Hain Celestial Group Inc (HAIN) 2013 Q3 法說會逐字稿

Good afternoon, my name is LaShanda 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 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Mary Anthes, Vice President of Corporate Relations, please begin.

Thank you, LaShanda. Good afternoon and thank you all for joining us today. Welcome to the review of our third-quarter fiscal year 2013 results and the announcement of our acquisition of the Ella's Kitchen brand. We have several members of our management team here today to discuss our results. Irwin Simon, our Founder, President and Chief Executive Officer; Rob Burnett, Chief Executive Officer, Hain Daniels; John Carroll, Executive Vice President and Chief Financial Officer, Hain Celestial, US; Ira Lamel, Executive Vice President and Chief Financial Officer; and Paul Lindley, Founder and CEO of Ella's.

Our discussion today will include forward-looking statements which are current as of today's date. We do not undertake any obligation to update forward-looking statements either as a result of new information, future events or otherwise. Our actual results may differ materially from those projected and some of the factors which may cause results to differ are listed in our publicly filed documents, including our 2012 Form 10-K, filed with the SEC.

This conference call is being webcast and an archive of the webcast will be available on our website at www.hain.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 Founder, President and CEO. Irwin?

Thank you, Mary, and good afternoon, everybody, and I hope everybody has had an opportunity to go through our two press releases. You are joining us today from our new worldwide headquarters in Lake Success, which will allow us to expand and grow and consolidate our backroom functions on R&D, QC and Technical, and allow us to attract and retain a lot of first-class talent.

Today I will briefly review our exciting third-quarter results, our outlook for the future, and talk about the exciting acquisition of Ella's, that will allow us to create a global presence to feed infants, toddlers and kids -- something very close to my heart. As you are aware, obesity is one of the greatest health issues that faces children today.

We are extremely proud of our third-quarter fiscal 2013 results. Sales remain strong and continue to be -- remain strong in April in all channels. Largest sales quarter in the Company's history with $456.1 million, up 21.4%, and our ninth consecutive quarter of double-digit adjusted EPS growth.

Hain Celestial, and John will talk about it later, is up double digits, excluding Rosetto and Ethnic Gourmet frozen foods which we intend to have deployed and now intend to divest in the up and coming quarters. Lower sales than expected in the UK, which resulted from some jam and soup promotions plus some foreign currency headwinds on sales and Rob will talk about that later. But Rob has a lot to talk about in regards to some new soup distribution and new products that will be launched in the UK.

Our record sales combined with an improvement in gross margin, SG&A expense leverage enabled us to report GAAP earnings from continuing operations up 61% to $0.87 per diluted shares and that included a $0.28 tax benefit, and adjusted earnings up 28.5% (see press release) to $0.72 per diluted shares. Our gross margins, with all our headwinds on commodities which we have talked about, 28.1%, up 28 basis points. We have managed our SG&A which shows how we have integrated acquisition and how we manage our costs down 1%, 15.5%.

Our operating income adjusted $57.6 million or up 12.6%, up 142 basis points.

Our consumption numbers measured by Nielsens was up a strong 9.1% in the latest four-week period and up 22% on a two-year stack basis. Natural organic product sales are helping to drive growth in the [AOC]. The total channel grew 2.5% in the latest four weeks with natural organic products outpacing that growth at 9.8%. Conventional products are only growing at 2.2%.

We believe there is a massive opportunity to expand our sales and distribution in our products within the natural organic industry. For the last 52-week period, only 26% of consumers used natural organic purchases were Hain. We have a lot of room to grow and a lot of distribution opportunities with a 98% of consumers out there that are buying natural organic products.

In the UK, we remain focused on our strategy to drive higher margins and brand growth. The integration of Ambient Grocery Products and the elimination of certain nonprofitable private-label sales we previously discussed, we saw our sales today become -- branded sales, 58% of our product sales and we will continue to look at distribution. We will continue to look at eliminating unprofitable private label sales.

We have now owned Hartley's, Sun-Pat, Gale's, Robertson's and Rosie's for six months. I feel real good about the acquisition. Rob will tell you about the excitement in the new products around those brands.

It was a tough year for us in soup and much tougher than we planned which Rob will tell us what are some of the new things that are coming and some of the new distribution.

In the rest of the world they contribute to our growth, too. Canada was up 11% and with all of the challenges in Europe, we were up 3% with good growth coming from Lima, Danival, and our Rice Dream brands. With many other food companies experiencing declines, it is great to see growth still happening for us in Europe.

Our brand performance in the quarter was tremendous. We had 14 brands grow double digits. We had six brands grow in the mid- to high single digits.

Today, we have eight brands that are $100 million plus. These brands are positioned to grow to $200 million to $300 million. We have six brands that are over $40 million in sales and we believe we can grow close to $100 million with these brands. So it is like having a professional team that is ready to win the Stanley Cup and, then, the minor league to bring players up to fill in for those brands as they hit those $200 million to $300 million levels.

We drove tremendous growth in our recently acquired Blueprint brand with great growth, great distribution, and juicing is a hot category today and with retail distribution available for us, continue to watch out for Blueprint.

In Anaheim in March, we introduced over 100 new products that will start to ship in June as well as numerous new products in Canada and the UK and Europe.

Today, I am excited to announce the acquisition of Ella's Kitchen. In 1996 when I had my first child, I wanted to change the way the world eats for children. That inspired myself to go out and buy Earth's Best which, at that time, was a $14 million business. Paul Lindley, the founder of Ella's Kitchen and Ella's dad, of course, named after his daughter had very much the same vision on the other side of the Pond.

In 2006, Paul started Ella's Kitchen and has become one of the fastest growing and, as I referred to, one of the hippest brands in the UK today in the organic food industry with great sales in UK, Sweden and Norway and the US with a range of over 80 premium organic products. With Paul's vision of Ella's Kitchen and Hain Celestial's vision of Earth's Best, we will create a Global Infant, Toddler, & Kids business that Paul, myself and John and the teams together will work on changing the way kids eat around the world. And I have got to tell you we are real excited about that.

Welcome, Paul, and as I said before he is on this call today. Paul will run this division and work with Hain on the side and have the opportunity to work with Rob and their manufacturing on the other side. Paul will report into John and have responsibilities for the brands.

With our manufacturing facilities in the UK, with soups, meals and a lot of other products, we have the ability to make a lot of other Ella's products. Ella's Kitchen is positioned for significant growth as we see opportunities to expand in Europe. There is no Ella's sold within Europe today. We are pleased to have the opportunity to complement the phenomenal job our Earth's Best team has done on the Earth's Best brand and taking a lot of that intel to the Ella's brand and vice versa on the Earth's Best brand.

We plan to grow Ella's Kitchen by leveraging our existing distribution platform and expanding it with a lot of other Hain products. As I said on previous calls, we plan to invest in our infrastructure support our growth. This year we have built two new plants and retrofitted three. We will continue to invest and support our growth and avoid having [end of] stocks and plenty of capacity to grow, which is key to demand and the consumption of natural organic industry.

We continue to be optimistic about the natural organic industry. Along with Whole Foods and others, we support the mandatory labeling of products for GMOs. We have over 2,000 organic products and 99% of our products are made from non-GMO ingredients. This will be big, stay tuned, and very few other companies are positioned like ours in regards to GMO-free products.

When you look at the entire food industry, our products are up over three times in AOC channels -- AOC channels and what conventional brands are. Natural organic is growing. It is a major part of growth within the food industry today as consumers convert to more and more healthy foods and healthy lifestyles. We believe these trends will continue to grow and will continue to help our long-term growth of our Hain business.

I will now turn the call over to Rob Burnett, who will talk about the UK.

Thanks a lot, Irwin, and good afternoon, everyone. Sales in the UK for Q3 were (technical difficulty) just over $121 million, up 78% on last year, and operating income, $8.8 million, up [43%] last year. Now we had some [left over] in the quarter for a full three months of sales from our ambient grocery brands business acquired at the end of October.

Two of our brands delivered very high double-digit growth in Q3. Hartley's [dessert ports] were up 17%. Cully & Sully's Fresh Soup from Ireland was up 15%. (inaudible) Desserts was up a fantastic 62% and Linda McCartney Meat-Free was up 44%, 11% ahead in the frozen channel and with $1.5 million of brand-new sales coming from our chilled range just launched. This helped propel the brand's growth over 44%.

We did have, as Irwin mentioned, some underperformances in the quarter costing us around $10 million in sales. New Covent Garden Soup was affected by two key customers reducing promotional slots as they fought to hold on to margin. Hartley's jam and marmalade activity was canceled by our largest customer as we negotiated a trading terms agreement and that has subsequently been settled, and they are off to a great start in Q4 with our customer.

And Gale's honey where we lost some distribution due to some odd service issues and some competitor activity. (technical difficulty) this three brands cost round about $10 million.

There were some strong performances from our private label business and just to remind everyone, over 50%, 51% of all food sales in the UK come from private label. Our food category which is predominantly private label was up 17% overall. Our private-label soup business was up 20% and our chilled desserts business up 13%. We of course in the UK have a slightly more branded ratio than in label. With the acquisition of the Hartley's business we are up to around as Irwin mentioned [58]% of UK sales of branded, 43% private label.

And now, as we trailed in the Q2 earnings, the private-label frozen desserts and private-label meat-free we did embark on a discontinuation program which meant they were down [13%] and [36%] in the quarter. We are [taking a very strong line] here to root out unprofitable lines and make way for new growth.

We launched over 165 products in the third quarter. Of note, in the brand area was a range of ready meals and the introduction of a new dessert category for Cully & Sully in Ireland. We started a branded cold pack agreement of fruit salad with a business called Florette and we introduced the Linda McCartney brand for the first time into Australia. We have high hopes for that business overall.

Now over 100 of these 165 products came with the introduction of our new Superior Food business which replaced [sandwiches] in our Luton facility. I will talk a little bit more about that in a minute.

Just to update everyone on the synergies that come from the Daniels and Premier acquisitions although I just briefly mentioned we are really pleased with Linda McCartney Meat Free chilled. It delivered over $1.5 million in the third quarter, off to a very promising start and we will be adding new, exciting products to this range in the fall.

[Wheatgard's smaller ports] will be launched (inaudible) towards the end of Q4 because we founded the larger format has somewhat limited trial and we have high hopes that the smaller ports will continue to the great start we have had with Greek Gods.

As I mentioned over 100 [gluten-free] products were launched and we [gauged] at over 2 million pounds of fruit sales in Luton in this quarter. I am very pleased with the commitment and application showed from everyone at the site in taking on this very significant change process. It is only 6 to 8 weeks ago when the site was making sandwiches. And we have already won two new customers in the short period of time and such a great start when we transition.

The soup team won a very important newer label contract with [Sainsbury's], worth approximately $3 million in the full year. This will commence in September and it cements our position with this key customer.

Project Castle, which you have heard me talk about before. This is the customer exclusive new desserts facility in [Beekman], continues to progress on target towards a launch at the end of this month in May. One, commissioning is all but finished and product filing is well underway. We have had a real terrific response from local people in terms of equipment. We plan to introduce over 100 new products in this facility, establish launches between May of this month and February 2014. We expect the business to deliver $45 million of new sales in the full year which would be fiscal year 2015.

And really interesting and really exciting project, we commenced a trial with a global coffee shop chain for a range of 12 fresh and natural juices, smoothies and functional drinks which we expect could lead to a significant new business in the UK and possibly Europe. The trial has been very successful to date and we expect to roll out to all of these -- all of this business coffee shops, over 600 stores in June in two months' time.

Moving on to the integration of our Premier Foods grocery business unit that we acquired in October as we have significant number of exciting projects underway here and this business is really shaping up to be a great acquisition and a fantastic block for us to grow our grocery business in the UK. The [international] team is now almost complete and we are up and running in a brand-new office location. Not quite to the standards of (inaudible) but almost. Right next to our [flatbread] in Lisbon. And both the Hartley's jam and jelly brand and [sunflower] peanut butter brand would be relaunched later this year with new packaging design, [NPV] innovation and we have really been encouraged by similar research behind it which has been very [cost-effective], very supportive with development of both brands.

Hartley's new product development will focus on a healthier feed with the launch of one fruit portion jelly which is one of your five a day, which is a key health driver in the UK will be reduced -- we will be launching the brand into reduced sugar jam for the very first time and we will be launching honey jam which is jam sweetened by honey. And so the real focus for Hartley's is on a healthier feed. Some part of lots of (inaudible) stuff coming from June and July onwards. We are using the obviously experience of our US business to bring certain new products to the UK including cashew, almond and chocolate peanut butter and lots of great new stuff at some point.

I briefly touched on earlier that Q2 saw the resolution of a trading down negotiation with our largest customer which has been impacted negatively due to a lack of promotional activity. We have now agreed a strong trading parameter with this customer and we are already showing dividend with March being far the strongest month to date for this customer.

We also won back a private-label jam contract previously lost by the previous owner of [Premier]. This starts in August and should be worth over $3 million in sales in the next fiscal.

And we hope to add another new private-label contract in time for the first half of FY '14.

And finally, preparation work is well underway for our launch of the Gluten-Free from this grocery business unit, utilizing all the group's assets and they are well underway for a Q1 launch.

So in summary, despite some tough trading conditions in the UK, we saw some really strong performances from leading brand and (inaudible). And we have a great number of initiatives underway to support underperforming brands back to growth. We are very bullish on organic growth prospect crystallizing in the next few weeks and months. I will take you through a little bit of each of these in each of our divisions.

The grocery unit integration is largely complete and we have a number of exciting (inaudible) projects in the pipeline. A few are led by Hartley's in some part, market in (inaudible) jam, jelly and peanut butter.

Our food to go and desserts business unit have a very important launch of Project Castle this month to be delivered in Q4 which, in time, will deliver significant new sales to the group. And we also have various initiatives underway in our drinks category, including the expected rollout of the global coffee shop business in the UK and the launch of BluePrint products later in the year.

And finally the soup and meat free business unit have just won an important new private-label soup contract with a key customer and they are focusing on a very exciting plan to return new Covent Garden [Soups to Go]. This plan has quality upgrade and new soup super healthy range, a market first in package innovation and this is key. We fully expect to have won back all last year's lost distribution ready for this fall soup season start.

In addition, the team has a current [spin board] of high-growth from Linda McCartney Meat Free to expound on in chilled, frozen and export market. And the recent horsemeat scandal in the UK has been a real nice venue for the vegetarian and meat-free packaging. So lots and lots of high-growth prospects in play.

With that I will hand you over to John.

Thanks, Rob. Good afternoon.

Q3 was a really strong quarter for Hain Celestial US. Key highlights from the quarter included Q3 net sales of $277.6 million, up 9.3% when adjusted for the transfer of Costco Canada Sensible Portion sales to our Canadian operations. Importantly, our net sales growth ex Rosetto and Ethnic Gourmet, the two brands Irwin mentioned that we are going to divest, was a robust 11.1%.

Our latest 12-week Nielsen all outlets combined consumption growth was 8.2% which was almost four times higher than the AOC total channel growth. And our consumption growth ex Rosetto and Ethnic Gourmet was up over 10%. Our growth was achieved even as we lapped double-digit Q3 year ago comps resulting, as Irwin mentioned, in a two-year stacked consumption growth of over 22%. And these results were driven by gains across the portfolio including 17 brands with double-digit or high single-digit increases.

Also in Q3, our gross profit margin was up over 200 bps as we were able to offset $6 million inflation with improved mix, productivity savings and increased trade spending efficiency. And our Q3 US operating income was $51.3 million or 18.5% of net sales up 30% or 300 bps, respectively, versus a year ago.

Finally, our US cash conversion cycle was down three days despite increasing inventory by $5 million versus the previous quarter to improved customer service levels. We offset this inventory increase with higher sales along with improved payables and receivables, while at the same time increasing our grocery and snack service levels by over 300 bps.

Now the US business model has consistently delivered against four key financial objectives. We target mid- to high single-digit topline growth, margin improvement of 50 to 100 bps, double-digit operating income growth and increased operating cash efficiency. And as we look at Q4 and beyond, we continue to be optimistic about the US business despite tough comps and some commodity headwinds.

We continue to see strong momentum across the business and believe it is sustainable on -- and you have heard me say this before -- five key factors. The first factor, we continue to see strong US consumption momentum. Q3 was our 13th consecutive quarter of strong consumption growth. Our year ago comp growth was a double-digit quarter and we still drove strong consumption gains. Remember our business is not a one, two, or three brand portfolio. We have 20 plus brands and still drove consumption growth almost four times the category average.

Now we feel confident our consumption growth will continue given our second factor, which is our AOC distribution growth. Q3 AOC distribution was again up 5% versus year ago. This continued the acceleration of our distribution growth that we first saw in Q2 as we continue to fill distribution white space at key customers and on key brands. Last quarter, I talked about some key customers that we got new distribution on.

Let me talk to you about some brands that we are continue to get new distribution on including Earth's Best, Imagine, Dream, Greek Gods, Celestial Seasonings, Alba, Spectrum, MaraNatha and Health Valley.

Our third factor behind our optimism is our strong innovation results. Our year-to-date new product sales are up 50% versus year ago. And last year's new product sales was a very strong comp because, as you recall, we had over $20 million in new Earth's Best pouch sales last year. We are seeing strong innovation results across all our businesses.

I will just give you a couple of great new products. For example Earth's Best sensitive baby formula. It has been a great hit for us. [Alba Good and Clean detoxifying cleansers have been great for us. Celestial Seasonings Sleepy Time Kids and Sleepy Time Peach. Again, three really strong -- four really strong new products that have been helping us drive this great year on year increase.

We think this is going to continue, given that we have just launched 100 new products at our last quarter's Expo West and they are going to keep the momentum going in this area.

Now our fourth reason we are optimistic is our proven productivity process. I mentioned on the last call we are encountering some commodity headwinds. I mean almond, [chia] and dairy pricing was up significantly in Q3 versus a year ago. And we have announced prices on these products, but these price increases yielded no relief in Q3. The key to offsetting these cost increases was leveraging our proven productivity faction for additional savings.

Year-to-date productivity savings were over $18 million or over 50% higher than they were at this point a year ago. And, look, we have talked about some of the key and issues. For example the internal production of Earth's Best pouches. The increased throughput we are seeing at Terra, Personal Care and MaraNatha facilities and our new distribution network optimization. And but importantly, we are also implement a new set of productivity initiatives, including our new more efficient Sensible Portions plant to deliver savings to help us offset Q4 and FY '14 cost increases.

The final reason for our optimism is our BluePrint acquisition. Q3 saw strong BluePrint sales momentum, driven by increased distribution across Whole Foods market. The BluePrint team has now gone and implemented an aggressive innovation program so we can introduce some more new delicious fresh pressed juices at this customer.

At the same time, they are working with the Hain Celestial US team to drive distribution expansion and significant productivity savings. This is an exciting business that will be a strong contributor to our FY '14 growth.

So to close, Q3 was a strong quarter for Hain Celestial US, highlighted by 9.3% topline growth, strong AOC consumption growth including a two-year 22% comp, margin expansion of over 200 bps and 30% operating income increase. And we continue to be very optimistic about our go forward prospects, given our consumption trends, our new product pipeline, our growing distribution base, our productivity and our blueprint and, now, our Ella's Kitchen acquisition.

Now I'll turn the call over to Ira Lamel.

Thanks, John. Good afternoon, everyone. I am going to take you through some of the financial highlights for the third quarter.

Income from continuing operations in the third quarter this year was up 68.5% to $41.8 million compared to $24.8 million in last year's third quarter. We earned $0.87 per diluted share from continuing operations on a GAAP basis this year, an increase of 61.1% compared to the $0.54 per diluted share in last year's quarter.

Adjusted income from continuing operations was $34.3 million this year compared to $25.7 million last year, improving by 33.8%. Adjusted earnings from continuing operations was $0.72 per diluted share compared to $0.56 in last year's quarter, improving by 28.6%.

Our adjustments to net earnings are from acquisition-related fees and expenses, including integration and restructuring charges we incurred of $4.3 million and accrual for litigation in the quarter of approximately $2 million and the factory start-up in our new German nondairy facility of $600,000.

We also adjusted for net unrealized foreign currency losses of approximately $1.9 million principally on the conversion of British pounds related to the finance cost of the UK acquisition. Our tax provision in the quarter this year was reduced by a $13.2 million tax benefit arising from a worthless stock reduction and we have adjusted for that as well.

Gross profit in the third quarter on a GAAP basis was 27.7% this year compared to 27.9% last year. Gross profit on an adjusted basis was 28.1% compared to 27.9% last year, an improvement of 20 basis points, mainly driven by production efficiencies, improved service levels, and the elimination of low margin SKUs. This improved gross profit on an adjusted basis was achieved in the face of input cost inflation amounting to approximately 3.7% in the third quarter this year, measured against the third quarter last year. And this rise in inflation came in large measure from the commodities that John talked about earlier.

Our SG&A for the quarter, excluding acquisition-related expenses, integration costs and the litigation accrual was 15.5% in net sales, compared to 16.6% in last year's third quarter. The 110 basis point improvement comes from our focus on leveraging our G&A spend across all of our segments, adding sales from organic growth as well as from our recent acquisitions.

Operating income for the quarter was $51.1 million or 11.2% of net sales on a GAAP basis compared to $41.6 million last year, or 11.1% of net sales. On an adjusted basis, operating income was 12.6% of sales at $57.6 million this year, increasing 36.7% from last year's $42.2 million or 11.2%.

Our effective income tax rate from continuing operations was 3.7% for the third quarter this year compared to 33.8% last year. This low tax rate in the quarter came from the benefit of the worthless stock deduction I mentioned earlier. Our adjusted effective income tax rate from continuing operations was 34.3% of pretax income for the third quarter this year compared to 32.8% last year. Although the current adjusted quarterly effective tax rate is above our annual expectations, our adjusted tax rate year-to-date is 33.8% which tracks our expectation of 34% for the full year.

Our balance sheet continues to be a strong one. Working capital was $297.1 million with a current ratio of 2.2 to 1 at March 31. Our stockholders equity is $1.1 billion. Our debt as a percentage of equity is 56.9% and debt to total capitalization is now 36.3%. Total debt at the end of the third quarter was $634.7 million. That declined from last quarter by $5.8 million even though we spent $24.1 million in the quarter of capital for factory expansions and the leasehold improvements, furniture and fixtures for our new corporate headquarters in Lake Success.

For the trailing 12 months through March 31, operating free cash flow was $55.6 million this year versus $79.3 million for the prior year's 12-month period. The decline is principally the result of the previously mentioned major capital projects during the 12-month period. We expended $40 million more on CAPEX in the latest 12-month period this year versus last year. And as we have been reporting in prior quarterly calls, this increase in capital expenditures was expected.

Cash conversion year over year is down two days to 64, days sales outstanding was 45 in proving by two days. Our inventory days are 66 increasing by 4 as we focused on improving our customer service levels on certain US brands as John mentioned. And our payables are 47 days improving by 4 days.

We are updating our previous sales guidance today to reflect our nine-month actual results and to reflect the Ella's acquisition. We now anticipate our full fiscal year 2013 sales to come in the range of $1.727 billion to $1.734 billion. Our earnings guidance is now $2.43 to $2.47 per share. These estimates are provided on a non-GAAP basis.

And at this point we will open up the call to questions.

(technical difficulty). (Operator Instructions). Ken Goldman, JPMorgan.

Hello, everyone. Irwin, I am a little confused perhaps and maybe you could help me understand why the topline was lowered pretty substantially. You are adding Ella's to that so you are suggesting perhaps that the organic number is coming down even more. Is it because you are taking out that SKU rationalization or you are including that SKU rationalization in Europe or in the UK, rather, that you weren't necessarily last quarter? Or did the business in the UK just worsen a lot more than what you thought it would be?

No. Couple of things. Number one, I will let Ira take you through it.

Yes, the guidance we gave at the second quarter would have implied a certain level of sales for the back half of the year. And as we now look at our experience through the third quarter and looking at the whole back half, we have adjusted to reflect that experience in the third quarter.

In the third quarter, we had about a $3.5 million foreign currency reduction sale from the date that we gave guidance. So the exchange rates changed on us and it impacted us negatively. We are projecting those exchange rates will stay where they are today which impacts the fourth quarter by about $4 million as well. You take those two items and we just had a $7 million effect on what our back half of the year expectations were.

We also had promotions that were anticipated for the back half which will not come through. That cost us about $10 million in volume, and our Ethnic Gourmet and Rosetto businesses have underperformed and had a further decline from where they were and from where our expectations were for the back half. And that is about a $6 million impact on our total guidance.

So we have really effectively adjusted by about $23 million or so going downward and then we took Ella's and our expectations for Ella's for the last two months of our fiscal year and we added that in, and our expectations there are circa $10 million.

Okay. It's fair to say it is a little disappointing though, Irwin, right? I mean you have you have the Ethnic Gourmet and the Rosetto certainly didn't do as well as you had hoped. You have -- currency is not your fault but there's a couple of things maybe that worked against you on the promotional side, that you didn't expect would happen. So I think it is fair to say that the US did fair, but the UK maybe did a little worse than what you call and some of your maybe discontinued ops did a little worse than you thought also, right? I mean I am not trying to be too negative, it's just --

So okay, Ken, just to come back US was up 11% and I think, as we have said before, we deemphasized Rosetto and Ethnic Gourmet as we were selling to business and in regards to the UK, in regards to Hartley's and our soup business, there were some promotions that didn't happen that was about a GBP7 million, GBP6 million issue over there and then in the back half it's GBP6 million to GBP7 million on currency. I mean it's not it didn't perform, it is two or three things in regards to promotions and businesses we de-emphasized. And their currency that we -- when we gave guidance in February the pound was at $1.60 and ended up at $1.51.

Let's go back to the --

We are still on 9% to 11% organic growth and we still have 9% consumption growth. I don't know what is too disappointing out there and as I said before in regards to AOC where conventional food companies are at 2% and on a stock at 22%, I am not understanding disappointing. I mean, we didn't get two promotions. Those promotions will come back. You get them all. That happens sometimes. It was with Tesco and the guy canceled for some certain reasons.

Yes if you go back and you look at the guidance that we provided earlier in the year and then you adjust for what we told the Street we were going to expect to have happen and you look at last year's fourth-quarter sales, if you roll all of those numbers through, you will see that embedded in our current updated guidance is 9% to 11% organic growth. So I am very comfortable with where we are at and --.

Just on an earlier note, in regards to the US, our US business excluding the Ethnic and Rosetto, I mean, you were looking for 10.5%. John was up over 11% growth within the US. I am not sure if that is disappointing.

Well, it is not a big deal. It is more semantics than everything. I just wanted to really understand why you were taking the numbers down and you did clarify that for me so --.

Yes, as we said, there's currency. We are divesting a business that we talked about that has hurt us in AOC that we are just not focused on anymore. And as Rob said, there were two promotions on Hartley's jam and soup that really didn't happen that cost some GPB6 million to GPB7 million in sales. And we look forward. I said April sales are pretty strong and in the quarter about 10 million of Ella's we have it for two months so we are expecting some good strong growth in the fourth quarter.

Just one quick follow-up and I'm sorry for hogging the call of it, but that 11% number, it is not exactly like for like with the 9.4% number you gave last quarter. If we were to like for like that, what would that number have been? If we were to include Ethnic Gourmet and Rosetto, what would that organic number have been?

That 9.4% includes Ethnic and --

Right, but the 11% this quarter doesn't, right?

No, remember what I said. And actually let me pull this. Our net sales were up 9.3% when adjusted for the transfer of Costco Canada, that is all in. And then when you take out Rosetto and Ethnic, it is 11.1.

Which quarter are we talking here? Second or third?

Third.

Third. Perfect. Thanks very much.

We are reporting third, Ken.

No, no but I -- the 9.4 came in the second quarter as well. I mean it was too many 9.4s.

To your point it is -- we are very consistent. 9.4 last quarter, 9.3 this quarter.

That's great. Thanks.

Amit Sharma, BMO Capital Markets.

Good evening, everyone. Irwin, can you talk about the rationale for acquiring Ella? I mean we have a really strong brand in Earth's Best, and that's what I would have expected you to use as a platform to grow internationally. Could you talk about the thinking behind acquiring Ella?

Number one is, Ella's today is one of the number one organic food companies in the UK, Sweden and Norway. And we felt taking Earth's Best and trying to grow it into the UK with Ella's [hip plum], Heinz already there would take us a lot of dollars and a lot of time to do it. And we think from an innovation standpoint and taking a lot of the intel of Earth's Best that we have that we could really grow out a global infant, toddler feeding business here. The other thing is for a premier brand in the US along with Earth's Best, big opportunity in the US for a premium brand.

You have got to remember the other thing is is Ella's does not sell jars. So this will help Earth's Best go into Europe and the UK with jars. This will help Earth's Best to go in the UK and Europe either with baby formula and nappies as they refer to in the UK are diapers.

Today, we have a very successful frozen business. So we felt great category, infant toddler feeding and Ella's will springboard us to really get us in a much bigger way in a faster period.

And a nice complement in the US.

And a very nice complement as John was saying in the US in regards to a premium organic baby product and Ella's distribution complements Earth's Best.

Very little overlap.

Very little overlap where its biggest customer today is Target and a lot of distribution within grocery in the mainstream aisle of Kroger and other retailers out there.

On that, Irwin, as you expand Ella's into traditional channels beyond Target, would some of the shelf space cannibalization with Earth's Best, should we expect that or are these two going to --?

First of all there's three other organic baby food companies out there in the pouch business. But we think there's opportunity to take space away from them. And we think there's -- as we grow our business, there's certain places that Earth's Best can't go, Ella's can and vice versa. And there are certain product lines. Again, Ella's does not do jars and we will not take Ella's into jars.

There's very little overlap on flavors between Ella's and Earth's Best in the US. They are serving a different need.

And there's a lot of innovation that Ella's has done that can quickly bring to Earth's Best in regards to help Earth's Best in some of its innovations. But combined together, we will have close to $275 million infant toddler feeding business that we think is a great growth business on a global basis. I mean Ella's has looked at Australia. Ella's has looked at Russia, Sweden, Norway; has not sold anything into Europe yet and with our infrastructure in Europe, we can ultimately help get it there.

The other thing is there's a lot of synergies and purchasing procurement here. That will help both brands.

All right. And if I may ask a quick follow-up on UK. Rob, can you please talk about [grits]? The grilled trend for rebranded and private-label portfolio?

Yes it's well obviously it's brand, so it is different for each one. But I think the key underperformer has been soup and I think I alluded to in the call that we fully expect all our lost distribution to be back in time for fall. We have got a very strong platform and we have had very good meetings with a number of customers. Desserts is the star performer. High double-digit growth throughout the business along with the meat-free business. And I think the meat-free business has benefited from the -- don't know if you know about the horsemeat scandal that's been in the UK, so both ourselves and Quorn, the other leading meat-free people in the category have been doing very well. And I mentioned the meat-free business is up over 44% in the quarter including a successful launch of our new initiative into the chilled meat space.

So I think you are seeing very similar trends in the UK to the US in that people are heading for healthier categories. Our soup business in Ireland is doing very well, double-digit. And then Hartley's, the grocery brands we brought, the fruit dessert business up selling [3]% is doing very well. And we think there is a lot of opportunity there to move that even healthier as I mentioned. We have got a big summer launch with a one (inaudible) portion port. Which there's a lot of activity in the UK and in the government promoting one or two of five a day and this will be the first time Hartley's has been able to register one of your five a day in the dessert port. So, fruit, vegetables and meat-free products are the highest growth areas right now in the UK.

Great. Thank you very much.

Just one other thing to add to that. I mean along with Ella's we get Paul and his team that has created a great brand within Ella's and a great business and the combination of the Hain team and Earth's Best in the US and the Ella's team, there is such a big opportunity to grow this category. And you heard what I said before, one of the biggest opportunities is changing the way infants, toddlers and kids eat. And pouches today are one of the fastest-growing items within the grocery store.

Got it. Thank you.

Bill Chappell, SunTrust.

Wanted to do a quick look back on Premier and eight months ago when you had talked about it, when you announced it, it had $250 million in trailing sales and it was expected to be $0.25 accretive in fiscal '13. With the puts and takes on Premier in terms of walking away from some business and what have you, what is the right number in terms of a revenue run rate we should be looking at? And also on accretion. Do you think you'll still end up with that $0.25 in this fiscal year?

So, on the accretion, definitely on the $0.25. On the sales as we have eliminated so far, and there was currency there was about $250 million. I think it is about a $200 million overall run rate. I don't --

The overall run rate is more than $200 million. We originally anticipated about $180 million of sales within the eight months of our ownership. During this year we then took that down because we did our post-ownership review and eliminated about $20 million, $25 million of sales and we have tracked to that. We will then get some of our own initiative -- on our own initiative organic growth out of the remainder of the business. So we are confident it is going to be hitting the numbers that we originally said it would hit on an annualized basis going forward.

The sales reduction that we have taken this year is kind of a one-time sales reduction and the SKUs eliminated aren't not SKUs that were providing any real profitability to the business which is why we have maintained the $0.25 earnings power in the eight months.

And you heard what Rob said before. This brand has had no marketing, no new products, lost a lot of private-label business over the last couple of years and Premier were just running it for cash where we never got price increases and walked away. So number one, there's -- it's a British brand. British retailers are focused on British brands today after this whole horsemeat scandal. It is a well-known brand. We've cleaned up the brand in regards to ingredients, a lot of new stuff coming out. We have got a lot more efficiencies in plants. So today we are very, very happy with the acquisition and we have hit the $0.25 on earnings per share here.

And then switching to Ella's, I understand the terms were disclosed, but can you give us some kind of color in terms of maybe are margins similar to corporate average? Is the accretion number you are expecting including or excluding any synergies or are there potential cost synergy opportunities?

We have said what $0.06 to $0.08 on --

$0.05 to $0.08 is what we anticipate for fiscal year '14. We have included in that a low amount of synergy achievement for the first year. We expect that $0.05 to $0.08 in the second year to grow by another $0.03 or $0.04. It all depends certainly on the synergy burn in, if you will.

And, Bill, we -- there's tremendous synergies. There's some ingredients bought out, there's pouches bought out, there's commitments in plants. But over the next year as we bring the manufacturing together and look at bringing potentially some of the manufacturing into the Premier plants where we put pouch lines, we have a pouch line in the south of France of our own. But just the procurement on a global basis to help with supply on a global basis. We feel there's tremendous synergies here on manufacturing, procurement, packaging.

We also think there's revenue synergies which are going to be important on this business so that we can continue to drive both Earth's Best and Ella's aggressively on the top line. And then if you look at our US history in terms of getting synergies, we will get them. We got them out of MaraNatha. We got them out of Sensible. We'll get those as well.

This brand is one of the fastest growing brands in the UK today.

And in terms of margins are they Company average at least?

Yes, they are largely consistent with our Company average.

And then the last one on that is what is the breakout as for modeling purposes on revenue? Is it all mainly in the UK business or is it 50-50 or how should I --?

It is mainly UK, Sweden and Norway.

So most 80% of the revenue should be in the UK division?

Yes.

Great. Thank you.

Andrew Wolf, BB&T.

Hello. Hello? Operator, can you go to the next question?

(Operator Instructions). Thilo Wrede, Jefferies.

Irwin, you mentioned the outlook for GMO labeling. Obviously Whole Foods talked about it at Expo West. States are talking about it. There seems to be something moving in Congress now. What's your concern that mainstream packaged food companies will have to stop sourcing GMO-free as well and that the supply chain just won't be there to support that over the next five years and that, therefore, your comps will get out of hand?

Well, number one, we are there. As you heard me say before, 99% of our products are GMO-free today. So as I said, we are much farther down the road than any other company out there and in regards to GMOs, I mean if you are organic today, it has to be GMO. I think one of the big things is conventional food companies are going to fight this because they don't want to become GMO. They don't want the additional cost and from a sourcing standpoint. But I think this is ultimately going to become a part of the food chain. Consumers are educated more and more, and when we today go through the GMO Verify and put it on our packaging, we are seeing double-digit increase.

And my question wasn't so much whether you are there or not, my concern is more that if this becomes more than just a Whole Foods initiative and this becomes really mandatory for your mainstream peers as well, that the cost 00 even though you have the supply relationships that the cost will just get out of hand because the demand will skyrocket and the supply just isn't there.

Coming from conventional CPG, they are going to fight this hard because it will be a big impact on their economics and not simply the acquisition of the oil, but also the management of it within their plants. So there's I think there's a pretty good runway before they are coming and then once they come, there will be some economic impact, but we have already absorbed a pretty good chunk of that. And I think at that point supply and demand will have leveled out so that it will not be a huge increase beyond that.

And the other thing is, I don't know if it is going be legislated, but it is like in the UK today or Europe. If it contains GMOs they are going to have to say on it, it contains GMO. Will the consumer buy it or not is going to be a different thing.

So, I come back and I say this year, to sell in Whole Foods in the next five years you need to be GMO-free. I mean we will be there sooner than five years and be ready for that. And as we move more into more and more organic products, we will be there for that.

The conventional companies are not going to be buying organic ingredients and from that standpoint we are not worried. And that is one of the things about Hain today is as we build Hain as a global company, the sourcing now that we are able to have out there and sourcing in so many different countries, in North America, South America, Asia, all over the world, and where we are manufacturing and one other thing is we have some long-term relationships with farmers out there that have been growing for us a long time. I don't think they are running to Pepsi right away. There's some loyalty absolutely out there.

And the other thing is what is going to happen is as demand grows you are going to see a lot more farmers moving towards GMO. But this will be, I think, the biggest change, the biggest evolution within the food industry. And the good news is we are there today.

I think one of the things that has to be factored into what could happen here is that as the big CPG companies if this legislation passes have to move to GMO-free. Their cost structure is going to increase. It is going to cost them more in order to buy all the ingredients and become GMO-free. We have already got that embedded in our cost structure. They are going to have to raise their prices on the shelf in order to absorb those costs, and the price differential between their products today and our products or their products in the future and our products will shrink. And therefore we will actually be more competitive in price than we are today against the conventional products. I am anticipating that as a possibility and what will help in our business going forward.

This is our last question. Operator?

Andrew Wolf, BB&T.

Thank you. Sorry about that earlier. I wanted to ask back to the UK and the lower margins you are sequentially and year-over-year. I heard it was mainly soup a couple of times, so -- but I also wanted to ask Rob or anyone else is there -- besides the mix issue, you are getting out of products, was there any just pure inventory write-downs that went through the P&L that is sort of a one timer? And or, Rob, I think mentioned 165 new products. Was there some big, not one-time but rather large, cost whether it's slotting or what have you to support that you much new product launch all at once especially at Premier which hadn't seen much of that? And --.

Sort of the flip side of that is maybe Rob or whomever answers this could build a bridge to how the margins reaccelerate going forward.

There were no inventory write-downs in the quarter of any note. One of the things you have got going on there were [gen packs] upon the GAAP disclosure of the margins or operating margins in each of the segments is there are no adjustments applied to those. So the costs that have been incurred in the UK that are not capitalizable in the various projects that are going on, related to capital expenditures, the duplication of costs if you will that is currently going on with regard to having Premier Foods operate the transition services agreement while we are building out our own G&A back office infrastructure, while we are bringing our existing computer platform in England to the Histon site, the Premier site that we have acquired, all of those costs are impacting the operating margin that you are seeing in that disclosure.

And you have not called them out as part of adjusted EBITDA. Those are in the adjusted EBITDA?

They are. They have been called out, some of them, in the adjustments. However when you see the segment operating margin, that's GAAP. So you are not seeing the equivalent adjusted basis.

But we could add back the adjustments to the UK it sounds like?

You can add back many of the adjustments to the --

Get to a more normalized margin for the UK.

Andy, also this quarter we spent about [$1.3 million, $1.5 million] additionally on TV advertising for this quarter and we also did some additional promotions with a couple of other retailers. As you are well aware, we were out at Sainsbury's and part of it was to promote it and some of those promotions didn't happen and some we just never got the performance for. So we spent some higher dollars there and we spent some TV advertising this year. About $1.3 million, $1.5 million on a TV commercial.

So is it fair to say -- you didn't lower your profit expectation, you actually raised it and I think the guidance I think is for Ella's to the neutral this year, right? (multiple speakers). It doesn't sound like the UK had a profit impact which -- and if the biggest part of the UK it was the soup this quarter and the soup -- so the soup was planned for. So it sounds like a lot of this was in the plan. That is what I'm saying. Sure. It doesn't sound like there's anything -- it may not have been a good quarter in the UK, but it doesn't sound like it was way off plan, am I getting that right?

Well, it was not a great quarter because of soup and soup is 50% margin and with that I can sit here today and say, there's a lot of things that have happened since the end of the third quarter in regards to new distribution that has been picked up that will help our soup business tremendously. You heard Rob say about picking up some other new soup business with some other retailers on private label. Some also new healthier soup products.

The guys in the UK were busy with integrating Hartley's and we had a couple of missteps on soup. And I think we have really recovered from that and I spent some time on the phone with Rob today and there's some real good things coming from soup.

Listen, in the UK, we acquired the Hartley's business. We are in the midst of doing a major project with Project Castle, which the retailer we are doing this will make up the 10th largest supplier to that retailer. We launched Linda McCartney Fresh. We saw some great things happening because of the horsemeat scare. We got rid of a lot of unprofitable business and we will continue to look at that. When we acquired Daniels it was 60% private-label, 40% branded. In the UK, 55% of sales are branded, 45% are private-label. Today we are 58% branded, 42% private-label. That does not include bringing Ella's into it now which should take us over 62%, 63%.

So we are -- it's been challenging in the UK and the market in the UK is not as a market hitting a ball out of the park, but you have got two retailers at Tesco and Sainsbury's that you have got to be doing business with. Waitrose, Morrison's and Ozda are great customers, but Tesco and Sainsbury are the two you have got to be doing business with. And you heard what I said about one and there's a lot of distribution coming from the other one.

Just to clarify I mean, soup, you held the line with Tesco on certain item of things and they've come back to the table. That's the bottom line on that?

If you are reading the tea leaves right you are probably right.

Which is fine. And so and the impact of not having Tesco this quarter sounded like still it was the biggest de-leveraging point of the UK.

It absolutely was. (multiple speakers). And also a couple of promotions that didn't work. What didn't happen was the other piece.

You said two, so one got cancelled by Tesco and one didn't work or some combination thereof?

One got cancelled by Tesco and one didn't happen with Sainsbury's.

And is that because of economic conditions or just sort of some random thing that happened with whoever was at the retailer managing the program?

One because of random -- the retailer decided -- and the other didn't happen because there was a little bit of hold up on some things and just the timing didn't happen because we didn't come to an agreement and it was too late to pull the promotion off.

Thank you. It has been a long call and I will hopefully let you end it.

Thank you very much. Thank you very much, everybody, for the call this afternoon.

Number one, in closing, we have had a good quarter and was everything perfect? No. Is anything -- is everything perfect in everybody's life in every company? Absolutely not. In regards to our US business John and team are really hitting the ball out of the park and considering and here's what I said before, conventional consumption is up 2% and I will tell you, we have seen some great growth in all channels in the month of April.

In regards to the UK, yes, we have had some challenges throughout the year, but we have had a lot happening. Our UK business over two years has gone from zero-based business to close to a $500 million business and there's a lot of integration in regards to building onto our Fakenham facility, retrofitting our Luton facility and also upgrading some of the manufacturing, divesting our ICL business, divesting our Sandwich business and building an infrastructure around there. And Rob has done that with three people that he has brought in to run these businesses.

Going forward, if reading the tea leaves right Tesco, with regards to soup, will be back. A lot of good things within meat-free. A lot of good things with in the juice business and you'll see BluePrint come into that portfolio. So with the UK, lot of good things happening.

In Europe, in June we will open up our new nondairy facility and we are still up 3%. Canada is still up 10%. So good growth out there and a lot of exciting things.

In regards to brands, very excited to bring Ella's on. And you heard what I said. We have nine brands that are $100 million plus. Ella's, BluePrint and Greek Gods when we acquired it, Sensible Portions when we acquired it and Earth's Best were $14 million brands, when we acquired Greek Gods it was a $12 million plus brand. It is pretty close to that $100 million size today. Sensible Portions was $56 million. It is well over $100 million today.

So, BluePrint, the whole juicing category is exciting. And I have got to tell you it is the distribution that we need to get and we will have to make some investment into our manufacturing facilities to ensure that we can supply them. So from that standpoint we have a lot of great brands and I want to welcome Paul to the team in helping us take our infant toddler food business to a whole other level.

In regards to people, we do a lot, we procure a lot, we manufacture a lot, we deal with commodity costs, we deal with co-packers and I must tell you this year we just have a phenomenal, phenomenal team around the world within the Hain food group.

In regards to our strategy, healthy eating is not a fad, not a trend. We today have been only purchased by 25% of the households in the United States. There is 75% more, three times, four times of households that can still buy our product. And we know that will happen.

And with that, as John talked about his new distribution, as Rob talked about with his new distribution, and the rest of the country from that standpoint, so thank you very much for your time this afternoon and look forward to speaking to you at a conference later. Thank you.

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