Hain Celestial Group Inc (HAIN) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Hain Celestial second-quarter fiscal year 2015 conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mary Anthes, Senior Vice President Corporate Relations.

Thank you, Amanda. Good morning, everyone, and thank you for joining us today. Welcome to Hain Celestial's second-quarter fiscal year 2015 earnings call. Irwin Simon, our Founder, Chairman, President and Chief Executive Officer; John Carroll, Executive Vice President and Chief Executive Officer Hain Celestial North America; Steve Smith, Executive Vice President and Chief Financial Officer; and Denise Faltischek, Executive Vice President, General Counsel and Chief Compliance Officer as well as several members of Hain Celestial's management team are with us today to discuss our results.

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 what is described in these forward-looking statements and some of the factors which may cause results to differ are listed in our publicly filed documents, including our 2014 Form 10-K filed with the SEC.

A reconciliation of GAAP results to non-GAAP financial measures is available in earnings release which is posted on our website at www.hain.com under Investor Relations. This conference call is being webcast and an archive of the webcast will be available on our website under Investor Relations. Our call will be brief so please limit yourself to one question. If time allows we will take additional questions and management will be available after the call for further discussion. Now let me turn the call over to Irwin Simon. Irwin.

Thank you, Mary, and good morning, everyone. I hope everybody had an opportunity to review our second-quarter fiscal 2015 press release that went out this morning.

Hain's diversified portfolio of organic and natural brands continues to generate solid growth worldwide across various sales channels in this quarter -- in the past quarter. Even though in calendar year 2014 we had product withdrawal from MaraNatha, our first major product withdrawal, Tilda business was disrupted by a fire, our first major fire. And those of you who don't know, I had an accident and tore ligaments in my knee and had knee surgery in January.

So things happen in three, now with all that behind us only look for good things in the near future. But even with a few challenges in the quarter, which we believe are all transient in nature, we are still able to stay focused and capitalize on our growth opportunity which shows the strength of Hain, our team, our brands, our diversified customer base and how well-positioned we are in the healthy living category. We have demonstrated our ability to deliver despite all these obstacles.

Looking ahead I'm pleased with the outlook for calendar year 2015. More and more consumers are aware of health and wellness categories and they continue to grow rapidly with a robust outlook for years and years to come. The demand for healthy better-for-you products help us generate record net sales, up over 31%, overcoming foreign currency headwinds as the strength of the US dollar impacted our international results.

Today 40% of our sales are from our international operations. Both net sales and adjusted earnings were up solid double-digits for the 17th consecutive quarter. Sales in local currency were up in every segment of our business. Adjusted gross margin was up in every segment of our business versus last year. Excluding the HPP gross margin our margin was 27.2%.

SG&A was 12.3%, a 180 points improvement due to our ability to successfully integrate acquisition by leveraging our infrastructure, distribution systems and watching our costs. Excluding FX our brands achieved high-single-digit organic growth excluding the impact of MaraNatha. We are still building back distribution of MaraNatha, which John will talk about later.

We had strong results in the US, Hain Pure Protein, UK, Europe, Canada and our joint venture in Asia. Acquisitions added $153 million in sales which included growth from these acquisitions under our ownership. Including expansion into new customers, new countries.

Our categories are on track with millennial's who are driving growth in the natural organic specialty channel, placing more emphasis on quality and what ingredients are in their food. And what ingredients are in their food they consume with a preference for fresh, organic, natural and farm-to-table products.

In the latest Nielsen AOC scanner data for the period ending January 17, one Wall Street firm cited, double-digit growth year over year for 4, 12 and 52 week periods for the various free from categories. Shoppers are paying more and more attention to what is not in their food which is gaining traction with both customers and retailers.

The data cites organic, no added or artificial trans fats, natural, gluten-free, GMO free, no artificial preservatives, hormone/antibiotic free, high fructose corn sweetener free. We make products with all these attributes under the Hain banner.

We feel more optimistic about Hain today than ever before. We are in the right categories. We brand offers in 10 of the top 15 highest penetration categories across organic and natural. 99% of our food products don't contain GMOs, over 500 of our products have been verified, and nearly 650 are enrolled in the non-GMO project.

We also have over 500 gluten-free products today. At Hain Celestial US alone over 50% of our products were certified organic by USDA as of the calendar year. And by the way, if you are certified organic you are also GMO free.

Our Lima and Danival brands in Europe are organic brands and we market better-for-you healthier version of the products that the UK market has enjoyed for many, many years to help consumers make more healthful choices to fill their five-a-day fruit and vegetable government regulations. All these products are non-GMO.

Consumers are increasingly seeking healthier better-for-you products including non-GMO products. Many of you saw Saturday's New York Times business section about consumer preferences for non-GMO products and willing to pay higher prices with Terra Chips featured in that non-GMO article.

Consumers tastes are shifting, views on health and wellness are evolving and consumers, as I said before, are willing to pay for them. And yesterday's Wall Street Journal cited more information on US consumers seeking more and more non-GMO foods, increasing retail sales at 15% among the fastest growing US food segments, as well as Midwest farmers who have recently begun moving away from biotech seeds.

As I've said before, Hain has been one of the first to capitalize on these opportunities. Over the years our products and our brands have even been more compelling today than ever before as we add distribution across channels and a major focus on foodservice and convenience stores which we have talked about.

You have heard me, John, and now our team, say before, where there is a cash register, electronic register we want to sell our products. Consumers increasingly want food options that are better for you and we have the options for them.

Consistently organic growth can be hard to find in most consumer packaged goods companies today. And Hain continues to deliver with our mission to be the leading manufacturer of organic natural better-for-you products around the world. And this has been our mission since the Company was founded in early 2000 -- sorry, in early 1993.

And growth is coming from across product categories, across sales channels where no single customer represents more than 13% of our net sales. This speaks not only to the strength of our brands that we've acquired, but equally important to the strength of our brand investment and building global brands with a global team and a global distribution network around the world.

Today our products are available at Whole Foods, Sprouts and many, many natural food stores along with many grocery stores, mass-market, club stores, convenience stores, food stores, omni-channel or e-commerce marketplace providing consumers with a seamless shopping experience of bricks and clicks where our expanded dedicated team is working to support our brands and increasing focus for growth among those various retailers.

Our strategic acquisitions have enabled us to have fully branded products operating across aisles, categories, channels and countries. And our organic, natural and better-for-you products offerings are growing in over 65 countries around the world today.

And through Tilda, with our new relationships, we've opened a new office in India. Also we are expanding through the Middle East which now will carry and sell a lot more Hain products.

Looking at the second quarter in more detail, our brand performance was strong with a broad based increase. We had 20 brands up double-digits in local currency in the quarter, four brands up mid- to high-single-digits in local currency.

In the US, and John will talk about this later, our latest 12-week Nielsen AOC plus, and that includes convenience store, consumption growth, ex-MaraNatha, was up 8% while the channel was only up 2.7%. Four weeks up 9.4% versus 2.8% for conventional. And for 52 weeks up close to 10% by the channels up 1.9%. That is great growth.

Now I'll focus on the key drivers that led to our strong sales performance. I will let John talk about his US business performance in greater detail. As I mentioned, organic growth was up high-single-digits excluding the impact of MaraNatha. We expect our MaraNatha sales will be impacted alone by approximately $25 million to $30 million in our fiscal 2015.

Alone in our second quarter our sales were impacted by over $13 million ex any growth versus last year. These results combined with our operating leverage drove our second-quarter adjusted earnings of $0.54 versus $0.43 in the second quarter last year, up 26%.

We effectively -- and that is something we continuously talk about, how we manage our SG&A to report a 31% increase in adjusted operating income to $87.4 million versus $66.9 million. We effectively managed our cost, acquisition integration and productivity initiatives.

In the UK segments, net sales including over $50 million from Tilda were up high-single-digits in local currency in a challenging retail environment. Even with a warm fall season in the UK our soup -- overall our soup business was up 7%, that is New Covent Garden and our Cully & Sully -- New Covent Garden up 3%, our Cully & Sully up 8%. As of January New Covent Garden was up low-double-digits, outpacing the category.

Our Hartley's grocery business was up 11%. We are finally starting to hit our strides for [Project Castle], with a $25 million run rate. We expect going into fiscal 2016 we will be on a $35 million run rate and profitability will hit in 2016.

Our UK teams have taken over the sales and marketing and distribution of our plant based nondairy products. Today we have a strong lineup with our oatmeal, coconut milk, our rice-based plant products which are made in our European facility.

We expect some big growth, big opportunities in that category and we look to enter into the refrigerated part of that category. With introduced our nondairy ice cream, our Dream products and with great acceptance in White Rose and other retailers in the UK.

Ella's Kitchen, which John again will talk about, continues to be the number one selling baby food in the UK. Tilda performed well but, without full production capabilities, we expect our sales will be impacted by approximately $5 million to $10 million in 2015.

We expect the major production line to be up and running in our fourth quarter and the plant should be fully operational later this year. In the interim we are relying on co-packers that we work closely with.

Back in November when we had our earnings call, five days before that is when we found out about the fire. The majority of the fire was smoke and water damage which affected a lot of our equipment. And we would not take any risk in running the plant where there was any smoke or fire damage.

With that we are in the midst of replacing almost all the equipment in the plant. We are fully insured and actually fully insured for loss of sales, loss of promotions, replacement on equipment. So ultimately we will have a brand-new plant which we expect a lot of efficiencies and a lot of good yield coming out once the Tilda plant is up and running.

This week [Rajnish Ohri], Managing Director of India operations, who is responsible for building our Tilda and Hain brands in India, has joined us as our new General Manager. And we are really excited about Tilda expanding outside the US in the ethnic market later this year.

We expect to see Tilda in the US being sold in major club and major retailers. Right now we are not about to name those, but we expect this by the end of our fiscal year that we will see a lot more Tilda in the US.

We're also expecting to see a lot more Tilda, other than sold in Loblaw's where it is today, throughout Canada. And there's two major retailers that will be carrying Tilda in Europe where today it is mostly sold within the ethnic market.

The UK grocery market is changing and evolving. Our focus on building our brands and bringing more and more health and wellness products to that market which our retailers are telling us they want.

Hain Celestial Canada under the rest of the world segment performed well, up double-digits in local currency led by Sensible Portions, Terra, Imagine, Greek Gods and Celestial Seasonings.

Also in the rest of the world our Hain Celestial Europe net sales increased double-digit currency. Our Lima, Natumi, Danival, Dream and Celestial Seasonings brands have grown strong. This excludes our Grains Noirs and other private label businesses that we've discontinued or sold off.

Hain Pure Protein, which we acquired in July, had strong quarterly sales, up double-digits. We've entered into new and expanded supply agreements with Panera Bread to provide them with Plainville Farms turkeys and expand BluePrint trial from January -- and expand BluePrint in over 100 Panera stores.

Hain Pure Protein also sells into Chipotle stores and [Rody] restaurants. Hain Pure Protein also secured listings for BluePrint at [Chopped], a FreeBird customer, and Tilda basmati rice at Cafe Spice, Chef Warehouse now offers Tilda for their food servers distribution restaurants.

These were some of the synergies that we talked about when we acquired Hain Pure Protein to expand our food service business within Hain. With the support of Hain Pure Protein we had a great Thanksgiving, we sold over 1.5 million organic and antibiotic free turkeys. And leading up to the big game this past weekend we sold millions of individual antibiotic free chicken wings.

Speaking of the big-game, I hope you saw our snacks press release touting all the great non-GMO snacks we have offered from Garden of Eatin', Sensible Portions, Terra and Bearitos. Rudi's, and you can see in our consumption numbers, we sold a lot of snacks this past Sunday.

I am excited to say that 7-Eleven will be listing our Sensible Portions snacks this spring. As for Hutchison, our Hain organic joint venture in China, we are starting to ship more infant formula into that market. We will continue to build out our infrastructure for future growth and additional investment of CapEx to support the growth.

In addition, we have a global procurement team and technical service group to ensure product safety and quality at our 30 plants around the world. As a Company that is deeply committed to the safety and quality of our products, we have learned a lot in the connection of our nut butter recall.

Our global technical service team now reports to Denise Faltischek, our General Counsel and Chief Compliance Officer. We have taken this opportunity to upgrade our processes and procedures on a global basis.

Productivity remains a strategic initiative for Hain and for fiscal 2015 we believe we can achieve at least $55 million in worldwide productivity. For Q2 we've had over $11 million of productivity. The second, third and fourth quarter are big quarters that we achieve productivity.

Our balance sheet remains strong, as does our ability to generate cash. During the quarter we completed a stock split in the form of a dividend after the close of business on 12-29. Our business was strong in January and with the cold temperatures, winter snowstorms, we are prepared for it and I hope consumers are too by stocking up on tea, soups, snacks and many other Hain products. We love cold-weather and we love snowstorms.

We believe we are well-positioned for another record second half and future growth and long-term. Our executive team remains committed to increasing shareholder returns and our balance sheet provides us with the financial flexibility for us to pursue strategic M&A activities on a global basis.

We are focused on strategic acquisitions and being disciplined in our approach to acquisitions is a part of our DNA. There are plenty of acquisitions to look at. While I can't guarantee we will do any, we are evaluating many at this time.

In summary, we had a great half of our fiscal -- we had a great half of fiscal 2015. While not without its challenge of course. And I look forward to the next two quarters. With that I will turn it over to John.

Thank you, Irwin. Good morning, everyone. Q2 was a very strong quarter for Hain Celestial US. Let me just go through a few key highlights from the quarter which included Q2 adjusted net sales of $359.3 million which was up 10% versus year ago. If we look at Q2 adjusted net sales ex-MaraNatha the US was up 14% versus year ago.

Importantly, we had strong Q2 organic growth of 8% which is consistent with what our Q1 organic increase was. Our latest 12-week Nielsen AOC consumption ex-MaraNatha was 8%, which represented an acceleration in our trends. In fact, continuing the acceleration our latest four-week number was 9.4% ex-MaraNatha.

Our growth was achieved even as we lapped strong year ago comps and resulting in a two-year stack consumption gain ex-MaraNatha of 17%. And the results were driven across the portfolio with strong gains including 14 brands with double- or high-single-digit increases.

Our Q2 adjusted operating income increased to $63.1 million, up 11% versus year ago. And our Q2 operating income margin was 17.6%, up 20 bps versus year ago. This reflected productivity savings and increased leverage of our SG&A platform.

Now as I have on previous calls, I want to review the five key factors that make us optimistic about our balance of the year outlook. These factors are consumption trends, distribution growth, productivity, innovation and our most recent acquisitions performance. I will take you through a quick review of these five factors and then segue into a MaraNatha update.

Starting with the first key factor, which is our continued consumption growth, Q2 was our 20th consecutive quarter of strong US consumption trends, that is five complete years of strong US consumption trends. We drove growth across our brand portfolio and across all key AOC channels despite going against strong year ago comps.

And as Irwin mentioned, speaking of across, across the Atlantic Ocean our Ella's Kitchen baby food was the number one baby food brand in the UK, and that is both organic and conventional, number one for the third consecutive 12-week period, driven by double-digit consumption and double digit distribution growth. In fact, based on our most recent 12-week period, Ella's Kitchen has now been the number one baby food brand in the latest 52-week period as well.

Our second key factor is our distribution growth. Our top 13 brands ex-MaraNatha which account for over 80% of our AOC sales saw a distribution gain of 3% in Q2 versus year ago. This number jumps to 4% plus if we include Ella's UK distribution gain.

These results were achieved despite lapping huge distribution increases a year ago at Walmart on Ella's Kitchen, Greek Gods and Sensible Portions. So as you can see, we continue to fill in the distribution whitespace on key brands and at key customers.

The third factor fueling our optimism is our productivity program. Now I am sure you've heard about the recent pricing pullback for conventional commodities. But costs for almonds, egg whites, butterfat, organic coconut and organic wheat flour, all of which are leading commodities for Hain Celestial US, were up significantly in Q2 versus year ago.

The key to offsetting these cost increases in Q2 was primarily our productivity program. Our Q2 productivity savings were over $8 million. Jim Meiers and his team continue to realize significant productivity gains from initiatives such as increased internal baby food pouch production, increased plant efficiencies at our snacks and personal-care factories and reduced packaging costs.

The fourth key factor is our strong innovation lineup. We are going to introduce 75 plus new exciting products at the upcoming Expo West in March and let me just give you a couple of key product highlights on what we are launching.

So out of Celestial you are going to see new Celestial ready-to-drink chai tea lattes. These are bold flavored barista quality beverages that are brimming with the goodness of real brewed tea.

In our Sensible Portions line, which has been red-hot, you will see us introduce great tasting puff snacks made with real vegetables and all-natural ingredients with still 30% less fat than the leading potato chip.

On BluePrint we are going to introduce new charred basal collard greens fresh pressed juice. This is a nutritional powerhouse juice, it's a great complement to our best selling green juice.

Out of the Dream brand you'll see us introduce new Dream brand coconut bites. These are a delicious plant-based non-GMO frozen novelty made from real coconut and coated in rich thick chocolate. This treat is both lactose and gluten-free.

And finally, over in personal-care we are going to introduce new Alba Botanica fast fix beauty treatment. This is a quick solution for common problems like puffy eyes, pimples, under eye circles and, believe it or not, thin lips.

These great new Hain products have been very well received by key retailers. In fact, several key leading retailers have already said they are going to put these products on shelf and will be featured along with many other terrific new products at the Expo West. Hope to see there.

Our fifth key factor driving our optimism is the performance of our latest acquisition, Rudi's Organic Bakery. The Rudi's business delivered strong Q2 top- and bottom-line growth. Rudi's Q2 AOC consumption was up 15% despite comping a strong year ago promotional period when it was run by other ownership.

Rudi's consumption growth was driven primarily by increased distribution highlighted by recent gains at Ahold, Wegmans, Wakefern and Harris Teeter. Our Rudi's Q2 margins improved by over 100 basis points led by better production throughput and increased productivity at our Boulder bakery.

And as I have mentioned on previous calls, we have got a tremendous Rudi's innovation queue. We will be introducing new Rudi's products at Expo West led by our new Rudi's gluten-free garlic and cheese toast. So based on what we are seeing in the second quarter and what we have been saying all along, I think you can see why we are so enthusiastic about Rudi's Organic Bakery.

Finally, a quick update on our MaraNatha nut butters. Our business is coming back as we are regaining distribution, consumption and brand share, particularly on our core roasted almond line.

And here look, by way of background, MaraNatha has three product lines. First is our core roasted almond butter which accounts for 80% of our AOC sales. Second is our peanut butter which accounts for 15% of our AOC sales. And third is our raw almond butter which accounts for the remaining 5% of our AOC sales.

Now we begin shipping roasted almond butter, that is 80% of the business, in late September. In the most recent AOC period we have regained all but 2% of our roasted almond butter distribution and all but 1% of our roasted almond butter consumption.

Most importantly, and this is a really key point, we're regained our AOC share leadership of the almond butter category with over a 40% share of the category. So again, we are now again the number one almond butter brand in the category. This is very significant as it tells us that the brand is very, very healthy from a consumer's perspective as well as a retailer's perspective despite the withdrawal.

We are currently executing our first MaraNatha roasted almond butter promotion since the withdrawal. This promotion is being executed in February, March and April at many key retailers.

In regard to the MaraNatha peanut and raw almond butters, which, as I said before, account for only 20% of AOC business, we just began shipping these lines in the last week of December. So we started this at the very last week of December, part of that we focused on production of the roasted almond line to meet demand and build inventory to support our second half promotion.

Now we are going to spend Q3 rebuilding our peanut and raw almond butter distribution while we promote the roasted almond butter. And we expect the MaraNatha nut butter business will be very well-positioned both on retailers' shelves as well as in consumers' minds as we enter into FY16.

So to close, Q2 was a really strong quarter for Hain Celestial US. Highlights included 10% adjusted top-line growth, 8% organic growth which was consistent with what we saw in Q1, and our latest 12-week AOC consumption growth of 8% ex-MaraNatha. We also delivered an 11% gain in operating income and a 20 basis point increase in our operating income margin.

And look, we are optimistic about our go-forward prospects given our strong consumption trend including the acceleration that we've seen in the most recent four weeks, our growing AOC distribution, our deep innovation queue, our productivity initiative, our Rudi's Organic Bakery acquisition and our resurgent MaraNatha nut butters business.

So with that I will turn the call over to Steve Smith.

Thank you, John, and good morning, everyone. Thank you for joining our call. I'm going to take you through our second-quarter financial results and then we will review our guidance.

We had another outstanding quarter from a sales perspective. Reported net sales were $696.4 million while sales adjusted for the voluntary nut butter recall were $701.7 million with adjusted net sales up 31% versus the second quarter last year.

Consistent with the first quarter, the adjusted net sales amount reflects customer returns for products shipped -- for products subject to the voluntary net butter recall. In other words, product that was actually shipped and subsequently taken back.

Sales growth was driven by increased distribution and consumption as our existing portfolio of brands continued to perform well. The acquisitions of HPPC, Rudi's and Tilda, which increased our sales by $153 million in the second quarter. This amount also includes brand growth under our ownership.

During the quarter net sales were impacted by the unfavorable effect of foreign currency, which was approximately $9 million as compared to the prior year, $12 million as compared to our guidance. As we commented in November, we did expect to be adversely affected by currencies but the continued strength of the dollar was greater than we anticipated.

Growth from our branded products from both our existing portfolio and our acquisitions adjusted for the nut butter recall and in constant currency and as a percentage of sales was high-single-digits. Our adjusted earnings were $0.54 per diluted share compared to $0.43 per share in last year's quarter improving 26%.

We earned $0.43 per diluted share on a GAAP basis in the current quarter. Currency adversely affected our GAAP earnings per share by approximately $0.03 and our adjusted earnings per share by approximately $0.01.

Adjusted operating income was $87.4 million this year compared to $66.9 million last year, improving 31%. Operating income on a GAAP basis was $74 million compared to $64.3 million in last year's second quarter.

As noted in our press release, our current quarter adjustments to income of $16 million or $10.9 million net of tax are principally from: one, $7.3 million or $4.5 million net of tax related to the voluntary nut butter recall. While we may continue to incur charges in the future periods, we do not expect such amounts to be material and we continue to actively work with our insurance carrier to settle our claim.

Second, start-up costs of $3.3 million pretax related to Project Castle, our chilled desserts facility in the UK. We continue to see momentum in this business and we expect that by end of this fiscal year the facility will be ramped up and out of its start-up phase.

Three, $1.8 million pretax of acquisition-related fees, expenses and restructuring costs. And we also had $2.6 million pretax of unrealized non-cash foreign-exchange losses primarily on intercompany balances.

Gross margin on an adjusted basis was 25.3%. Excluding our HPPC acquisition, adjusted gross margin would have been 183 basis points higher at 27.2%. As Irwin mentioned, each of our segments showed gross margin expansion versus the same period last year on a non-GAAP basis. But as a reminder, as the UK is a bigger segment this year, that also impacts our gross margin.

SG&A expense for the quarter on an adjusted basis and excluding amortization of acquired intangibles was 12.3% of net sales, a 170 basis point improvement as compared to 14% last year. Total SG&A expense on an adjusted basis was 12.9%, a 180 basis point improvement compared to 14.7% last year.

The rate of spend declined in the quarter primarily from managing our costs, leveraging our infrastructure with the impact of our acquisitions mainly from the HPP acquisition, and as we achieved strong operating leverage on higher sales volumes.

As a result adjusted operating margin was essentially flat to prior year at 12.5% despite the HPPC acquisition. This demonstrates our ability to manage our costs and spend levels even with some of the near-term challenges in our business. Excluding the acquisition of HPPC on an adjusted basis operating margin would have been 12.9%. Operating income on a GAAP basis for the second quarter was 10.6% of net sales.

On a GAAP basis our effective income tax rate was 32.1%, our adjusted effective income tax rate for the quarter was 32%, slightly favorable to last year.

For the full year our adjusted effective income tax rate is expected to be in the 32% range. Our balance sheet continues to be strong, our working capital is $476 million with a current ratio of 2 to 1 at December 31.

Stockholders' equity was $1.621 billion. Debt as a percentage of equity was 54%. Debt to total capitalization was 35.1%. Net debt at the end of December was $740 million and at the end of December our cash balance was $135 million, increasing $68 million from the same period last year.

We generated almost $52 million of operating cash flow in the current quarter as compared to $19.9 million for the prior year period. The increase was principally the result of working capital changes. Capital expenditures for the quarter were $12.5 million and operating cash -- free cash flow was $39.2 million for the quarter.

Our cash conversion cycle was 62 days for the quarter. The effect of the seasonal build in Tilda inventory has started to moderate as our cash conversion cycle is down three days from the first quarter. Excluding acquisitions our cash conversion cycle is flat to last year despite find investments in building up our MaraNatha nut butter product inventory as we restart the brand.

We refinanced our credit facility with our existing lenders in December, increasing our facility by $150 million to $1 billion and we also have the ability to access another $350 million in credit under certain conditions. This refinancing provides us with additional flexibility to meet our working capital and acquisition capital requirements.

We also pushed the maturity of the facility out over two years to December 2019 and received favorable lower pricing of the pricing grid. At the end of December our 2-for-1 stock split in the form of 100% dividend became effective.

Our weighted average shares outstanding at the end of December was 103.2 million shares as compared to 98.4 million shares in the prior year as adjusted for the stock split. The increase in weighted average shares outstanding is primarily from stock issued in connection with acquisitions and stock issued pursuant to compensation plans. The impact of the increase in weighted average shares outstanding was $0.02 in the current quarter.

Since we established guidance in August the US dollar has strengthened significantly as compared to our other primary currencies, the Pound Sterling, the Canadian dollar and the euro. This has and is expected to continue to adversely affect our net sales and to a lesser extent earnings per share.

In addition, while most parts of our business continue to perform well, we do have some short-term challenges primarily in our nut butter and Tilda businesses.

The effect of foreign currency is expected to adversely affect our annual net sales by approximately $70 million while short-term challenges primarily from the nut butter recall and Tilda business are expected to affect net sales by an additional $20 million combined. And this affect has been since the end of the first quarter.

As a result our guidance for net sales for the full fiscal year 2015 is now in the range of $2.650 billion to $2.675 billion. This is on an adjusted basis. With respect to the cadence of our second half, we anticipate net sales will be slightly higher in the fourth quarter as compared to the third quarter, while 40% to 45% of our earnings are anticipated to be in the third quarter with the balance in the fourth quarter.

We anticipate earnings per diluted share will be in the range of $1.85 to $1.89 for the full year. And as a reminder, this is on a post stock split basis. With respect to other assumptions underlying our guidance, we now expect adjusted gross margin to be in the 25.3% range for the full year, and excluding the HPPC acquisition to still be in the 27% to 27.2% range.

Excluding the HPPC, SG&A expense is still expected to be in the 15% to 15.1% range, and including HPPC in the range of 13.7% to 13.9%. Full-year operating margin excluding HPPC is still anticipated to be 12% to 12.2%. These amounts are all on an adjusted basis.

Share count for the full year is estimated at 103.2 million shares. Interest expense is estimated to be in the $25 million to $26 million range, and capital expenditures are estimated at $45 million.

As indicated in our press release, our estimates do not include any results of discontinued operations, acquisition-related expenses, integration and restructuring charges, startup costs, unrealized currency gains or losses, reserves for litigation settlement or other nonrecurring or one-time items such as recall withdrawal impacts or future acquisition activity. Currency is based on current rates.

At this point, I will turn it back to Irwin.

Thank you, Steve. With that, Mary, we can go ahead and open up for questions. Operator, we are all ready to open up it up for questions. Thank you, Steve.

(Operator Instructions) Bill Chappell, SunTrust.

Good morning, thanks. Just looking at the EPS guidance for the year and kind of narrowed by about $0.05, $0.06 on the top end I guess post split, can you tell us -- I mean is that all currency? Is the currency [tilde] in higher commodity costs? Maybe a breakout as we are looking going forward.

So, Bill, the majority -- I will come back and say it is all currency. And basically what I have said before, the team has done a good job on managing costs. The team has done a good job on mix and managing through this. So the majority of it is absolutely currency.

Okay. And then flipping to --.

And I think, Bill, just to go back and show, when you come back on $100 million or $90 million and just adjusting EPS by $0.02, $0.03, it shows the strength within our diversified portfolio and our customer base. So just on that.

Yes. No, it makes sense, I just wanted to make sure I had my numbers correct. As I look to the UK, I guess two things there. On the soup business, I understand it was up, but it had fairly easy comparisons. Can you talk like kind of the health, the season?

Do you feel like this is still a good growth category over the next few years now that you have owned it for a couple years? And on Tilda, is there any change to the guidance from the fire, I didn't quite catch that? Or were sales -- are they still in there from the insurance recovery?

Right, right. So just let me talk about soup. We have the UK team in here last week. I am probably more excited about the soup business in the UK than I have ever have been. We have three soup businesses in the UK, we have New Covent Garden, we have Cully & Sully and then we have own label which is private-label.

And one of the things that we are seeing is the overall soup business, ambient soup, which is the biggest part of the soup business, which is Heinz cans, Baxters, is way down. So big opportunity to really dive into that category.

The other thing is as you look at the soup category, and a big focus on the UK market has been own label, where Tesco and Sainsbury have focused on their own label, they have not grown the category. So it is our job to go in there and say why it is important to have more facings of our new Covent Garden brand.

On the other hand, one of the things is Cully & Sully is different packaging, it is a pod instead of the container. One of the things that we're going to look to go into is in beans, in soup meals, etc. And in the UK they do not sell soup in a septic or [recart].

So we have two plants in the UK and we think the New Covent Garden brand is a very, very, very strong brand. So big focus on soup, big margin business and, like I said, we have three businesses in the UK. We are also a big provider of soup to [Fretemage] and other foodservice accounts in the UK. So what I will say is they are a big drive on soup business and to grow that business and a big focus from us with our three different categories.

And one of the big things that we have where a lot of retailers have come to us, we have two factories to produce other people's labels or to produce private-label, it is just something we didn't want to focus on. But we will look at that if we can get the growth from our own label within Sainsbury Tesco.

In regards to Tilda, we adjusted our Tilda number between $5 million and $10 million just to be on the safe side. And one of the problems with us going to a third-party is just timing and selection of product. And that's what it is when you have gone to a third-party that we can't forecast and make our products to what our customers want.

So in the second quarter we have had some interruption by the timing went to co-packers just because of the fire. And with that we think we will have our line four, which is our big line, up and going by the end of March, early April, that will help us substantially here.

Got it. Thank you.

Scott Mushkin, Wolfe Research.

Irwin, this is actually Mike in for Scott. Thanks for taking my question. On the bigger picture margin question with respect to the UK, this quarter it looked like it came in a bit year over year. But kind of thinking about the drivers of the UK margin this year and over the next few years and what is in place and where do you think this margin can go over time with the right scale?

Well, I think there is a couple things. Number one is growing the soup business which is a major margin business for us. You heard us talk about our Project Castle, getting to a GBP35 million run rate and getting to profitability and then some. And with that some of the additional mix on Tilda and selling more Tilda [Blue], part of Tilda goes into foodservice and goes into the ethnic market.

But just again is that is where the big drivers are going to come on our gross margin. The other one is driving more and more Hartley's product, which we're in the midst of installing more equipment to be able to keep up with some of the pods that we -- on volume shortfall there. And that's continually. The other big thing is on the SG&A line is ultimately integrating some of the back rooms.

Another big thing is we just took over our Dream business, our nondairy business. And we look for that to be a big growth vehicle for us and a great margin business for us within the UK. But I -- what I can sit here and say is over the last two weeks we had both the Tilda team, the full UK team in there.

And we really got a good plan in place how to grow in the back half both Tilda, both UK, Europe, Middle East, India, US, Canada. But more important what we are going to do with New Covent Garden, Cully & Sully, grow both in the UK and the Irish market, how we are going to grow our fruit business, our soup business, our Castle business.

And you heard me say before our grocery business, our Hartley business is up 11%. What we are looking for is more growth out of our nut butter business or [sun pat] business. And we look to get into more and more grocery product lines whether it is Celestial Seasonings and snacks within the UK.

That is really helpful. I appreciate that. And then lastly, just now that you -- you are at about a 40% mix with sales internationally. How are you guys thinking about that mix of business over time and where would you like that to be as you think about future acquisitions and growth?

I think it's -- I have always said I like 55% in the US, 45% outside the US. Listen, I think right now with currency where it is, buying smart in Europe would make sense for us today. Buying smart in the UK where we are also sitting with lots of cash would make sense for us today, strategic acquisitions. We have the infrastructure there and to integrate them there is a lot of opportunities.

And what we have seen with good double-digit growth in Europe coming out of Lima, Danival, our Dream business -- I mean, they have been great acquisitions for us in Europe. And our European business is only EUR100 million today, we want to get that bigger.

I mean, we are selling in a lot of countries, we need to get a bigger base because a lot of those products, they only -- 50% of our products sold in Europe are only sold in natural food stores.

Okay, and (multiple speakers).

We are seeing acquisitions and opportunities presented to us for Asia, South Africa, Australia. So there is a lot of stuff out there. I'm not saying we are going out there to do it, but we are seeing a lot of global acquisitions coming our way out there. And we are going to look at what makes sense for us.

Thanks, I really appreciate the color.

Greg Badishkanian, Citi.

This is actually Fred Wightman on for Greg again. Just a quick question on Tilda. The fire is not impacting the US expansion at all is it?

No. Listen, a bit because we just -- again, we've got to make sure we have rice for UK and the rest of the world. But the plan was to go into the US in the fourth quarter anyway. But if it is impacting it, it is not by a lot, it is by maybe a month or so.

Okay, great. And then could you guys just quantify your exposure for each of your major foreign currencies? I think you said what big three buckets are but any more color would be great?

When you say exposure I'm not exactly sure what you mean.

Just sort of a breakdown, percentage of revenues.

Well, so the UK is about 30% of our total business and Canada and Europe are about 5% each.

Yes.

Okay, great. And then just for HPP quickly, did you guys see any impact from Chipotle's decision to suspend one of its pork suppliers in the quarter?

Well, if anything impact on the positive because (multiple speakers).

Right, that is (multiple speakers) yes.

I mean Chipotle is one of our key customers and we are one of their key suppliers here in the Northeast. Nothing significantly to stand out. But just strong demand anyway from Chipotle.

Great, thanks a lot.

Evan Morris, Bank of America.

Just a couple of questions. Just on the organic growth you highlighted for the quarter, we have seen some acceleration I guess in the recent quad weeks. Can you give us a sense of sort of where the run rate is now on organic growth and what your expectations are for the back half of the year?

So, we are saying high-single-digits and we continue and expect that to continue into the back half of the year, Evan.

Okay. And just on the SG&A leverage, you continue to -- it is very impressive. I'm just wondering how much additional operating leverage there you have on the SG&A line, how low can this go? And talk a little bit about some of the key buckets, the key areas where you still have opportunity.

I will talk about a few. And again, I want to be careful here because the more I give you the more you bake into my numbers. But as we look to integrate plants and we are doing some things right now with BluePrint, we are doing some things with our other plants and we are definitely seeing the efficiencies.

And you come back where we took a West Chester facility and we put baby food lines in there and we put some other product lines and we will put our juice line in there. You are seeing the effects of that where we have taken our Sensible Portions plant and moved it to Lancaster and built a new facility, we are seeing the effects of that.

The effects of what we have been able to do at the Rudi's plant and the efficiencies they have been able to get out of there. Plus we are acquired Rudi's last May. We closed their offices and moved up here and moved it into our back room. Today in the US all back rooms are integrated within that Hain headquarters here in Lake Success, all the operations, procurement, processing are basically all integrated here.

So a lot of G&A savings from integration, a lot of efficiencies. And we are also, Evan, looking at where it makes sense to outsource even some of our groups within Lake Success and get some efficiencies. So that is number one.

Number two is what makes sense then with Canada. Canada is run today as a whole separate entity. What makes sense to integrate Canada is closer than most of our other states. So what makes sense from Canada now as it reports into John to integrate, even though sales and marketing we run separately, but what makes sense from an operation, what makes sense from a back room to integrate there. So there is opportunities there.

The UK today we have our Tilda business, our Hain Daniels, our grocery business and Ella's business and they are all running in separate businesses today. So I will leave that to your imagination. And then there is Hain Europe that ultimately could be integrated. So there is multiple opportunities.

The big thing too is procurement as we take $55 million, $60 million of productivity out. And that is each year a new $55 million to $60 million. So getting 1% on margin has tremendous leverage and savings for us also. So there is a lot of SG&A opportunities.

And you know what, we are ultimately going to do other acquisitions and we look to integrate them. As we look at our corporate spend today and how do we ultimately take out more and more from a corporate standpoint. So there is a lot of SG&A savings and there is a lot of gross margin opportunities for us to continue out there.

Great, thank you.

And we are like miners, we look for it, trust me.

Amit Sharma, BMO.

A quick question for Steve. Have you -- you've given commodity inflation outlook. You talked about commodities is a little bit inflationary, John talked about it. What is the inflationary outlook for the full year?

Amit, this is John. So we are expecting -- with the exception of butterfat in terms of the key commodities that are driving inflation we are expecting they're going to continue, the coconut, the wheat, the almonds, the egg whites. So we called second quarter inflation at 3.5 --.

3.5%.

3.5% and so we are expecting a slight moderation of that because of butterfat, but basically somewhere between 2.5 to 3 points.

And, Amit, at the beginning of the year we -- in August we had said we expected inflation to be about 3% to 4% for the full year. So that's maybe on the low end of that, but we were pretty accurate back in August.

All right, okay. And, Steve, as a follow-up to the previous question on SG&A leverage. I mean, the first half leverage is running ahead of your full-year target. Are we looking for a bit of a slowdown in the back half?

Well, it is running ahead of the original target for a couple reasons. One, top line is -- with the top line down, and HPPC as a bigger percentage of the total pie, we are getting additional leverage on HPPC. That is really what is going on.

Okay, that makes sense. And then, Irwin, if we -- and if we look at your portfolio in US, the snack portfolio really stands out in terms of how strongly it is growing and what kind of sales uptick that we have seen. And we have talked about in the past about the packaging innovation in that.

Can you talk about that a little bit? What is driving that? And as you look at the rest of the portfolio, what other brands can you see or identify that have similar potential of a real meaningful acceleration in (inaudible) trends?

But, and again, it is not only in the US, it's around the world. I think our snack category has tremendous growth because consumers -- and it goes back to show you, Amit, consumers want healthier and healthy snacks. I think transforming some of our snacks into other eating opportunities, whether it's bars, whether it is on the go stuff, etc., there's opportunities in our snack category and carrying our brands over to that. And I will leave it at that.

I think our Greek yogurt business continues to grow high-double-digits from a standpoint. Our baby business, yes, Ella's had a bit of a slowdown at Walmart, but don't for any reason count us for a second on the side or anything. Our baby business, our formula business, our grocery business, our refrigerated frozen business and that is one of our biggest businesses today.

Our plant-based nondairy product business, big opportunity for us and a big category. Our whole condiments category with oils and mayonnaise and ketchups and mustards, big opportunities for us and will continue to grow.

Our BluePrint and just stay tuned to what is going on with BluePrint, a lot happening in the BluePrint category and we are pretty excited about BluePrint.

Rudi's gluten-free, we today -- one of the big things, and you heard John talk about it, was to get our Rudi's bakery fixed and really to focus on Rudi's and get the efficiencies there. And, boy, we have restaurants, we have retailers all calling us for more and more Rudi's, it is just making sure we can supply it and roll it out.

And last but not least, listen, you heard what I said before. In the quarter we had to overlap from last year, $13 million of no MaraNatha sales plus growth. And we were able to do that. So getting MaraNatha back in stock -- we did not ship peanut butter and raw cashew until the last week or so in December. So just overcoming MaraNatha and getting that back.

Listen, I think the first category on protein, what I am seeing there on Hain Pure Protein both on branded -- we are the opportunity in further process in deli and stuff like that, fresh meals, fresh soup -- tremendous opportunity for us.

The consumer is backing away from the frozen category wanting less and less frozen meals today, want fresh prepared foods. Want less and less cans today, want fresh prepared foods. Want less and less milk today, want more and more plant-based products.

So we are in the categories and we are absolutely seeing that. And I think our portfolio and the opportunities for us are tremendous and so many innovations in new products and you will see this at Expo.

Great. I really appreciate the extra color.

And just one is rice, Tilda. Again whole grain, basmati, gluten-free, low glycemic index and with the ethnic flair to it. I see a big opportunity in the whole ethnic market and stay tuned for some focuses there from us.

Amit, this is John, I just I can't believe I am adding on to what Irwin already said. But one category that we are very high on is personal care.

Right, right.

If you look at the numbers on what we are seeing in growth, this is a category that has really struck a chord with consumers now. And then the other one I would add -- the two others I would add would be spectrum, especially in the whole healthy fats area. And then last but not least, look, we are starting to see some nice momentum on Celestial on both the bag side as well as the strong reception we are getting on the ready to drink products that we are introducing.

And just on our personal care, that is a good point, John. We have had many people reach out to us, will you sell us your personal care product categories because they know that is where the growth is. And absolutely not because we see so much growth in that category. And if you are concerned about what you eat, how about what you put on your body. And what you wear. So opportunities there are tremendous.

I really appreciate it. Thank you.

Sean Naughton, Piper Jaffray.

So private-label, we are starting to see a little bit more of that in kind of the organic and better-for-you products, at least kind of the mass and club, a little bit conventional, which is clearly a validation of your strategic focus in the category. But can you talk about how you navigate this dynamic in the marketplace and maybe remind us how much of your business that you are kind of doing in this area at that point?

So, Sean I will touch on it and, John, jump in here anytime. Listen, I have seen private-label in this business since starting Hain has been around. And Kroger has done a great job on private-label, Whole Foods has done a great job on private-label and other retailers have too.

Being one of the largest procurers of natural organic GMO free products today and we know where the difficulty is in supply and we do this every day. They are going to run into some of those challenges too.

And yes, there is going to be the ability to do me too products and everyday products, but with that from our standpoint what is the next Chia seed, what is the next flax seed, what is the next plant-based milk, what is the next snack. We have 30 plants of our own today so we are focused on our own plants and working with co-packers. And even when we do work with co-packers we are the one sourcing the product and the packaging.

So it is something that is out there, it is probably 18% to 20% of sales. In the US less than 3% of our sales is private-label. In the UK it is different because the UK is a different market from that. But it shows just the strength of the category.

And what I will tell you is many of those private-label -- many of those retailers that want to get into private-label do come to us and ask us to do it. And it's -- the answer is, no, because we want enough supply for ourselves instead of going out and doing private-label.

Okay, that is helpful. And then just a quick follow-up. Is there some distribution gain? Obviously nice work there, Bill, for you guys. Is there anything -- can you talked about some of the fastest areas that you are seeing in the US for you for distribution gains? And are you getting -- is there any difference in the traction that you are getting in some of those channels? Thanks.

So just -- I will talk on natural. I think number one, you just see as Whole Foods plans to open 50 new stores and over the next week what they plan to open in New York, etc. So just Whole Foods and Sprouts with their store openings is great traction for us in those retailers.

And then John, you heard us talk before about 7-eleven with Sensible Portions which will be a big win for us. And we have multiple other retailers and fast food restaurants that are approaching us for different types of snacks and other products, it's just supply and demand and how we do it. But, John, do you want to talk about (multiple speakers)?

I guess what I would add is some hot categories for us. Obviously we are seeing in the UK really strong distribution gains on Ella's Kitchen. In the US we continue to see strong gains on snacks, we are seeing double-digit gains in terms of distribution on Rudi's, Spectrum continues to be a rapidly increasing area from a distribution perspective. And then so -- and Greek Gods continues to drive distribution.

Greek Gods has grown at a double-digit CAGR from a top-line perspective -- we are going on our fifth year and it continues to have some really spectacular distribution gains. Some of which I look forward to telling you guys in the next quarter when they actually show up on the shelf. So, look, we have, as Irwin said, a broad array of channels that we are seeing distribution gains as well as across the portfolio on our key brands.

Okay, thanks. Best of luck for the rest of the year.

Andrew Lazar, Barclays.

Just two things from me. First would be -- I just want to make sure I fully understand a little bit of the shift with I guess the fiscal 3Q expectations on EPS coming down a bit more versus where the Street had been.

I guess you'll still have some of the impact as you talked about from Tilda and MaraNatha, but I guess to a lesser extent than the 2Q. Inflation maybe is a bit more modest. You will have improved performance from the higher margin soup and teas business and still strong productivity.

I know FX was still a headwind, but I would assume that is kind of the case in the fourth quarter as well. So I just want to make sure I just fully understand the shift from third quarter to 4Q from an EPS standpoint.

Right. And, Ken, I think a big thing is this here -- I'm sorry, Andrew. A big thing is productivity, a big part of our productivity comes in the back half. So that is a lot of it. And just continuing savings growth and mix is what helps our back half.

When you say back half you mean specifically fiscal 4Q versus 3Q?

Well, fiscal -- yes, exactly. Three and four, but fiscal four versus three.

Okay, got it. Because the change I think relative to where at least consensus estimates were for the 3Q specifically come down quite a bit, right, and shift into the fourth quarter more aggressively. So I really just wanted to get a better sense for that. So you are saying it is primarily productivity and when that kind of really kicks in for the most part?

Well, that is that a big part of the productivity. We are looking for $55 million and so far it is $11 million plus. So you know what we've got to get in the back. And the fourth quarter is the big one.

Okay, okay. And then thinking more broadly, I think one of the key reasons for buying the Premier brand in the UK a while back was gaining scale right in the UK with retail customers to really allow you to ultimately get in a lot of your faster growth natural and organic products from the states into the UK market.

And I must admit I have kind of lost touch maybe a little bit with that -- how that has gone. Can you give us an update on maybe where you have seen some specific impact from gaining that scale, if you will?

Right. So, good question. The UK team has taken over our nondairy plant based business now in the UK, selling that through. It was going through a distributor before where margins were lower, they were not focused on the growth. So they have taken over all the Imagine non-dairy business.

They have also taken over out of Europe Lima and Danival business to sell into the UK market. They have also taken over our frozen nondairy dessert, Andrew. At the same time they are looking and working on tea and snacks.

Now we have also launched through this grocery team a brand called [Yum], which is a free from brand -- it is free from -- it means gluten-free, dairy free, etc. And it is a lot of our product lines that we sell here, but it is under the Yum brand that we are selling it in the UK.

So since we have bought this it is our nondairy business, it is our frozen dessert business, it is Celestial Seasonings, it is our snack business and it is the Danival and Lima brands that they are focused on right now.

Would you say that has been -- that has come along as quickly or more quickly than you would have imagined when you brought the Premier? I mean has it validated that main reason for buying the Premier assets or do you need even more scale in the UK to really accelerate it?

Well, I think the big thing is I come back -- there is the chicken and egg thing. We have improved the growth -- you heard what I said before, Hartley's grew 11%.

So if you come back and take our Sun-Pat peanut butter and we are doing a lot of good things with Sun-Pat. We are going to bring MaraNatha there next. And one of the reasons we didn't bring MaraNatha down where there was a slowdown is because of what we were doing there in almond butters, etc.

So with that we have improved the profitability tremendously on the Premier business, getting lots of efficiencies out of there. And where's the combination of our Premier business along with Tilda which are both grocery business and where is there some sense -- makes sense with Ella's business, etc.

So there is a lot of opportunities there. Have we done them all yet? No. But are they in our sites? The other thing is from a grocery business, Andrew, we weren't really selling Costco and club stores before, there's other retailers. We have expanded into Fretemage selling foodservice -- selling foodservice packs of jams and peanut butters and that where we weren't selling -- they weren't selling it before but going through the Hain Daniels operations.

Got it. Okay, thank you and see you down in Florida.

Ken Goldman, JPMorgan.

Just one quick question because I know we are running a little long. Regarding frozen, we are seeing a lot of changes in that aisle today really shifting from some of the more staid entrees to some items with I guess more of a health benefit. And the Journal had an article today about frozen fruit growing fast.

So is there an opportunity for Hain to play a little bit bigger in this space? Irwin, you talked down frozen in general this morning versus prepared fresh and clearly that has been the right move and strategy for a while and I think it still will be. But are there some changes happening in frozen that maybe you can benefit from that don't seem as obvious to us right now?

Yes, listen. Where we are strong in frozen today and we sell a lot of frozen pastas and that more to mainstream, more to Walmarts and more to areas like that. We also have a very strong frozen kids meal under the Earth's Best name, frozen waffles, frozen pancakes.

Listen, our research tells us retailers -- and we talked to retailers, Ken, about them -- the size of the frozen section, they are making smaller frozen sections. We have done a lot with frozen desserts on our nondairy ice creams, etc. But we have got our frozen ethnic meals out there under our Indian dishes and we have not seen great success with them.

So -- and also we follow frozen around the world where if you want to look for the frozen food category in the UK it is at the back of the store, the worst part of where foods are merchandised.

But I think, listen, innovation is something, there is an opportunity on frozen. But everything -- what we are seeing today is this here, fresh, fresh, fresh, fresh because we're all on the go. And the only thing is health today in frozen meals is the sodium levels and what else is in it to keep it for six months or 12 months.

And we -- there is a lot out there in competition in frozen. We just think there is a big opportunity in the fresh category. Ken, we have the ability because we have our own frozen plant to do things if we ultimately see that.

Okay, that is helpful. Thank you very much.

And the only thing is from frozen -- I am being reminded by my finance people here -- a lot smaller margins in the frozen category today too.

Great, thank you.

Andrew Wolf, BB&T.

In the US the convenience store market, it looks like a pretty big win here with 7-Eleven. So is that for just the US? I mean they have 8,000 stores. Or could that -- they also have a huge presence in Japan and Asia.

So, Andrew, this is John. The US win is two Sensible Portions SKUs at 4,000 7-Eleven stores. So look, that is a huge step forward for us. We have very little presence there. And we look at it and we think we can -- with 7-Eleven as our base there are several other chains that we can go chase after with Sensible Portions because that is a great item for that channel.

And, Andy (multiple speakers).

That was going to be my follow up. So are there other distributors or chains chasing this yet or do you think this is sort of the launching pad?

No, no, I think first of all we are chasing them and we have got a great story on it. And then when they see their competitor across the street has it, they are going to want it as well.

And, Andy, we have -- I have been to Japan, met with the 7-Eleven people. They are also looking for healthier snacks in Asia and it is just a matter of us putting up a factory there to do it. And that's what it is and that's what has been proposed to us.

Sticking with the US and kind of a tag on to Ken's question. Obviously fresh is where it is at here. What is Hain's view on perhaps investing in using its expertise, but I would assume some investment as well, in going after the chilled soup market, which just observationally walking around stores you can see there is, versus just a few years ago, a lot more product in chilled soup. Obviously you have a great offering in ambient, but do you think that could be a complementary business line for Hain in the US?

Yes, potentially it could be. As a matter of fact we will be at Expo West and we will be showing some Imagine refrigerated soup products and getting a gauge of what the interest level is to bring them in for the next season.

And stay tuned for BluePrint and soups too, Andy. If you can cleanse with juice you can cleanse with soup. So just stay tuned with BluePrint --.

Souping.

What is going on with souping, as John said. And listen, if you come back and look at it no different from what I said about the UK and the decline of canned soups. I mean we are seeing that here. And again, our concern -- our feedback from our consumers is when you go to a soup bar and you have someone standing over it, whether they are sneezing over it, etc., they want to buy fresh soup with a shelf life on it more than three days.

We have lots of experience in HPP. And HPP can give us anywhere from 25 to 30 to 40 days on soup. And we are doing that today with BluePrint. We are doing that with some of our deli products today. So we are looking at it. It is easy for us to get in the soup business but with a three, four day shelf life on it it is not worth it. So it is extending the shelf life and being able to have the quality and the integrity of the product.

That's it for me. Thank you.

David Palmer, RBC.

Just a quick follow-up on US organic growth. We were modeling almost a $20 million contribution from Rudi's this quarter which would have been a mid-single-digit lift to sales. And with that we are having a hard time building up to the 8% organic growth you mentioned. Is there any help you can offer with that?

The way we look -- the way we always measure organic growth is we take the existing businesses and the growth that we drive for that in the quarter and we take only the gains that we drive on acquisition. So the only acquisition we have in the US this year is the Rudi's. And I believe we drove about $2 million in growth this quarter on Rudi's that wasn't there prior to selling it.

And, David (multiple speakers) and David, again, that is ex-MaraNatha. So maybe that is where you are getting caught up.

Yes. I think those are probably the two explanations. And just a follow-up on your M&A strategy. Your purchases in recent years have leaned a little bit towards the UK and international side. And it seems like going back further, you go back four or five years, the subsequent growth you have had from acquired US brands seems to have been greater than the growth you have had on a multi-year basis from the international UK acquisitions.

Do you see it that way? I mean if you were sort of grading your -- the growth rates in the out years from your acquisitions, do you see more of a reason to go back to domestic with the acquisitions and how do you see your bias going forward? Thanks.

So, on that question, part of acquisitions outside the US are done for strategic reasons. I've heard the question before from Andrew Lazar about buying a grocery business and the base growth in that grocery -- the base that will allow us to bring other brands and put the infrastructure in place and you heard us talk about Hartley is growing at 11%, bringing our nondairy business in.

So part of the growth number you have to focus in growth we are getting from other product lines and other categories and what we have been able to do. Because my feeling always has been just to walk into a marketplace.

If we walked into UK and say here we are with Earth's Best we want to be in the baby products, there is Cow & Gate, there is Heinz, there was Plum, there was for others there before us and the retailers would have said, yes, give us all this money plus you are dealing with private label brands. Ella's today is the number one baby food in the UK.

So first of all, David, part of the strategy is to get into that marketplace and buy the strong one or two brand where you have local management, a local brand and bring in our other brands alongside of it. So it is just part of that. And you have got to look at it, what is the growth we got in our other brands.

I come back and look and say, yes, UK is a bigger market. As you step back today our base business Whole Foods and Sprouts and they're going to open up 1,000 stores and a big focus on natural organic focusing on the US is something we would love to continue to do and do future acquisitions here.

In the UK especially 55% of sales today come from branded, 45% come -- 55% branded, 45% come from own label. So you are competing with Tesco's brand, Sainsbury's brand, Waitrose brand where in the US private-label today and maybe in the natural organic category is smaller but it is only 18% of sales.

So focus wise we would like to do acquisitions here, but if they are good strategic acquisitions we would look to do them in the UK and Europe. If we are going to do a transformational acquisition is not going to be outside the US, if that is your question.

Got it. Thank you very much.

But on the other hand, David, name 27 -- or 27 times revenue or 9 times revenue per acquisition is not in our palette either.

Got it, thanks.

Rupesh Parikh, Oppenheimer.

So, Steve, I wanted to ask just a little -- get a little more color on operating margin. Maybe if you can help me understand maybe the operating margin cadence in Q3 and Q4. Based on your commentary it seems like maybe Q4 we could expect more improvement than Q3?

Yes, that is true.

Okay, is that mainly driven by the productivity initiatives or is there anything else unique we should be considering?

It is productivity and it is just mix on Tilda, which is a bigger -- because of Ramadan and shipments like that, that would be a big part of it. In order to drive the increase profitability in Q4 it is going to come from a combination of productivity and also some leverage on SG&A. It would come (multiple speakers).

Okay. And then, Irwin, maybe a question for you. As we sit here today it seems as if the consumer environment continues to improve, better jobs growth in the US, lower gas prices. As you look at your portfolio are you seeing any trade up within your portfolio? Have you thought beyond going trade up to natural and organic?

So wait, I just -- are we seeing trade up?

Yes, as a consumer --.

Okay, you know, listen I don't think we have seen it totally yet, but in speaking to our retailers and seeing the demand and where am I seeing it -- listen, what we are seeing today in AOC and consumption growth, and this is our AOC consumption growth is across mass-market and grocery. So we have to being seeing some of the effect. Which again, what they are going to the stores were often and I think having more disposable income.

Okay, thank you.

Rupesh, it is Steve again. One of the things that we had mentioned back in August and again in November was that within SG&A there is an element of discretionary spend that can shift around between quarters. And that as we get closer to each of the quarters we would finalize those numbers. So what we are giving out in terms of guidance for the back half of the year now reflects that.

Okay, thank you.

(Operator Instructions). John Baumgartner, Wells Fargo.

Just wanted to touch on the gross margin here. And I guess specifically what you are seeing there in terms of any drag from promotion. Has there been any reduction in pressure versus the last few quarters and how should we think about that going forward in the back half?

Actually as we look at it right now, this is the first quarter in the last four where we have not seen the impact of moving promotion dollars from below the line to above the line. And we have seen no absolute increase in our promotion spending for the US on a year-on-year basis.

Okay, and the drag for the back half should be more or less neutral as you see it right now?

That is what we are calling at this point, yes.

Okay, thank you.

Okay. I want to thank everybody for their time today. Our call has gone on a little longer than we expected because there were a lot of questions and hopefully we have been able to give you a lot of the answers.

What I want to come back and say, even with our currency headwind we have been able to go ahead and mitigate a lot of that and with that just being off a few pennies. But with that and our having a fire, having a withdrawal, these are just extraordinary things that happen within a year. And it shows you how Hain is a diversified portfolio, how we are diversified around the world and how we go in there and deal with all these.

I look forward to telling you a lot more about Hain. This is the first time that we will be appearing at CAGNY in probably about 14 years. Andrew Lazar convinced us to go and it was a good convince. So I may be still on crutches, but I look forward to be at CAGNY and talking about all the great things still happening at Hain and be able to show some of our new products there.

And I invite those that would like to come to our Expo in Anaheim in March where we will be debuting all our new products. And actually this show has become one of the top shows in the world, it is like the boat show, the car show, the innovation last year, well over 100,000 plus people attended. We will be hosting an analyst meeting at that show. So check with Mary and get your invitation and your tickets early because I know it will be pretty busy.

So in closing, what I want to say is, number one, I want to thank the Hain team around the world. Because I've got to tell you, just every day it shows whether there is a snowstorm, whether the withdrawal, whether the fire, it is 24/7 that everybody here is entrenched to deal with and to move along.

And personally whether it was with my accident that everybody here has to pick up the pieces and pull along. And I've got to tell you, I am so lucky to get to work with such a great team, dedicated team and most important such a smart team within Hain today, which absolutely shows within our results.

In regards to our brands, our categories, do we get everything right? No. Do we make mistakes along the way? We are human. But I've got to tell you when you come back and look -- and trust me, I am the hardest on myself, the hardest on our team.

And what we are able to do out there with the challenges thrown in front of us and in tough economy, tough markets, what we are able to achieve, what we are able to accomplish, what we are able to put out there. And again, we are sourcing some of the toughest ingredients, toughest products. We introduce infants and toddlers to their first foods.

And think about GMO, think about natural, organic, gluten-free. I mean we have been talking about these for years and years and years and years. So just to think how we've been out in the forefront and what we will be out with in the near future.

It kind of reminded me with the BMW commercial with Bryant Gumbel and Katie Couric talking about what the Internet was and what dot.com was and what an email was. And you come back and that was back in 1993-1994 it was -- you come back in 1993 and 1994 when we were talking about organic, GMO free and natural and people would call up and say what is that.

But the head start that we have had, the relevance and importance it is today. And I've got to tell you, those that are still on the phone, talk to your millennial's that live with you or talk to your children and ask them what they are buying, what they know about and see where Hain is positioned.

So with that stay warm, we've got lots of snow storms coming up so buy lots of our products. Look forward to those at CAGNY, look forward to those in Anaheim and I look forward to coming back and telling you about the great things at our next earnings call, which, trust me will be sooner than I know and we will see you all then. So stay healthy during the winter season and drink lots of our products. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.