Hain Celestial Group Inc (HAIN) 2012 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 2012 conference call. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Ms. Mary Anthes, Senior Vice-President, Corporate Relations, you may begin your conference, ma'am.

Thank you, Misty. Good afternoon, thank you all for joining us today and welcome to the review of our third-quarter fiscal year 2012 results. We have several members of our management team here today to discuss the 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 United States, and Rob Burnett, Chief Executive Officer, Hain Daniels Group. 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 or 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 2011 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.Haines-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, our President and Chief Executive Officer. Irwin?

Thank you, Mary, and good afternoon. I hope everybody had an opportunity to see our two press releases that we released today. One on our third-quarter earnings and the second on an acquisition that we did in Ireland. I'm proud to sit here today and give you our earnings, which is a record for us, our highest sales ever in the history of Hain of 19 years and our highest earnings, and I'm proud to be sitting here to do this. So our sales for the quarter, including our ICL business, which is our UK ready meals, which is complete -- our private-label business, was $400.3 million versus $288.3 million a year ago. Without the ICL business, our business was up 31.5%. With the ICL business, our business was up 39%. So it's our first time ever doing over $400 million in sales in a quarter within Hain.

Our gross margin for the quarter, 27.5% versus 28.6%, and as we talked about it with our UK business, you know, our margins, actually considering commodity costs and everything, have done quite well. John will take you through how his gross margins were up in his North America business. Our operating income, which, you know, gross margin and SG&A translates to, 41.1% on an adjusted basis versus 28.9%, up 42% versus a year ago. EBITDA on an adjusted basis, $51 million versus $38.8 million, up 31.3%. Earnings per share adjusted $0.54 versus $0.36, up 50% versus a year ago and Ira will take you through our share count where shares were up versus a year ago.

Let us talk about the quarter, what happened, you know, our consumption is strong, and John will take you through consumption, up high single-digits. Our overall organic growth is strong, and we're overlapping almost a 13%, 14% organic growth last year this time. So, you know, coming off the growth in the comparisons versus last year and achieving what we had today, it's pretty significant. If you come back and look at our inventories, we turned our inventories six times during the quarter. And let's come back and think, here we are today, sitting in May. January, February, and March, pretty warm months. And even with how warm it was, we had significant growth in some of our brands, you know, that whether it was tea or soup and we'll talk about that. We paid down about $35 million which our leverage day is a little over two times which gives us a lot of capacity to do additional acquisition. We've got a lots of powder to do it. We have over 15 brands of double-digits, six brands that are up high single-digits. So a lot of growth going on here.

If you come back and look at just Earth's Best with birth rates down, you know, Earth's Best just continues to grow in double digits and a lot of great things, a lot of new products. The natural food show which was in Anaheim in March, we introduced over 60 new products and just some of the exciting things. Some of the Earth's Best pouches, some of the meals for frozen kids, some of the chia stuff, kombucha, some of the new tea products. And one that I'm really excited about is what we have been able to do on our personal care, on NSF, and reformulated all our ingredients in products. Our gluten-free products. And I come back and say this here, genetically modified ingredients will become a key initiative in regards to a lot of food companies. We're probably 98% there today. The whole gluten-free category, where we have over 400 products, and what do we keep hearing about one of the major cause of cancer today is obesity. And, you know, obesity and ingredients and additives, stabilizers, and processed food and that's just something you will not find within Hain.

If you looked at other consumer packaged goods company, in the last quarter, consumption numbers have been flat, if not down. They have cut back production levels to take inventories out of their system and that is just because demand is no longer there for conventional foods that do not contain healthy ingredients. Let's look at the rest of the country and, as I said, John will take you through the US in a little while, but if you look at our UK business, our Daniels business, and, again, you know, look weather there affected us a bit. Our chilled dessert business is up 23%. Our prepared fruit business up 15%. The ready meals, which I'll talk about in a little while, was up 4%. But that is all own label, private-label. Our drink business was down a bit and our soup business was down a bit, but basically that was March with some seasonal weather, and actually our soup business in the UK in the month of April was up 20%.

Our meat-free business was up 18%. We've integrated our food-to-go business and our Fakenham business into the Daniels business already. We've taken out about $1 million of cost and Rob Burnett, who is on the call, has taken over this, and we're evaluating it. We're evaluating our food-to-go business, our sandwich business, and Fakenham, we spent a lot of time evaluating that. Our Linda McCartney brand was up 27%. We're in the midst of launching fresh ready-to-eat meat-free products in the UK. We're pretty excited with some potential new wins that we have coming our way in the UK market. ICL -- when we acquired Daniels, the only business within Daniels that didn't have any branded business was ready-to-eat meals. About $60 million in size. And it was totally own-label for retailers. We looked at it. Good sales growth, but just no margin. And we just couldn't add any value, and we got approached by a lot of other strategic buyers to sell this, and with that, it's our intention to sell it and like to have this sold by the end of our fiscal year and it changes the mix of branded versus private label, and, you know, another company that's in the private label business will do much better with this than we will. We still can make ready meals in one of our other plants and we'll look to make ready meals in regards to Linda McCartney and maybe Earth's Best products there and maybe some other soup products.

Cully & Sully, which we announced today, is a fresh ready-to-eat meal and soup business, branded, based in Ireland. It is EUR10 million business with great growth, two young entrepreneurs started this business a few years ago, similar to the entrepreneurs that started Greek Gods and we feel there is some great growth of all our products, both Daniels and Hain products in Ireland, but it gives us an alternative brand in the ready-to-eat soup and meals business in the UK. And the Cully & Sully management team will help us introduce fresh soups in the US and we're pretty excited about getting fresh soups in the US here sooner than later. So, you know, with Cully & Sully and ICL, we'll continue to evaluate the UK, and see what makes sense. But we're feeling good about where the UK market is going and our opportunities and our relationship with our retailers there. The Canadian market had a great quarter, sales were up 10% in local currency. Our operating income almost doubled within Canada. Great growth within Sensible Portions, MaraNatha, Greek God's yogurt was named the number one Greek yogurt in Canada. And great growth throughout all the chains, whether it was Whole Foods, Loblaw, Costco, or Walmart business, so we like what we're seeing in Canada.

We've had great success with Europe's Best, we acquired it in October, we were able to secure Metro and just recently picked up Loblaw. So I'm seeing great success and great growth there. In regards to the protein business which we own about 49%, you know, pink slime has really helped drive growth within the protein category and both chicken and turkey. Our overall turkey business, which is our Plainville brand, was up 33.5%, and our Freebird business up 13%, and EBITDA in that business basically doubled in the quarter, so seeing great success. We're at a capacity straight right now in our Freebird. We do have plenty of capacity on Plainville, and we're seeing a lot of opportunities within the turkey category there. That continues in with pink slime. I think it helps the overall natural organic category tremendously, so we're actually feel good with what is happening there.

In regards to Europe, as we all know, Europe's got some challenges. Considering overall Europe, we were up 3%. Our non-dairy business up 10%, our Lima business was flat. Our non-dairy Natumi business up 24%. You know, we saw some declines on Terra in Europe. Our Danival business, which we acquired last year, which is mostly sold in the French market, was flat. Our GG business which we acquired is based in Norway, we are now doing that ourselves in the US and that is one of the biggest opportunities within GG itself. Our Asia business continues to be strong. You know, our shipments there were up over 100%. Our shipments to retailers on our joint venture side in Asia were up 176%. We saw 75% -- sorry, a 35% increase in Park and Shop, which is a Hong Kong market. Our personal care business, which they're now doing we're seeing strong. We're now in seven Asian countries and, you know, moving more and more into other parts of Asia. You know, there's lots of acquisitions out there. There's lots of things we're looking at. There is a lot of good strategic opportunities for us on the acquisition side, and we will continue to pursue what makes sense, but in the meantime, you know, we have a lot of growth within the Hain business today, and we're pretty excited about that. I'll turn it over to John and he'll take you through our US business.

Thank you, Irwin. Good afternoon. For Hain Celestial US, Q3 was a strong quarter with accelerating momentum. We had many highlights in the quarter starting with our 11% US sales growth. This was two percentage points higher than our Q2 sales growth of 9%. It was driven by strong gains across all units, grocery and snacks, personal care, and Celestial Seasonings. We also saw accelerating momentum in our Q3 consumption growth which was up 9%, or again two percentage points higher than the last quarter's growth. This was driven by gains across the portfolio, including 13 brands with double-digit or high single-digit increases. The differences between our consumption growth of 9% and our sales growth of 11%, reflects additional growth from customers where we cannot measure their consumption, i.e., Amazon, Trader Joe's, and others like that. Importantly, our US grocery channel consumption was up 9% versus a year ago, marking seven consecutive quarters of growth in this important channel.

Also in Q3, our US gross margin was up 20 bps, despite absorbing over 5% in commodity and fuel-driven inflation. We were able to offset this inflation with productivity savings in our July 1 price increase. In addition, our Q3 G&A as a percent of sales was down 50 bps, reflecting the sales increase and head count synergies from consolidating the Sensible Portions business into Melville. And finally, US inventory was down $500,000 versus year ago and Q2 while supporting the 11% sales growth. This increased US inventory turns by 0.07 of a turn versus year ago. By contrast, at the same time we were reducing our inventories and increasing turns with growing consumption, 5 US CPG companies announced plans to slow production to realign their inventories with soft consumption. So Hain Celestial US is clearly in a good space. Now, as I've said before, we continue to be very bullish about our US business. We continue to see strong momentum across the business, and we believe it is sustainable based on the latest metrics from the four key factors that I've discussed in previous calls.

The first factor is our continued US consumption gains. Q3 was our ninth consecutive quarter of consumption growth and it's accelerated. Importantly, our two-year comps are showing double-digit growth. The second key factor is our demonstrated ability to offset input inflation. Hain Celestial US has experienced over $21 million in year-to-date inflation. We have offset this inflation with pricing and productivity. Q3 saw full recognition of our July 1 price increase just as we'd forecast back in Q1. Additionally, our productivity initiatives have generated over $13 million in year-to-date savings. We have a strong productivity function and a full menu of projects to drive savings in Q4 and FY '13. The third reason we feel bullish is our initial results from our US sales force reorganization. Now for the second consecutive quarter, we saw a quantifiable benefit from our US sales reorg. Specifically, our Q3 US Nielsen distribution trend improved 150 basis points from our 52-week trends. This improvement was, again, across our entire product line, not just our core skews. Distribution gains like this will continue to drive future growth by filling in our distribution white space.

The final reason we are bullish about Hain Celestial is the continued positive response to our innovation. We just introduced 60 new products at Expo West that were very well received. Don't worry, I'm not going to go through each one of them. But I just want to call out three hot innovation areas where we're seeing a huge response. Our first area is pouches. On our last call, I told you that our Earth's Best pouches are on a run rate to do $20 million-plus in annual sales. At Expo, we introduced three new pouch extensions to a very strong reception. We had two new Earth's Best pouch lines, including a Greek yogurt product and a new Health Valley fruit yogurt smoothie. The new Health Valley smoothie is targeted at all ages, not just infants and toddlers. It was so well received that one of the two leading mass merchandisers will be featuring the launch in a national circular in June, which is a first for Hain Celestial. Our second hot innovation area is coconut and chia. Coconut and chia are two of the hottest trending ingredients in the US today. Our marketing and sales group saw these trends early and our coconut and chia based product sales are up 103% year-to-date versus year ago.

Spectrum chia seed is the number one selling chia in the natural and grocery channels so we are extending the Spectrum line with a ground chia and a decadent blend chia and flaxseed mix to further leverage these trends. On coconut, we're introducing a new MaraNatha coconut butter, a Spectrum coconut oil, and an Almond Dream coconut yogurt to garner more coconut sales. So we think we've got coconut and chia pretty well covered. Our final area of hot innovation is probably the most unlikely, but it's Celestial Seasonings Sleepytime brand. Sleepytime sales are up almost 20% year-to-date despite being almost a 40-year-old brand. It may be 40, but it is still very, very vibrant. This is evidenced by our original Sleepytime SKU, which is still the number one herbal tea skew in the category as well as by recent year's successful introductions like Sleepytime vanilla and our Sleepytime wellness products. Now at Expo, we built on our Sleepytime momentum by successfully introducing our latest Sleepytime new products, including Sleepytime peach, Sleepytime kids and our new Sleepytime K-cup. Sleepytime is a great example of using innovation to strengthen and extend a valuable brand and drive incremental sales.

So just based on these three hot innovation areas, and believe me there are more than three but I'm not going to take you through all of them, and our strong year-to-date new product sales, we feel bullish about our continued consumption growth from innovation. So, in summary, Q3's strong results reflected accelerated momentum for Hain Celestial US highlighted by 11% top line growth, 9% consumption gains, gross margin improvement despite absorbing over 5% inflation, lower G&A, and double-digit income growth. And we continue to be bullish about our US prospects given our strong consumption trends, our productivity savings, our initial results from the US sales reorg, and the very strong response to our innovation. With that, I'll turn the call over to Ira Lamel.

Thanks, John. Good afternoon, everybody. As we said in our press release, we had a record quarter with our results the highest in the company's history. Net income in the third quarter this year was a record $24.1 million, compared to $16.8 million in last year's quarter. We earned a record $0.52 per diluted share on a GAAP basis this year, excuse me, compared to $0.38 per diluted share in last year's third quarter. Adjusted net income was $24.9 million, compared to $16.2 million, improving by 53.6%. Adjusted earnings were $0.54 per diluted share compared to $0.36 per share in last year's quarter, improving by 50%. Our adjustments to net earnings from continuing operations include acquisition-related expenses of $515,000 and discrete tax adjustments for a reduction in tax reserves due to a lapse in a statute of limitations offset of the tax effect by non-deductible acquisition related expenses which had a net effect of $358,000. The net adjustments total $835,000 or $0.02 per diluted share net. Net earnings from discontinued operations had no impact on earnings per share.

We had 45.985 million diluted shares outstanding in this year's quarter, up almost 3% over last year's shares in the third quarter. This increase in shares had a $0.02 impact on our per-share earnings. Net sales from continuing operations in the third quarter were $379.4 million, an increase of 31.5% compared to $288.4 million last year. Sales from continuing operations include our recent acquisitions of Daniels Group and Europe's best for the full quarter. Sales for the private-label chilled ready meals unit, amounting to $21 million in the quarter, are not included in reported net sales of $379 million. Considering the reclassification of sales, our total sales, as Irwin mentioned, came in within our expectations, when we announced to you what our sales would be when we acquired Daniels and looked ahead at that time.

Ready meals sales reclassified to discontinued operations totalled $37 million from the date of acquisition at the end of October, through March 31. Gross profit in the third quarter was 27.5% of net sales, while selling, general and administrative expenses were 16.7% of net sales. As a result, our adjusted operating margin, which excludes acquisition-related items, improved 80 basis points compared to the prior year. Input cost inflation amounted to 5.3% in the third quarter this year, measured against the third quarter last year. And that inflation was offset by the impact of price actions we affected at the beginning of the fiscal year, productivity improvements, and a stronger mix of sales at our pre-acquisition units. As expected, we are seeing leverage in our SG&A rate. In the third quarter this year, SG&A ex-acquisition related expenses and integration charges were 16.7% of net sales versus 18.6% in last year's third quarter.

This 190 basis points improvement in SG&A comes from a combination of the lower SG&A rates and our recent acquisitions of both Daniels and Europe's Best. The integration of the Sensible Portions operation, where we closed it separate back-office in the first quarter this year and consolidated those operations into our Melville offices. The integration of certain functions in the UK into the Daniels operation, and our continued focus on leveraging our existing G&A base across our growth and sales. Operating income for the quarter was $40.6 million, or 10.7% of net sales on a GAAP basis, compared to $30.8 million last year. On an adjusted basis, operating income was $41.1 million this year, increasing 42% from $29 million last year. Adjusted operating margin was 10.85% this year, versus 10.05% last year. Our effective income tax rate, including the discrete items disclosed, was 34% of pretax income for the third quarter this year, compared to 39.6% last year. The effect of income tax rate this quarter was lower than the comparable period of the prior year, as a result of the acquisition of Daniels and the resulting income in a lower-tax rate jurisdiction. Additionally, the Company recorded discrete adjustments to recognize a decrease in our tax liabilities of $800,000 as the result of an expiration of the statute of limitations on a particular tax year.

That benefit was offset by $1.2 million of unfavorable impact on our tax provision resulting from non-deductible transaction costs incurred when we acquired Daniels. Depreciation and amortization in this year's quarter was $7.8 million as compared to $5.9 million last year, with the increase coming principally from this year's acquisitions. Stock compensation in the quarter was $2.6 million as compared to $3.4 million last year. Adjusted EBITDA for the quarter was $51.6 million this year versus $38.8 million in last year's third quarter. We continued to operate with a very strong balance sheet. Our working capital was $261.5 million, giving us a current ratio of 2.2 to 1 at March 31. Our stockholders equity was $942.5 million. Our debt as a percentage of equity is at 45.7%, and debt to total capitalization is now at 31.4%. Total debt at the end of the quarter was $430.7 million with $150 million of our debt carrying interest at fixed rate, and the remainder at floating rates. At the time of our acquisition of Daniels, we drew down $235 million of floating rate debt under our credit facility, bringing our total credit facility borrowings to $315 million at that time. We have paid down $35 million of that credit facility by March 31, that is $35 million in five months, bringing the total outstanding amount under the credit facility to $280 million.

With cash of $41 million at quarter-end, March 31, our net borrowings under the credit facility is only $239 million. There were no additional borrowings necessary for our acquisition of Cully & Sully. We continue to focus our attention on improving working capital turnover and generating improved cash flows. For the trailing 12 months through March 31, operating free cash flow was $79.3 million this year, versus $61 million for the prior year's life 12-month period. Day sales outstanding was 47 days. Our consolidated inventory days are at 61, and therefore turning at six times. And our payables are 43 days. As a result, our cash conversion is 66 days, a 12-day decrease as compared to June 30, a year ago. Capital expenditures amounted to $6.1 million in the quarter. We are updating our sales guidance for the full fiscal year 2012 which has been updated for our decision to exit the private label chilled ready meals unit at Daniels. We expect our net sales now to be in the range of $1.4 billion to $1.41 billion. That will be sales from continuing operations without any sales that we continue to experience from the ready meals business which will be classified within discontinued operations. We are also raising our guidance for full fiscal year earnings per diluted share to $1.76 per share to $1.80 per share. At this point, we'll open it up for questions.

(Operator Instructions) Jessica Schmidt, JPMorgan.

Hi, guys, congratulations on a great quarter.

Thank you, Jessica.

So, given the level of interest in organic and natural products that we're seeing right now, especially from the more mainstream retailers, it looks like there is a lot more opportunity for you to expand distribution into these channels. Can you just talk a little bit about how maybe you're better positioned than some of your competitors to do this? And as a follow-up to that, how will diversifying your channel mix impact your gross margin structure, if at all?

I can back on one thing, Jessica, number one, being one of the largest, if not the largest natural, organic food and personal care company in the US and not in the world, with the depth and breadth of products that we have, we have number one and number two, you know, brands, and about 15, 16 categories, so walking in today to any retailer and being the category manager, and being able to be that one-stop-shop, allows us, I think, to have a leg up on most other companies that are in the category.

Number two, is you heard John talk about from his standpoint, the infrastructure and sales organization that they put in place in North America, very similar in Canada, with Beena Goldenberg and her group, and now with the acquisition of Daniels, we have scale, and we're working on some things in Europe. So with infrastructure and sales, you know, we're walking into these accounts today, and, you know, we have the ability to, you know, be their leader and show them what's going on and show them why it is important to be in the category. In regards to gross margin, you know, I come back and say this here, as sales increase with productivity, you know, there is a lot of efficiency in shipping, you know, you saw us drop FSIs this quarter, that, you know, were dropped among all classes of trade, and, I think we're continuously looking for our gross margin, you know, to continuously improve. And we're going to look to spend back on our brands because we think that will drive growth.

Okay. Great. I'll pass it along.

Thank you.

Scott Mushkin, Jefferies & Company.

Hey, guys, thanks for taking my questions. North American operations, John, and Irwin, and team, seem to be really hitting on all cylinders, but we haven't seen an acquisition, I think, in a while, and I was wondering if this is on purpose, or is it just not been the right asset? And then I have a follow-up.

So come back, Scott, Listen, you heard what I said before. We had 15 brands up over 10%, you know, we had another five or six up mid to high single-digits. I mean, listen, we got the secret sauce on the shelf today and, you know, we got a lot of great products, a lot of great categories. We will buy, if it's right for us strategic, and we can really do something with it. We're not just going to do an acquisition for the sake of an acquisition. And, you know, I think there is a lot of growth in our current product lines and our brands. John?

The only comments I would make is there is also growth for us available from the acquisitions we have made in the other parts of the world. We've talked a lot about launching the New Covent Garden soups into the US and we are pursuing that as well as -- some of the hot refrigerated desserts, hot-eating desserts. So I think there's -- look, we'll find acquisitions, domestically, but also we can leverage the ones we've done in the other parts of the world.

Same with Europe's best, good introduction, and that is only in Canada today. So we're going to look at how we become global brand, Scott, and what else we can do with acquisitions that we, you know, do in Europe or the UK or Canada and bring here. But I will say this here, you heard what I said before, where our leverage is, we have tremendous opportunity and a tremendous balance sheet to go out there and do the right acquisition.

Okay. And then my follow-up question has to do with kind of you guys bullishness about your current portfolio and your current business, because I actually feel the exact the same way. If I look at, and I was out at Expo last time, (inaudible) look at Imagine soup with the Tetrapak that you guys are rolling out versus the can. It seems to me the street is bullish, too. How do you feel about where the numbers have gone for '13, and is all this bullishness about the business and things going forward, are we getting too carried away, or let me just leave it there.

I like your word stupendous, Scott, but listen at the end of the day we never want to get ahead of ourself and arrogance and business just do not connect, okay? And if you come back and look at other conventional companies, they're doing a great job on their brands but they're not getting growth. Okay? The consumer speaks with their pocketbook. The consumer goes out and spends. We saw a few weeks ago [one of the biggest preventions towards cancer is obesity. And we continuously just hear pink slime. And, you know, GMOs, and BPA. So the consumer will continue to buy healthier products.

You know, you saw Whole Foods' numbers yesterday and the growth going on within Whole Foods as the consumers walking in and knowing they're going to get healthy products within that store. We know what we're seeing across growth in other grocery retailers. You heard John talk about -- or, you know, his consumption numbers, and we have not seen these consumption numbers across, you know, super markets before. So, Scott, to step back, I've said this before, we're in early innings. We have great brands. Perfect example is Earth's Best baby food. Baby rates are down. The overall baby food category is down. And we're growing. So it has to be the category and the demand what consumers want. And I think there is a lot of leg room there to grow. The other thing is within Hain today, and we've seen a lot of companies that are a one-product company, we're not a one-product company. And we're going to have quarters where they're up and down in products. Perfect example is this past winter. It was a damn warm winter and we still saw great growth on our tea business. Our soup business was up over 12%. Our tea business was up 11%. And, you know, they're good growth numbers with a real warm, you know, winter out there. So the consumer is the one that's speaking.

Thanks for that color, Irwin. And running the Company, have you ever felt like the opportunities for the Company were better than now, or is that not the right way to put it?

I'll say this here, Scott. When you put up the best quarter ever in the history of the Company, both on top line and bottom line, as a team we feel good. But we feel there's a lot of other great quarters in front of us to do the same.

Ed Aaron, RBC Capital Markets.

Hi, great, thanks for taking the question. To start with, maybe a clarification on the top line. It looks like the revision is maybe a little bit more than what I think than it looks like the divestiture would account for. Is that -- is that the only thing involved in the sales change, or is there any assumptions to the underlying business in addition to that?

No, the only other addition to the sales line is the small amount we're going to get out of Cully & Sully. I don't think we should expect more than $2 million in the quarter. We are only going to have two months of their sales. But that's it. We pulled out the ready meals business and of course looked at what we think our growth is for the quarter with the new acquisition.

Don't forget, Ed, this being our smallest quarter within -- within our four quarters.

Right. Okay. And then just I guess kind of bigger-picture question I wanted to maybe ask. The group has been just pretty well-[bin] of late and kind of evaluations have expanded. For your business, one of the nice offsets in a lower evaluation environment is that you have a lot more M&A opportunities. I'm sure you're looking at a lot of different deals all the time and I'm just wondering if you think that there are acquisition candidates out there that, you know, make sense at the right price, or in the world of M&A if the expectations have just gotten too high.

Well, I think there is two things. I think, you know, there's a time you create and grow within, if you come back and look at our Greek Gods yogurt and, you know, we've taken that into multiple categories, and we'll do that, and, you know, when we bought that it was a $12 million business and, you know, today, you know, between US, Canada and ultimately going into the UK, that is on a run rate at least at $100 million, and then some. So we're going to buy where it makes sense. And, you know, I think as you come back and look at, you know, a recent natural organic food company that just went public and the multiple they are, we will not pay those multiples for companies and we'll not gloat and do deals like that.

But Cully & Sully is a prime example. Two entrepreneurs helps us get into Ireland. It is ready to eat soup, fresh soups, what the consumer wants today, fresh meals, what the consumer wants. It is branded, it has the opportunity to expand through Europe, UK and has the opportunity along with New Covent Gardens to come here. So we love small deals, $20 million, $30 million, $40 million, $50 million that we really can put our infrastructure, our creativity, our distribution behind, Ed, and take them to a whole other level. Same with Sensible Portions. Since we acquired that, we doubled it and then some. Our personal care products. And some of the things that we're seeing with Daniels already happening within the UK. So that's the type of deals that we like and we've looked at some major deals at major size that just didn't fit and concern with ingredients, concern with packaging, and concern where we could take it to. So I'd rather, you know, pioneer a lot with what we have today than gloat and buy something that is just going to stifle our growth.

Thanks, and nice quarter.

Thank you.

Amit Sharma, BMO Capital Markets.

Hi, thanks for taking the questions. First of all, can you tell us what Daniels contribution was during the quarter, ex the private label part?

From a sales?

Yes.

What the sales were, Daniels' contribution -- I am going to say approximately about $50 million.

Sales wise. Hold on. We're going to get that out somewhere so we're specific.

And the other thing is, when you made the acquisition (inaudible) you were looking for sort of lower double-digit EBITDA margin, now that this private label low margin private label business goes away, how does it impact margins for the Daniels business?

The private-label business had very low margins so it's certainly going to help margins going forward. You heard -- or you saw in the press release we had about $21 million of sales from that business into the discontinued operations for the quarter. That is about its run rate, you know, through the year, and it operates at a gross margin that is under double-digits. So it will be, you know, a help to our margins going forward.

Just on your question before, it was about $55 million that came from Daniels, excluding ICL. And that's the reason why we decided -- I mean, as we owned ICL and we looked in there and we have two major customers in the UK and we looked at when we get pricing with commodity cost, it is like you got no brand, if you don't match our price, somebody else will. And, you know, that's what kind of made the decision, hey, look what this would do for our margins. This is ultimately what could we add in value? And there is a lot of good private-label ready to eat meals manufacturers in the UK that could bring a lot of innovation, and that was our reason, you know, for deciding to divest it. And we have been approached by, you know, interested parties.

All right. And, you know, switching on to North America US, John and Ira both, and you talked about distribution gains and how opportunities there to gain distribution, but I want to focus on within once you get into the store, are we seeing organic and natural getting more assimilated in the mainstream aisles or is it still in the corner of the store where you have all of the products out there? So if you think like that, you know, I mean, the first inning of assimilation and mainstream, in the early stages?

I mean -- this is John -- you know what, we've talked about this before. It depends on the customer. There are some customers that are doing an unbelievable job with a dedicated natural set. I mean, I don't know of anybody who is doing much better than Kroger is doing it with a dedicated natural set. There are other guys who are doing a nice job integrating it into their conventional set. I think we'll see more movement towards integration into the conventional set and that is why it's important that you have a number one or two brand in each category because there you'll have enough movement to compete in a conventional set.

Greg Badishkanian, Citi.

This is actually Alvin Concepcion in for Greg. You mentioned consumption trends were pretty strong despite the warm winter weather. How much do you think weather impacted consumption?

Listen, I think absolutely. You see other soup companies where their consumption numbers were down into the negative numbers. Cold winters, snowy winters, and good flu seasons help sales. So I don't have exact number to put on it, but, you know, we've seen in other years when it has been cold out there, and last year, and we're climbing over some pretty good consumption growth last year, where it's, you know, it's worth a few points, at least.

It also points out a way that Hain is differentiated from the conventional CPG companies because we still have -- no matter what the quarter is, we still have distribution white space that we can sell. And that gives you year and year comparability benefit that some of the conventional guys can't have because their distribution is basically everywhere.

Again, you're not only drinking tea because it is cold out or you are not only eating soup. Soup is for cooking, soup is an appetizer, soup is a meal. So you're ultimately using it for multiple occasions.

So did you see any changes in that growth rate into April and then secondly, I apologize if I missed this, but what was your organic sales growth in the quarter?

Well, you can figure out our organic sales growth by just taking out Daniels, but if you come back and look at April, April continued to be strong, you know, and in regards to our soup business, in the UK, our soup business in the UK was up 20%, and it was much colder in the UK in April than it was in March. So you're seeing high single-digit, you know, growth in the month of April, low double-digit.

Okay. I just wonder if you could talk about the long-term opportunity in fresh foods in the US with Cully & Sully.

Well, with New Covent Gardens and Cully & Sully, we got a lot of master and soup brewers to help us here. We think there is a big opportunity. One of the things we want to make sure is we have the proper shelf life, the proper production, and what we're trying to do is something different, so, you know, we're excited about the opportunity for fresh ready to eat soups here in the US and Canada.

Andrew Wolf, BB&T Capital Markets.

Hi, good afternoon, congratulations on the quarter.

Thank you, Andy.

You're welcome. I just wanted to check some math, I guess, with Ira. On the guidance, the sales guidance, if you were to add back the $80 million, $85 million or so for the divested business in the UK, it looks like you get to on a pro forma basis 1.48 to 1.49. I looked at your old guidance, and you basically, if I'm understanding it right, you're taking it up on the old basis which included this business, to the high end and a little above the par guidance on sales. Just checking that out. And, secondly, if that's accurate, and you're taking up earnings per share guidance at the midpoint, maybe a dime, what accounts for, you know, just disproportionate increase in the earnings guidance versus going to the high end of pro forma sales guidance? You know, it sounds like, given what's going on in the US, maybe it is a US profitability is greater than expected. But, you know, could you help me connect the dots on where the profitability bead is coming?

It is the US, Andy. It is over-achieving what our original expectations were. And combined, even though the winter was warm, Daniels is over-achieving what our expectations were. So we're reflecting that in our guidance. We don't expect accretion in the fourth quarter coming from Cully & Sully, so don't count that as a positive on the bottom line. So it is coming from that, and we're getting a little bit -- I'm not going to suggest it's big -- but a little bit, because the mix of our earnings around the world is positive, and, therefore, we're getting a little bit better tax rate.

And, Andy, Canada is performing well up double-digits. Europe is a little flatter than budgeted but still growing 3%. But, you know, North America is where 70% of our sales are, and we're seeing strong growth. And, like I said before, we like what we're seeing coming out of Daniels and with the divestiture of ICL, we'll see, you know, margins and opportunities there improve.

I wanted to follow up, excuse me, on what I thought was a statement you made. I may have misheard it. Did you say that you're also taking an evaluation of the sandwich business in the UK as well?

We're looking at it. I mean, you know, we've got a -- you know, we're looking at the sandwich business as there is branded with daily bread, there is other products that are sold into food service. The combination of our sandwich business, our soup business, our juice business, our fruit business, makes a lot of sense. But we have so many opportunities coming at us, and there is so many growth areas, and there is a lot of additional acquisitions being presented to us in the UK. If we can't get sandwiches moving in the right direction, does it make sense for us to continue there. That is something we'll evaluate.

Sean Naughton, Piper Jaffray.

Can you guys quantify the benefits maybe by category and the pricing mix and productivity that you had to help offset that 5.3% inflation that I think you mentioned earlier, Ira, and then just secondly, can you talk about any of your expectations for inflation for the balance of the year?

I'm sorry, did you say inflation that you heard was 9%? It's 5%. I'm not sure I heard you correctly. Yes. 5.3%. We did get pricing. We probably got a couple of points on pricing consolidated throughout the world. Remember, when we take pricing it is not on every product throughout our portfolio throughout the world, so there is a blend that takes it down to a couple of points. And I'm not sure I heard the rest of your question there.

Just on the other two mix and productivity I think were the other two portions of the offset.

Productivity took us offset inflation by about 35% to 40% of that inflation and mix helps a little bit, but almost immeasurable.

Got it. And then, Irwin, I think you mentioned that you realized $1 million of synergies with the Daniels acquisition? How should we think about the potential for synergies once it is fully integrated? And then can you talk about your European operating margins in the quarter?

So in regards to, you know, Daniels, the big synergies were coming from procurement and distribution and some people, you know, with Fakenham, we're looking to bring in a lot of additional business in the dessert business there, which will -- a lot more efficiency and bring our margins up in that plant. So, as I said before, you know, over the next four quarters, we're looking for, in total about $5 million, $6 million in synergies from the Daniels acquisition, and we should continue to see it over the next three to four quarters.

I just want to make one comment about what Irwin said about new business in Fakenham. It is an example of growth synergies that come from acquiring a business in a market that gives us scale. The sales opportunities that are coming into our Fakenham plant are the direct result of having brought on Daniels and their contact base, and our going into customers, and showing them what our scale is as opposed to what we were before Daniels. That's a true growth synergy coming from that deal.

And the opportunities on top of that is with gluten-free, with snacks, and a lot of our Hain products, and that is something else that we will continue to do. In regards to our European margins, you know, Europe being a tough market, and, you know, we're looking at things in Europe. We have a business, Grains Noirs over there that does fresh products. But, you know, from our Lima business, our Natumi business, our Hain business there, you know, we've taken pricing and we'll continue to do, and we think there is continuously opportunity to improve our margins in Europe, and to improve our cost structure there, where there's also going to be some synergies in Europe with the UK that we never had the opportunity before to do that.

(Operator Instructions) Amit Sharma, with BMO Capital Markets.

Hi, thanks for the follow-up. Ira, can you give us tax rate for the year?

I'm sorry? Amit, did you say tax rate? Yes, please. It will probably be somewhere in the 34% area.

Got it. Thank you.

At this time there are no further questions.

Thank you very much. Thank you, everybody, for participating in today's call. You know, it feels good here to report a record quarter. You know, as I sit back and look, we have tremendous brands, we have many diversified brands, we are in a great growth category with tremendous upside within the category. From a team, you know, at Hain, our 4,000 employees around the world, you know, we're all rowing together, we're all moving in the right direction. And in regards to our customer base and our consumer base, you know, eating healthy is not a fad, not a trend. Looking at lower sodium, looking at GMO, looking at gluten-free, looking at products with no parabens, no phthalates in them in personal care, looking at antibiotic-free chicken, knowing what pink slime is, understanding what non-dairy products are, almond milk, rice milk, coconut milk, all of these different blends, our different snacks today, Terra chips, Garden of Eatin', one of our fastest growing brands, Earth's Best, Celestial Seasonings. We really have a great diversified portfolio of products, brands that the consumer wants and it is the consumer that is really focused on eating healthy.

In regards to retailers, you know, our growth among retailers that are growing, not retailers that are declining, and, you know, perfect example is our growth within, you know, Whole Foods, and a lot of you have seen the growth that Whole Foods posted yesterday. It shows consumers go in there, they know they're only getting natural, organic products. As a company today, as a young company, we're focused on growing internationally. We think there's, you know, a great growth track internationally. I think what happened to a lot of companies, they felt they would only grow in the US when the US stopped, there was no international market. Not that the US for us and we're in the early innings I always suggest in the US, but I think there is great growth opportunities and I'm seeing this just with gluten-free products today within the UK market. I'm seeing this with soup coming over from the UK coming here. There is cross-borders where we learn a lot from being in different countries and creating global brands. And the same thing what we're seeing with our Asia business. So I feel good where Hain is going. I feel very good about what we deliver today. And with two months left in our fiscal 2013 -- 2012, sorry, I'm putting it a year ahead -- it is amazing how quick the year has gone. It is great to see what we have been able to accomplish. So thank you so much for listening today and we'll speak to you all soon. Thank you.

This concludes today The Hain Celestial third quarter fiscal year 2012 earnings conference call.