Q1 2020 Earnings Call

Good day and welcome to the Hain celestial first quarter.

School year, 2020 earnings conference call and webcast.

Participants will be in listen only mode should you need assistance. Please secondly conference specialist pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question you made press Star then one only touchtone phone.

To withdraw your question. Please press Star then too. Please note. This event is being recorded.

I would now like to turn the conference over to MS. Katie Turner I see our Investor Relations. Please go ahead.

Yeah.

Thank you good morning, and thank you for joining us on Hain celestial <unk> first quarter fiscal year 2020 earnings conference call on the call today are Mark Schiller, President and Chief Executive Officer, and James laying rock Executive Vice President and Chief Financial Officer. During the course of this call management may make forward looking statements.

Within the meaning of the federal Securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those described any sports looking statements.

Please refer to handle actuals enroll court on Form 10-K , and other reports filed from time to time with the Securities Exchange Commission. It's press release issued today are detailed discussion on the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.

Please note managements formal remarks today will focus on non-GAAP or adjusted financial measures. A reconciliation of GAAP results non-GAAP financial measures is available in the earnings release.

The company's also prepared a presentation outlining the fiscal 2020 outlook and additional supplemental information, which is available on its website under Investor Relations. This call is being webcast and an archive of it will be available on the website as well and now I'd like to turn the call over to Mark Schiller.

Thank you KD and good morning, everyone.

Earlier this week, that's that's my one year anniversary with how you did not surprisingly, reflecting on the journey, but I'll say the lease it's been an incredible year.

Shortly after I was hired the B to C yelling that with some of your early on and I promise to clarity credibility and consistency to help strengthen your confidence in Haiti.

After about 90 days I've been laid out a strategy for our complete transformation, which consisted of four key pillars.

One simplifying the portfolio an organization to strengthening our core capabilities.

Expanding margins and cash flow and for reinvigorating profitable top line growth again, a core set of high potential brands.

That's articulating that strategy, we've undertaken numerous and significant changes to our portfolio, our business model or culture and our team.

Examples of our progress thus far includes simplifying the company by divesting non strategic brands with sales of almost $750 million.

Solid anything from five sales forces in the U.S. to one from over 30 brokers to just a handful.

Consolidating from over 30 distribution points in North American to less than five and eliminating almost 10% of our skews worldwide.

On building capability, we've hired a new senior team and brought on several new board members standardize keep processing is like forecasting innovation and project management, we've reorganized into cross functional business teams with grid clear accountability and Todd rewards to it.

On improving margins and cash flow, we've eliminated over $50 million of an economic investment since last January Delta, new personal care planting in California, we significantly improved customer service, thereby reducing fines penalties and discards and we've reduced inventory by over $60 million since our peak in August of 2018.

Lastly, on driving growth and of course that of high potential brands, we're optimizing assortment through our mats the mix program, creating a multi year margin accretive consumer validated innovation pipeline, creating annual customer business plans and strategic partnerships and reassessing, our pricing model and show.

We're going through a significant transformation and have accomplished a great deal with much more ahead as we build the operating model for continuous growth.

Our program a progress is already showing in our results. We've started executing our strategy gross margins and EBITDA margins have expanded several hundred basis points and in North America, where issues and opportunities where most of it and I'm very proud to report EBITDA grew 55% this quarter the first year over year growth milk.

Just two years more on the results in a minute, but I wanted to pause and thank our team for their hard work and resilience.

Customers for continuing to support us as we work to become not just better but their preferred business partner.

And our investors for their continued confidence and trust and Hain celestial.

I'd go back to Q4 earnings call and the subsequent presentation at Barclays. We gave some guidance in direction on the rest 20 plans and I'm pleased to report that we delivered on all our key metrics in Q1.

With regard to first quarter financials. We told you expect one that's sales would be down in the first quarter and the first half of F 20, similar to what we experienced in the second half from fiscal 19, as we continue to pull out on economic spending rationalized skews.

The first quarter, we delivered top line down, 7%, which was down 4% in constant currency in line with our expectations and second half year ago.

Second despite the decline in topline. We also gave guidance that each quarter, we would deliver expanded adjusted gross margin and adjusted gross margin dollars versus last night.

Q1, we delivered an adjusted gross margin increase of 240 basis points versus year ago, finishing at 20.9%. Adjusted gross dollars were also up 5.1%, which was 7.2% in constant currency.

Third we gave guidance that adjusted EBITDA margin and adjusted EBITDA dollars would grow each quarter as compared to fiscal 19.

First quarter I'm pleased to report that adjusted EBITDA margin increased 110 basis points versus Q1 last year to 6.7% with solid improvements across global operations.

EBITDA dollars were up 15.6% in constant currency.

This is only the second you're on your quarterly increase in EBITDA margin in the last two years reaffirming that our financial performance is improving and our new strategy is yielding strong results.

Ports and lastly, we also told you that on the earnings call the cash flow would improve materially versus fiscal 19.

Please to report that we accomplish that objective as well and James will provide more detail in a few minutes.

In summary, our first quarter results showed continuing progress against our strategy commitments and we remain on track to achieve our fiscal 20 operational and financial objective that we laid out during investor day back in February .

Now to provide a little more color on the individual reporting segments, Let me start with our North America business.

Our net sales declined 6.7% lined with previous quarters and as we projected. This includes a conscious decision to not overlap at 10 million dollar customer program from year ago that was on profitable.

Looting that one program that sales would have been down 3.2%, demonstrating some topline trend improvement and the ongoing business, even with the SKU rationalization and reduction in on economic spending.

Adjusted gross margin improved 470 basis points to 23.6% and adjusted gross profit dollars improved 16.6%.

Adjusted EBITDA margin for North America also had its second consecutive quarter of year over year improvement ending Q1 at 8.8% up 350 basis points from Parago EBITDA dollars were up an exceptional 55%.

We continue to believe there are multiple opportunities to improve our margin structure and overall profitability in North America. They have a strong team in place delivering results against our stated objectives and working in the right areas with enhanced resources to drive our future growth.

Our financial progress has improved significantly and our confidence in our transformation is growing every day.

Breaking the North America portfolio down further.

We delivered improved trends on the get bigger brands as the sales declined narrowed from down 5.6% in Q4 to down 2.6% in Q1 and that includes not overlapping unprofitable 10 million dollar customer program on personal care.

Excluding that one proactive decision sales on the get bigger brands would've been up for the quarter.

Similar to what we reported last cuts last quarter consumption on the get bigger brands was flat in measured channels [noise] non promoted dollars grew and incremental dollars declined double digits as we reduced on economic spending.

We eliminated underperforming skews and improve assortment velocities and they see the continued to grow this quarter.

Portland way the average items carried which was down almost 10% last quarter was down only 5%. This quarter. So that's a good indication that our distribution to stabilize it.

On the get better brands, which are being managed for profit our gross margins improved 480 basis points from year ago, and our EBITDA margin improved 540 basis points and EBITDA dollars were up 170%.

So again, our strategy of segmenting the portfolio is working to get bigger brands are strengthening on the topline while continuing to deliver strong margins.

And they get better brands are fueling profitable growth.

In summary, I'm very pleased with our progress in North America, and our ability to deliver on an increase in adjusted gross margin and EBITDA expansion from Q1 last year, while creating a much stronger foundation for future growth.

Now, let me shift to our international business as we communicated last quarter, we knew currency fluctuations primarily in the British pound, but at a level of complexity to our Q1 results.

Back to top line to be down due to planned elimination of unprofitable skews and an increased trade investment and EBITDA ought to be flat up on a constant currency basis with that in mind. The international business results in the quarter were also very consistent with our expectations.

Net sales were down 7.4% in the quarter, which equates to down 2.5% in constant currency.

Forex represented an 11 million dollar headwind.

Similar to the U.S., we have segmented the international brands and our aggressively reducing on economic spending.

This is particularly evident in our UK fruit and soup businesses and will continue for a few more quarters between that aggressive margin management and customer inventory reductions topline was down in the quarter, but we saw solid growth across a number of brands.

We are encouraged by the strength of our portfolio, where we have more than 10 number one and number two share brands. Many of them are exhibiting growth with both our plant based protein plant based beverages, showing very strong double digit growth.

Adjusted gross margin was 17.4% in the quarter down 16 basis points from Q1 last year, driven primarily by increased trade investment and product mix.

Adjusted EBITDA dollars were down 1.3% a grew 3.8% in constant currency.

EBITDA margin was up 60 basis points. This was slightly ahead of our plan.

All in all given the difficult business environment in Europe , and the uncertainty in the UK surrounding Brexit the team did an exceptional job navigating these challenges and delivering solid performance.

It's a testament to the strength of our brands in our leaders and I can assure you that regardless of what happens on December 12 from the UK. Our team has prepared and ready to drive continued success.

I also want to give you some details on progress, we're making against their first strategy simplifying the organization.

We indicated on Investor day that we had too many brands for a company our size and the complexity was impacting our ability to execute and deliver superior performance.

The that ended the quarter, we completed the previously communicated divestiture of Tilda as well as two other brands Sunspire and Arrowhead Mills in October given these two brands had declining revenue at negative EBITDA margins were pleased that we sold these two for $15 million. That's a great example of improving our PML while getting.

Smaller and simplifying the organization at this time.

And Tony.

Since we communicated our strategy February to simplify the portfolio. We've completed seven divestitures. This includes hate Hain pure protein businesses, consistent Plainville Empire, kosher and Freebird brand along with west to wait till the Sunspire and Arrowhead Mills are teams done a tremendous job in this area, we continue to pursue margin.

That's true opportunities and you should expect to see more divestitures in the future on brands that are less profitable or otherwise lessen the strategic fit within our core portfolio.

Now, let me briefly turn to fiscal 20 outlook, which James will provide more detail on.

As you recall from Investor Day, We told you North America would deliver further adjusted gross margin an EBITDA margin expansion as we continue to focus on economic growth and productivity along with that we expected topline would continue to shrink in fiscal 20 before growing again.

Today, we're reiterating our patients for these results specifically, we expect to grow adjusted gross profit dollars and margin and adjusted EBITDA dollars in margin versus year ago in each of the remaining quarters of fiscal year.

Re establish a profitable unstable baseline from which to grow decline on the topline throughout fiscal 20 with second half trends better than first half and build momentum on the get bigger brands for topline acceleration next fiscal year.

And effectively an attention we manage the net impact of volume price mix and margin.

In summary, our results continue to demonstrate signs that our business transformation strategy, while still in the early stages is on track and progressing nicely.

Our entire team is working together to achieve our long term financial commitments with much greater discipline around a very clear strategy and a culture focused on productivity and profitable growth.

Before I turn the call over to James to add more color on her Q1 performance and balance of your outlook I wanted to share that we will be making a CFO transition in the coming weeks James will be leaving Hain after leading or finance team for the past several years.

After a long search process, including many qualified candidates I'm excited to announce our new CFO Javier a drove though will be joining us shortly from the Hershey company Javier has a long and successful history and consumer foods industry at Hershey, Dole and with the Boston consulting group before that and his financial and stay.

Dziedzic document will be key ingredients to further support our transformation I.

I want to thank James for his many contributions over the past several years he's been instrumental in my Onboarding and the building of the foundation for our successful turnaround in the United States.

I appreciate his hard work and tenacity and I speak for all the pain when I say he will be missed.

With that let me turn it over to James who will provide more detail on our Q1 financials in fiscal 20 guidance.

Thank you Mark and good morning, everyone first I want to stop by thanking the board of directors and everyone at Hain for making the past four years show rewarding.

He has been a privilege to work alongside this talented and dedicated team I am proud of what we have accomplished I know that business on a great path, we have the right strategy and a well on our way to delivering the transformation that we laid at laid out at our Investor day last winter.

I look forward to continuing to work closely with Mark Javier and the team during the transition to the ended the year and will be rooting for their continued success.

Today I'll focus my discussion on our financial results from continuing operations unless otherwise noted.

First quarter consolidated net sales decreased 7% year over year to 482 million <unk>, 5% decrease on a constant currency basis, which was in line with our expectation.

When adjusted for constant currency divestitures and certain other items net sales decreased 1% first the prior year period.

Adjusted gross profit was 101 million 103 million at constant currency adjusted gross margin was 20.9% a 240 basis point improvement year over year.

Improvements were driven by trade efficiencies and supply chain cost reductions in the U.S. and productivity savings, partially offset by commodity inflation.

SGN age percentage of net sales was 17.4% up from 15.2% in the prior year period, excluding marketing expenses SG Nay as percentage of sales was 13.9% up from 11.8% in the prior year period.

This was driven primarily by the reinstatement of bonuses and long term incentive compensation plans.

Adjusted EBITDA increased to 32.1 million 33.2 million, a constant currency compared to 28.7 million in the prior year period.

Adjusted EBITDA margin improved 110 basis points year over year.

Merrily due to profitability improvement in North America through our SKU rationalization elimination of uneconomic investments and supply chain efficiencies and productivity.

From a profit perspective as expected Q1 delivered year over year, adjusted gross margin and adjusted EBITDA margin and dollar expansion.

Reported adjusted EPS of eight cents based on an effective tax rate of 27.4% compared to nine cents in Q1 last year with an effective tax rate of 27.6%.

It's mark covered much of our second reporting highlights, let me transition to our cash flow and balance sheet.

Operating cash flow for Q1 was negative three point Sixmillion, which was a significant improvement from a negative 19 point sixmillion in the same period last year capital expenditures were 13 million compared to 22 million from the prior year period.

Free cash flow includes 25 million from the prior year period, and we continue to expect an improvement in our free operating free cash flow generation as we further improve our cash conversion cycle reduce inventory I continue to improve profitability.

I just September Thirtyth, our cash balance was 20.5 million and net debt was 305 million.

Our inventory is 60 million less on a constant currency basis, then that our peak inventory levels in August of 2018.

Hi Bank leverage ratio was 2.75 times as of September Thirtyth compared to 4.22 times at the end of fiscal 2019, as we use the majority of the proceeds from the sale of tilda to pay down debt.

It should be noted that we have a revolving line of credit and Ken increased borrowings at any time to address business needs.

In terms of productivity, we have made significant progress in the quarter as demonstrated by the significant improvement in gross margin.

As discussed on our Q4 earnings call. We're on the process of eliminating 350, low profit and velocity skews, primarily in North America, we're making good progress as we work through customer resets and when completed skew rationalization will improve North America gross margins by approximately 150 basis points.

We've also seen productivity improvement and cost savings in our supply chain discards DSW costing customer finds and fees have decreased over $10 million versus the prior year period.

Now focusing on our outlook for fiscal 2020, as a reminder, guidance excludes tilda, which contributed approximately 200 million net sales and 25 million of adjusted EBITDA for fiscal 2019.

For fiscal 2020 in constant currency, we expect adjusted EBITDA of 173 million to 198 million, an increase of 5% to 20% as compared to adjusted EBITDA of 165 million in fiscal 2019.

On a reported basis adjusted EBITDA of 168 million 292 million compared to adjusted EBITDA of 165 million in fiscal 2019.

Constant currency adjusted EPS is expected to be 62 cents to 75 cents, an increase of 3% to 25%.

Adjusted earnings per diluted share on reported basis are expected to be in the range of 59 cents to 72 cents compared to adjusted EPS of 60 cents for fiscal 2019.

The effective tax rate of 20, 628%.

On an operating basis, we expect adjusted EBITDA will improve by 18 to 42 million or 11% to 25% a major improvement from last year and reflective about continued momentum and confidence in our plan as previously noted the reinstatement of bonuses at 100% compared to 50 per se.

In fiscal 2019 creates an approximately 9 million dollar headwind for the year in Q1. The bonus recent reinstatement was a 6 million dollar headwind.

So while our adjusted EBITDA was up 12% in Q1, if we exclude this onetime bonus add back adjusted EBITDA growth from continuing operations would have been 33%.

Through the fluctuations in foreign exchange rates, particularly with the British pound and uncertainty around Brexit.

Well guidance assumes an exchange rate of $1.21 as compared to $1.30 in fiscal 2019, which reduces EBITDA by approximately 6 million compared to fiscal 2019.

The average exchange rate for the quarter was $1.23, which had a de minimis impact on our results. If the exchange rate hold at the current dollar 28 to $1.29. We expect a four to 5 million dollar favorable impact to reported adjusted EBITDA.

Our guidance in constant currency reflects adjusted EBITDA growth of 5% to 20%.

Our adjusted earnings per diluted share on an operating basis when increased 13 cents to 26 cents, an increase of 22% to 43%, which demonstrates significant progress from fiscal 2019.

The reinstatement of bonuses creates a six cents per share headwind. Adjusted EPS is also impacted by five cents per share headwind from our long term incentive compensation program.

Four cents per share headwind from foreign exchange.

Fiscal 2020, we expect productivity savings of approximately $90 million similar to what we generate in fiscal 2019 with slightly lower inflation.

Interest and other expense are expected to be approximately $23 million flat compared to last year.

Depreciation amortization and stock based compensation expense of approximately 65 million compared to $55 million fiscal 2019.

Anticipate cash from operations to being a range of 110 million to 140 million compared to 39 million in fiscal 2019, a 70 to 100 million dollar improvement from the prior year.

We expect to 15 day reduction in our cash conversion cycle from 75 days to 60 days driven by ongoing inventory reductions in the U.S. the sale of Tilda, which was a cash intensive business as of the ended the first quarter, our cash conversion cycle already decreased to 62 days.

Cash flow guidance includes 20 to 25 million of associated charges related to the restructuring and skew rationalization that started in Q4.

We expect capital expenditures of 70 to 80 million as you are making investments in manufacturing so our higher growth businesses can meet demand and productivity investments will improve margins.

Mccain is perspective, we expect net sales rate of decline in the first half of this yet to be similar to the second half of 2019 due to the continued reduction on economic spending and SKU rationalization.

That in the second half the rate of decline should improve driven by momentum in the get bigger brands from assortment optimization innovation and marketing.

From a profit perspective, we expect each quarter to deliver adjusted gross margin and adjusted EBITDA margin expansion versus fiscal 2019.

And adjusted EBITDA dollars will grow each quarter as compared to fiscal 2019.

In total we expect profitability to improve as the fiscal year progresses, with Q3 and Q4, representing the largest dollar contribution causes of the year.

Operational and financial results demonstrate that our transformational strategy is working and we are confident in our plan and ability to further progress throughout fiscal 2020 with that I will turn the call back to walk.

Thank you James in summary, we have confidence in our strategy and remain committed to delivering strong consistent results for all our stakeholders. We're now happy to take your questions operator.

We will now begin the question and answer session to ask a question. You May proceed Star then one on your Touchtone phone.

If you are using you speakerphone, please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please.

Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

The first question comes from David Palmer of Evercore ISI. Please go ahead.

Hi, Good morning, I, just missed that last point about the cadence in 2020, you said that EBITDA would be improving every quarter I believe what did you say about sales on that front and I have a follow up by about a SKU rationalization.

So the earnings will follow what we gave in guidance David So first half top line will be similar to what it wasn't the second half last year so down.

Mid single digits.

And then improving in the second half of the year, but gross margin dollars gross margin.

An EBITDA dollars, an EBITDA margin will all improve every quarter year over year.

So.

Is your thinking that the SKU rationalization journey continues in 2021 a is that.

How you're thinking about it because that really is the question I have it's been it's been so difficult for us to disentangle ASCII rationalization versus lost shelf out there.

For many companies.

Particularly in the measured channels, the that seems to be a trend and and beyond that.

Does feel like a little bit about a treadmill right now where.

You are getting absolutely the margin expansion that you expect but the revenue.

Loss from Sq rationalization is also not ending so any thought about when that inflection point will happen where.

EBITDA gains might start to really accelerate because that SKU rationalization drags starts to taper off thanks.

Good question, so back when we did Investor day remember the guidance. We gave was the top line would be down.

In fiscal 2000, a more stable and 21, and then growing and 22, but with regard to skew rationalization.

So the SKU rationalization that we started in Q4 of last year will end some time in Q4 of this year.

My expectation is however that you're always pruning nonperforming skews.

And replacing them with better skews the difference going forward, Dave It should be that we have an innovation pipeline that allows us to replace our own underperforming skews with new skews. The challenge we had when we laid out the guidance on Investor day, as we had a bear pipeline on innovation. So we were taking things out without really having anything proactively.

Put in its place so I would expect that we will be more one in one out going forward once we get through the rationalization that were in the process of executing.

Thank you I'll pass it on.

The next question comes from Alexia Howard of Bernstein. Please go ahead.

Good morning, everyone.

Good morning, Hi, I'm, so I'm trying to ask about where things are going all the marketing spending side of things I think one of the comments that I often get from people is.

I am expectation that varies a lot of reinvestment and brand building innovation that really needs to happen.

Obviously, youre right Youre a year in at this point.

Do you imagine that varies a lot more reinvestment that that will need to I'd be put into the business on the marketing and innovation side of things or where does it finished at the moment. Thank you.

Yes, so when we laid out the strategy one of the things that we told you was that we were spreading the peanut butter very thin and supporting every brand.

Sufficiently so what we've done as we moved a lot of the dollars from the get better brands to the get bigger brands such that in the quarter. As an example, our marketing spend on the get bigger brands was up 159 basis points versus year ago, which is a couple million dollars.

All funded by taking it out of the get better brands. So the first thing I would tell you is there's there's an opportunity for us to increase investment on the high growth potential brands just by reallocating dollars. The second thing that we also expect is because we have so much money in the middle of the PML that we are.

Pulling out that we believe that we will be able to reinvest some of that back into the brands, while still delivering bottom line growth. So long long answer or short answer to your question would be.

We do expect continued investment, but we expect to self funded versus it being.

Something that de rails, the algorithm that we've laid out on Investor day.

Great and as a follow up.

There's been lots of discussion about the SKU rationalization, but can I ask about what your plans on a brand level. You've obviously got you all your top brands that are getting the investment and doing relatively well, but you do have a long tail brands at a much smaller and presumably much less profitable.

Is the plan to phase out some of those could you possibly sell them.

What's the plan for that tale of the portfolio in North America, Thank you and I'll pass it on.

Yes, so the.

The first thing we've said is.

We're going to work aggressively to improve the margins on those business. So on those businesses. So I'm happy to report just in this quarter alone our EBITDA margin on the get better brands improved 540 basis points. So we've done a tremendous job in terms of.

Stripping those brands down to the things that make money and eliminating things that don't that said. We've also said publicly that if a brand is not strategic for us or it would take very significant investment to turn it around investment that we come at the expense of the upper get bigger brands that we think have much more potential.

We will explore selling it if appropriate and if theres no logical buyer and it isn't worth more to somebody else in their portfolio. We will also consider shutting it down so all of those are options. The bottom line is we have to get these brands to either perform well or we should look for an alternative and that's why you.

See sunspire in Arrowhead, leaving the business both of those where money losing brands that we were able to find somebody to buy a we got a 15 million dollar check for it and we immediately improve the piano and simplify the organization by doing it. So I would expect you'll see continue with.

[noise] efforts in that area and yes, there will likely be more divestitures or shutdowns in the future, but that said, while we own. These businesses were going to work aggressively to continue to improve the margins and we're doing that.

Great. Thank you very much I'll pass it on.

The next question comes from still.

Chappell Suntrust. Please go ahead.

Hi, This is lucky on for Bill Thanks for taking the question.

Just circling back to skew rationalization as you move down that path have you started to notice any competitive response.

And secondly.

As far as the tea business going into the peak season, what gives you confidence for this particular season in terms of and innovation or new placements. Thank you.

Yes, so on SKU rationalization look we're in a competitive.

Industry, and there's always competition for shelf space as we eliminate skews from our portfolio, we certainly try and replace them with other better turning skews in our portfolio, but there's other people coming with innovation. So one of the reasons that the topline is down as we are losing distribution on these underperforming skews and we are a net.

Negative on distribution.

I would expect that will continue until we start lapping the elimination of the on economic investments and the elimination of skew rationalization and come with innovation as I said earlier to replace our own.

Our own underperforming skews so part of the reason, we expect second half to be better than first half is we will have spent 12 months eliminating the on economic spending so thats now in our base and we will be coming.

To the end of the SKU rationalization.

And introducing some new innovation all of which should help improve our distribution trends going forward. So I'm less.

I'm less worried about the competitive environment and more worried about us pruning the tail getting our innovation to market.

Having a more strategic growth conversations with customers that were having now which.

Is ultimately whats going to allow the growth businesses to get bigger businesses to increase in sales as we projected.

With regard to your key question, we're looking forward to a very strong tea season for a couple of reasons number one we have the t. well innovation that was in test market last year remember that's more of a health and wellness T very incremental to our brand very incremental to the category and we have been out selling that more aggressively.

To other customers now that we have the test market and we're getting some good traction on that.

We also have made some good traction on assortment optimization on T. and we also have a new AD campaign in the works that will be coming out to market as we get into the cold weather. So we are pretty well set up for a good tea season. We also some very good merchandising wins that were aware of I expect that you'll see some very.

Robust numbers as we start to get into the winter months.

Thank you.

The next question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Hey, Thanks, yes so.

Just on on some of the to the new innovations Mark can you talk about sort of the strategy in plant based products.

Yes. So as you know we have a strong client base business Linda Mccartney in the UK, we have a strong plant based business even in Canada. We are in the process of working with those two groups to figure out how we best our re launch into the United States with a plant based offering.

Our in the progress in the process of.

Finalizing what that will look like and we will get that into some kind of a test.

The second half of this year, rather than spend a year or doing all kinds of consumer research. We've got a good foundation from the two brands that we already have and so we're going to do more of the learning in market.

And get something into the market in the second half.

Okay, Great I'll hop back in the queue. Thanks.

Okay.

The next question comes from Michael Lavery of Piper Jaffray. Please go ahead.

Good morning, Thank you.

Good morning.

Can you just sticking on the innovation can you give us a sense of some of the timing and magnitude we should expect and when you talked about the pipeline being seen in or or Burberry. When I think you said at Investor day, obviously, theres a bit of a time it takes to really get anything more compelling readying out the door is it really.

More around.

Sometimes for Q, even that we should expect to see some of those coming are there any sooner and bend are these bigger ideas or maybe just smaller type sort of flavor extensions some of that color would be helpful.

Yes, So we had a board meeting earlier.

This month about a week or so ago and laid out a three year innovation pipeline for the board.

You'll recall that when I got here the pipeline was fairly bear so end the year that I've been here I'm very pleased to say, we have a robust multiyear pipeline that has been developed.

And so we're very excited about it well we have to wait for now is the categories have to reset right. So some of them only reset once a year.

Some of them reset twice a year and so the never in things that we're launching will be near or in in terms of complexity, just because some of the bigger ideas and the platform ideas may take longer given you may need a capital investment or you may.

Have a more complex formulation challenge.

But there is innovation coming in the second half of the year on yogurt Theres innovation coming in the second half of the year on snacks.

We certainly have t., well, which is new to most of the world on T., a and we've just launched.

A significant amount of innovation or in the process of launching a significant amount of innovation on personal care.

Because you'll remember last year, when we had all of the supply challenges we had a pipeline of innovation that we had to withdraw and not launch because we couldn't service the business well. So we're really launching almost two years worth of innovation at once on personal care and I think you will start to see much more robust trends on our personal care Bill.

Business as those products come to market.

When you look at the get bigger brands performance, which are the brands that we said have the long term potential really that drag on that group is personal care. So snacks tea yogurt are all doing pretty well.

But were down high single digits on personal care, because we lost so much distribution due to the service problems now that we're servicing that business well and we have a robust pipeline of innovation and we're turning the marketing support back onto that again, we had to pull the marketing support when we couldn't have service the business I'm very optimistic that.

You will see much better second half numbers on personal care than we've been experiencing for the last nine months.

Oh, that's very helpful. Thank you and then one quick.

As follow up the.

Color you gave on the headwinds from bonuses did I hear at rates that it's 9 million for the year, but that you already have 6 million of that in the first quarter.

Yes, that's correct.

Yes, so you'll remember last year, we oh laid out the initial plan.

We were going to miss that considerably so we reset guidance in the middle of the year, but what we did was we pulled all the bonus spending out of the first half of the year, we had full spending in the second half of the year, because we allowed our employees a chance to earn half of a bonus we earn that for the second half. So the first half of the years, where that whole 9 million overlap.

Six as it was in Q.

Q2.

Yes, thank you very much.

Thank you.

Again, if you have a question. Please press Star then one on the Touchtone phone.

The next question comes from Eric Larson of Buckingham Research Group. Please go ahead.

Yeah. Thanks, guys. So just a little more clarification.

So what time of the year.

How do those resets take place for your retailer so probably varies by category do they come across Q.

The timing on a calendar year.

Either in the spring or fall or is it more often than that.

Yeah. It's a great question. Unfortunately every retailer resets had a different time, which makes us a little bit challenging. The one thing that is constant is everybody wants to set t. before the cold weather months come. So T has been being reset since July and it'll end in October so.

The t. stuff for the year will be done by the time, we get through October and into November So it's pretty much done now.

Yogurt tends to set all over the place snacks tends to set more for the summer. So when you think of picnicking and people off from from school.

It tends to be more in the in the spring for the summer.

But it's a little bit all over the place and these or other than tea.

These are not all that seasonal in terms of category dynamics. So it really comes down to the retailer having to set dozens and dozens of categories and having finite labor and deciding when and how they want to do it in some cases, they want to lead the market in some cases, they're fine.

Lagging the market and waiting to see how things perform at other retailers before they make their decisions. It just depends on what the role of the category is for each individual retailer. So it's a little bit challenging for us in terms of turning on marketing support because.

Everybody setting at a different times. So you end up doing more customer specific marketing support initially to get things jumpstarted, but the only real confident is key for the fall.

The rest is little bit all over the place got it okay. Thank you that's perfectly confusing.

[laughter].

Ill remind me and I if I if my memory serves me correctly properly now with all your divestitures tilda et cetera.

She will be or single largest brand in the portfolio adjusted for all your divestitures et cetera is that correct.

Once we get finished with all of the divesting that we want to do that will be probably correct, you'll be sensible portions are ti, but we have other brands that are bigger today like the UK fruit business is bigger.

Of.

Earth's best is bigger, but as we go through SKU rationalization on Earth's best and we manage it more for profit.

And we manage some of the others for growth that May change, we have a we have a half a dozen brands that are.

In $150 million 120 150.

But she is one of the biggest ones and certainly one of the better margin one.

Yes, thank you for the clarity.

This concludes our question and answer session I would like to turn the conference back over to Mark Schiller for any closing remarks.

I want to thank everybody for their support and for my organization for all of their hard work I think this transformation that we laid out nine months ago is well underway I hope you all see the progress and feel that we are doing the things that we said we would do.

I think it shows up in the results and we're very proud of what we've accomplished theres plenty more work to be done.

But as we've said our goal here is to be credible and consistent and clear and you can continue to expect that from us in the future. So thanks, very much and I look forward to talking with everyone. A in smaller groups later as appropriate. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

No.