Q1 2024 The Hain Celestial Group Inc Earnings Call

Greetings and welcome to the Hain celestial first quarter 'twenty to 'twenty four earnings conference call.

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It is now my pleasure to introduce your host Alexis TCA. Thank you you may get you may begin.

Good morning, and thank you all for joining us on Hain celestial.

Our earnings.

On the call today are Randy Davis, President and Chief Executive Officer and Lee.

Executive Vice President and Chief Financial Officer.

During the course of this call we may make all these statements within the meaning of section.

Home security Bot.

The expectations and assumptions regarding the company's future operations and financial buyers.

These statements are based on current expectations that involve risks and uncertainties that could cause actual results to differ materially from our expectation.

Yeah.

Please refer to our annual report.

And on Form 10-K quarterly reports on Form 10-Q, and other reports filed from time to time.

As long as the press release issued this morning, or a detailed discussion of the risks.

Actual results.

And that is frankly expressed or implied in any forward.

Thanks, Matt.

We've also looked at the presentation the purchase.

Additional financial information is posted on our website at <unk> dot com under the investors.

Please note that remarks made today.

Yeah, our adjusted financial metrics.

Reconciliations of non-GAAP to GAAP financial measures are available in the earnings release and slide presentation accompanying this.

Call is being webcast.

It will be made available on the website and now I'll turn the call everybody.

Thank you Olaf and good morning, everyone. Thank you all for joining the call today.

I'll begin by reviewing our first quarter results I'll, then provide a high level overview of our Henry and Nike strategy, which we introduced at our Investor Day in September followed by an update on the early progress. We've made we will then review our financial results in more detail along with our outlook for fiscal 2024.

I'm pleased to report our first quarter results and deliver our second consecutive quarter of promises made promises kept.

Organic net sales were in line with our guidance of down low single digit adjusted EBITDA came in ahead of our expectations.

We said previously with Hadrian imagine we'd want that as we go so sorry headquarters you over the balance of the year and we plan to utilize the overage library border wanting to invest back in the business.

So sticking with our plan and our strategy asked me on Montreal through accelerated growth and they shouldn't be.

As we highlighted previously the net sales decline in the first quarter was driven predominantly by ladies and kids.

Joining the call. We described the headwinds that we expected the pace in the first quarter, the largest being baby formula, but the entire industry has experienced to find constraints.

We are working closely with your partners to accelerate the availability and bring on additional supply. We are now expecting these challenging and supplies and even into the second quarter and began to recover sometime second half of the year.

Excluding the formula on supply chain, when you're seeing progress across the business driven by our strategic focus on brand building channel expansion and renovation, we leveraged our portfolio across better for you category.

Distribution across platforms industrial Rachel.

We are making notable progress in away from home channels like convenience colleges and University and the travel segment, which are marching to the portfolio and provide expanded brand visibility I will provide more details on that in a few minutes.

As we've mentioned before it is important to note.

But some of the bright spots in our growth may not be as clearly visible to you. If you only use the best indicators of consumption.

Approximately 40% of our business is.

In international and in North America, 35% to 40% of our business is in unmeasured channels as we lean into our channel expansion strategy. This will become more money.

I'll now review sounded positive momentum from the first quarter.

And I Hope you do snacks are not metrics net sales were up 18% in dollars and the 12 weeks ending October he led by Brian Becky Youre, driving rosengarten budget, primarily to strike and club as well as an e-commerce and away from home.

Execute on our strategy for channel expansion, we have gained incremental distribution anyway from ghansham.

<unk> segment by colleges and universities travel heat source.

In better for you thinking kids Earth's best continues to demonstrate robust growth of 12% in dollars.

In the last 12 weeks, excluding foreign spot supported by strong retail partnerships and share gains in baby food answer right.

And smashed our investment in brand building campaign. Good food made fun are helping drivers. That's next up low single digits in dollars and 20% in.

Total distribution.

It's better for you beverages celestial seasonings bagged tea grew one 3% in dollars and the latest 12 weeks, it's been both dollar and unit velocity pacing ahead of the category and we gained share across herbal involved in these segments.

Our brand building investments are delivering as planned on that.

Have you seen your mom campaign launched in the back half of fiscal 2023, and we have strong customer acceptance.

Innovation equally lengthy time not counting it started cooler.

Our international non dairy beverage business continues to gain momentum.

On Austin performed in June and growing 10, 6% in the first quarter a return to growth has been blessed by her private label business, but we're also seeing momentum in parts of our branded portfolio. The Germany was up 13% in the quarter.

On Investor Day, we believe our portfolio accommodation of strong brands and private label in those categories and advantage for heating across Europe.

We've done better if we can be on prem great patch Yogurts continue to see that the performance in the U S up 7% in dollars and the latest 12 weeks on increased velocity.

Growth internationally and you're on track was led by the UK, where we continue to benefit from our portfolio, which spans both branded and private label I don't they've already started with a larger mix of new pad was over 40% share compared to MS gene category share in the U S. We are well positioned and getting stronger.

Was it just counters and private label internationally.

In response to the macro environment.

Private label jams and spreads are both up double digits gaining share in the latest 12 weeks on the branded side are hardly jam and all of our modeling brands also grew double digits in the latest 12 weeks, we picked up share in their respective categories.

Also under the old kind of category are safe brands continue to perform well up 15% in dollars in the last 12 weeks.

200 basis points of share.

Call Eaton, selling Yorkshire, Provender, Covent Garden brands, all grew double digits.

You may recall from our Investor day, he's bringing on these three brands.

Number one number two and number three in a category in this market and these results are well before we had the peak season.

We are also seeing encouraging signs of stabilization a global need pretty category.

I need to believe in the long term growth potential of it won't be pretty category.

So it became best foreign language areas and vegetarian options to deliver on taste and convenience.

As we see consolidations category consumers are returning to leading brands in this space.

Yes.

Our east brand, but never wanted me pretty brand in Canada and gain share despite category, though.

We were at 270 basis points in fresh and 70 basis points in frozen in the last 12 weeks.

In the U K, our Linda Mccartney brand you see increased velocities in frozen up 20% in the latest 12 weeks with distribution of 12%. We are excited about our upcoming meat free innovation, let's just best Burger, which won't hit you can't supermarkets in the spring.

And it doesn't really personal care, we continue to focus on stabilizing this business. What are you seeing some encouraging signs with our personal care business is growing 6% and in order to get Congress channel.

In addition, <unk> personal care grew with your drug channel, 70% on total distribution point growth.

60% in the latest 12 weeks.

Across the business our performance trends are more favorable in unmeasured channels and measured channels driven by strength in our better for you snacks portfolio. Given recent distribution gains. However, we are beginning to see measured channel.

Ultimately prove a store shelf resets big indications for both snacks and Chi.

We are pleased to see the first quarter performed in line with our expectations.

Reaffirming our full fiscal year guidance.

I'm excited to share some of the early progress, we're making in executing our re imagine transformation strategy.

At our Investor Day in September we introduced re imagine our strategy to pivot the business to profitable growth that's wonderful to see so many of you there.

Angry imagine represents a bold transformation of our business is built on four strategic pillars. Okay.

So thank you.

We are focusing our leading portfolio of brands around five consumer centric global snacks.

Yeah, eight inches beverages meal prep personal care and we must simplify our footprint in five core markets. The U S, Canada U K, Ireland and Europe.

Taylor will drive brand strength share gains and channel expansion three of our core better bidding platforms snack baby kids and beverages.

Building and enhancing critical capabilities to execute our growth plan.

Pretty friendly accelerating innovation and driving channel in Asia, particularly in E Commerce and away from home, which has historically been under Josh Joshi.

As we unlock efficiencies across our business, we are reinvesting those savings to fuel our growth plan, while also expanding our margins.

We are operating with them and pray that the planning and revenue management executing initiatives in working capital and driving it and operational efficiency.

Our plan is designed to deliver a compelling and achievable long term financial algorithm with attractive shareholder returns.

Plan represents a material transformation of the P&L, you've probably seen on topline growth and driving margin improvement.

Long term financial algorithm seeks to achieve at least a 3% organic net sales growth CAGR through fiscal 'twenty seven.

He's talking about a double digit EBITDA CAGR and she can at least stay low double digit margin fiscal year 'twenty seven.

As you've heard us say on Investor day. This is our commitment not our aspiration.

And I decided that we're already seeing encouraging early momentum from our Haynesville imagine strategy.

The build pillar, we have made notable progress on expansion and charging created channel.

We've enhanced our away from home capability.

Experienced industry leadership and dedicated expertise to drive growth is important and growing channel.

We are pleased to share that our convenient store sales grew 14% in the last 12 weeks driven by your snack business, which was up 18% in dollars and 10% Incrementals hold distribution points.

In addition, we are gaining incremental placement with our snack brand in North America class travel restaurants on the go retail colleges and universities and convenient stores. We also have plans to expand in away from home in the U K, which is off to a good start since launching anything large restaurant chain in the first quarter.

E Commerce continues to be in both areas for us accounting for nearly 10% of company sales as the first quarter.

We have established a dedicated team to drive omni channel E Commerce, and provide greater focus and support for expanding into the margin creating channel were.

We're making our brands more accessible to consumers away from home yeah on increasing brand reach you can make the ability at the same time.

And as the market leader in better for you for over 30 years. So we understand the evolving needs of our consumers as we can.

On Investor Day, you're building out our innovation capabilities by working to develop breakthrough scalable innovation leveraging key insights from our global platform and across geographies and we are improving both our launch capability and are supported public launch, we now have better visibility into our innovation pipeline.

Across our key categories and are excited about our innovation experience that we are building out our new global headquarters location in Hoboken, New Jersey.

To that end, we're looking forward to introducing new disruptive innovation and better for you snacks platform in the third quarter.

We can't share details quite yeah, we won't be supportive of launch by activating our agile and brand building model designed to deliver fully integrated omni channel campaigns that drive awareness trial and repeat purchase on shelf and online.

A key part of our growth pillars, gaining incremental distribution in existing channels and enter into a channel.

And in addition to the away from home wins, I mentioned earlier, our snacks baby and kids and beverage brands have earned incremental distribution across existing channels. The drug channels grew 5% in the latest 12 weeks and recent distribution gains to support our confidence in our ability to grow share as we progress throughout the year.

As part of our focus pillar, we are simplifying our global footprint to five core geography, the U S, Canada, U K, Ireland, and Europe, and streamlining our manufacturing footprint to meet five markets with efficiencies in our own production and our toll manufacturing network.

We consolidated our meat free manufacturing footprint in Canada, Okay can't even look at improving our capacity utilization in our operations leverage on all of our geographies.

That's the aim to unlock our full potential as a leading global better for your company. We are committed to implementing an operating model that should enable our teams to drive greater reach and scale across our core five platforms and our core markets.

If our aspirations we have recently established a global operating model regulatory R&D and quality and made important shifts are designed to further integrate our teams globally.

These enhancements will include progressing the development of our global centers of excellence across marketing procurement and R&D.

I mean, all the needs of our consumers and our customers are already creating demonstrated value for the business.

The last pillar is people, which will enable us to fund our growth and drive margin expansion.

Our fuel program consists of three main levers revenue growth management, working capital management and operational efficiency. We are on track to deliver against our plans fuel initiatives for the year with early momentum in Archie M as reflected in trade efficiency and effectiveness.

One of our key working capital opportunities involves Britain on payment terms as an industry benchmark.

And begun the process and this initiative is on track to deliver working capital improvement and this fiscal year.

Productivity in the first half of the year. He is primarily being driven through packaging automation, enabling us to improve our throughput and reduce waste in our system.

Executing against identified initiatives across all of its refuel levers to unlock value that we can reinvest in our business starting in the back half of this fiscal year.

Before I hand, the call over to Lee to review our financial results in more detail I want to thank the entire hain team for their passion and their dedication to hain rematch.

This is a bold claims transformation not only what we do but how you're organized how we work.

You are instrumental in delivering on our strategy, but more importantly, our purpose and inspiring healthier living and I'm proud to work alongside you Li. Please go ahead.

Thank you Wendy and good morning, everyone.

I think there's some pages first quarter consolidated net sales decreased three 3%.

Probably.

Here is just $425 million.

Net sales in the first quarter adjusted to exclude the effects of divestitures and discontinued brands decreased two 9%.

And you're very consistent with our guidance of a low single digit decline.

The decrease was primarily due to lower sales in the North American segment.

That by itself you Tonight.

Optional second.

At Pigeon.

We should have a strong first quarter adjusted EBITDA of 24 $1 million versus $96 million in the prior year period.

Came in ahead of our guidance range due to lower trade spend and marketing expenditures and we expect to reinvest into the business over the course of the fiscal year.

Adjusted gross margin was 25% in the first home time and decreased by approximately 95 basis points versus the prior year period.

Written by deleverage on lower sales awesome by cost inflation, partially offset by pricing and productivity savings.

SG&A increased roughly 3%.

$77 $2 million, representing 18, 2% of that so some quota.

The increase was driven primarily by wage rate increases and inflation you. How is the phone calls with marketing expenses roughly in line with proprietary.

Incremental investments.

What did you mentioned earlier, we have also begun to make progress in executing initiatives under the hanging re imagined multi year global growth and transformation program, we announced during law schools at investors day.

During the first quarter charges totaling $9 $7 million associated with early actions under the program, including contract termination costs asset write downs employee related costs and other transformation related expenses.

Interest costs for the first quarter rose, 73% to $30 2 million.

Due to the higher interest rate environment.

Partially offset by a lower borrowing base.

As a reminder, we have.

Cashed out right exposure on approximately 50% of our loan facility with fixed rates at five 6%.

And then I'll come back to in a moment we are.

Teams focused on driving down net that's all the time.

Well what do these factors combined to produce a net losses, whose oh $10 $4 million.

12 cents per diluted share compared to net income of $6 $9 million or eight cents.

Did you share in the prior year period.

Our adjusted loss per diluted share was four cents versus adjusted EPS of 10 cents in the prior year areas.

Now to our individual segments.

In North America, and Japan sales decreased nine 8%.

$261 million in the first quarter.

Organic net sales decreased by nine 3% versus the prior year period due to sales decline in baby and kids, which as we mentioned last quarter is a function of continued industry wide challenges in organic food supply.

Second the timing shifts, although some caf program and a person who has fabio.

And the optimization of our promotional activities et cetera, as we aim for more profitable growth.

Mix over the long term.

These temporary decline more than offset comprise sponsor right.

We achieved all the strategic platforms, such as bats packages with celestial seasonings bagged tea and non dairy beverage and baby and kids excluding wholesale.

First quarter adjusted gross margin in North America was 28%.

The 90 basis point decrease.

Perez.

Driven by deleverage on lower sales volume and cost inflation.

Partially offset by pricing and productivity savings.

Adjusted EBITDA was $18 $7 million 839, 2% decrease versus the prior periods and adjusted EBITDA margin was seven 2% a 350 basis point decrease from the prior year period.

This year over year declines resulted from lower gross profit and margin.

The flat SG&A spending.

You know in international business reported net sales increased nine 3% to $165 million in the first quarter I don't.

Organic net sales growth was also nine 3%.

Our first was mainly driven by new products from private label grocery as well as soup.

One is in non dairy beverages and maintain kits.

International adjusted gross margin was 24 cents off 95 basis points year over year, driven by pricing and productivity.

We offset by inflation.

International adjusted EBITDA was $17 $4 million, a 16, 7% increase from the prior year period, driven primarily by pricing.

Adjusted EBITDA margin was 10, 6% of approximately 70 basis points.

The prior year periods.

Shifting to cash flow and the balance sheet first quarter cash provided by operating activities was $14 million plus is cash used in operating activities of $5 $1 billion, a year ago, or a $19 million or you're pretty much.

The higher operating cash resulted from working capital management, including our accounts payable optimization initiatives.

So I'm, just inventory management and an improvement in recovery.

Paying down debt and strategically investing in the business continued to be our priorities for cash utilization.

Capex was $6 $9 million in the quarter and we continue to expect to be approximately $50 million from fiscal 'twenty to 'twenty four.

Finally, we ended the quarter with cash on hand of $38 $3 million and net debt of $776 $7 million.

Facing into a net leverage ratio of 423 times.

Raytheon Drive amendment prejudice.

Note that we do expect leverage to increase and peaked in the second quarter, given the timing of restructuring and other.

The anticipated seasonal increase in networking capital and all the cash outflows.

People are trending back down to the second half of fiscal year 'twenty three 'twenty four.

And so somebody that states you prioritize uses of cash we have reduced net debt by $17 million since the end of Q1 'twenty two 'twenty three.

And as we have previously indicated our long term goal is to reduce balance sheet leverage.

No more than three times adjusted EBITDA.

Yeah.

Now to our outlook.

Well the number off the top line headwinds, we faced in the festivals that well isolate each of the periods.

Industry wide challenges in organic baby food in the supply will continue to adversely affect our sales volume in the near term.

We are working hard with industry organizations, and how co manufacturers to ensure that consumers have access to organic food.

We play a leadership role.

We are maintaining our guidance for the full year. Despite adjusted EBITDA in the first quarter coming in ahead of our expectations.

Oh, Hey, Matthew strategy is designed to be self funded and flexible.

Starting in the second quarter, we expect to reinvest these dollars back into the business to drive profitable growth.

Adjusting the pace of investment as we progress.

But fiscal 'twenty 'twenty four we continue to expect.

Net sales to increase by two 4% year over year.

Adjusted EBITDA to be between 155 and $165 million.

And free cash flow of $50 million to $55 million.

'twenty 'twenty four guidance assumes that.

Exchange rates would not materially affect our performance.

That's a nice range, there's always confessing that's around 2% more strongly than factored into our initial full year 2020 full guidance and if this trend continues it would slightly dampen our overall revenue growth.

Very simple effect on profitability.

We also assume that prices will recover most of the expected cost inflation.

We've made good progress on a number of revenue growth management initiatives, ranging from pricing to trade efficiency and mix.

And lastly, we assumed productivity will drive gross margin expansion.

Investments.

And now I'll turn it back to you for closing remarks.

Thank you Lee.

I am proud that we delivered a second consecutive quarter of promises made promises kept.

We believe we have set a ball yet achievable plan and we are laser focused on executing upon it.

Can't really imagine what the result of a thorough evaluation of every aspect of our business to identify inefficiencies as well as key online to drive our business now we shipped into execution I couldn't be more excited about the journey.

He was a pioneer in better for you building on 30 years as a market leader in Nashville, organic and better for you food beverages and personal care our.

Our portfolio of 11th brain across global battery platform differentiates us from others in this space.

That's what the unique opportunity to capture lifetime consumers from Memphis to adult Okay in home anyway.

We have a clear roadmap to achieve our revenue and margin growth. We have a detailed fuel program that is strong and flexible enabling us to invest in our plans to transform the business and deliver sustainable profitable growth and the early results. We are seeing reinforce our confidence in the strategy.

The size and.

The scale of a whole platform deep consumer focused portfolio breadth and agility enabled us to out small today and how big the small thank.

Thank you again for joining our call today, we appreciate your interest and continued support operator. Please open the line for questions.

Yeah.

Thank you we will now be conducting the question and answer session.

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Please keep to one question and one follow up question.

The first question, we have is from David Palmer of Evercore ISI. Please go ahead.

Oh, Thanks, good morning, lean Wendy when I ask you about gross margin for <unk>.

North America, and international where we can keep it consolidated but I'm wondering how do you see that.

Gross margin building through the year from the 25% in fiscal <unk> right and do you see this year playing out with gross profit growth happening this year.

Offset partially by by G&A, so any thoughts about timing and progress in the components of EBITDA growth would be would be helpful.

Yeah, so some sort of especially here yeah. I mean, it's as we said you know with Hangry imagine our productivity growth will build as we go through the year and also just some of the benefits that come through Henry imagine as we you know flash and invest behind it. So yeah, we do see.

Continuing to build as we go through the year and the other thing is as well as we will get.

Get leverage on our top line is that they will sequentially specific skus, where you get into the back half.

Yeah, Good morning, I'll add a little bit to that you know as we said when we outlined what the drivers were in quarter. One there were three really discrete drivers for North America.

And that really change as we go through the year that actually will help us from a mix standpoint that when you look in our fuel program around revenue growth management, there's quite a bit of work relative to net price realization and trade efficiency. We felt some of that trade efficiency play out in Florida, and one in North America, you'll see some of that as we can see.

Can you go through the year.

Yeah.

The next question we have is from Ken Goldman of Jpmorgan. Please go ahead.

Hi, I have a quick one and then a follow up and thank you in light of the delay in the formula supply recovery.

And also the decision to reinvest some of <unk> over delivery I'm, just curious to what extent, you're still expecting improved sequential organic.

Organic sales growth and EBITDA growth into Q versus <unk>.

Yeah. Good morning, Ken the the challenges around Formula obviously, we outlined for quarter. One they'll continue on that as we go into quarter. Two we have secured supply as we go into the back half of the year. So that gives us confidence in that particular category offsetting that.

And we've looked at where we thought early momentum in distribution gains channel expansion across the balance of the portfolio and some of those are actually come on faster than we would've expected. So we would expect to be able to deliver on our expectations for pivot to growth even in light of the chat.

The formula.

Okay. Thank you for that and then for the follow up.

Wendy in the in our first earnings call you joined after 223.

You said that in the past few years Hain has established a level of transparency, which you will continue and I understand transparency comes in different forms, but you know historically hanes been one of the few public food producers to not disclose price and volume numbers and now. It's also I think deciding to include the impact of currency and baked.

That into organic sales growth, which I think it's fair to say is even rarer. So you know what I'm hearing from some investors. This morning is a little bit of concern that this decision to become less transparent.

No. It is not necessarily in the direction that people had hoped for and that it becomes a little harder to analyze your financials and I just wanted to get your opinion and lose opinion on if those concerns that I'm hearing are are unjustified in your view.

Yeah.

Are you you're right in what we said earlier this year they intended to be transparent I also want us to be accurate and so you will see us as we go forward be more overt and disclosing price volume and mix. This particular quarter, we weren't comfortable that we had the numbers exactly where we would want.

So I feel confident in providing that to the street, but do we expect to provide that going forward, yes, we do as it relates to currency impact win.

When it's material well certainly be calling that out, but we didn't want to have quite a bit of adjustments in the numbers. So I'll, let lee provided there.

So currency was favorable in Q1.

That was $11 million favorable, but one thing I would call out I'm. Just you look on the musical devices and kind of put it in your opening comments. It is a 2% drag for US is what we had when we originally set guidance. However, you know theres not a material impact to EBIT.

So, but we didn't want to put that in there of about 2% headwind in the same particularly on the pound stomach.

But again just for the first calls it just as complex. It really is a tough minded about $11 billion no material.

Yes.

Yeah.

The next question, we have is from Andrew Lazar of Barclays. Please go ahead.

Great. Thanks, good morning, everybody.

Good morning.

I think last quarter. When you gave guidance for the first quarter in terms of organic sales growth in North America, you mentioned again that the three discrete items that impacted North America sales two of which.

I think we're supposed to be isolated specifically to the first quarter. It was the sun care timing shift and the promotional optimization at Tara and I think I think at the time. He said they goes to collectively might be about or maybe it was all three I can't remember a sort of a 10 point.

If you will to organic sales and and once you. So I'm trying to get a sense of maybe if you could sort of quantify those and really what I'm trying to get at is what underlying right North America sales would've been without those two sort of discrete items that I mentioned and if that's what you think North America sales with organic sales growth.

Proximate into Q.

Yeah, Let me, let me unpack a little bit relative to the categories. Just the broad buckets and have lead provide some follow up specific to North America Youre right in that the three drivers lease off reported one that we had called the guidance would be.

Formula would be really the promotional optimization on terror, and then would be the main on Sun care. If you look in those categories.

Certainly the impact in snacks, with Terra driven but offset by nice growth in garden veggie. So that gives us confidence as we go into quarter, two but the tariff impact in the snack portfolio in the quarter one challenge on the Formula side in our Baby Kids category.

All of the decline in the baby category was driven by Formula and as we said in our in the opening remarks, offset by really continued strength and baby food and pure as and especially in toddler snacks. Both in the outlet business in the U K and in Earth's best in the U S.

So that's a formula situation right itself in the back half of the year that gives us confidence because we have secure that supply gives us confidence as we go forward in that category personal care, we identified it on Investor day, we talked about this as a stabilized category. If you look at the brands underneath that.

The Sun care business in Alberta is a timing issue and that really was a driver to the personal care piece, but we had strength in the Avalon brand strength and live clean which is a leading brand in Canada. So there's pieces and pockets of personal care that give us confidence as well.

As we go forward.

So I guess long way of saying I think there are some those were discrete items. When we look at outside of baby formula the balance of the categories. We feel good as we go forward and I believe our outlook for North America, well total company has a pivot.

And as that grows as we go into quarter, two but I'll, let me provide a bit more color relative to North America.

Yeah, I mean, I think you've covered it kind of one of the big points. There I mean, obviously in Q1. It was formula was kind of the largest losses drive wellness going into Q2, we do see a continued drag on on formula brokerage appropriate around.

$10 million on the revenue side, but then tend to take back as we go through the balance of the year. So I think again, you know, we don't mind well I wasn't here, but you had outlined previously you kind of three drivers with formula being the largest one.

Yeah.

The next question we have this one John Baumgartner, often you see huh.

Please go ahead.

Good morning, Thanks for the question.

And first off I wanted to ask about international had a nice recovery there in Q1, the plant beverages categories bouncing back in Europe in your comments, what do they they sound pretty positive for the larger portfolio in the region. So if I weigh that against the segment guidance for this year I think it's up low single digits for organic revenue.

How do we how do we think about potential upside to that outlook and what's holding you back from being more bullish for international sales this year.

Yeah I appreciate the question.

If you think about even what we outlined on Investor day again, what we guided in the last quarter. There were some very clear areas, where we expected to see recovery in international we expect it to see recovery as non dairy beverage came back and we got to greater capacity utilization in our non dairy beverage plants, we have.

Good to see some recovery as we see consolidation in the meat free category and we expected continued strength in our jams and jellies business in our soup business. So all of those things we have seen play out those are however, offset by the challenges we see in the marketplace.

The European market has been more the consumer more acutely impacted by inflation and that the economy than what we've seen here in the U S. It's also a market that has more private label penetration than what we see in the U S and really in North America. The benefit for US is as we play in.

Both private label and brands and that certainly was a benefit for us in the first quarter, we see that playing out as we go into the back half of the year, but I would tell you that we use tempered our expectations based on consumer response to category the challenges around some of the G O.

Political conflicts that we're seeing especially in Ukraine and now in the Middle East and so I think we've been appropriately prudent as we look at what the outlook is in the back half of the year.

Okay, and then just a follow up when we think about new distribution the distribution growth you're getting in away from home channels.

How do we think about the phasing there are there are there certain selling periods, where the benefits can be larger than others, where if you're loading for K through 12 or university business are there certain windows akin to shelf resets at retail we should be considering I'm just trying to better understand any lumpiness. We can expect seasonally in away from home based on your targeted mix of new outlets.

Yeah away from home it operates very differently as you know than a traditional retail environment. So there's very little sort of a set reset time period and it's much more of a contractual depending on the segment that we're leaning into we moved again and we have begun to see.

It'll placements that started to generate as they start to generate some sales momentum.

It won't be as lumpy as what you would expect to see in some of maybe the other retail environments, where theres, a big load in period or even what some people would see in say restaurant business, where you might land a new item need that as a significant increase in a particular time period and then it comes off the menu or it's no longer.

Promotion the segments, we're going after are largely where you would expect to see regular repeat business for the product being available. So think micro markets in the front end of hotels and travel as you're going through airports and things like that and grabbing those locations think about on the go.

So convenience and think about college and University, which functions very much like a small city to have convenient stores and small retail outlets on campus those tend to be fairly a run rate business, you land distribution and it slowly builds over time without the big inventory load ins that you might see.

And in a retail environment, so hopefully that provides a bit more clarification.

Thanks Wendy.

You bet.

Yeah.

The next question we have is from Michael Library of Piper Sandler. Please go ahead.

Thank you and good morning.

Hey, good morning.

I'm just wondering how much more color you could give us on to Q I know you had once your guidance, specifically and I haven't done that this quarter or for the second quarter, but.

I guess, maybe partly just trying to understand the margin acceleration that you need to hit your full year numbers, but the additional spending you've called out for for the second half second quarter.

How second half heavy should our expectations be can.

Can you just give us some maybe going up.

A little bit better feel for the trajectory of how you think the rest of the year plays out.

Yeah, let me start and I'll turn a little bit over to leave so he can provide more color. We said all along that the back half of 'twenty. Four it was why we were really going to see a lift that's when we would see our fuel program start to really lean in and it's where we would start to see some of the early investments in <unk>.

<unk> expansion in innovation start to play out so the shape of the year does very much have a quarter three quarter four lives compared to a quarter one quarter two well we don't have the discrete impacts in North America. All three of them, we will still have formula impact in quarter two so.

I would say, you'll see a modest improvement in quarter, two and then I think you'll see a more material and friends named quarter three quarter four.

Yeah, I guess I'd be just building upon that as we go through the balance of the year. This is Wayne you mentioned you know if you can start seeing distribution gains specifically in science T yoga. The other thing as you know.

Investors pause I hate me imagine and revenue growth management, so we'd get initiatives in way that that the other piece of it really is around innovation. So we you know we see our innovation are stepping up our promotional improvements in in the second half you know we've got a dedicated team driving in food.

And diving execution, so with all of those pieces and tended to focus on driving field as well, we said we'd have that flexible program here.

We Balkan Android that fuel, you'll see that traction that you've gone through the foundry itself.

Yeah.

Okay, that's helpful and could flush out a follow up on garden Veggie and club.

Just maybe understand a little better is there still distribution gains to come like say for Costco would you be in all of them already is that a permanent item.

You would've seen with PARP, Chris or some other things there's at least some volatility you can have there or.

How should we be thinking about that the club piece of unmeasured channels and how it looks over the next few quarters.

Yeah, I would definitely say that and I think in general you should never look at anything in club as a permanent item, it's not really the nature of how that channel works. We feel good about the distribution that we have across all of the club of outlets. We are also lean into incremental distribution.

To make sure the garden Veggie is available in all of the points of distribution, where the consumer wants it today and that's where we're seeing much more of our G. D. P games is driving channel expansion and as we mentioned in our opening remarks, we have some very strong innovation coming in quarter three that's actually had.

Really great acceptance from a retail environment. So we feel really good that we will have new news for garden veggie to add to the core news as we drive really good shelf assortments and all of the potential points of distributions.

Okay. Thanks, so much.

You bet.

The next question, we have is from Ed Woo of C. L. King. Please go ahead.

Well. Thank you good morning, when do you sort of following up on your.

Commentary on some innovation coming.

You know and veggie straws.

Yeah. I think you also used the word something disruptive is that something the difference that you're referring to and is that if I'm right that it's different is that something that.

Also it's been a sort of disclose to the trade or is that still an internal program that you're not taking to market yet.

So we are really excited and imagine olive garden veggie as a core franchise for us and we're excited to take garden veggie into disrupted category and so that's where you will see that a C. D innovation it has been.

At least to the train for a normal customer conversations to drive acceptance for store resets it'll begin shipping in late December and you see it on shelves starting in January we have pushed marketing a bit of our marketing spend that you would've seen come out of quarter, one and we spoke.

The later periods, so that we can invest appropriately behind that launch and sustained launch after.

After its placed in market, but we've had a very strong retailer receptivity to it and the consumer research has been incredibly positive. So we're excited about it as a as a new platform of innovation under the garden event you franchise.

Got it thanks for the color and.

And then on the AR 535 basis points.

Gross margin expansion from price and productivity, you know kind of lumped together.

Is there any chance you know that can be a little bit on packed.

And between the price and the productivity gains and just a sense of how that's going to slow going forward.

And.

You know lastly, just kind of how the conversations are going with the retailers on price.

Even you know.

What you know what.

Maybe not so much for natural organic but for most companies ingredients costs starting to normalize.

Yeah, Let me let me start with your second question and heavily you provide a little color on margin expansion.

We as we said earlier this year, we felt really good about the revenue growth management initiatives that have been put in place and that most of the I'd call. It maybe blunt force instrument around pricing most of those large broad price action had already been had already taken place between international and.

North America, you'll actually start to see more of that wrap around and the price realization as we go forward what will you'll see more from us is a bit more surgical pricing price pack architecture trade optimization work, if you're a net price realization on shelf.

And those initiatives are starting to play out as well that our overall productivity program. We feel is the pipeline is sufficient to offset any inflation that we have coming so or that we sort of factored into the numbers without the need for us to take incremental an incremental price. So yeah. So just so just building on that.

As Wendy said, we're very focusing on revenue growth management, we don't have any broad pricing plans in the news so, but we continue to kind of.

Evaluate environment manage pricing are you looking at the margin profile, we do expect the pricing to largely cover the inflation on Andy talks about an inflation range of 3% to 4% and I, even say without giving exact numbers, but the majority of our pricing benefits that makes you mean in cages.

With our customers right now and then from a productivity standpoint, you know the way you can kind of think about it as three and a half the 4% all the all in cost of sales. We are obviously looking to try you outlined a upside there you know as we as we use that and invest the productivity also.

As fuel to drive our Roku will grow up so that those are the kind of the two ways that you can think about it again the inflationary environment from when we set the original guidance hasn't fundamentally changed and we think the pricing we got in place right now is appropriate so those two pieces again factories around the whole margin expansion expectations.

And one thing I would add too rich. So I think some of you actually subscribe to some of the data that comes from Chicago and IRI, but we're starting to see a return to more accelerated growth in natural products and better for you than conventional and quite a few of the cat.

Laurie that we play in them and that tells US a couple of things one is that the consumer has gotten maybe are a bit more socialized and the pricing that's been pass through but we also see a little bit more installation in those premium products to conventional which is a great place for hain because that's the.

Obviously, the parts of those categories that we play in so seeing that consumer recovery in category and the growth of natural products outpacing conventional also gives us confidence as we go forward that we're well placed and well continue to monitor our pricing versus those other players and category to ensure that we're covering inflation, but we're not pass.

Too much on to the consumer.

Thank you.

You bet.

Yeah.

The next question, we have is from Jon Andersen of William Blair. Please go ahead.

Hey, good morning, everybody. Thanks for the question.

Hum.

I was wondering if you could talk a little bit about you know.

Where where in the portfolio and I'm thinking about categories and brands that you expect the most traction in away from home and and if we think about the next several quarters and how that kind of world will play out also up on the question of away from home can you.

Just remind us where you are kind of currently or Hain is currently in terms of penetration or mix of overall sales and where you think that could reasonably go as you kind of execute your channel expansion strategy.

Yeah appreciate the question.

As we talked about on Investor Day channel expansion is a huge opportunity for him because we've been under penetrated and points of distribution that makes it easy for the shopper to find our products along their journey and away from home in particular in foodservice and convenience stores, we said that we think the greatest opportunity.

From a category standpoint are going to be in our snacks portfolio is largely going to be in beverages, a little bit in our meal prep around me crazy, especially in Canada, and the U K and in yogurt, especially in our U S market those are areas, where we would see great opportunity and as we mentioned we've already begun to pick up stupid.

<unk> and restaurant chains in the U K. So we see in the U K, it's a little bit different portfolio.

In terms of where our business is and I think we disclosed this on Investor day, a typical CPG company, it's gonna have somewhere between 15 and 20% of revenues are going to come from away from home channels and hanging is less than 2% of our revenues.

We have plans for a modest over the life of this strategy and as we said before hanging re imagined is what we've committed to and the algorithm is our target as a matter of aspiration. If you were to do the straight line math and assume 20% of our revenues would be in away from home. It would get you to a larger gross number in away from her.

And what we factored into Henry imagined, but we wanted to get some traction get the proof points and began to see that play out so that we can come back and commit to the street a much larger number.

And are there any.

Any margin implications of the channel expansion positive negative neutral.

Yeah away from home tends to be very margin accretive in fact every place I've worked it's been margin accretive because the consumer's willing.

For the convenience factor of things on the go and there are less price sensitive than what they would be paying for pantry loading for instance, in a retail environment and what the what do you need to make sure as a company is that you appropriately built and your cost to serve and that you've identified the end to end cost. So they can make.

You captured either in trade efficiencies makes management price pack architecture et cetera, I'm I feel very good that the team that we've put in place around away from home both in the U K business and the team here in the U S. I feel really good about the revenue growth management work that the team's done for what it will.

With our portfolio to be well positioned to drive that distribution and I don't really see any early momentum that the team is driving in the points of distribution that they gained in away from home. So I feel like we will have some good news to share with you in the coming quarters.

Great 111 last one just on capital allocation I think Lee you mentioned, you're targeting $50 million to $55 million of free cash this year.

No.

What's the what are the what's the priority set I assume debt reduction leverage reduction, but just talk about that and maybe more broadly capital allocation priorities going forward. Thanks, Yeah. Yeah. So I think you said it it's two things it's hum.

I've reached a reduction of rule, but then we also as we free up cash it's also to be fueled to.

It's behind Hadrian imagine sort of again as we look I mean, one of the key initiatives. We talked about was our payables. For example, I mean, we're making good progress in the payables area. You know, we have kind of all things hit our internal processes.

Bathroom without suffice if you're seeing traction there where they're all so we know coming a little bit late into the focus is on inventory, but as long as to your question. It's final thing two things you'd see a reduction of our leverage and again using that fuel to invest behind the business.

Thanks, Good luck.

The next question we have is from Alex Yeah, how would often seen please go ahead.

Good morning, everyone.

Good morning.

So you started to talk about the state of the consumer I believe it was in reference to the U S. Though the north American market I'm. Just wondering if you can compare and contrast, what you're seeing with consumer behavior is channel shifting trade are portrayed down between the two regions I'm just trying to get at.

Offense check on whether consumer competence of improving or deteriorating in each region. Thank you.

Absolutely. So let me start broadly we know that the European consumers spend more acutely impacted by our overall inflationary environment and in fact inflation continues to be at a higher level there than what we're seeing in the U S market. In particular, it's also a market that has a large.

Your concentration or a larger penetration for private label and if we've seen significant growth in discounters. So I would say in the European market. We've seen a couple of things we've seen consumers trade down to discount locations, we have seen them trade down to private label. The good thing for Hain is that we're in categories that the consumer.

Is one gene regardless of the economic environment, but they are buying it from different locations and they're going to private label and brands, we're well covered there because our portfolio is both private label and brand and we see that play out in our growth we're growing in private label faster than we're growing in the branded business to recover and the like.

The team is well positioned to have that in that marketplace. The north American market different we've seen the inflation rate was lower than what we saw in Europe.

In the better for you categories in particular, we didn't see the consumer adjust behavior in ink and it's not moving to private label. So we haven't seen a growth in private label concentration, but we have seen consumers buy less units rather than buying at different locations.

But we are starting to see that stabilize the most recent data from store kinda shows mm three of the categories that we're in we pivoted back to in the latest 12 weeks gross of natural products outpacing conventional in those categories. The one category, where we still see challenge is in the snacks category, but there.

Significant promotional activity there on conventional products and so we're not seeing the same move to premium at a greater rate than conventional snacking, but in every other category. We play and we are definitely seeing the growth in the category for better for you items across all retail outlets.

To get back to what we would've seen two years ago in category dynamics.

Great and as a quick follow up marketing spend can you quantify how much it was up this quarter and now that you beat on EBITDA, how much you expect marketing spend to increase relative to the previous expectation because it seems clear that you're reinvesting in the business.

Yeah.

Yeah, we have so from a on a year on year basis, the marketing spend was up.

Relative small amount because we have spent quite a bit in quarter, one last year and as you recall then we essentially went quiet William turns back on marketing in quarter, three a physical twenty-three ramped it up in quarter four were sustained at about that level because we have.

Tell us what was significant increase marketing spend to support the launches that will take place in quarter, two and into quarter three for launch support but our marketing spend is about where we had planned for it to be well spend at the rate that we expected to for this year, which is a bit of a step up from fiscal 'twenty three I think what's more.

More important is that you'll see us have sustained marketing investment quarter on quarter and she thinks it should not expect to see that a place where we will.

Save dollars. So we will drive efficiencies in our overall spend before we drive any reductions in those spend which aligns with what we said we will get better before we spend more and we're definitely seeing the team driving better analysis on return on investment of our marketing spend for better campaigns.

That are battle tested to then be able to ramp up our spend in the back half of the year.

It makes sense. Thank you very much I'll pass it on.

You bet. Thanks.

Yeah.

The next question we have is from Jim similar of Stephens, Inc. Please go ahead.

Hi, everyone. Thanks for squeezing us in I know a lot of questions have been asked on the away from home channel, but maybe if I could sneak in one more you guys have a sense for which products you're replacing on the shelf in these end markets is it existing better for you products or should we see this as.

Your entry into those formats as really being kind of an expansion of their better for you offerings on shelf.

That's a great question and it would really depend on category and it would depend on the segment and in the case of snacks, we see it as an and and in many cases, our products are appealing to a consumer who otherwise it doesn't have an option in those locations. So it's an incremental placement in those.

Locations in areas like beverage, especially in tea brands Ah is a replacement for something else that I you know what.

Other brands because the the celestial seasonings brand is the market leader and herbal teas, but in many cases, we've not been available and where the consumer would expect to find us. So as the preferred brands. We're looking to drive distribution. So that were available to the shopper when they're on the go as it relates to.

Yogurt is either incremental because they've not been utilizing something in that location. So this is the team.

Working with those customers on this as an AD and why it is the incremental add to their assortments, that's really going to depend as it in restaurants and they didn't see store isn't an on the go retail on whether it's a binary purchasing decision or whether its an add to the assortment.

Great that's helpful color.

If maybe I can switch gears, if we look at the for Canada consumption data for the tea bags category. It seems like the category is kind of be box around basically flat consumption.

But private label has been doing much better, especially over the last you know call. It 12 months.

Is there anything dynamic wise that you can do whether it's with increased promotions or kind of more focus on that category to normalize that and get your piece going or is it. Just you know consumers are trading down or it's just kind of have to wait for them to readjust to the shelf prices.

I'm not familiar with the trade down to private label and T. That's not consistent with the data that we're saying well. We are seeing is obviously tea season, we're heading into that now and we also know retailers are doing research in preparation for tea season. So you.

I wouldn't really expect to see a lot of teen growth at this particular point in time, but actually celestial done really nice we would expect to see that ramp up as we go and Chi Chi season, and as you start to see the Assortments that we've already landed began to show a long shot.

Okay. That's helpful. Thanks, guys I'll pass it on.

You bet.

Yeah.

Thank you. The next question. We have is they put a question from David Palmer of Evercore ISI. Please go ahead.

Oh, Thanks for the follow up just wanted to follow up on your comments on <unk>.

On channel mix U S measured channels, it's something obviously, we all follow closely on I'm wondering you know for us So we're kinda or Nielsen watchers.

What should we be seeing that would be consistent with your guidance I know FX and non measured are gonna be helped for.

For the year, but should we still be thinking at least some growth up low single digits or so in the U S measured channels starting in your fiscal second half.

Yeah. This is where things will be challenging as we are leaning into the area that grows so let me sort of dimensionalize it a little bit in our business, 40% or so is international which is relatively Ah Ah Ah Ah black.

Black box I guess, unless you buy the Nielsen data in the international markets, but we will try to provide a little bit of color as we go forward on where we're seeing category grows where we're seeing channel girls. So you've got some visibility to that.

And in the North American business, so call that 60% of our business are only about 65% or so of that businesses in measured channels, and where we'll be leaning in and he's gonna be a non measured. So we're also in the process of identifying how we can provide some visibility to you and in terms of tracked and measured.

So that you've got visibility across channels and and can expect that well, but to your question on where should you expect to start to see growth you will start to see some of our categories turn in the end market data ingest those measured channels as we go into the back half of this year, you'll see it in G D P games and you'll see it in.

Some of the velocities, especially as snacks and in tea and then obviously as the Formula supply comes back you'll see that play out in the baby category. If our baby category is muted and actually overall end market is muted because it includes that formula.

The detail. So you really kind of have to click down into the categories to see where the growth is that oh, well, we'll work on providing you a bit more visibility to where we see TEP games and channel mix going forward. So you've got a feel of measured and non measured.

Uh huh.

Thank you that concludes the question and answer session I would like to turn the floor back over to Wendy Davidson for closing comments.

Yeah I wanted to thank everybody for the time this morning, and as I said earlier, a huge thanks for the opportunity to be able to meet so many people on investor day and for your interest and support and hanging we are very committed to returning the business to growth, we're very committed to hain re imagined.

And providing visibility to you as we proceed with this strategy so with that I look forward to further conversations later on today.

This concludes today's conference. Thank you for joining US you may now disconnect your lines.

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Okay.

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