Hain Celestial Group Inc (HAIN) 2014 Q1 法說會逐字稿

Good afternoon. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hain Celestial first-quarter fiscal year 2014 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) I would now like to turn the conference over to Mary Anthes, Senior Vice President of Corporate Relations. Please go ahead.

Good afternoon, Stephanie. And thank you all for joining us today. Welcome to Hain Celestial's first-quarter fiscal year 2014 earnings call. We have several members of our management team with us today to discuss our results -- Irwin Simon, our Founder, President, and Chief Executive Officer; Stephen Smith, our Executive Vice President and Chief Financial Officer; and John Carroll, our Executive Vice President and Chief Executive Officer, Hain Celestial US.

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 2013 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 last approximately one 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 Chief Executive Officer.

Irwin?

Thank you, Mary, and good afternoon, everybody. And thank you for joining our Q1 overview of our quarter. I will begin with a brief overview of the first-quarter results as well as an update on our strategic initiatives. As we approach our 20th anniversary as a public company later this month, you will see through the strength of our financial results that, as I always said, eating healthy is not a fad, not a trend, and it is definitely here to stay. It has become a major part of all of our lives, and it will continue to grow. These positive industry trends across the organic and natural industry help us report a record first quarter, as we have achieved robust growth globally from numerous brands across our portfolio.

We are very pleased to start our fiscal year off with such strong momentum. We feel good that this will continue throughout fiscal 2014. This was our largest first quarter ever in the Company's history with $477.5 million of net sales, up 33%, the 11th consecutive quarter of double-digit adjusted EPS growth. With thanks to John and his team, Hain Celestial US net sales were up a record $312 million, up 24%. Rob and his team at Hain Daniels generated net sales of $114 million with growth across numerous brands. And the rest of the world reported net sales of $51.5 million with good organic growth. Now, I will briefly discuss the key drivers that led to our impressive sales performance.

Our organic growth was up high-single digits, excluding currency. Our record first quarter was driven by new distribution, new products, and strong consumer demand. We know that there are many consumers in the US and abroad that are still facing challenging economic times, but our strong sales momentum and consumption trends illustrate to us that one area consumers are spending money on is organic and natural packaged foods and personal care items. We are continuing to see a trend of eating more and more at home where you can control what you eat, and, remember, you are what you eat.

In addition, while I know I have mentioned this before, I think it is important to reiterate that over 90% of Americans have purchased organic or natural products, yet only 25% of those purchase Hain products, according to Nielsen. So while we have come a long way, there truly is a strong opportunity for increased growth across many channels, which gives us the ability to bring in new consumers and introduce our existing consumers to many new Hain products. Wherever there is food, beverage, or personal care product, I want to sell a Hain product.

Most recently, in the latest 12-week period, our consumption measured by Nielsen in the US was up 11.1% and up 23% on a two-year stack basis. What other consumer packaged goods us company today is delivering those numbers? We are pleased at organic and natural sales are helping to help fuel the growth in AOC. The total channel grew 1% in the latest 12 weeks. Organic natural products, once again, are outpacing conventional products' growth at almost 10 times conventional products.

Interesting, the CEO of one of our major customers recently mentioned in a CNBC interview that years ago he used to think about natural organic products as being a fad, but firmly believes it is here to stay since consumers today want to be healthier, and will be a big part of this retailer's growth. After 20 years of increasing consumer demand and sell through, organic and natural products and personal care products are definitely here to stay, and we are showing the results of that today.

In addition, I have mentioned before a very excited about BluePrint, a nationally recognized leader in cold-pressed juice. And one of the first brands in the juicing category. This is literally a hot category where we can gain tremendous distribution. And, most recently, we have gained a few strong grocery wins for the brand in geographically across the US. Based on the early success of BluePrint, since we acquired it last year, we increasingly believe BluePrint can be Hain's lifestyle brand, and we look to expand this brand into numerous other categories.

In the UK, Rob and his team made great progress and reported a solid first-quarter versus a year ago. In the quarter, we further executed on our strategy to drive higher-margin branded growth, the integration of our Ambient grocery brand, and the elimination of certain unprofitable private-label and branded product sales, as we have previously discussed. Hartley's, Robertson's, Sun-Pat, and Gale's have now been part of our portfolio for just over a year. There is a lot of positive momentum around these brands in gaining distribution and with a lot of new innovation that will be introduced over the next few months.

We are also pleased to have won back some do business with Tesco Value Jam business, and we have recently signed a five-year agreement to provide Sainsbury's an extensive range of chilled desserts. I recently was at the new opening of this plant in Fakenham, and today Sainsbury is one of our top five customers at Hain. As we've mentioned before, importantly in the UK, we have regained our soup listing at Tesco. This product began to ship in the middle of October and together we have agreed on an extensive business plan to grow the soup category with a lot of new products and a lot of new packaging.

We are certainly improving the financial metrics in the UK business to make sure that we are increasingly well-positioned for accelerating sales and long-term growth. In addition, as I've said before, and one of the reasons for our Ambient business, is to expand a lot of our US brands, including Rice Dream, which we have there today; Greek Gods, which we have there today. We will look to introduce Celestial Seasons in a big way and a lot of gluten-free products and snacks with a free [from].

We today have the number one organic baby food product -- baby food company in the UK and parts of Europe. We recently have been named the number two fastest growing food company in the UK with Ella's last year growth coming at extreme numbers. And Ella's has been launched in major US mass retailers with over 4000 stores who have started to ship late September. We are also rolling out Ella's Kitchen into natural foods stores in continental Europe with a European sales team.

Also, there is a lot going on to do with Europe in our nondairy business. Specifically, we have invested in a new nondairy facility in Cologne, Germany, that opened up in May. This will help us further expand our nondairy business in the UK and across Europe. For example, we plan to roll out numerous coconut milks, nut milk blends, almond milks, rice milks, under the Dream brand today, which is one of our strongest global brands across the world. We are pretty excited about it because we also have the ability to leverage this facility and expand our aseptic soup category across the UK and Europe.

We continue to be focused on the consolidation of our sales organizations in the UK and Europe and will focus on selling into natural foods stores and supermarkets like we have done here in the US. Our Hain pure protein business joint venture continues to do extremely well. Sales were up 19% in the first quarter. Consumers are increasingly looking for antibiotic-free and organic protein as consumers look to reduce their red meat intake and eating more and more protein at home.

With Thanksgiving fast approaching us, don't forget to order your organic or antibiotic-free turkey. We will sell over 1.3 million turkeys during the Thanksgiving holiday. To wrap up on our brand performance, specifically in the quarter, our brand performance was strong. We had 15 brands up double-digits, 4 up high single digits, and 5 up in low single digits. Remember, our top 20 brands make up over 20% of our -- make up over 70% of our sales.

Our strong brand contributions drove our record adjusted earnings per diluted share of $0.52 versus $0.41 a year ago, which is up 27%. Touching on the specifics of this, Steve will do in a few minutes. In addition, we are still in the early process of reintegration of our three acquisitions completed in fiscal 2013. We continue to expect incremental synergies savings, accretion, and future growth. And there is still plenty of accretive acquisitions and opportunities out there for us to do. Our balance sheet continues to provide us with the financial flexibility to pursue strategic acquisitions.

Over the course of the year, you heard us talk about our productivity savings. We expect to generate $50 million in productivity savings worldwide for fiscal 2014 with the help of Jim Myers and his team. This comes on top of that $30 million in productivity savings we generated last fiscal year. You heard me talk about our global supply team. Tremendous what they will allow us to source today globally around the world, and sourcing GMO organic products has become more and more difficult, but this team seems to be able to do it.

We will continue to invest the support of growth of our brands across the world. As I've said before, we look to build global brands. Our team will continue to go after distribution white space, which is still available to us across our brands and channels. We really feel there is still exciting opportunities for increased sales in various channels of distribution over the next several years. So really, it is a fun time to be part of Hain with all our future growth.

I want to take this moment to congratulate our team worldwide -- and I mean we really have a strong team -- for their hard work, dedication, and officially welcome Steve as our new CFO. In September, it was pretty exciting for Hain to be recognized by Fortune as one of the 100 fastest-growing companies. Specifically, we are number 83. Watch out, number one, because we are coming after it.

So what is Hain today? Back when I started the company with my background being in consumer packaged goods, I looked at what was available in the food business and personal care business at the time. Ingredients have changed, the way we eat has changed, and it will continue to change. And Hain is well-positioned. But the strategy was to create the leading organic and natural company in North America, and now we are that.

So we continue to be optimistic about the organic and natural industry. We believe these trends, combined with the consistency strength of our core Hain US business as well as our prospects in UK, Europe, and Canada, support our strong outlook for future growth. And with that overview, I will now turn the call over to John. Then Steve will make his debut today on our earnings call with a review of our key financial metrics and our guidance. Finally, I will provide you with some closing comments. John?

Thank you, Irwin. Good afternoon. Q1 was a very strong quarter for Hain Celestial US. Some key highlights in the quarter included, as Irwin said, Q1 net sales of $312 million, which were up 24% versus a year ago. But, importantly, our sales growth reflected a robust 9% growth from our core business as well as strong performance from our two acquisitions, BluePrint and Ella's Kitchen. Our latest 12-week Nielsen all outlet combined consumption growth, which was for the period ending October 26, was 11.1%, which, as Irwin said, is more than 10 times that of the AOC total channel growth of 1%.

Our growth was achieved even as we lapped double-digit year ago -- double-digit year ago comp, resulting in a two-year stack consumption growth of 23%. Here in the US, these results were driven by gains across the portfolio, including 14 brands with double- or high-single-digit increases. Now, we leveraged our Q1 top-line growth across the middle of the P&L so we could increase our operating income by 46 -- to $46.4 million, which was up 27% versus year ago. And our Q1 operating income margin was 14.9%, up 40 bps versus year ago. We offset over $6 million in inflation with improved mix, productivity, and SG&A savings, and these are the head related SG&A savings to expand our operating margins.

Now, our Q4 call, we talked about five key factors that made us optimistic about our FY 2014 outlook. These five factors were our consumption trend, our AOC distribution growth, our innovation, our productivity, and our most recent acquisition. Our Q1 results showed strong momentum across these businesses and across these key five factors here. So let's just take a look at them.

Starting first with our continued US consumption momentum, Q1 was our 15th consecutive quarter of strong consumption growth. Importantly, our latest 12-week AOC year ago comp was a double-digit growth quarter, and we still drove strong consumption gains. And, remember, we don't run a business that is one brand dominated, or two or three brand dominated. We have 20-plus brands, and we still grow -- drove consumption growth 10 times the category average.

Our second key factor is our AOC distribution growth. Our top 13 brands, which account for over 80% of our AOC sales, saw distribution gains of 6% in Q1 versus year ago. We continue to fill in the distribution white space on our key brands and at our key customers. Brands experiencing strong distribution growth this quarter included the Greek Gods, Sensible Portions, Dream, MaraNatha, Garden of Eatin', Alba Botanica, and Ella's Kitchen.

The third factor fueling our optimism is our strong innovation results. Our FY 2013 new product sales were up 36% versus year ago. This year's new product queue is just as strong if not stronger than what we had last year, and we expect that have over 50 new products launched before January 1. Importantly, we are seeing our innovation positively impact our consumption growth across all channels, not just in the natural channel. More and more conventional retailers are recognizing the importance of innovation and driving organic and natural sales. And they are increasing their speed to shelf execution on new organic and natural products.

The fourth factor is our productivity program. And if you will recall, Jim Meiers mentioned at our analyst day that almond and dairy pricing -- and these are two of our leading commodities -- was up significantly in Q1 versus year ago. And we announced price increases in Q4 on the products affected by these higher commodity costs, but these price increases yielded little relief in Q1. The key to offsetting these cost increases was our productivity program and our SG&A savings. Q1 productivity savings were over $5 million. We realized significant productivity gains from increased efficiencies at our new snacks plant in Lancaster, Pennsylvania; internal production of Earth's Best pouches and hopefully soon Ella's Kitchen pouches; and value engineering with raw material.

The final key factor driving our optimism is our latest acquisitions performance. Q1 saw our BluePrint and Ella's Kitchen acquisitions combine to meet both their top- and bottom-line budgets. Importantly, both businesses had strong consumption growth and expanded distribution. Ella's Kitchen, as Irwin mentioned, launched into a large US mass merchandiser and a leading toy retailer while BluePrint expanded distribution into test markets at some leading grocery accounts. Additionally, both businesses have accelerated development of their innovation Qs, implemented productivity initiatives, and contributed to our Q1 SG&A synergy savings, in part by moving on to the US IT platform within four months of their acquisition.

So to close, Q1 was a strong quarter for the US, highlighted by 24% top-line growth, which included a robust 9% sales growth on our core businesses, ex-acquisitions. We also had strong AOC consumption growth, highlighted by a two-year, 23% stacked comp, a 27% gain in operating income versus year ago, and a 40 bps increase in operating income margin versus year ago. And we were optimistic about our go-forward prospects, given our strong consumption trend, our growing AOC distribution base, our innovation pipeline, our productivity function, and our BluePrint and Ella's Kitchen acquisition. Now I will turn the call over to Steve Smith.

Thank you, John, and good afternoon, everyone. I am excited to be joining you for my first earnings call at Hain, and I appreciate all the congratulatory notes and well wishes sent to me. We have a great team here, and I am fortunate to be part of this wonderful organization. I am going to take you through the financial highlights of the first quarter, and then we will have a few comments on guidance.

Income from continuing operations in the first quarter this year was $27.7 million compared to $19.8 million in last year's first quarter. We are earned $0.57 per diluted share from continuing operations on a GAAP basis, an increase of 36% when compared to $0.42 per diluted share in last year. Adjusted income from continuing operations was $25.3 million this year compared to $19.2 million last year, improving by 32%. Our adjusted earnings from continuing operations was $0.52 per diluted share compared to $0.41 in last year's quarter, improving by 27%. Our adjustments to operating income of $3.2 million are principally from acquisition-related fees and expenses, including integration and restructuring charges. We also adjusted out for net unrealized foreign currency gains of approximately $2.3 million, principally on the translation of British pounds sterling receivables related to our UK business. Our tax provision in the quarter this year was reduced by $3.2 million from a net discrete tax benefit pensively for an enacted tax rate reductions in the UK.

Turning to gross profit, gross profit in the first quarter on a GAAP basis was 24.9% of net sales this year. On an adjusted basis, it was 25.1%. As mentioned during our analyst day, our expected decline in gross margin percentage in the quarter was mainly driven by the following. First, the impact from waiting of our acquisitions where our UK business was 24% of our net sales as compared to 16% in the prior year period. Secondly, our sales mix for the quarter across all of our businesses. And, third, the ramping up of the Sainsbury's dessert business. Further, the gross profit was impacted by input cost inflation amounting to approximately 3.4% in the first quarter this year as measured against the first quarter last year, partially offset by some productivity initiatives and price increases that John talked about a few minutes ago.

Our SG&A for the quarter, excluding acquisition-related expenses, integration, and restructuring costs, was 15.4% of net sales as compared to 16.6% last year. Although SG&A expenses grew by 23% year over year, our rate of spend declined in the quarter, mainly from the aggregate impact of our acquisitions, as we achieve additional operating leverage on our infrastructure as a result of higher sales volume.

Operating income for the quarter was $39.8 million, or 8.3% of net sales on a GAAP basis. Operating income in the quarter was impacted by acquisition-related expenses and other charges when compared to last year. On an adjusted basis, operating income was 9% of sales at $43 million, increasing 31% from 32.9% -- from $32.9 million last year, or 9.1% of net sales. Our effective income tax rate from continuing operations was 24.4% for the first quarter this year compared to 27.7% last year, and this reflected the discrete tax benefits recorded in the quarter. Our adjusted effective income tax rate from continuing operations was 33.1% of pretax income compared to 33.6% last year.

Depreciation and amortization in this year's quarter was $10.5 million as compared to $8 million in the prior year, and the increase was primarily the capital spend in the prior year and the acquisitions. The stock compensation in the quarter was $3.2 million compared to $2.9 million last year.

Our balance sheet continues to be very strong. Our working capital is $327 million with a current ratio of 2.1 to 1 at September 30. Stockholders' equity was $1.28 billion. Our debt as a percentage of equity is at 51%, and debt to total capitalization is now at 34%. Total debt at the end of the quarter was $653 million and declined by $13.4 million in the quarter. Cash balance was $65 million, increasing about $24 million from year end.

For the first quarter, operating free cash flow increased by 120% to $41.3 million this year as compared to $19 million for the prior year period. And the increases coming from our improved earnings and better working capital management, and our cash conversion cycle improved three days down to 63 days.

Turning to guidance, we reconfirmed our guidance with net sales for the full fiscal year of 2014 expected to be in the range of $2.025 billion up to $2.050 billion. We anticipate earnings per diluted share from continuing operations for the first half will now be at $1.37 to $1.42 per share, and the year is still at $2.95 to $3.05. Some of the significant estimates we used in arriving at guidance include the gross margin estimate for the year, which is expected to be in the range of 28% to 28.2%. Our SG&A run rate, which includes amortization of acquired intangibles, and that is estimated at 16.25% to 16.35%. And the annual tax rate is estimated at 33.3%. And the last major assumption of our guidance is that share count will be 49.5 million shares for the year, and our estimate does not include any results of discontinued operations, restructurings, or acquisition activity. And, at this point, I will turn it back to Irwin.

Thank you, Steve, and congratulations on your first call. Hope there is many, many more.

We're ready to take the questions.

(Operator Instructions) Greg Badishkanian, Citigroup.

You guys had a good quarter and just wanted to follow-up on one or two things. First, the 11% AC Nielsen growth, how did your other channels do? And how was Europe?

Greg, this is John Carroll. In the US, we saw high-single-digit growth in our natural side and we also saw high-single-digit growth in our e-tailers. Those are the two pieces that really aren't picked up very well by the Nielsen AOC.

Right. Right.

In regards to Europe, our main brands in Europe, Greg, were up mid-single digits and I don't really have Nielsen's. It is tracked differently over there, but actually our soup numbers, ex-Tesco, have come back nicely. We are in the midst of some transition with our Hartley's business, and actually Hartley's is flat considering what we discontinued. So, I like what I see in Europe. We are seeing some good a things happening with Danival and Lima and our Rice Dream brand. In Canada, our brands were up mid-single digits. Our Europe's best business, which is our frozen vegetable business and fruit business, was down, and that was self-inflicted because we got rid of some unprofitable business in Canada.

Right. So in Europe, would you say that, of the businesses that you didn't touch, cut unprofitable business, which obviously makes sense, but of the ones that maybe you didn't touch you are seeing, is it mid-single digit or would it be a little bit higher than that?

Both Danival, Lima, and our nondairy business were up actually high-single digits.

Okay. Good. Also, just wanted to follow up on the BluePrint. What other types of categories were you thinking of getting into for that brand? Or if you can't say, just generally where in the supermarket?

Listen, when we acquired BluePrint, we looked at it, number one, as a great category for the whole juice category -- fresh-pressed juice, we think, number one, as a cleanse, as a juice, as a meal replacement, but to go into other categories, whether it is the snacking category, other fresh products and spreads. The other thing is, Greg, we think some personal care products, there's some big opportunities. So it really is a lifestyle brand. And with our consumer base and what we see from a pricing standpoint, there is not resilience on paying anywhere from $6 to $11 for juice. So there is opportunity to sell products and get some good pricing for it. So we see it across many, many categories for us.

Bill Chapell, SunTrust.

This is Sarah Miller on for Bill. A couple of questions from me. What -- I guess for Steve, what -- can you kind of talk about what makes you more optimistic on Q2, whether it is the gross margin outlook, capturing some more synergies or on Ella's side, or earlier than expected cost savings? Can you kind of talk about why you are seeing that shift and frame the gross margin outlook for the balance of the year?

Sure. Well, with respect to Q2, so far we continue to be encouraged by the sales so far in the quarter. We have good consumption numbers, which will continue to help productivity which will drive gross margin. The seasonality of our business will be kicking in, both in terms of volume and the mix of the product. We have some of our product lines more geared towards second and third quarter of our fiscal year. As John mentioned, the pricing actions that we have taken on the beginning of the year will begin to be more fully realized. All of our productivity initiatives are on track, and we will start to get favorability on certain commodities that we buy. And the forecast that we are getting in from our business units continue to be robust. And one thing that -- two other comments that I want to make is that our operating margins are particularly strong, both in the first quarter and going forward, and despite the gross margin compression we experienced in Q1, our operating margins are essentially flat the prior year. And that is a function of leverage -- managing our costs, while reinvesting in our business. And the mix in the seasonality. So we continue to feel good about our gross margins and seeing our gross margins playing out similar to last year where margins improved over the course of the year.

And, Sarah, the second quarter being one of our -- it's our biggest quarter in mix and soups. In the middle of October, we started to ship our soups to Tesco. It is a big quarter for us in tea. It is a big quarter for us for in hot soup in the US, and cereal. So just from a sales standpoint, it is one of our strongest quarters, and I think I did mention in my notes, we saw October sales to be quite strong and continued that. So we feel good. And it is consistent throughout other years, in fiscal 2013, fiscal 2012, where we see a lot of our margin coming from the back half.

Okay. Perfect. And then one of the question on commodity outlook. I understand that most of the almond pricing should be locked in by now. Is that correct? And do you kind of how have full visibility on the back half of the year?

We are locked in through our third quarter, and we are still searching for the right price and the right quality for our fourth quarter on almonds.

It is price and supply because of demand. I mean, today everything that we can get, we are selling on all our nut butter business. And the same with almond milk. So almonds today and the crop being small and some -- Asia came in and bought a lot of crop, but we have, as John said, bought out until the third quarter. And, but, as you heard me say in my comments, today we have a global sourcing team that is sourcing all over the world and looking at almonds and where we are going to get the right price; where we are going to get the right size. And we buy a lot of different types of almonds so that is what is important, too. But on the other hand, there is other commodities going down and we are looking for benefit for that, and fuel prices happen to be at five-month low. So some things go up and some things go down.

Ken Goldman, JPMorgan.

Steve, just to confirm, your EPS guidance of $2.95 to $3.05, that considers 1Q to be 52, not 57, correct?

Right.

Thank you. Irwin, I think most --

Unless you are giving us a break, Ken.

What's that?

Unless you are giving us a break, you know.

We will see. Irwin, I think most observers expected sales in the US to be a bit less than what you reported and vice versa in the UK. I guess, our misjudgment. You never actually gave guidance. But, how should we think about the progression of sales growth segment by segment going forward? Was there anything unusual in the first quarter, for example, that may have driven US sales growth faster than what 2Q might see and the opposite in the UK? I am just trying to get some sense of how the cadence will be there. Because it was a little more difficult to model, I think, in the first quarter than what some of us expected.

You know, I think, listen, and, again, benefits where we saw some extreme growth in some of our snack business. In the UK, some of our fruit and juice business we saw some good sales on that. Our nondairy business, even with our startup in demand. So it was across multiple categories, Ken. And if it was a few million here, that is what adds up. But it was just strong sales, strong demand, and as I said before, we have seen it continue into October. In the quarter, Sensible Portions had a great quarter. Our Garden of Eatin' had a good quarter. Earth's Best, one of our strongest quarters and that is some new distribution going on at Target.

So it was across a lot of different businesses. You heard what I said. At 15 brands up double-digit numbers here, Ken. And we also, to keep up with our demand, we still got some [added] stocks on our nut butters and chia seed and making some product there. So, and again, you heard what John said on consumption numbers which will come out tomorrow, Ken. Some strong retail consumption numbers out there.

In addition, Ken, in the UK, there is a few different things that will help boost up sales over the course of the year. Obviously, as the Sainsbury desserts line business fully ramps up, that won't benefit us over the course of the year. There is a lot of innovation that is coming out of the premier acquisition -- (multiple speakers)

And there is just timing on that, Ken. So -- but just on our branded business, I mean 15 brands being up double-digits, that is a good strong indication.

But it seems that you have had to have had an acceleration, Irwin. To get -- I mean, your two-year stack number in terms of growth in the US was up 32% and that is a big acceleration from the fourth quarter. So we do see an acceleration, a significant one, across the board or was there may be some distribution gains you got for Ella's Kitchen and Greek Gods? How do we think about all that?

Well, not Ella's Kitchen. You wouldn't see Ella's Kitchen yet, but Greek Gods --

Yes. I think a key piece of this was that Greek Gods got a significant increase in its distribution. And also, we saw Sensible Portions not only getting an increase in its distribution, but also fill out two shelves as opposed to one in mass-market. So these are some of the things we talked about in our analyst day. Look, those definitely accelerated our growth, but, importantly, those are also going to stay with us for a period of -- for a longer period of time because they are ongoing.

And, Ken, what you are seeing today is, especially Sensible Portions, where it was not sold in grocery before. It was not sold in -- John said the second shelf of Wal-Mart. The significant growth on Greek Gods yogurt and its new Kefir products, and that is the whole with distribution white space is closing in on distribution here. The other significant thing is baby formula going into a lot more retails with the price that it is. Pouches being a big part of our growth, where pouches today are $1.69, $1.79, where jars were $0.99. So you are seeing some price shifting also, Ken, on some higher-priced products out there.

Amit Sharma, BMO Capital Markets.

Steve, did I calculate it right? Your new first half guidance implies that your second-quarter guidance remains unchanged from what you gave at the analyst day, right?

Basically. We narrowed the range and raised the upper end of the range by a (multiple speakers).

Okay. So despite some of the positive things that you and John talked about, the second quarter guidance at this point remains unchanged. Okay. The other thing is when you were talking about Europe earlier and then Greg asked a question about what is happening. And when you talk about the nondairy, you listed nut milk and other milk. Are we looking to stay in the fluid side of the business or have the opportunity on the yogurt or nondairy dessert or other categories as well?

Amit, I'm sorry, I am not -- you said the slow side (multiple speakers)?

The nondairy business in Europe that you are talking about.

Yes.

So you were talking about fluid milks, so coconut milk or other nut milk.

Yes. I understand you now. So we have opened up in May a new nondairy plant outside of Cologne, Germany, that makes all these nondairy aseptic milks and will also make nondairy aseptic soups. Our plan is to roll out nondairy products, plant-based products, all across UK and throughout Europe today that we have capacity to do that. So there is a big push on aseptic, not fresh. Now, because of our fresh abilities, we will look to go into fresh, similar to what Silk does -- maybe coconut milk, almond milk -- in the UK and put it through the Daniel's distribution system.

Got it. Okay. That makes sense.

But we are not at all talking about regular milk.

No. I understand. That's clear. And then, the BluePrint, the new category and the segments you are talking about, is that a six-month type of timeframe we should think about or is it longer?

It is six to nine months, and there is a lot of product development because you are dealing with raw products. There is shelf life stability testing. We have launched some new BluePrint drinks. We are working on new flavors. And with BluePrint because it goes through -- it is the flavors going through the HPP process -- their shelf life. But what I come back and see in a lot of our -- a lot of acquisitions that we have done have been great acquisitions, but the brand acceptance and demand for BluePrint has been one that is exceptional out there.

Right. And if I may ask one more slightly longer-term. And, John, you do a great job of laying out the ACV opportunities and the increase in ACV. But I want to look at this opportunity from a different angle, not so much from the penetration, but the width of distribution. So not necessarily the number of drawers, but what you put in each of those drawers. Are we getting to the point where the number of SKUs or number of shelves space that you have, that is going to be a driver of distribution as well?

I think you have -- Amit, you have both. When you think about, let's go back to Sensible Portions. So Sensible Portions not only filled out its Wal-Mart distribution, but also went from one shelf to two. So as we get a foothold in a key customer, we thee look to add breadth of distribution as well. So I think both of these -- both driving for new doors as well as increasing our breadth of distribution -- will continue to fill in our distribution white space and drive our gains.

And, Amit, remember what I said. Wherever there is food sold and there is a cash register, I want to have some Hain product. So any airport, any convenience store, your office building, every food service account, every ball stadium, hockey arena, there has got to be healthy foods. College campuses, there is 30 million students out there. So today our distribution drive is wherever there is a cash register selling food, we want food there, whether it is Chipotle, whether it is Panera, et cetera. So that is the distribution we are going after.

Thilo Wrede, Jefferies.

Irwin, you laid out all the -- and, John, you laid out how well all your top brands are doing. Are there any brands that are giving you headaches right now?

Listen, I have four kids, and you love all your four kids. And there's definitely days they give you headaches. In the quarter, we were down on new Covent Garden Soup, and that's because of Tesco. And now going back in here. We were down on our meat-free brand, Yves, and that is because we lost some distribution both in Canada and the US. And there is some repackaging, some products that we've got to work with. Our DeBoles pasta, we were down with that, and that is just production. Rosetto and Ethnic Gourmet, we have talked about those brands before in regards to divesting them, selling them, where we are going to spend money. So we were down on those. So that is the big ones. We were down on WestSoy, which is predominantly soymilk business. And where we have taken it into nut blends, it's growth. So they are the ones that were down. And in each case, there are certain reasons why and certain reasons what we are going to look at here. The other one was Grains Noir, which is a fresh business in Europe. So not everything is perfect, but on the other hand, we know what our issues are with the ones that are not perfect.

Okay. That's helpful. The other question I had was with Ella's now in all the doors of this mass customer of yours, I know it's early days, but are you seeing any signs of cannibalization for Earth's Best.

No. Actually, this customer obviously gives us weekly data that we look at, and we are not seeing any cannibalization of Earth's Best. And that was one of the things that attracted us to Ella's. It truly appealed to a customer different than the Earth's Best customer. And as a result, we thought the two brands could work well together.

And, with that, what I must say, Earth's Best was up well in the double digits this quarter. Earth's Best today is our single biggest brand within Hain and seeing good growth across numerous categories. And you talk about a brand and you look at it, that when we acquired it where it was and where it is today in the depth and breadth of products, it is pretty exciting as a brand to have as part of our portfolio.

Andrew Wolf, BB&T Capital Markets.

Greg asked you about BluePrint, and I guess I'm going to sort of ask the same question. But you did say it could be a lifestyle brand and kind of --

It is a lifestyle brand, not could be.

Yes. True. And that it could extend to other offerings. So, obviously, you can't give away what you are thinking about, but would that be kind of more functional food things or beverage, whether in the supermarket or in the natural foods store? Or could that be beyond food and beverage?

So, go ahead, John, I'll let you --

No. I think, just when you think about what Erwin said before, it could not only be food and beverage, but it could also be personal-care products because there are some attributes of the BluePrint brand that actually would be leveraged well over, perhaps, superpremium personal-care products.

So like I said, I think BluePrint is a great name. And just, you come back and look at it, when I look at glasses, Warby Parker, and I look at other brand out there which is a young brand that really can go after younger consumers across multiple channels, we think there is tremendous opportunities. And no different, we look at Ella's today. Ella's, today, was predominantly pouches and had some little snacks. But, whether it is going to go into formula, whether it's going to go into frozen foods, whether it is going to go into fresh foods, their brands -- and Ella's is a lifestyle brand for infants and toddlers.

That helps. And, on the test you are doing at Wegmans and Safeway, have you got any sense of how it is doing in those stores, number one? And does it limit itself because of the price points to the more affluent stores that, let's say, a Safeway runs?

Here is the best answer I can give you is that Wegmans has expanded the test into double the amount of stores we started with. So Wegmans is very pleased with what we are seeing. It is early over in Safeway, but so far we see the same sort of growth that happened with Wegmans, so we think that will work out for us well as well. And then, there is a third major retailer that is about to put it into a test as well.

And, Andy, with shelf life, in the 20-plus days you see if it is selling it out pretty quickly here, so it is not a long test to see what is happening, and you see repeat here. So and listen, I think we are sensitive on pricing. We are sensitive on the category. We are sensitive on the opportunities with this product and how we roll it out and how we keep up with capacity. And what we are sourcing, I mean, sourcing organic pineapples out there today or sourcing organic kale and some spinach and other products, so plants on two coasts right now, I mean, we are running full out on capacity here and as we look to get into other categories, the same thing. One thing that Hain really has is a very stringent QC department and from stability from testing and when you are dealing with raw products, as I said, we want to make sure that what you are buying is what you expect to get. But we see such tremendous opportunities on the whole lifestyle brand here.

Good. Moving on to Ella's. John, I think you said hope is to get -- to bring the manufacturing in the pouches in-house. I don't know if I misheard you. It sounded like you (multiple speakers).

No, no. You heard it exactly right, Andy. As you know, last year we opened up our two lines in Westchester, PA, and we brought in some of the Earth's Best pouch production, and the plan is that we will look for opportunities to bring in Ella's as well because we have capacity there. And we think that is a synergy that is going to be meaningful for us.

Asked about the capacity. And lastly on Ella's, if I am still on is how is that doing? It sounds like it is doing fine in Wal-Mart. Could you just give us a quick broadbrush stroke how is it doing in conventional supermarkets?

They don't have a lot of distribution in conventional supermarkets. Their primary distribution was in Target and Kroger. Beyond that, there wasn't a lot. So we are actually now in the process of going through the reviews with key grocery customers to expand their distribution in that channel.

And, Andy, it is alongside of Earth's Best in whole foods and both of them are doing extremely well within whole foods.

(Operator Instructions) Mitch Pinheiro, Imperial Capital.

Just a couple quick questions. Did I calculate properly if Ella's and BluePrint contributed about $37 million in the quarter? Is that --

No.

No. Of growth, you mean?

Of -- yes. I mean, I sort of just --

No.

No?

No. Not even close. No. At least half that.

Okay. All right. I will follow up with you later on that. And then, in margins in the UK were a little lower than I had thought. I mean, I sort of get the seasonality losing soup, high-margin revenue. I get that. Is there anything else -- I mean, was that in line with your internal expectations? I mean, glad to see it turned positive. Just was looking for a little more.

Well, a little more because of soup being in last year, not being in this -- not having our Tesco soup. From a sales side, there was some mix, a little more fruit, but it was right in line with what our budget and expectations were, Mitch.

Okay. So when I -- if you look just out to the next quarter, soup is coming back in, so that should look a little better they are. Is there any other --

Well, exactly. October, November, December, big soup months. October 15, our new Covent Garden Soup now goes into Tesco, which is a big part of our soup business, and then a lot more promotions in that with soup. And also, the other thing is our grocery business becomes a bigger part of the business with a better margin in our second quarter.

Okay. And then, just last question is -- if you mentioned it I apologize -- but how did personal-care do for you in the quarter?

Personal care actually had good high-single-digit top-line growth and very strong margins for us this quarter.

Scott Mushkin, Wolfe Research.

Welcome, Steve. I don't think I have met you in person yet, so I look forward to doing that. And welcome to the Hain calls.

Thank you.

So just wanted to get, I guess, Irwin, your opinion, if I look out over the next, say, maybe 12 to 18 months, how do you look at where maybe better performance would come from in your business? Would it come from the UK? Does the come from distribution gains in the US or maybe someplace else? I do want to put words in your mouth, but I just kind of wanted to get your thoughts as you kind of look over the next 12 to 18 months where you think there is some upside?

So Scott, number one is growth. And a pretty clear example is today our SG&A. As you grow your sales and you put acquisitions on top here, you get better operating margins, better efficiencies. The infrastructure is here. So number one is top-line growth and that is growth through distribution, operation, white space, distribution white space, new products. Secondly, is in regards to procurement. Next year with $50 million of productivity, $30 million last year, and then next year looking for additional productivity. The team we have in place today on procurement, growing and procuring on a global basis. And just some of our growth business is just being able to keep up with demand on our nut butters and some of our other -- our chia products and our flax products and some of our baby cereals. There are a lot of lost sales as we get back in stock that we pick up those sales.

The other thing is, there is a lot of integration opportunities still with the last three acquisitions that we have done. And you heard me talk about that. That Ella's is still a standalone company. BluePrint is still pretty well a standalone company. We are in the midst of integrating systems today at our Histon facility and that is pretty well standalone. So there's a lot of opportunities to integrate those three acquisitions. And last but not least is other acquisitions, Scott, that we will look to acquire, integrate, and grow. So the big one is, when you are green, you grow; when you're ripe, you rot. Sales is the big one. But there is just a lot of opportunities for us to pull the levers to get additional operating income.

That's great clarity, Irwin. And I appreciate it. Following up on that, because it was very interesting answer, as we look at the distribution gains, maybe this, throw over to John. First of all, I am curious, in October you mentioned that things remained strong. If I am looking at kind of underlying growth outside of distribution gains that you saw in October, do you think sales have accelerated, remain kind of strong or maybe decelerated?

No. Sales are continuing along the same track we saw in the first quarter. They continue to be very strong.

Okay. And then, looking at distribution, as you kind of look out, John -- I know it's hard because these things come lumpy, where would you say you are (technical difficulty) three or four months ago? Do you think there is more on your plate, there is less on your play, or it's the same?

In terms of distribution opportunities?

Yes.

I think there continues to be -- even though we are seeing 6% gain in our distribution, there is still a lot of, whether it will be the mass retailers, whether it be the grocery retailers, or the club retailers, there is still a lot of room for us to drive distribution. To Irwin's point, look, there is a lot of places that sell food and have a cash register that we are nowhere near.

And, Scott, if you were a retailer today, and you got Nielsen numbers, and you saw conventional foods are growing at 1%, and natural organic are growing at 10%, you better be looking at your mix in portfolio and saying, what the hell I am doing? I had better get more natural organic foods in my store. Because that is what the consumer wants. And that is where the trends and that is what is selling out there. So from our standpoint, we think opportunity is just grow and grow across many channels. But, let's not step back for a second. Whole Foods being our biggest customer, over 350 stores, continue to open up more and more stores, will go to 1000 stores. That will just drive the awareness to more and more retailers. Online, a little company Amazon, in our top 10 customers today with online. So the purchasing today of food and personal care products has changed tremendously and will continue to change where the consumer is buying it today and that is where the opportunity is for Hain.

I mean, you know I agree with you [and I've seen your] pictures all the time of people that need to have merchandising better and have more of your product. But, I don't want to put words in your mouth. I mean, I would think it is speeding up, but I didn't necessarily hear what you guys thought. I mean, versus like four or six month ago, do you think there is actually more opportunity or it's kind of the same or less?

I think there is way, way, way, way more opportunity because of the consumer wanting more and more healthy products. Listen, here we are today voting on GMO's. There is 20-plus states out there that have it on a ballot or want to vote on it. Last year, there was not the awareness on genetically modified ingredients that there is today. There is not the research on organics and pesticides. And with that, the demand for GMO foods -- GMO-free foods, organic foods, gluten-free foods, free from dairy, is just growing tremendously. And that is across so many age groups. Listen, perfect example is, baby rates are down in the US today. But, the gross among Earth's Best and Ella's is in double-digit numbers. Snack business, where you see a big moving from the fried snack category over to the baked snack, healthier snacks. And we are seeing that across central portions, which John talked about. Terra Chips, Garden of Eatin', our Little Bear burritos, which we've introduced numerous new snacks in that category. Today, one of our fastest-growing categories, because we have come out with some innovative GMO-free snacks. So yes, we are seeing more and more opportunities today than we ever had.

Okay. And then Mary is going to cringe, but I had one last follow-up to your answer to my original question. You flagged acquisitions as may be part of, could be accelerated growth. I think you talked about fresh. Any further thoughts? I know you talked about this on the last conference call. Obviously, BluePrint is a lever there. But any updated thoughts of maybe getting bigger in fresh, kind of value-added fresh would be welcome. And then, thank you for taking all my questions.

Listen, the fresh category, if you come back and look at Whole Foods today, it is over 60% of their sales. You hear about the consumer eating less and less red meat. You look at the UK, and we are learning a lot from the UK. And that is what we are studying where 50% of sales in the UK today are fresh. What are we all starved for in the US today is time. And we are seeing what frozen foods with our Rosetto and Ethnic Gourmet, we are not seeing the growth in the whole frozen food category. So fresh is something we are focused on. And listen, Ella's business, our soup business, our protein business, and fresh -- our Greek yogurt business, they are all fresh categories and we are seeing some significant growth there.

Sean Naughton, Piper Jaffray.

I might have missed commentary on MaraNatha numbers. I didn't see it as being one of the brands that is up double-digits. I know it's been a very strong growth category for you. Just wondering if there is some out of stocks on that particular product and how much you think you are leaving on the table potentially here with this brand?

So Sean, this is John. We actually saw over 20% growth on MaraNatha.

Okay.

And here is the thing. We did run some pretty significant out of stocks on that line which we are going to address with the -- bringing on a second line in our facility in probably Q4. But, yes, it definitely had an impact. Our growth could have been 30%-plus if we were able to fill our out of stocks.

And, not only that, we can't take on any new business and that is the other thing is just because of the demand for that product. And that plant today, John, I think is running 24/7.

24/7, absolutely.

Yes. And the other one is chia seeds and demand for that. And cereal in infant, toddlers. So that is again with the supply team just keeping up with demand and out there sourcing, and they are overcoming the a lot of those things.

Guess the point is, you guys, obviously, tremendous growth that you are having, but you are even being -- you are being held back even a little bit, given some of the supply constraints in some of these really strong categories for growth that you have at this point.

Yes.

Okay. And then, just a second question on operation white space, I think you turned it termed it. Interesting, how receptive is the food service channel at this point for your products? And do you have distribution set up there for those accounts? Just wondering if there is a particular bottleneck there or if the consumer maybe isn't asking for it there and not for this particular point in time. Just curious on your thoughts because I thought that was interesting channel.

So that is one of my personal objectives is to get more and more into food service. And today, as we meet with different stadiums and we sell veggie burgers and snacks in certain stadiums. If you look at JetBlue, and we are one of their key vendors, our contract feeders in Cisco, Aramark, big opportunity for us in food service. The thing is with food service, it is a different pack, different price, and everybody wants a cheap price. But, food service is such a big opportunity for us in our snack category, single serve, our BluePrint juice, our pouches for Ella's, and Earth's Best doing some applesauce pouches. And today not a big focus on it, but it is something that is in our growth plan. The other one is convenience stores. Listen, 7-Eleven is now bringing in organic snacks into their stores. There is 8000 7-Elevens. There is Hudson News around the country. Walk through Manhattan, there is a lot of bodegas and retailers, office buildings with retail shops. So the big thing is and we are studying a lot of different ways right now of how to get distribution to those retailers, it is not going through the specialty food distributors; it is going through up and down the street snack distributors. But that is something, Sean, that is all over our plans of how we get to up and down the street, how we get to food service, and what do we have to do in acquisitions that is already in that category that we fold on top of it. But it is something that we are focused on and looking at today.

Thank you. Thank you, everybody. That is our last question. In our 20 years of growth, consumers have never been more mindful on a global basis of healthy eating as they are today. One of the key continuing important areas around organic and natural products is the focus on non-GMO's, which I originally have mentioned. Today, voters in the state of Washington have the opportunity to vote on yes, on the initiative 522 to require the labeling of products for GMOs. Hain believes strongly in product labeling and the use of non-GMO ingredients so that consumers can make educated decisions when buying their packaged foods and personal care products. Today, close to 98% of Hain products today are non-GMO.

We are proud to be a leader in compliance across food safety and package standards. Importantly, with over 5000 products globally, over 2000 certified organic, and today, which are verified by non-GMO products, we have over 500. Specifically, we estimate Hain invests 10% to 15% of margins to source purchase GMO-free ingredients. And we will continue to make these investments as we strongly believe that consumer education and awareness of what is good and bad for their long-term health is only going to grow with non-GMO being an increasingly important focus for consumers globally.

Technology, with the Internet, digital marketing, continue to play an important role in consumer education. It won't be long before you are scanning your products as you walk into the store and look at the ingredients and tell you what is good and what is not. In summary, we are extremely pleased with our results in the first quarter of fiscal 2014. And October gave us a good start to a second quarter as strong trends continue. Our global teams continue to focus on driving costs out of our business as we further leverage our existing expense base and the capital investments we have made across our infrastructure in the last fiscal year. We believe these efforts will enable us to achieve incremental productivity savings in the second half of fiscal 2014, and we are excited about our future growth given our strong brand portfolio, including the three recent acquisitions of our grocery brands in the UK, BluePrint and Ella's.

I can't emphasize enough that Hain is better positioned than it ever has, after 20 years of success and focusing on acquiring and building brands as well as developing innovating new products to help consumers eat healthy. And in my last call, we talked about childhood obesity declining for the first time. And I think Hain had a lot to do with that. Hain truly has the right people, brands, products, and global infrastructure in place to capitalize on the tremendous growth in front of us for years to come. Now, have a great Thanksgiving. Don't forget to buy a Plainville antibiotic free turkey. Thank you.

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