Q4 2023 The Hain Celestial Group Inc Earnings Call
Yeah.
Greetings and welcome to the Haynesville S. Geo group's fourth quarter fiscal year 2023 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this call.
Is being recorded.
I would now like to turn the conference over to your host Alexis Tessier Investor Relations for Hain Celestial group. Thank you you may begin.
Good morning, and thank you for joining us on Hain celestial fourth quarter fiscal year 2023 earnings conference call on the call today are Wendy Davidson, President and Chief Executive Officer, and Chris Bayle, Harris Executive Vice President and Chief Financial Officer.
During the course of this call we may make forward looking statements within the meaning of federal Securities laws.
These include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations.
Please refer to our annual report on Form 10-K quarterly reports on Form 10-Q, and other reports filed from time to time with the Securities and Exchange Commission as well as the press 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.
We have also prepared a presentation.
Sometimes additional supplemental financial information, which is posted on our website at Hain dot com under the investors heading.
Please note that remarks today will focus on non-GAAP or adjusted financial measures reconciliations of GAAP results to non-GAAP financial measures are available in the earnings release and slide presentation accompanying this call. This call is being webcast an archive will be made available on the website.
And now I'd like to turn the call over to Wendy.
Thank you Alexis and good morning, everyone. We appreciate you joining our call today I'll start today's call by reviewing our fourth quarter results before discussing the steps, we're taking to transform our business and the progress we're already seen on the journey to return the company to sustainable profitable growth.
And then Chris will review our financial results in more detail along with our outlook for fiscal 'twenty 'twenty four before I offer some closing remarks.
I'm pleased to report that we achieved fourth quarter results, which were near the high end of our expectations. Adjusted net sales on a constant currency basis were down slightly one 5% year over year consistent with our guidance and adjusted EBITDA on a constant currency basis was $43 5 million at the high end of our guidance.
As expected the net sales decline in the fourth quarter was driven by the North American segment, where a large customer promotion for snacks in the prior year period was not repeated and by some softness in personal care.
There were several bright spots in our results stemming from strategic actions, we began taking in the third quarter for both our North American and international businesses.
North America, we are seeing bright spots in key snack and beverage brands with garden, Veggie snacks, and celestial seasonings bagged tea, both returning to growth after a challenging third quarter garden vegan snacks grew dollar sales by 4% in the 12 weeks ended July 15, and 14% growth in GDP and celestial seasonings bagged tea.
We grew dollar sales by 2% on 7% growth in G. D. P. Additionally.
Additionally, Greek gods yogurt continued standout performance growing dollar sales, 12% on a 20% increase in velocity.
Our Earth's best Baby and kids.
Sales, 20%, excluding formula on 19% T D P growth in part due to Earth's best snacks innovation launched earlier this year.
Formula continues to be a challenge driven by industry wide supply shortages.
In the International segment, we continued the momentum from the third quarter to achieve another quarter of adjusted net sales growth. The growth was driven by the U K led by meal prep, formerly called pantry, particularly in private label, where we have a meaningful presence as well as by snacks.
We were also encouraged to see sequential improvement in meat free with our private label growing 9% in the quarter and gaining share as the category continues to show signs of stabilization.
In the U K was only partially offset by softness in the non dairy beverage business in Continental Europe .
Non dairy beverages were down year over year for the fourth quarter as a whole we are encouraged by sequential improvement we've seen throughout the year, especially in our strong private label segment and by growth in both June and July .
The recovery in non dairy beverage is largely led by private label and appears to be gaining positive momentum as.
As a category leader in both branded and non dairy private label, we believe our portfolio is well positioned to benefit from this development.
During the quarter, we delivered improvements in gross margin across the business through both pricing and productivity initiatives, including the consolidation of our meat free manufacturing footprint as.
As we expect continued moderation in the inflationary environment in fiscal 'twenty four it was still above normal level, we see further opportunity to improve gross margin.
We also made progress on our debt levels in the quarter paying down $28 million in debt debt repayment, coupled with reinvesting in strategic business capability remains a top priority for free cash flow.
Overall, we are pleased with the stabilization many of our core categories as we finished the year.
As you know we've been undertaking a significant review of our company strategy and re imagining our business in order to realize our full potential and return hain to consistent profitable growth.
We began taking meaningful steps to simplify our business and set the foundation for our transformation by focusing on enhancing our capabilities optimizing our organization strengthening our end to end supply chain, improving our productivity pipeline optimizing our route to market and fueling our brand building initiatives.
Early actions are bearing fruit reinforcing our confidence in our strategy and future growth potential let me share a few examples.
Spoke last quarter about our efforts to enhance our capabilities and expanding the margin accretive channels, such as immediate consumption and away from home.
We believe there's a significant opportunity for our brands outside of traditional retail and on the go consumption occasions within C stores airports offices and universities amongst others.
These immediate consumption channels drive brand reach and visibility in our both price and margin accretive shoppers are willing to pay more for convenience.
Our portfolio is well positioned to take share in this channel, particularly our snacks and tea brands Hot tea is one of the fastest growing beverages and food service and we are seeing consumers, adding to their morning, and evening routines with snacking occasions away from home.
In the evening snacking occasions are up 3% versus a year ago.
We are enhancing our away from home capability and our go to market strategy as it requires a very unique sales process and a distinctive and focused sales model different than that used for traditional retail channels.
While a new focus for Hain. This is a channel in which I have in depth experience and I'm pleased that we are already seeing progress against this effort with C store sales growing double digits in the 12 weeks ended July 16th.
Additionally, we are building out our revenue growth management capability to drive effectiveness and efficiency and price realization brand building and in market share growth.
For example, we recently executed a successful SKU rationalization initiative within our international segment, which streamlined our brands offering by nearly half.
These efforts resulted in a highly productive core which is now seeing double digit growth and increased velocity a win for both hain and our retail partners.
Furthermore, ecommerce continues to be a focus with increased support and optimization on marketplaces and retailer dot com with updated content expanded assortment improved media efficiency and increased spend on key brands.
Garden, Veggie snacks, Earth's best and celestial seasonings are all growing consumption with double digit increases in traffic online.
We continue to focus on refining our operating model. So that it is future fit to drive effectiveness and efficiency supported by global centers of excellence.
Earlier this month, we announced our new global headquarters in Hoboken, New Jersey.
The space and location, we're thoughtfully selected to meet the evolving needs of our business.
And nearly half the size of our footprint in Lake success, our new headquarter will serve as the anchor to our hub and spoke flexible working model where teams will come together to collaborate it's significantly less cost than our prior location.
This approach aligns to our purpose of inspiring healthier living and serves as a competitive advantage in attracting and retaining top talent, regardless of where they're located.
The headquarter will also serve as the home of Haynes innovation experience them, where team members customers and consumers will be able to immerse themselves in our product explore consumer insights and create innovative opportunities for the future.
Our centers of excellence are designed to leverage global scale, where appropriate and nimbly execute locally for impact our first global center, which we announced earlier this year was for supply chain.
Through this C O E. We have simplified our end to end planning and enhanced our productivity pipeline process generating $34 million in productivity in the back half of fiscal 'twenty three.
When coupled with pricing. This is allowed us to offset record levels of inflation, while maintaining average on shelf availability fill rates ahead of the industry over the course of the fiscal year.
We are in the process of establishing additional global centers of excellence in areas, such as innovation brand building talent management and technology, our baby and kids businesses in North America, and international have begun collaborating to share consumer and category insights brand strategy innovation and creative assets across the Ellis.
Kitchen, and Earth's best brands.
This facilitated the launch of Earth's best Crunchy snacks in the U S, which are similar to the best selling Ella's kitchen multi stacked in the U K.
This partner to innovation over delivered expectations at launch helping to deliver strong growth in Earth's best snacks in the quarter with expanded distribution and support in fiscal 'twenty four.
Our strategic reinvestment in marketing and brand building is also beginning to yield positive results as you may recall the supply chain challenges, we faced in fiscal 'twenty, two led to a temporary pullback in marketing efforts, which negatively impacted sales in fiscal 'twenty three.
In quarter, three we began taking action and reinstated brand support and are encouraged by the positive momentum as a result.
In the fourth quarter, we saw marked improvement in celestial seasonings tea due in part to the magic in your mouth campaign that we activated in fiscal quarter three.
She'll bag tea grew two 3% in the latest 12 weeks, while the category posted a mild decline, resulting in celestial gaining share.
He also benefited from our work as a category captain with a large retail partner on the optimization of assortment and shelf set.
Furthermore, we are seeing encouraging early results from Peppermint, K Cups, and Sleepy time with melatonin, both new tea innovation supported by strong customer program in the summer.
Also launching in the third quarter was our Earth's best good food made fun campaign, which helped to drive Earth's best snacks growth of 8% on 18% growth in TD piece in the latest 12 weeks.
We have strong programming in place with our key retail partners focusing on 360 activation, including retail media in store events digital coupons and retailer website engagement. We will continue to deliver good food made fun across all consumer touch points in fiscal 'twenty, four including new packaging website and public relations.
<unk> and social media.
In the fourth quarter, we launched our crazy delicious vegetables media campaign for Terra chips the Earth.
Early results show campaign effectiveness brand awareness and purchasing intent all surpassing industry benchmarks.
The early success, we are seeing across these areas of focus it gives us confidence that we have the right comprehensive plan in place to build our brands and returning the business to growth in fiscal 'twenty four.
We view fiscal 'twenty four as an inflection point a year during which we will reset our foundation and pivot to growth consistent with what I shared on the last call. We plan to make brand building investments across key brands to drive growth. While also optimizing the effectiveness of our marketing dollars to work harder.
We will begin to make investments to enhance our away from home and e-commerce capabilities, two channels, which we expect will provide meaningful growth in the future.
Before I hand, the call over to Chris to share the financial details I want to thank the entire hain team for their commitment to our purpose of inspiring healthier living through better for you purpose driven brands.
Our recently completed my first seven months of visits to see all of our global sites, including manufacturing distribution and offices across the U S Europe , and Canada, which left me energized by our capabilities and our team's passion I am encouraged by our potential to leverage our reach and scale to deliver sustainable and profitable growth.
The leading better for you brand it enterprise with that I'll turn it over to Chris Thanks, Wendy and good morning, everyone.
Quarterly consolidated net sales decreased 2% versus the prior year period to 447 $48 million inclusive of a $1 $3 million impact from foreign exchange.
On an adjusted basis consolidated net sales decreased one 5% in the quarter.
Our guidance of low single digit decline.
Adjusted gross margin was 22, 7% in the fourth quarter, an increase of approximately 330 basis points versus the prior year.
And an increase of 130 basis points from the third quarter of 2023, driven by pricing and productivity, partially offset by inflation.
Adjusted EBITDA on a constant currency basis was 43 $45 million versus 35 4 million in the prior year.
And near the high end of our guidance.
Our guidance range of $40 million to $44 million.
Total SG&A came in at 14, 9% of net sales for the core.
Baird to 15, 5% in the prior year.
And from cost management.
Net loss for the quarter was $18 $7 million or 21 cents per diluted share.
Compared to net income of $3 million or three cents per diluted share in the prior year period.
This is inclusive of a noncash intangible asset impairment charge totaling $19 million, resulting in an impact of $14 million after tax.
Adjusted EPS was <unk> 11.
Versus eight in the prior year.
Turning now to our individual reporting segments.
In North America.
Total debt decreased by 41% to $281.8 million in the fourth quarter.
Adjusted net sales decreased four 3% versus the prior year, an improvement from the rate of decline in the third quarter.
The year on year decrease was primarily a function previously discussed non repeated customer promotions and softness in personal care.
Q4, adjusted gross margin in North America was 22, 7% at 270 basis point increase versus the prior year.
Our margin performance reports pricing and productivity, partially offset by inflation.
Adjusted EBITDA at constant currency, North America was $27 million.
One 8% decrease versus the prior year period.
The decrease was driven by lower sales and increased marketing spend.
North America adjusted EBITDA margin was nine 5% on a constant currency basis.
30 basis point increase from the prior year period.
In our international business reported net sales increased three 7% to $166 $1 million in the fourth quarter.
When adjusted for the impact of foreign exchange net sales increased three 6% compared to the prior year period.
This represents the second consecutive quarter of growth in the segment and a significant improvement from declines in the first half.
Our year over year increase international adjusted net sales reflects an eight 2% increase in the U K, partially offset by an eight 7% decline in continental Europe .
The U K increase was driven by a benefit from the category to a recovery in private label and the diversification of our portfolio in both brand and private label.
The year over year decline for Continental Europe was driven by non dairy beverage performance, which as Wendy mentioned appears to be stabilized.
International gross margin was 22, 7%.
Approximately 440 basis points year over year, as pricing and productivity more than offset inflation.
International adjusted EBITDA at constant currency was $27 $5 million is 62, 8% increase from the prior year period.
On a constant currency basis, adjusted EBITDA margin was 16, 6% up approximately 600 basis points versus the prior year period, and 400 basis points compared to the third quarter.
Shifting to cash flow and the balance sheet.
Fourth quarter operating cash inflow was $45 million versus an outflow of $18 9 million a year ago.
The higher operating cash flow resulted from a strong improvement in net working capital.
Because we anticipate generating incremental positive cash flow in fiscal 'twenty 'twenty four we would expect resulting cash to be used to pay down debt, while strategically investing in the business.
<unk> was $6 $4 million in the quarter and $27 $9 million for fiscal 2023.
Finally, we ended the quarter with cash on hand of $53 4 million.
And net debt of $775 for.
Translating into a net leverage ratio of four three times as calculated under our amended credit agreement consistent with our stated priorities for cash we have reduced net debt by $70 million since the end of the first quarter of 2023.
Turning now to our outlook.
As Wendy said, we view 2024.
Flexion point, where we will reset our foundation to return to top line book.
In fiscal 'twenty, four we anticipate balanced growth across the portfolio within both our North America and international segments, achieving low single digit organic net sales growth.
Fueled by productivity increases year over year, we expect to make brand building investments across key brands to drive growth.
And we'll also made modest investments in our away from home and e-commerce capabilities.
We expect these investments along with the refunding of our incentive plan.
Third to fiscal 'twenty, three will create an adjusted EBIDTA drag of approximately $20 million as we invest for the future.
As such we are offering the following guidance for fiscal 'twenty four.
We expect adjusted net sales to increase by 2% to 4% year over year.
Adjusted EBITDA to be between 155, and $165 million and lastly, we expect to generate free cash flow of $50 million to $55 million.
Our 'twenty 'twenty four guidance assumes that currency exchange rates will remain near current levels.
Pricing will recover most expected cost inflation.
And productivity will drive gross margin expansion and fuel investments in brand building channel growth capabilities and employee incentive compensation.
Our full year guidance is heavily back half weighted but.
The first quarter of this fiscal year is typically our seasonally smallest quarter in terms of net sales and adjusted EBITDA.
This dynamic will be enhanced in the first quarter of fiscal 'twenty for us there.
Headwinds do we expect to impact our North America business, which we don't expect to continue over the balance of the year.
Because of these factors, we are providing guidance for fiscal Q1.
On the top line, we are continuing to experience industry wide supply constraints related to our Earth's best organic baby Formula business, which we are currently working through it.
In addition, we are optimizing promotional activity could terra chips, resulting in a near term revenue headwind.
We anticipate longer term the move will unlock a more profitable mix.
Lastly, there has been a tightening issue personal care program within a non measured channels.
On the margin front carryover inflation in Q1 is expected to be higher than that in the balance of the fiscal year, and we expect pricing and productivity will begin accelerating in Q2.
As such we expect the following for the fiscal first quarter adjusted net sales to decline by a low single digit percentage year over year, and adjusted EBITDA to be between 20 and $21 million.
Expect results to improve starting in the second quarter as fuel initiatives and pricing take hold with operating model improvements positively impacting the back half with you.
With that I'll turn the call back to Wendy for closing remarks, Thank you Chris.
Before I close out today's call I would like to share the news that Chris will be stepping down as CFO at Hain Celestial on September 4th Christmas played a key role with the company through a time of extensive change and has helped to build a strong finance team with deep expertise to deliver for the future.
With this news I am pleased to share that Lee Boyce, Chief Financial Officer of Hearthside food solutions will become Haynes, New CFO effective September 5th Libre.
He brings more than 30 years of experience in leading finance within organizations across the food and hospitality industries, including Hearthside, a leading contract manufacturer and the food industries largest privately held bakery with Warner Company and with American Hotel Register prior to that he spent more than 20 years at Mont believes in Kraft tie.
Leaves extensive and broad experience will be a tremendous asset to hain as we transform our business into a globally integrated enterprise.
Chris will continue to serve as CFO through the transition will participate and hanes upcoming Investor day event in September and will stay on into November to ensure a smooth transition on behalf of the company I want to thank Chris for his many contributions to hain celestial and wish him. The very best at this time I'd like to turn it over to Chris to say a few words.
Thanks Wendy.
Thank you and the team for your partnership during my time at home.
I look forward to seeing the new Haynesville imagine strategy take place.
And I'd like to thank everyone on the call. It's been a real pleasure working with you you are in good hands and no I will be chairing hanging from the sidelines. Thanks, Chris.
As mentioned previously we have examined nearly every aspect of our business to identify key unlocks to drive our business forward over the last several months. Our team has been laser focused on developing hain re imagined our multiyear transformation strategy to return our business to predictable profitable growth, we have identified where we will play.
And our right to win and the right building blocks to get there we are simplifying our winning portfolio and we have identified the right channel mix and geographies to drive our core expand our reach and gained share across our portfolio.
As we lay out our strategy during Investor day on September 13th we'll share how we're building our future for growth through our commercial focus where we're reshaping our market coverage and building capabilities and revenue growth management.
You'll hear how we're re imagining our supply chain, where we're implementing new capabilities expanding capacity in critical categories and enhancing operating efficiencies. We will share. How we are transforming our end to end business planning process with new ways of working and focused investment in digital that if people led technology enabled and.
We'll share how we're redefining how we approach brand building to drive greater awareness and loyalty and to get our products into the hands of more consumers everywhere they shop.
Hain size scale and structure provides us a unique opportunity to blend aspects of traditional CPG growth model with disruptive startups and use it as a competitive advantage. We are taking the best of both worlds, which enable us to out small to big and how big the small.
All of this of course is only possible through the talent and passion of our Hain team, who are committed to our company purpose of inspiring healthier living and who live our values every day, it's an exciting time to be at Hain and I'm optimistic about the future of our business and unlocking the full potential of our brands. We look forward to laying out the details of our new strategy next month.
And introducing you to Hain re imagined operator, please open the line for questions.
Thank him if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys in the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.
Great. Thank you good morning, Monday and Chris.
Good morning.
When do you I know that you had initially described sort of the approach going forward regarding reinvestment is kind of a pay as you go approach maybe as opposed to a large kind of onetime reset and I guess, that's partly due to balance sheet flexibility and such with the 20 million of incremental investment and amended credit agreements.
And now it seems like maybe a little bit less of a pay as you go and maybe a little bit more of an upfront kind of reset. So if I've got that right I guess, what why the change in approach them and do you now believe this gets hain too.
A more sustainable place on brand support or is more needed and as you go forward as more productivity comes through and then I've just got a follow up thanks.
Yeah I appreciate the question.
The reality is that a large chunk of that $20 million is actually just really funding our incentive plans.
On a year on year basis, So that's where a large amount of that is as we look into the year and the investments around around brand building the bulk of it we won't actually put in place until the back half of the year. So I think we are building a shade fairly prudent to ensure that we're driving productivity and efficiencies in the.
[noise] front half of the year and as Chris said, we'll begin to see pricing catch up with inflation as we go into a quarter or two that gives us a bit more flexibility to then lean into some of those reinvestments around brand building. So while the full year, we built it into the shape.
You'll end up seeing is a bit more productivity in the front half that gives us the freedom to then lean into some of those investments in the back half.
Got it okay. Thanks for that and then guidance for the fiscal first quarter adjusted net sales for a low single digit decline year over year I guess, what are you expecting more specifically for North America.
Q1and I.
I guess to what do we owe you mentioned a couple of things, but maybe what are what do we think driving some of the the weaker trends that we're sort of currently seeing at least in scanner data and I guess, what gives you the confidence in the inflection that that's needed to hit that 2% to 4% target for the full year.
Yeah, I think there's a couple of things that play into a first for quarter one.
Chris then there are some really unique one time impacts that happened in the quarter, the largest of that being availability of baby formula to support or as fast in North America, and that's we believe a quarter one impact, but we don't see that as we go throughout the balance of the year given some relate.
Arrangements, we've made with our suppliers. There. We then also made a choice to margin up the mix around our snacks portfolio as we pulled back from some promotional activity that was margin dilutive.
Just to make sure that we're using those brands and putting them into the marketplace and the best way possible. The challenge with that is that lapping those big chunks of volume has an impact in a short period of time, but over time, we will they will improve the overall mix of that so you've got a little bit of that phenomenon and then the timing of <unk>.
Alba Sun care lapping prior year. So we shipped later in the Sun season last year and we shipped earlier in the summer season. This year and so you see a quarter on quarter view, but it's not necessarily a weakness overall. So some of this is very much timing related for North America to your question about what we are.
Seen in our in market activity, we're actually really encouraged we're encouraged because GDP is continuing to grow which is good we're encouraged because the pricing actions. We've taken have gone through them and we're not seen an impact in the consumer take rates and probably the third piece that I'm more encouraged about is the efficient.
The Embarq promotion, if you recall, we didn't really turn back on promotional activity until quarter, three really late quarter three of fiscal 'twenty three.
And we knew it would take a little bit of time for that to catch up we were far behind category average and the places where we play we're now promoting about at industry rate, we're seeing the effectiveness of those promotions and we'll have that I'm sort of always on marketing strategy in an always on promotional strategy that I.
Zinc will allow our velocities to catch up with our T. D. P. So that's what gives us real confidence.
Andrew the three headwinds.
When he described are in aggregate about 10 growth points.
So it is a material headwind in the first quarter and specifically in the first quarter and then Additionally, if you go back and look at how fiscal 'twenty three.
Analogy was for North America recall that the first quarter North America was exceptionally strong last year. So it was a it was a quarter of its got to you are off to a very good story for most of America every day anniversary. If you go back to year ago.
Adjusted for those 10 points of headwind versus two years ago, and actually it looks like the acceptable levels of growth in the first quarter from it and then and then the balance of the year.
North America recovered nicely.
Thanks for the clarity.
Thank you. Our next question comes from the line of Ken Goldman with J P. Morgan. Please proceed with your question.
Thank you Chris Good luck to you I appreciate your help over the last year or two.
It is I'm just curious if you can help us a little bit and thank you for all the guidance for next year.
Including the first quarter, just wondering if there's a few other line items for the full year that we should get a little bit of help with including you know maybe just directionally, how you're thinking about the gross margin and maybe some help them you know just from below the line items for interest and taxes or is there anything abnormal there we should think about as we model the year.
Yeah. So for gross margin, we do continue to see improvement, we expect improvement throughout the year call. It between 102 hundred basis points of gross margin improvement throughout the year and it'll be a little lumpy, but that would be that would be our full year expectation.
This expense will continue to go up modestly in fiscal 44, not nearly as much as the increase that you saw from from fiscal 'twenty three to come from 'twenty two to 'twenty three and then the adjusted tax rate will continue to be kind of in that 23, and a half so 24, 5%.
Okay. Thank you for that and then just wondering if I can just.
Remind me a little bit of how the incentive program works just because it sounds like from what you were saying most of that 20 million is coming from.
Yeah, I don't have to reset or forget the exact what do you use of the incentive program, but your EBITDA will be down next year. So can you just walk us through a little bit what drives that reset.
Where do you live in a minute.
Yeah that the structure is actually very comparable to what you see just across really industry. Its 50% based on revenue growth, 50% based on EBITDA growth. The challenge we have in fiscal 'twenty three is that for the majority of the business they clipped on.
Both net sales growth in EBITDA, and so what was accrued to pay out in bonuses essentially went back into profit.
The plans for fiscal 'twenty four we're building topline growth. We're also planning relatively flat EBITDA, even with the investments in the business and so the combination of that in our re funding or the accruing for that bonus plan. That's what you see is a it's an accrual phenomenon more than anything.
And to be honest I really hope that we Max out in both revenue and EBITDA and and pay our folks based on the results that we plan to deliver next year and if you decompose the $20 million about two thirds of it is the bonus dynamic.
Great. Thank you to you both.
You bet.
Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.
Good morning, everyone.
Good morning.
So can I ask about what you're seeing with consumer dynamics yeah.
The more mainstream packaged food companies are saying that the lower income consumer is quite vulnerable here I'm, assuming that that's not a huge concern of yours, but I'm wondering if there's anything that you're seeing between.
Measured and non measured channels or just consumer dynamics that as they're evolving right now.
Yeah, Great question, and you know we've talked before about our portfolio tends to play at the higher end of maybe conventional at the lower end of premium so it sort of puts us in a unique spot. What we're finding is consumers want the products are a regular part of their routine.
And they want the brands they are looking for different pack sizes. So for instance, with our Greek gods yogurt, we've seen tremendous growth and that is a is a brand that we don't really do in singles or we do it all in multi serve which consumers are sort of looking at multi serve as a way for them to drive over.
<unk> cost per serving reduction internationally, it's a little bit different dynamic that marketplace I find that consumer is much more sensitive and they are actually shifting their shopping behavior to discount retailers. We're in a very good position, there and which in both it and really switching to discounters, but.
Also in private label, and we're well positioned there because we're across the marketplace and those large retailers and discounters, but we're also in both brand and private label and for non dairy beverage and meat free were greater than half of our sales are in private label versus brand and especially in meat free we've seen the category.
Recover in private label faster than we've seen brands recover in the U S. We really aren't our products don't really skew to a more price sensitive consumer and so we haven't really seen the consumer shifting their behavior accepting that that multi served a focus.
Great. Thank you very much I'll pass it on.
You bet. Thanks.
Thank you. Our next question comes from the line of Jim Celerity with Stephens Inc. Please proceed with your question.
Hi, guys. Good morning, Thanks for taking my questions Wendy.
You got a lot of moving pieces here on the brand reinvestment side can you maybe give us an idea of rank order, which brands or kind of subcategories are the primary focus and maybe when some of those promotions come on.
Yeah, you'll see a continuation of some of the reinvestment that we put in place latter part of quarter, three and end of quarter four mm in snacks Baby kids and N cheese cheese or beverages in our U S business, primarily so the celestial seasonings magic in your most campaign was very successful.
Paul as well as some of the new innovation launch, you'll see us continue to lean in and support celestial seasonings, you'll see us continue to support snack brands, but underneath that it'll be primarily garden veggie and terror in our snacks portfolio and then even baby kids it'll be the Earth's best campaign.
To continue to support that and support innovation I would say that are so those are a category and brand prioritization. The bigger piece for us is ensuring that we've got an always on pressure around those brands that keeps them top of mind with the consumer but then we also want to make sure that we're keeping them available to them.
Consumer and easy to find so some of our brand building will be driving distribution across channels to ensure that our products are available where the consumer is shopping during the week. So I would say that's probably about half of our brand building. The other half is making sure that we're supporting promotions are a innovation that'd be washed and in it.
Past Haynes had some fantastic innovation, but we've not kept sufficient pressure to keep the consumer trying those products or by nose. In addition to the core for instance, this year, we launched a sleepy time with melatonin that's in the top selling skus now with the retailers who have that on shelf. We also launched a mouthpiece.
Six in Earth's best that's one of the top selling products as well in snacking for kids and we feel really good about what those new pieces of innovation. We're doing we've got some new innovation that we'll launch in the next year as well. So we want to make sure. We're supporting naphtha brings all the dollars.
That's all very helpful. Maybe one more just on the way that you view in store promotions and driving trial through our in store offerings versus kind of the more high level brand marketing that somebody would see on social media or.
On TV do you have a sense for which one you get more bang for your Buck or what the appropriate mix between those two are.
Well it would depend on the brands, but I would say in general for Hain are you and this is part of our our desire to be a disciplined and brand building from what you would see from a large CPG branded enterprise.
We want to make sure that we're also moving fast and nimble in the way that you might see from a disruptor or start up and ours are brands aren't going to be the time that we're doing mass media promotions and media spend that's just not really effective spend for us where we do get a lot of efficiency is in.
Overall portfolio, but also in social media, but also in store activation.
And it really depends on the brands, but the teams implemented a pretty disciplined approach to marketing media mix and using that modeling to then adjust yeah on quarter on quarter basis channel by channel.
Yeah.
That's all very helpful color.
I'll pass along.
Thanks.
Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Thank you and good morning.
Good morning.
Just would love to understand as some of the brand spending and investment step ups.
So it steps up a little bit better.
When you talk about it being more second half skewed.
Should we also think of that is spilling into fiscal 'twenty five I know that's what he's out in and we just finished 23, but.
Is that which should we think of it as you're just kind of getting started mid 'twenty, four or or maybe a little bit of a flip side of the same coin.
You're at around a 6% EBIT margin now do you have a target in mind of of like kind.
Kind of when and how you recover maybe we'll hear some of this more at Investor day, but.
So maybe just a sense of how the spending and profitability balance as you know how youre thinking about that and what to expect in terms of the timing of the spend ramp up.
Yeah, I'll start and then I'll pass over to Chris to give a bit more color.
But I think it's.
There's two things one investor day, we'll provide a lot of clarity and what we're seeing around the multi year and the expectations within each one of those years, you're one as we said was it was really a reset.
It is a reset of our foundation and I wouldn't characterize it as the front half we will lean heavily into driving the fuel to invest in the business and driving productivity and then being very prudent and where we lean into the investments in the back half the investments you'll see some of that would be organizationally to support our chi.
And I'll expansion and a slight increase in marketing investment year on year, but the bulk of that will fall in the back half of the year. So you'll see consistency in the pressure we had from quarter three quarter four for some of our key brands continue into the front half of this year, but incremental you won't really see until the back half of the year.
Yeah, Mike maybe I'll be happy with it.
It's definitely a question just when he said that.
Much more detail at Investor day, but but we in the past you've talked about the pacing of our investments and the pacing of our investments will be determined by two things the attractiveness of the investment and the amount of fuel that John .
Generally over what period of time, so yes, as you get into the back half of the year is when you said.
More generation of that productivity of that fuel that pays for the investments.
And then you have better visibility into fiscal 'twenty five to come in a few weeks.
Okay. That's helpful.
Just a follow up to clarify on the club promo for for I think it was all about.
Would we hear this correctly that you thought that was pulled into <unk> and has already done that's not something that we should expect into two it's not shifting into two to correct. It.
Out of <unk> and in the Rearview mirror is that correct.
Correct.
Okay, great. Thanks, so much.
You bet.
Thank you other reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Matt Smith with Stifel. Please proceed with your question.
Hi, good morning.
One of the big in one of the dig in a little bit on the productivity savings I believe previously the company was targeting over $100 million of savings between fiscal 'twenty for fiscal 'twenty five.
Can you just give a little more detail as to the level you now expect to realize in fiscal 'twenty four and then how much of the productivity savings that you expect for the year do you expect to be used alongside pricing to offset lingering inflation versus fund investments in the business in the second half.
Yeah. I mean, this is an area that I've been really pleased and joining the company and to see the how robust the team's productivity processes have been and I think we've provided the detail that in fiscal 'twenty three we actually over delivered to expectations in productivity.
And that combined with pricing allowed us to cover for inflation.
Fiscal 'twenty four you'll see that continuing so we actually have a ramp up in productivity in fiscal 'twenty for the traditional things that the team has in the regular pipeline, but there are some incremental to that that will lay out in more specificity. When we go into Investor day, We've got some pricing as well and the combination of <unk>.
Both of those gives us the ability to invest back in the business without a significant step back, but I'll, let Chris provide a little bit more color and continues with great gross margins et cetera to Ken's question. So so as a matter of you can think about kind of a combination of pricing productivity offset by inflation. We think the net of those three things as positive if you will.
See that in gross margin improvement.
Okay. Thank you for that and then just in general the overall level of investment behind the business that you achieve in the second half of the year can you talk about how you view that level relative to where you need to take the business overall in terms of spending you'd when you I think last quarter you provided some commentary about needing.
To spend more behind some of the core brands to unlock growth potential do you get most of the way there in the second half of the year do you expect investment spending to continue to outpace sales growth even beyond fiscal 'twenty four.
I wouldn't say that we so we certainly don't get to the levels that we would want to be able to support the brands.
In the out years, and you'll see some of that laid out when we talk on Investor day, but we also realize that theres a lot of cost in the business that we can drive out that can help to fund that and so it's going to be a combination of those two things and I think I've said this in the last couple of quarters, we definitely want to make sure that we are prudent in how.
We do that so I don't have a desire to take a giant step back to be able to fund that overnight I think theres an opportunity for us to drive efficiency and effectiveness of the spend we have today in trade how are we driving the efficiency of our trade spend that's getting us the right reach and getting the right activity with the consumer.
The reality is our spend levels are about where they need to be but we probably need to do that a little different in marketing, we'd like to step it up but I'd also like are working to non working marketing mix to be improved before we just add more dollars to it. So the team's done a lot of work to actually drive marketing investment and now.
So what's the return on the dollars that we're spending and how do we shifted to working marketing rather than non working and how do we measure and the impact on household penetration brand awareness how is it helping us drive distribution and reach so we'll do more effectiveness work in 24 before we drive incremental investment any out.
Yes, I think we want to get better at using the dollars day. After day before we just put more dollars of things.
Great. Thank you for that Wendy I can pass it on.
You bet.
Thank you. Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
Thanks good.
Good morning.
Oh, what first.
Follow up on Ken's question.
I said.
Thank you Bruce.
Put it in a presumption that there was a the vast majority of the $20 million as incentive pay refunding and not brand building could you maybe confirm if that's true.
And if it is you know clearly there is going to be some shifts in spending and it sounds like snack beverage baby, our big investment areas.
And you want to have the promotion firepower to support past innovation, which all makes a lot of sense like I Wonder generally where do you see inefficiency, where maybe you're shifting dollars out of generally speaking.
Yeah, well first to your first question you know as Chris said about two thirds of that 20 million is refunding, our incentive plans and those are self funding. So you would expect us as we deliver on revenue growth as we deliver on profit grows that's what would trigger the payment of those that they sell.
Funds, but in in the mechanics of it on a year on year basis. That's why you see it as an increase the other 30 is a little bit of investment in capability.
<unk> revenue growth management, so that we're driving trade efficiency and effectiveness of the spend we have today or pushing to away from home and enhancing our e-commerce capabilities. So you'll see a little bit of investment there around capabilities from a where do we see inefficiencies in the business. If we just look at it.
Our cost versus the industry benchmark and I think we've shared this before I think actually in your fireside chat in June we talked about this that there's a fair amount of inefficiencies in the number of distribution locations number of manufacturing locations effectiveness of our supplier spend and supplier base.
The amount of inventory, we have on hand in both raw and packing and finished our days it takes to pay et cetera. So there's you know and as we think about this scrutinizing every part of the business end to end there are pockets of cost. That's just been baked in I think largely because we were.
We're in a company built on multiple acquisitions that largely weren't integrated so part of what we are leaning into is integrating its where we can drive efficiencies that allows us to push those dollars to support brand building rather than just supporting the running of the business and that's where you'll see us outlining on Investor day.
Is that pace of fuel delivery and productivity the pace of operating model change that enables us to then leaned in and fund how we want to support our brands and pushing them out into the marketplace.
That's great and just if you had to say.
The biggest variables you'll be tracking as you're heading into fiscal 'twenty four I would imagine.
Shifts in the spending in response to those but you know if you had to describe what are the big must haves for this year what would they be thank you.
Yeah, you know the big must have we've got to drive distribution growth and we've got to drive good velocity of our distributions. So we want to be our customers best partner and the most highly productive offering on shelf and ensuring that they not only get it on shelf, where we earn a place to stay on the <unk>.
Well, because we're a highly productive skus. So those will be things that we look at it as an end market from brand health will look at you know basic brand health died in the household penetration and awareness of our brands, making sure that the spending we're doing in our marketing dollars just giving us the return that we would expect and then from a business standpoint, we're watching very.
Closely our cash conversion cycle, so days of inventory both in Ron pack on days of payables days of sales outstanding because every one of those days in our cash conversion cycle is money. That's just tied up that could be invested back into the business. So we'll be looking at the efficiency of how we use our working capital.
Yeah.
Thank you.
Thank you. Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.
Thank you just just in terms of the.
The price increases.
Is that relatively.
The same across the board or are there certain products, where you can't take price and then as a follow up.
Obviously, you're talking about slide <unk>.
Revenue decline in the <unk>.
The first quarter, and then low single digit growth.
Full year organic revenue growth of 2% to 4%.
I know, we're not talking about 25 here, but as we move.
Into the <unk>.
Back half of the year.
And into 25 should we expect.
The growth in revenues to start to move towards mid single digits as we move through the back half of 'twenty four and into fiscal year 'twenty five.
Well, we'll definitely give you a lot more color around those questions on Investor day, and certainly what our long term algorithm looks like but also what we think the building blocks are that gives us a reason to believe.
That is both the believable and achievable so more to come on September 13th relative to that.
Say, if I just step back and look at the categories that we're in and we look at the brands that we have and we look at the market reach potential that we have those are the things that gives me confidence that we have brands that earned their place on shell that we have in <unk>.
Entity to drive reach across the marketplace. It gives us revenue and margin expansion opportunity, but it's ours to go drive into that so you need to see a show that show you that essentially on an investor day from a pricing standpoint. The team did a really nice job of taking pricing Holistically. This last year, you won't see us do.
Do that kind of pricing because it's a very different environment now and I think every company has seen that be the opportunity to take a wholesale price, let's change the consumers just not gonna be willing or the retailers to do that so it has to be a bit more surgical for us. This means and this is the investment around revenue growth management.
We need to be looking at trade efficiency and effectiveness, but we need to really be looking at price pack architecture. So do I have could I take pricing on particular pack sizes to particular channels, where the consumer might be less price sensitive because they're willing to pay a premium for convenience for instance versus.
Probably can't take pricing any bulk pack in another particular channel because if consumers much more price sensitive there. So I think what you'll see us do.
Do you and the team has done a really nice job with identifying where we can take the price that won't be an impact on volume and reach them, but you won't see it as a wholesale price increase.
Okay, great. Thanks.
Thanks, very much looking forward to Investor day.
Absolutely.
Thank you. Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Good morning, everybody. Thanks for the question.
Good morning.
When do you mentioned in the prepared comments of some work.
It had been done are rationalizing like a good international branded resulting in kind of a core assortment on that brand, but it's been more productive on the shelf is there more SKU rationalization that.
You know will be happening is as you move forward a is that an opportunity I guess to what extent and then a bigger picture question on the portfolio.
Is there additional.
Broader brakes protein that you're in.
Evaluating I think about your business like personal care.
We are being a little bit outside of the wheelhouse of better for you food and beverage.
Yeah No great question in terms of SKU rationalization and this should be a regular part of how we run the business to be honest and every one of our brand managers every one of our important you'll leave every one of the market we should be looking at the assortment of skus that they have and make sure that it is the hardest.
Working assortment of Skus. It also has an impact on innovation, we don't want to launch innovation just for the sake of innovation it has to be truly incremental to the brand incrementals in the category. So we can go to a retailer justify the space and use innovation to create greater brand awareness back to the core and its an incremental sale.
Not just swapping out sales for sales otherwise, there's just a lot of work and effort with very little return on that investment. So that particular instance, we talked about in the prepared remarks was actually in Europe , and our non dairy beverage business. The team rationalized, a pretty large chunk of the portfolio down to the hardest working assort.
Men and that's had a positive impact in driving real volume real business impact. That's an example to be used across lots of parts of August so long answer to your question, but we absolutely see an opportunity for us to eliminate parts of the tail. It will help our supply chain and be more efficient.
It'll help our dollar spend to be more efficient and it'll help our relationships with our retail partners because we're using our space wisely to actually bring in more shoppers and keep the shopper and they're longer as we think about the overall company portfolio. I mean, obviously, we're always looking at the portfolio and to shape.
But but that's not going to be the primary strategy. So you shouldn't expect to see <unk> future growth be just buying new businesses or selling off businesses. We have to actually run the businesses that we have and then we can make strategic choices around what does or doesn't fit in the portfolio, but then we are selling.
A healthy businesses. So our focus right now in particular with something like personal care is stabilizing that business ensuring that it is the right fighting core of brands and fighting core of the.
Products. So that we then have optionality with that portfolio I can't say, what what what in our portfolio will exist with us and Hain in the next three years, but we have an opportunity to ensure that we are good stewards of the brands. We have so that if we choose to sell those off or selling off a healthy business to somebody.
Thanks, that's really helpful and I look forward to seeing you at Investor Day.
Absolutely unfortunate as well.
Thank you. Our next question comes from the line of Andrew Wolf with C. L. King and Associates. Please proceed with your question.
Oh. Thanks, Good morning, I wanted to follow up on personal care just wanted to your assessment of I think you've done across the company's portfolio.
You know the softness there it sounded like you said it sounds like from what you just said, it's more of a right size and get into the strengths, which as you know you've shown works and others have shown works.
But have you noticed any structural issues either internally such as you know just the scale of operations may not be sufficient.
Anything externally, maybe it's a different competitive set than a food or do you think it's just more of a traditional solution and the way that you just sort of referred to it.
Okay.
You know I would say that we were taking a very holistic review of the business I mentioned I think in the last earnings call that we brought in new leadership to run that business and shouldn't take it through that evaluation them, but you know I would say its pretty typical of any business that you evaluate you look at.
Where are opportunities to grow in the marketplace, what's the right what's the strength of the brands with the right categories that those brands are playing in are we getting the right price in market, what's the channel opportunity their personal care for instance is a is a very big product line in online.
First is the rest of our portfolio what might that look like in the future around our omni and E. Commerce approach looking at your distribution footprint in your manufacturing footprint could that be optimized or make more efficient similar to what we did with meat free in Canada. So we've consolidated our meat free operations are in.
Canada to more effectively use the footprint, we have there and.
We're doing lots of work around our distribution centers holistically within Hain. So I would say is yes and is everything in the portfolio, but it's also making sure that we understand how the brands can affectively breakthrough and compete in the category that we choose to have them in and so you'll see a fair amount of.
Around the personal care business over the next 12 months that then again it gives us optionality, it's either returning to growth with us or it returns to growth and it's a business that we can effectively them find a home for it but we want to make sure that we're running a healthy business before we make those choices.
Yeah.
Thank you and the other question I'd like to ask is you brought up addressing you know the away from home market convenience stores and other foodservice opportunities.
Does the current existing brand you know the products as they are.
Are they you know can you fit them right into that distribution into that channel due to the distributors are directly or you know are there are a lot of changes in pack sizes or even usage types that are going to have to come just on the product itself to fit the channel.
Yeah. The primary products that we would see in brands that have application in away from home is going to be in our snack portfolio is gonna be and celestial seasonings tea and it's gonna be in Greek gods yogurt.
The beauty of Greek gods is its already and multi pack and multi serve which is ideally suited for that space not taken it into C store, but taking it into back of house and contract management, our snack portfolio already has single serve and a pack sizes that we need it's a driving distribution and really pleased that we pick.
Up some very large distribution gains in both garden bedroom and terror in C store in particular that you'll see come through in fiscal 'twenty four or so getting some early good green shoots which is which is great for tea. We have single serve and we actually have K cups for celestial tea.
We don't have as many of the flavors as we would like although we did just launch the Peppermint K Cup. We just had really great receptivity. This is gonna be one that's driving distribution reach and we're in the process of putting together that go to market model to ensure that we've got right coverage to go after the right channels, but I feel very.
Very good about it and and the opportunities in front of us, but it won't require a lot of food change or product change won't require a lot of packaging change. It is very much around commercial execution.
Yeah.
Alright, thank you.
You bet.
Yeah.
Thank you. Our final question. This morning comes from the line of John Baumgartner with Mizuho Securities. Please proceed with your question.
Good morning, Thanks for the question.
I wanted to ask Wendy just you know thinking about the demographics in this category paint fallback for a number of years has been this this highly affluent consumer more installation from elasticity in the economy, but you look at broader natural organic category growth has slowed off a larger base you had private label coming into the car.
You've got many larger cpg's with larger economies of scale offering products at more competitive price points and I'm curious as you sort of think about the next couple of years in this business, where you want to grow the channel you want to grow the consumer do you want to market to I guess, how do you think about the risk of sort of writing your I guess.
Largest buying consumer highest intensity consumption consumer even harder where they may hit a wall at some point as opposed to when you're going down the demographic curve. It's more middle income households that opens you up to more elasticity risk, but also a much broader addressable market as well.
Yeah, I think it's a great question and you know certainly historically Haynes growth has been predicated on a highly affluent consumer and who is shopping largely in specialty retail what we've seen the dynamics changed in the last few years is that our products and brands actually appeal to a wider.
Sumer cohort than just that consumer and consumers are looking to buy the products in more places. So the two things that we need to do is make them available in more places than just traditional specialty retail, but we also need to make sure that we've got the right pack configuration. So that we meet the consumer's price points.
And those particular points of distribution. So it's an opportunity you can have and and that's the opportunity for Hain. We are under indexed in lots of channels and we are underpenetrated in a variety of categories. That's the opportunity. The great news is that when we look at consumer appeal of our brand.
And there is a love for the products Greek gods yogurt for instance has a almost a near cult following them and Terra chips and garden Veggie straw. So there's an opportunity for us to make the brands that consumers love available in more places and a pack type and a size that they that that meets the needs in that.
Particular occasion.
Okay. Thank you.
You bet.
Thank you that concludes our question and answer session I'll turn the floor back to MS. Davidson for any final comments.
Yeah, I really wanted to thank everybody for the time today and for instance, last quarter and is one of them, especially again, thank Chris for his partnership.
And all access in all of her work in preparation as we go into these earnings calls I very much look forward to seeing everybody on Investor day in a few weeks and thank you again.
Yeah.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.