Q1 2022 Hain Celestial Group Inc Earnings Call
After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Ana Cape Heller Investor Relations. Please go.
Ahead.
Thank you good morning, and thanks for joining us on Hain celestial first quarter fiscal year 2022 earnings conference call on the call today are Mark Schiller, President and Chief Executive Officer, and Javier <unk> 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 include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and as described in these forward looking statements. Please refer to Haynesville Ashfield annual report on Form 10-K quarterly reports on Form 10-Q and other reports.
From time to time, but just curious any change submission.
Yes release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today. The company has also prepared a few presentation slides and additional supplemental financial information, which are posted on Hain celestial website under the Investor Relations page.
Please note management's remarks today will focus on non-GAAP or adjusted financial measures.
Filiation, just GAAP results to non-GAAP financial measures are available in the earnings release, and then five presentation accompanying.
This call is being webcast an archived replay will also be that envelope.
And now I'd like to turn the call over to Mark.
Thank you Anna and good morning, let me start by thanking our 3000 employees for their continued hard work and excellent performance in the face of many macro challenges.
One of the other states and work collaboratively with urgency to deliver continued strong results.
On todays call ill give some color about our Q1 performance progress against the three point strategy, we laid out on Investor day, and how we are addressing the challenging macro environment.
Starting with Q1, we delivered better performance than we guided on her last earnings call, both the topline and the bottom line.
With regard to top line growth adjusted net sales were basically flat year over year versus our guidance of being down low to mid single digits.
On adjusted EBITDA, we had guided to a decline of mid to high teens versus year ago, and we came in better than that down 13, 8%.
Looking at the reporting segments North America, adjusted net sales were down 1% compared with year ago, and up 8% versus fiscal 2020.
This is strong performance given the year ago comparisons include significant headwinds from overlapping $8 million of pandemic, driven hand, sanitizer sales and explosive growth in several of our largest categories. Our growth brand sales were up 1% versus year ago, and up 10% compared to two years ago.
Particularly encouraging we also delivered strong double digit consumption growth that accelerated throughout the quarter and into Q2 across many of our growth brands, which collectively make up about 70% of our North American sales in fact in the most recent 12 weeks ending October 24th our growth brands were up 12% compared to last.
And 20% versus two years ago with household penetration ACB velocity and average items per store all growing.
Sensible portions as Earth's best Celestial seasonings, and all were all up 20% or more versus pre pandemic two years ago and are gaining share.
Adjusted EBITDA in North America, excluding divestitures was down 32% in line with our expectations. There were three primary drivers for this decline first remember that last year. We grew 63%. So the COVID-19 related overlap with significant and planned for in our guidance second. These results were also impacted by industry wide.
Why chain challenges, which I'll discuss in detail later and third due to long lead times, there was a lag between inflation hitting our P&L in the timing of pricing. It's important to note that after our price increases hit the market. Our September adjusted EBITDA was up 22% versus a year ago.
In international we delivered another strong quarter with adjusted net sales up 2% versus year ago, and 14% versus fiscal 2020, we saw particularly strong consumption performance on Hartley, the Ella's kitchen, and our three leading shares refrigerated soup brands, which all grew double digits and gained significant share compared to <unk>.
Two years ago.
Adjusted EBITDA, when excluding divestitures was up 21% compared to a year ago, and 72% versus two years ago, reflecting the continued successful execution of our numerous productivity projects in Europe.
And importantly margins expanded considerably versus year ago, with adjusted gross margin and adjusted EBITDA margins up 576, and 487 basis points respectively.
While we are in the process of converting all of our internal reporting to reflect our new Hain three point strategy. We do have some metrics to share with you today.
You'll recall from Investor day that we segmented our brands globally into growth brands fuel for investment brand and simplify brands our growth brands make up roughly 70% of our sales and 75% of total company profit our aspiration over time for this group of brands is to consistently grow near double digits in the first quarter.
After adjusting for divestitures. These brands grew 3% versus last year, and 18% compared to two years ago in aggregate.
Within the growth brands, we created two distinct segments turbocharged brands and investment brands.
Turbocharge group comprised of meat free non dairy beverage and snack brands grew adjusted net sales, 5% year over year, and 20% versus two years ago.
The targeted investment group comprised of our T. Bailey yogurt in personal care brands grew 4% versus last year and 15% versus two years ago. So in summary, our sales momentum is increasing and our topline performance versus pre pandemic is extremely strong on our growth brands.
Let me switch topics here and spend a few minutes talking about inflation and the supply chain challenges impacting all companies and then touch on the pricing and productivity improvements we are pursuing to offset that.
When we finalized our plan and communicated our anticipated inflation cost we expected mid single digit inflation in North America, and low single digit inflation in internationally.
Since that time crops come in highly inflationary and transportation costs have continued to skyrocket in each case more than we initially anticipated.
As a result, we now expect additional $20 million to $25 million of inflation to hit our P&L. This year and we fully intend to take additional pricing actions to offset it.
We're covered 90% on commodities and packaging for the balance of the fiscal year. Our remaining exposure lies primarily in transportation and labor, which impacts both cost and supply.
With regard to supply chain disruptions as with every other company we faced unprecedented challenges. The good news is we've made terrific progress since Q4 of last year.
Starting with inbound materials and co manufactured products, we found backup or alternative sources of supply to ensure that we continue our service at very high levels.
On our self manufactured products, our factories are running well and we've made terrific progress in the locations, where we've had labor shortages both here and in Europe. We felt about two thirds of the open positions that we had at the beginning of Q1, and importantly are keeping up with elevated demand on.
On the distribution and warehousing side, we're currently fully staffed and have the capacity to keep up with increasing sales.
Also impacting the entire industry transportation remains our biggest challenge the shortage of drivers here and abroad, as well known resulting in delayed receipt of inbound materials inability to secure trucks and many scheduled orders not being picked up on time. When this occurs it impacts both service and cost we continue to consolidate orders to <unk>.
Reduce the number of trucks needed and we're collaborating with customers to refine pickup and delivery windows to ensure we keep service levels high and.
And to share costs.
So you're probably wondering how these challenges are impacting our P&L first we're prioritizing service even when it requires increased cost because one in times of significant supply disruptions strong service leads to increased shelf space and merchandising opportunities to additional sales growth will generate profit dollars to help offset the inflation.
And three it strengthens our customer relationships and positions us as a reliable go to partner in the future, especially when many are struggling with their service levels.
The second way, we're managing the cost challenges, but is by taking significant pricing and.
In North America, we've taken list price increases on virtually every brand with the average increase of about 6% to 10%. Thus far the elasticities have been very low and we've seen minimal impact on volume.
In Europe, our pricing will be effective in early Q2 and has already been accepted by most retailers.
Similar low elasticity since virtually every company has announced plans to take pricing across their brands.
With new unplanned inflation hitting our P&L, we expect to take additional price increases that will be effective in the second half of the fiscal year again. These increases will be across many brands and include multiple pricing levers.
The third way, we are managing cost challenges is via productivity as discussed on Investor day, we have hundreds of active projects being implemented with an expectation that we will achieve close to $50 million of productivity this fiscal year.
Importantly, the productivity projects go beyond saving money by providing other benefits like reducing our need for additional labor in our factories, furthering our sustainability agenda and simplifying our company.
Looking forward, we expect to see accelerating sales momentum this fiscal year. We're confident because we are one we have gained significant distribution with more expected to we've already secured sizable incremental merchandising events that we've discussed on previous earnings calls three we're making strong progress on addressing the items.
Have had service challenges and four in line with our three <unk> strategy, we're building capabilities and embedding changes to our processes to enable accelerated topline growth.
Syed will continue surgical execution of pricing and productivity to offset the macro supply challenges I've mentioned.
And we continue to leverage our nimble and scrap the culture to find creative solutions for disruptions in our supply chain.
Summary, we are excited by our momentum and confident that we have the right brands and strategies to accelerate topline growth from here and create a company that consistently delivers high growth on both the top and bottom line.
With that said, let me now turn it over to Javier to provide more details on our Q1 performance and go forward outlook.
Thank you Mark and good morning, everyone. Let me start by highlighting a few key aspects of our first quarter results demonstrate strong execution of our transformation plan and the building of a solid growth platform as we move into Haynes three no Jeremy.
First we again delivered solid operating results at the top end of our guidance on topline and Bottomline.
Second despite the supply chain challenges impacting the entire industry, our international business delivered another quarter of strong financial performance, while our North American operations improved throughout the quarter.
Third our balance sheet remains strong with excellent capital allocation flexibility and finally, we are well positioned to deliver on our full year guidance as well as the new long term algorithm, we laid out during our Investor day presentation in September.
I will start with a discussion of our topline results and then I'll drill into each of these aspects.
As we overlap last year's Covid demand surge first quarter consolidated net sales decreased 9% year over year to $455 million foreign.
Foreign exchange benefited first quarter net sales by 2%, while divestitures and brand discontinuation is reduced net sales by close to 11%.
When adjusted for these two factors net sales were flat versus prior year exceeding Q1 guidance of a low to mid single digit decrease on an adjusted basis.
When comparing our performance versus pre Covid Q1, 2020, after adjusting for foreign exchange divestitures and brand as continuations, our net sales increased by 10%. This.
This was better than our guidance of mid to high single digit growth.
While we guided to year over year, adjusted gross margin expansion for the quarter industry wide distribution and warehousing cost pressures driven by continued labor shortages trade carrier availability and other freight cost issues resulted in our delivering a slight reduction in adjusted gross margin.
The first round of North American pricing actions, we implemented in September began to benefit as total company P&L, namely in the quarter with an overall gross margin increase of more than 300 basis points during the month compared to the prior year period.
While the supply chain challenges were most prevalent in our U S operations. They are also impacting our international operations. Despite these headwinds we were still able to deliver adjusted gross margin expansion of 300 basis points when compared to Q1 2020.
Total SG&A, including marketing came in at 16, 3% of net sales in line with the prior year period.
Marketing expenditures as a percentage of net sales were slightly higher than prior year largely to support our meat free business and the launch of the Linda Mccartney non dairy beverage product ranch in the UK.
SG&A spending as a percent of net sales, excluding marketing was slightly lower than prior year from controlling labor related costs and third party expenses.
First quarter, adjusted EBITDA decreased 14% versus year ago to $47 million slightly better than our guidance of a mid to high teens EBITDA decrease the improvement compared to our guidance was driven by actions, we took to lower SG&A spending.
Adjusted EBITDA margin of 10% was a 61 basis point decrease year over year, mainly driven by the decrease in gross margin already mentioned.
When comparing our performance versus pre pandemic Q1, 2020, our EBITDA margin improved by 374 basis points.
Our adjusted first quarter EPS of <unk> 25 decrease compared to 2007 in the prior year period to.
The adjusted effective tax rate for the quarter was 23, 4% consistent with the prior year tax rate.
Now, let me provide some detail on the individual reporting segments, starting with our North American business, where we continue to face the industry wide supply chain issues. We have discussed before but are seeing improvement on a sequential basis. Our planned price increases in the U S had hit the market and are sticky as evidenced by better elasticity of demand on the top.
Offline reported net sales for the first quarter decreased 5% year over year.
$265 5 million.
Mainly due to the lapping of elevated at home food consumption and strong hand sanitizer sales in the prior year period due to COVID-19.
After adjusting for foreign exchange movements and divestitures net sales decreased 1% versus the prior year period, when comparing our performance versus Q1 2020 after adjusting for foreign exchange movements divestitures and brand discontinuation, our north American sales increased by 8%.
The turbocharge category delivered close to 9% growth versus prior year, and 15% growth versus Q1 fiscal year 'twenty driven by the strong performance of our snacks business in the targeted investment category, our tea and baby food products delivered mid to high single digit growth versus prior year with <unk>.
T also delivering north of 20% growth versus the same period of two years ago, our personal care business perform well when compared to two years ago, delivering close to 10% growth.
While these last two quarters have presented multiple operational challenges, we have been able to maintain relatively strong customer service levels in the U S.
From a profitability perspective, adjusted gross margin for our North America business decreased by 476 basis points driven by the supply chain challenges already discussed partially offset by our pricing actions taken late in the quarter and productivity initiatives adjusted EBITDA in Q1 decreased 38% to $24 million.
Adjusted EBITDA margin of nine 1% represented a decrease of 486 basis points versus the prior year period, driven by the gross margin decrease.
Most of our pricing began to benefit the P&L in September specifically September's EBITDA margin increased by about 130 basis points relative to the prior year period, largely driven by these pricing actions and supported by our productivity initiatives.
Now, let me shift to the international business, where we delivered strong overall results.
Net sales for the first quarter versus the prior year period decreased 13% on a reported basis in line with our expectations Foreign exchange increased sales by 4%, while divestitures reduced sales by 19% after adjusting for currency movement and divestitures net sales for the quarter were up about two.
<unk> versus the prior year period, and up 14% compared to the first quarter of 2020, the most recent pre pandemic period.
Sales increased behind high growth on our Ella's kitchen baby food and chilled soup businesses in the UK our growth category of brands deliver 24% growth in constant currency versus the same period two years ago, driven by the strength of our plant based non dairy beverage and endless baby food businesses.
From a profitability standpoint, we grew adjusted EBITDA by 21% versus the prior year period, and adjusted EBITDA margin by 487 basis points to 17%, despite facing global supply chain challenges and not yet having taken pricing to cover inflation, which went into effect.
In the second quarter.
This profit growth acceleration reflects a 576 basis points adjusted gross margin expansion generated primarily from the implementation of the North American productivity playbook and the divestiture of the low margin fruit business.
Shifting to cash flow and the balance sheet Q1, operating cash flow was $38 million.
This is a decrease of 8% versus the prior year period, but an improvement relative to the adjusted EBITDA decrease for the quarter given improved inventory management.
Capital spending for the first quarter was $17 8 million or three 9% of net sales, but on track for our full year spending of about three 5% of net sales.
Cash on hand at the end of the quarter was $29 million, while net debt stood at $317 million gross debt leverage as calculated under our existing credit agreement was one six times our balance sheet remains strong and as a result, we have significant flexibility to both reinvest in the business and return VAT.
<unk> to shareholders consistent with our capital allocation principles during the quarter, we repurchased four 5 million shares or four 6% of the outstanding common stock at an average price of $38 80 per share for a total of $175 $6 million, excluding commissions, leaving us with about 200.
Third and $7 million of additional repurchase authorization remaining under our 2021 program at the end of the first quarter.
Now turning to our outlook, we are reaffirming our full year guidance for fiscal year 2022, compared to fiscal year 2021, we expect low single digit adjusted net sales growth, reflecting a small benefit from currency of about 20 bps and a 600 basis points headwind from divestitures.
Modest adjusted gross margin expansion and mid to high single digit adjusted EBITDA growth.
Given the timing of the price increases hitting the market confirm incremental volume generating events in the second half of fiscal year, 2022, and a higher inflationary environment than initially forecasted we expect the following net sales to be down low single digits on an adjusted basis in the first half of fiscal year 2022, an improvement over our initial.
<unk> first half guidance announced by mid to high single digits in the second half to note during Q2 fiscal year 'twenty. Two we are overlapping a brexit related volume pull forward that benefited net sales growth in Q2 fiscal year 'twenty, one by about 4% and adjusted EBITDA to be down mid single.
In the first half of fiscal year, 2022, and up low double digits in the second half.
As part of the full year outlook and given the industry wide supply chain challenges. We're facing we are updating our estimate of cost of goods inflation to be north of 6%, which we plan to continue to recover over time through additional pricing actions.
In summary, we were able to deliver first quarter results generally better than the guidance levels. We outlined previously even in the face of significant global supply chain and inflationary challenges. We believe that we have strong momentum and are well positioned to deliver adjusted top line and adjusted EBITDA growth and margin expansion in 2022 and <unk>.
I will now turn the call back to Mark.
Thank you Javier we're proud of our strong Q1 performance and how we continue to overcome the many macro challenges all companies are facing we are a compelling gained three points of our growth strategy terrific brands and an exceptional team and culture to thrive in this environment with that said, let me turn it over to the operator to now take your questions.
Thank you.
Now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
Our first question comes from Ken Goldman of Jpmorgan. Please go ahead.
Hi, good morning.
Thank you for the help on the cadence of guidance I wanted to ask a little bit more specifically on the second quarter.
Javier your EBIT margin in international was growing 4% to 500 basis points year on year each of the last three quarters I just wanted to get a better sector a better idea of how to think about that for the second quarter is it fair to assume maybe.
Maybe a similar increase and then as you get to the back half of the year, a little bit less of an increase as you start to lap some higher numbers I'm just trying to get a sense of how we model on a segment by segment basis I know, it's been a little more challenging for some of US including me to be specific especially on the international side of things. Thank you.
Yeah. So thanks for the question you should expect.
Gross margin improvement for international for Q2 I wouldn't.
Put it to the same level as Q1, largely because inflation in international was.
It was fairly muted I would say for Q1.
The ingredient inflation for internationally is picking up in Q2 and beyond so.
And even though the pricing is still working its way through.
Q2 through Q4, Q1 really did benefit from a low inflation environment listen internationally. So what I would say is yes, Q2 will have margin improvement will not be to the same magnitude as Q1 and Q3 and Q4.
We will see Q3, we'll see margin driven but they will not be at the same I would say that would be at a decreasing rate relative to what you would have experienced in Q1 and Q2 just remember Ken.
Last year, when we divested the fruit business, which was a very low margin business, we start to lap that in the second half so.
Part of the Q1 margin expansion and international about half of it was just divesting the fruit business. The other half was productivity and true performance and as we get to the second half we don't have that that fruit favorability.
Got it and then quick follow up.
Javier you mentioned that you're now expecting Cogs inflation to be north of 6% and then you talked about the goal being regaining that overtime with pricing and I think productivity and just.
To be clear because you mentioned it on percentage terms is the goal to regain the margin percentage or the profit dollars.
The Golar right now is to regain the profit dollars.
Perfect. Thanks, so much.
Okay.
Our next question comes from Michael Library of Piper Sandler. Please go ahead.
Yes.
Good morning, Thank you.
Just wanted to touch on.
The elasticities and you gave some color there on what you've seen so far obviously, it's still pretty early but.
Can you just give a sense relative to guidance, how youre thinking about that and what assumptions you've made about elasticity.
Yes, so we.
We're very pleased to see that the elasticities have been.
Very low and had a nominal impact on volume in fact.
We're continuing to see volume growing.
6% to 10% pricing on top of it that's part of why we've seen such robust acceleration in our consumption.
Our plan assumed that there would be some modest elasticity, it's coming in a little better than we thought but on the flip side, it's being offset or more than offset by the fact that inflation, which we assumed would have stabilized for the balance of year inflation has gone up considerably since the year started primarily freight and again as crops come in across the.
The globe they've been highly inflationary.
We did not fully anticipate it so we've got a little bit of benefit on the elasticity side, but it's being more than offset by additional inflation.
Okay.
Okay, great. Thanks, and just a quick follow up on the top line I know, it's a pretty small percentage of your total portfolio. That's in U S measured retail sales can.
Can you just give maybe a sense of the rest where there may be any particularly notable call out that we should sort of have in the back of our minds as we're trying to look think about the total picture, but looking at that just the pieces. We can see is there a cut.
<unk> or a channel or something that is particularly robust.
That's got some sustainability to it that's just good to make sure we don't forget or anything like that.
Yes, so personal care has a very small percentage of its total sales in measured channels.
And we're particularly on the Alba Sun care business, which we've talked about on previous calls.
We're doing exceptionally well in a number of manufacturers were found to have benzene into sunscreens, which we do not and so we picked up a lot of distribution from other people in channels that you won't see so everything from surf shops to e-commerce.
Club.
That would be one place that I would say certainly we are seeing robust growth. The other place that you don't have a lot of visibility to is again E Commerce, which is a big part of our business, particularly on snacks and personal care and baby, we do a lot of volume in the E Commerce channel and that business is also very robust.
And international.
We're it's so many different countries you have to buy all of the syndicated data in every country to really get visibility, but remember on the three point strategy, we talked about.
Expanding non dairy beverages into the U K under the Linda Mccartney brand and we talked about starting to expand the Linda Mccartney meat free brand into Europe those are incremental.
<unk> versus our baseline because thats new distribution in a new country, which will also have some tailwind to our second half revenue numbers.
Okay.
Okay, great. Thanks, so much.
Our next question comes from Alexia Howard of Bernstein. Please go ahead.
Good morning, everyone.
Good morning, good morning.
Hi, there.
Can we dig into the freight called situations because it sounds as though that's one of the real pain points that you were going through now and.
Can you just remind us what percentage of Cogs that is what proportion typically goes through the spot market, but it's just the contract rates with Goldman say and then I know that in the past you've talked about benefits from having full truckloads and moving from powerful quarter truckloads to full truckloads.
Is the supply chain disruption really messing with that I'm, sorry that you called get there at the moment I'm just wondering on the freight side, what exactly the mechanics of that are going on in that and then I have a follow up.
Yes so.
I'll, let javier speak to the specific cost numbers in a second.
Freight is a multifaceted problem one is sometimes trucks, just don't show up to pick up orders, which.
As cost in a different way than just.
Costing more for each driver in each truck when they show up. So there is there are a number of ancillary costs that.
Can be very robust when you've got to then go to the spot market and try and contract someone on short notice.
Pick up a load that sitting in front of your doctor or so.
Yes, theres massive inflation, but there is also those ancillary cost with regard to filling up trucks, we continue to make progress on filling up trucks. So when we started our journey.
A couple of years ago, we had about an average of two pallets per truck, we're now more than half a truck full.
And given the driver shortage.
We are working with retailers to consolidate orders so instead of ordering a half a truck every week, how 'bout reorder full truck every other week kind of thing so that.
It takes some of the cost burden out and it also.
It makes it easier for customers, who may be having labor issues in their warehouses to not receive as many trucks. So it's a win win kind of solution, we're making good progress there and really that's agnostic of.
The driver shortage us filling up trucks takes trucks off the road, which is good for both of US and we continue to work on that.
Barry you want to add some color on the costs, yes. So Alexia, let me give you the framework that we use here in the company to think about inflation and the components of our Cogs, but the buckets that we use to evaluate our inflation or finished goods.
Ingredients packaging labor freight and for international we also look at energy costs.
And so the what I would say that the places where we're seeing the highest pain points as you call. It right now.
In the United in North America, I would say its ingredients.
And each packaging and then freight obviously is one that is permeating not just north America, but also internationally. So those are the three big Pinpoints in North America, and then in international again, its ingredients and then I would also add in addition to freight I would also add energy costs are a pain point and internationally. So that's kind of how we look at our.
Basket of costs and that's how we end up evaluating the.
The impact that we have to being around 6% for the full year.
Okay.
Our next question comes from Anthony Vendetti of Maxim Group. Please go ahead.
Thank you.
Yeah.
In terms of reiterating guidance.
I assume this takes into account.
All the B.
Cost increases.
And the fact that you're taking price increases you said almost all retailers are accepting it.
Or are you able to offset.
The ones that arent accepting it are you able to offset your your revenues.
By the price increases for the potentially lower volume for the retails that that wont accepted, particularly you mentioned theres going to be another set of price increases.
So I was just I was just wondering how you look at it at the go forward guidance based on.
On all the factors you were talking about.
Yeah. So the go forward guidance includes everything we know about today. The increased inflation is certainly in there we've made an assumption of pricing against that inflation based on both our success in the first round of pricing as well as the elasticities that we're seeing.
Obviously, we have to go to retailers and have that conversation.
In some cases, it's it's a negotiation.
But by and large everyone is taking pricing and retailers are having the same cost pressures that we are and so this is an unusual environment in terms of ability to pass on pricing. We are very conscious when we do take pricing of what our relative price points are versus our competitors. So we're not just.
Arbitrarily passing on cost in some categories.
Edible oils, our costs were up a 100%, we're not going to take 100% price increase obviously, so we really do look brand by brand and category by category channel by channel to make the best decisions around what we think is the right thing to do for the brand both for the short term and the long term.
And we do it very consciously of what's going on around us.
So so far we've done the <unk>.
First round of pricing went very well and in North America, and the United States. We're now implementing pricing in Europe, and Canada in the beginning of Q2, and we will come back with additional pricing in the second half.
To offset that incremental inflation that we've seen and so part of our guidance.
Anthony was.
Well, we still expect to see margin growth, but it might be a little bit more modest than originally assumed because of this extra inflation, but we're also seeing higher revenues than we initially assumed because of the elasticities are lower on some of the pricing. So it gets us to the same place.
EBITDA.
But a little bit of there is some moving parts on both the top line in the middle of the P&L.
Understood.
Follow up.
Separate separate topic, but you mentioned during Haynes III, Plano youre, starting to rollout new products.
Has that been hampered at all bye bye all the issues you outlined today or or are you able to launch these new products in this environment.
So in North America, we're not having any issues with customers resetting shelves in us getting innovation and we've actually.
<unk> been very successful in Q1 in terms of increasing our TDP is in the number of accounts carrying our products and we expect that as other categories reset like snacks resets in the spring.
That we will continue to be recipients of space.
In Europe, it's a little bit more challenging because theyre having.
Much more severe labor shortages and driver shortages.
Some of the retailers are not setting the.
The categories like they would normally some are some arent. So we're seeing more spotty distribution on the innovation, particularly in the UK, which not only has the same macro challenges as everybody, but we also have theres still implementing the Brexit changes.
That make it just more challenging to get products over the border from Continental Europe anyway, So I would say a little bit more growing pains.
Little bit more of an unusual.
Reset pattern going on in the UK, but right now Europe and the United States in particular, we're getting an innovation as planned.
Excellent thanks, Mark that was helpful.
Our next question comes from Rebecca Schueneman of Morningstar. Please go ahead.
Hi, good morning, Thanks for the question so in previous quarters you have.
Disclosed the percentage of sales that's coming from new products and you know that that we've been seeing some good trends in that regard I think it was 9% in the fourth quarter, 4% in the third quarter do you have that statistic for the first quarter.
Yes, it was about six 5% in the first quarter.
Up from about 1% in fiscal 'twenty and about three 5% in fiscal 'twenty. One so off to a good start was down a little bit versus Q4.
Because in Q4, we were a lot of categories. We are resetting and we had big pipeline volume.
In Q4, which was why it was a little bit inflated up at that 9% number, but six and a half is a good number for us we want to be high single digits.
And the stuff that we have been launching is sticking high repeat rates very incremental to the category and so as we keep coming with more innovation.
It's coming on top of the previous innovation as opposed to just trading out things that didnt perform well. So we're pleased with what what.
What we're doing we like the kind of the rate at which we're getting.
As a percentage of sales that we're getting from innovation and we're very happy with the instrumentality, we're getting both from a distribution and a consumer standpoint.
Okay, Great. Thanks, and then my follow up is just on the Labor picture I Wonder if you could add some color there if the situation seems to be improving or possibly if it's getting worse I know a lot of the retailers and Amazons of the world are looking to staff up for holiday. So yeah, there's potential there that the problem could.
Getting worse I'm, just wondering if you could add some color there. Thanks.
Yes, so as I mentioned in the prepared remarks, we've filled about two thirds of the positions that we had opened at the end of Q4, So we've actually.
<unk> had a terrific quarter in terms of.
Resolving some of the labor challenges that we have in in Q4 as an example, we labor.
Labor shortages were so severe that we couldnt run some of the <unk>.
Factories 2047, because we didn't have enough people for a third shift that's all behind us we've fully staffed up our distribution and warehousing facilities.
We have made significant progress in our manufacturing plants, particularly where we were chat.
Challenged in terms of our ability to.
Manufacture enough product to keep up with demand, we still have some openings but.
We're solving it.
We've done it through increased wages, we've done it through better benefits we've done it.
Through.
The annual incentive pay and other things to make sure that.
We are the preferred.
Manufacturer in town.
And so.
So far so good I would say on the freight side again, we're still having we are still seeing third party carriers, having trouble getting drivers which is impacting <unk>.
Our business and everybody in the industry, but on the things that we control internally, we've made terrific progress and we're in a good position to keep up with demand.
As long as we can get the trucks to get it from eight to point B.
Okay, great. Thank you so much.
Our next question is from Eric Larson of Seaport Research partners. Please go ahead.
Yeah, Thanks, Hey, Phil.
Taking my question.
Mark I think in your prepared comments you mentioned that.
You have.
A significant number of.
More promotional events this.
This year and I think a lot of that it tends to be closely tied to innovation introductions as it is.
Well, but can you give us maybe a little bit more clarity on maybe what the timing of both promotional events are in.
And and.
And what those might entail.
Sure. So the first thing I would tell you is remember last year at the height of the pandemic.
There was a lot of people pulling back on trade spending.
Merchandising events, because the demand was so robust so in some cases, we're just adding back some of the promotional spending.
That we took out last year on brands that we were having supply challenges with so that's that's kind of ongoing throughout the year.
But in the second half of the year, specifically I mentioned, both big distribution gains and some significant promotional activity. We've got some major promotions going on in the club channel in the second half of the year and I mentioned sunscreen, where we're picking up significant distribution and where we're putting money behind that to make sure we get.
The end caps.
Our visible in the channels, where we picked up distribution and we're having great success right now on snacks with bundling our brands together to get big merchandising events that has.
<unk> helped to all boats rise if you will and we're going to continue to do that second half. So we've got a number of incremental sizable events that are secured and thats part of the reason, we're so confident in the growth that we're going to see in the second half of the year.
Okay. Thanks, and then my follow up question it might just be more clarification than anything else.
You've got some extra transportation inflation here Cogs is going up a little bit more than you had thought.
And I think you said it well.
Just a clarification.
Take additional pricing in the second half or are you going to take additional pricing that will be effective beginning the second half I guess I am not sure which of those two is the correct answer.
Yes, so we're finalizing our plans right now we will go out to the retailers.
<unk>. This month and then it's about a 60 to 90 day lead time, depending on the customer before it actually hits the shelf.
So expect that we'll see.
Mid third quarter is when the second wave of pricing will hit.
And.
There'll be a little bit of pricing in international that hits in the fourth quarter that were aware of as well.
Okay perfect. Thanks for the clarification.
This concludes the question and answer session I would like to turn the conference back over to Mr. Schiller for any closing remarks.
Thanks, everyone for your time today, obviously these are unprecedented times and I'm proud of the fact that we continue to perform well in a challenging environment hopefully you've taken away from this presentation that we're starting to deliver on that accelerated topline that.
I know everybody has been looking for in our Haiti three point out strategy is very much focused on so.
We are excited about the future we're excited about the balance of year end.
Thank you guys for your time today, we will be available for questions throughout the day and with that I'll turn it back to the operator. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Sure.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Yes.
Yes.
[music].