous times, it was during the tough economic time of July and August. We are now into our biggest quarter that we have within the Company, and we are now into the holiday season. October is behind us already. November into Thanksgiving and December. So, and we feel good about what we are seeing. Consumption rates.

And, again, when you see a market like it was today, everybody gets nervous. But all I can say is this here. Consumer wants to eat and wants to eat healthy. And what our major thing continuously to do is, innovation of products, getting distribution of our products out there, getting our brands out there. And there is a lot of that always going on. And as you go across, whether it is gluten free, whether it's sodium free, reducing calories, reducing our sodium, looking at allergens in product, looking at our personal care products. And if you are concerned what you eat, you're concerned about what you wash yourself with, is on our mind all the time. And as we go back and talk to our consumers, it is major in their lifestyle.

One point that I will leave you with, with birthrates down over 3% and Earth's Best growing at 25%, you are seeing where the conversion to organic is coming, and that is at infants and toddlers and the mom who is making that decision is also making the major decisions on purchases within the household.

So, with that, everybody have a Happy Thanksgiving. I can't wish you a Halloween, it is over. Happy Thanksgiving. Make sure you purchase an antibiotic-free turkey, which is Plainville or Free Bird chicken or Arrowhead Mill stuffing and Arrowhead Mill pie shells and be safe out there and eat healthy. Thank you.

This concludes Hain Celestial's first quarter fiscal year 2012 earnings conference call. You may now disconnect.