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Edited Transcript of HAIN earnings conference call or presentation 28-Aug-18 12:30pm GMT

Q4 2018 Hain Celestial Group Inc Earnings Call

MELVILLE Sep 7, 2018 (Thomson StreetEvents) -- Edited Transcript of Hain Celestial Group Inc earnings conference call or presentation Tuesday, August 28, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gary W. Tickle

The Hain Celestial Group, Inc. - CEO of North America

* Irwin David Simon

The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board

* James M. Langrock

The Hain Celestial Group, Inc. - Executive VP & CFO

* Katie Turner

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Conference Call Participants

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* Akshay S. Jagdale

Jefferies LLC, Research Division - Equity Analyst

* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* David Sterling Palmer

RBC Capital Markets, LLC, Research Division - MD of Food and Restaurants and Consumer Analysts

* Kenneth B. Goldman

JP Morgan Chase & Co, Research Division - Senior Analyst

* Matthew Jacob Fishbein

Deutsche Bank AG, Research Division - Research Associate

* Robert Frederick Dickerson

Deutsche Bank AG, Research Division - Research Analyst

* Rupesh Dhinoj Parikh

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Scott Andrew Mushkin

Wolfe Research, LLC - MD and Senior Retail & Staples Analyst

* Steven A. Strycula

UBS Investment Bank, Research Division - Director and Equity Research Analyst

* William Bates Chappell

SunTrust Robinson Humphrey, Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to The Hain Celestial Group Fourth Quarter Fiscal Year 2018 Earnings Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Katie Turner. Ma'am, you may begin.

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Katie Turner, [2]

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Thanks, Janet. Good morning. Thank you for joining us on Hain Celestial's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. On the call today are Irwin Simon, Founder, Chairman, President and Chief Executive Officer; Gary Tickle, Chief Executive Officer, Hain Celestial North America; and James Langrock, Executive Vice President and Chief Financial Officer; as well as several members of Hain Celestial's management team are here with us today.

During the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual results than those described in these forward-looking statements. Please refer to Hain Celestial's annual report on Form 10-K and other reports filed from time to time with the Securities and Exchange Commission and its 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 at any forward-looking statements made today.

A reconciliation of GAAP results to non-GAAP financial measures is available in the earnings release and a presentation, all of which are posted on Hain Celestial's website at www.hain.com under Investor Relations. This conference call is being webcast and an archive of it will be available on the website.

And now I'd like to turn the call over to Irwin Simon.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [3]

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Thank you, Katie, and good morning, everyone. It is great to speak to everyone today. I hope everybody has had the opportunity to go through our press release that was released this morning. Our team has continued to work diligently on our strategic initiatives, including our 4-point plan that we've talked to you during fiscal 2018. There is a tremendous, and I mean a tremendous amount of progress happening throughout our global organization. We believe the results of our efforts will become increasingly apparent as the rate of financial improvement and growth accelerates in fiscal 2019.

We've invested in 7 -- we invested $17 million on our top brands and our capabilities to grow globally. Our 5% net sales increase for fiscal year 2018 or 2% on a constant currency basis reflects strength of our international businesses. On a constant currency basis for the year, U.K. net sales increased mid-single digit. Rest of the World including Europe and Canada was up high single digits. We are very pleased with these strong results and increased profitability. For fiscal year 2018 from continuing operations, the U.K. segment adjusted EBITDA increased 19% to over $100 million and the Rest of the World adjusted EBITDA increased 30% to over $50 million. We are pleased the geographic diversification of our natural and organic business drove our annual results.

In the U.S., we faced a number of challenges during the year. Our U.S. team continues to diligently work on simplifying our business to focus on and invest in the top 11 brands and the top 500 SKUs while continuing to execute on Project Terra SKU rationalization, cost reduction and efficiency initiatives. Gary will take you through these later.

Our top priorities in fiscal 2019 are, return the U.S. business to growth and to definitely generate higher levels of profitability. On a global basis, we are accelerating our cost savings and productivity efforts, which James will review in more detail. For the fiscal year, we generated $63 million of Project Terra cost savings. Although planned brand building investments, particularly in the U.S. and the higher cost inflation muted the benefit. We continue to work on price optimization to help partially offset the increased cost we expect, the price increases and Project Terra cost saving to improve our margin in future quarters.

We enhanced our leadership team and added 6 highly qualified independent directors who provide us with valuable industry expertise and new perspectives to help us deliver on our long-term strategic plan. As we've discussed on prior calls, our working group along with management has been working closely with our advisors to review our portfolio of businesses and operating strategy to maximize value for our shareholders. This work includes the decision we made in fiscal 2018 to divest our noncore asset, Hain Pure Protein, a leading organic and antibiotic-free fresh poultry business. We expect to complete the sale process during the first half of fiscal 2019. We plan to use the proceeds from the future divestiture of Hain Pure Protein to pay down debt, buy back stock or continue to invest in our business like we're doing.

Now let's focus on our fourth quarter results from continuing operation, which again excludes Hain Pure Protein. Our U.K. adjusted net sales increased 5%. This primarily reflects the 9% growth from Tilda, 4% growth from Hain Daniels brands and growth from Ella's, which was up 7% for the fiscal year. Hain Celestial Canada net sales grew 5% in constant currency and were driven by Yves, Alba, Sensible Portions and the Live Clean brand. Hain Celestial Europe was up 8% in constant currency and had strong growth from its nondairy business, Tilda, Danival and other brands. In the EMEA region, we remain excited about the tremendous opportunity in emerging markets with Hain Celestial branded organic and natural products. Our joint venture with the Future Food group in India is proceeding as planned, and we expect to open our new plant in the first half of fiscal 2019.

After 2 long years, I'm very pleased to announce that we reached an understanding with the SEC staff subject to commission approval to resolve the ongoing the SEC inquiry. The settlement in which there is no payment penalty addresses Hain self-reported shortcomings in internal controls in books and records, consistent with information we previously disclosed. We are happy to have this behind us.

When I founded Hain 25 years ago, one of my goals was to educate, change the way the world eats, lives through a relentless focus on providing organic and natural Better-for-You products to consumers. I'm incredibly proud of the company we've built. It has been a privilege to lead our dedicated team and drive our mission forward. Believe it or not, this is my 101st earnings conference call. Pretty incredible. As most of you know, in June, I announced my intention to transition into the role of Nonexecutive Chairman upon the hiring of a new CEO. I am confident now is the right time for a next generation of leadership, and I firmly believe that some of our greatest opportunities definitely lie ahead. Our Board of Directors and I have been very pleased with the quality of CEO candidates that we have interviewed. We are in the final stages of the process and expect to make an announcement in the near future on my successor.

With that, I turn the call now over to Gary.

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [4]

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Thank you, Irwin. Good morning, everyone. Our U.S. team continued to take steps to execute on our strategic plan during the fourth quarter. We are proactively reshaping the U.S. business. We remain focused on our core strategic priorities to: firstly, simplify our portfolio; secondly, reduce cost complexity and mitigate cost headwinds; and thirdly, make disciplined investments in our core 11 brands and top 500 SKUs to drive long-term growth.

In 2018, we achieved incremental progress in certain areas of our business from our planned growth investments. Although in total, results for the fourth quarter were below our expectations, we've seen positive momentum building in our outlook on core distribution from our most recent round of customer line reviews. We already have confirmed 49,000 net new points of distribution for 7 of our top brands across a broad range of retailers and channels. These transformation efforts take time to show tangible results, but these initiatives are translating into improvements in our measured channel numbers. The impact of these most recent distribution gains will begin to have a positive impact in quarter 2 of fiscal 2019 based on the timing of retailer resets. We have now seen improving overall MULO+ C trends since March 2018, with our latest August 12 MULO+ C read showing a 4-week trend that is 390 basis points better than our 52-week read trend.

Focusing on our quarter 4 results in more detail. Our U.S. gross sales were up 3.8% before SKU rationalization. Reported U.S. net sales were down 5.5% or $15.6 million for the fourth quarter. Taking into account the $16 million impact from SKU rationalization and the divestiture of the majority position in Rosetto, net sales were essentially flat. In the quarter, excluding SKU rationalization, Terra snacks increased 22%, Personal Care increased 12% and Better-for-You Baby business increased 3.5%. We implemented incremental strategic investments in trade and shopper marketing programs of $10 million year-over-year, which affected net sales growth by 3.4%. This included incremental programs in the club channel across 3 customers for both our Sensible Portions and Terra snacks brands and our Alba Botanica personal care brand, driving growth in the unmeasured channel in quarter 4 and driving trial and household penetration. We've continued to see momentum behind these brands building in FY '19 quarter 1.

We also invested in shopper marketing programs in a major natural channel customer driving high single-digit growth in the latest 12-week read ended July 15, 2018, for our Better-for-You Baby platform. We're also encouraged by our latest 4-week read for the same period in the natural channel showing double-digit growth. Net sales in the quarter were further affected by the loss of distribution for Sensible Portions and 1 large mass customer in March 2018, which negatively affected net sales in the quarter by $6.4 million. We expect this to roll off by end of March 2019.

Since June 2018, we have been running a successful front of store pallet program in this same mass customer, translating into approximately $1 million in net sales since the inception of the program through August 9, 2018. Spectrum net sales were down $4.1 million, driven primarily by the continued category decline in coconut oil, which is down 18% in the latest 12 weeks. The restaging of this brand continues with the rollout of a patented bottle design and new infused oil innovations to reduce reliance on the coconut oil segment. Please look for this high-impact new Spectrum bottle on the shelf today and try these great infused oils.

In our operations during the quarter, we also incurred significant cost headwinds including inflation related to crop freight and logistics costs as well as higher warehousing costs. Our sales results combined with the cost pressures and operational issues resulted in EBITDA down $19.7 million compared to quarter 4 last year. As we begin to benefit from price increases that begin to flow through in quarter 1 fiscal '19, to partially offset these costs, along with Project Terra initiatives including trade spend optimization that are currently underway, we expect to see these headwinds mitigated beginning in the second quarter of fiscal 2019 and further improving as we move throughout the fiscal year.

Now I'd like to focus on the most recent consumption data for the U.S. business. The latest 12-week MULO+ C read of August 12, which will be referenced unless otherwise specified, was minus 5.5%. Excluding SKU rationalization, the trend was minus 3.3%. We have seen improvements in our MULO+ C reads since March 2018, which are encouraging signs that our efforts are gaining traction on the back of our planned incremental investments and distribution gains. The latest 4-week read shows U.S. business further improving to minus 3% or minus 1% including the impact of SKU rationalization efforts, which is a full 390 basis point improvement on our 52-week trend. While we expect our results to continue be uneven in the measured channel in the entire term as we aggressively continue to take out noncore SKUs, we believe the core SKU distribution gains will help drive improved trends in MULO+ C in fiscal '19. Our target and expectations for the end of Q1 are for MULO+ C growth rate to be approximately flattish after taking SKU rationalization into account and that will certainly better position us for growth in fiscal '19 as we expect improvements in subsequent quarters.

Turning now to the non-measured channels, which includes Whole Foods, the Natural channel, Amazon, Club and Specialty stores. Our brands are strong and getting stronger. We're pleased to see our growth in non-measured channels at high single digits, net of SKU rationalization in the latest 12 weeks ending 15th of July 2018. In total, our business was up 0.7% in consumption dollars for the latest 12 weeks read across both the measured and non-measured channels, excluding SKU rationalization.

In Q4, our U.S. business results reflected the continuation of portfolio transformation. As announced in quarter 3 fiscal '18, we added approximately 430 additional SKUs to our rationalization program for a total of over 1,100 SKUs to date, which are more than 35% of our total U.S. SKUs. In total, SKU rationalization represented $14 million impact to quarter 4 U.S. segment net sales versus prior year. This affected growth by 5% versus our stated expectation of 4%. The SKU rationalization is an important component of our efforts to reduce complexity, simplify the supply chain and drive sustainable long-term margin expansion.

Looking forward now to the first quarter of fiscal '19. We're seeing solid momentum in our top 11 brands in the MULO+ C, with 400 basis points consumption trend improvement in the latest 4-week read of 12 August versus the 52-week read. In our measured channels, we have an ongoing trend of broad growth across the different retail formats. We will continue to support this momentum with an incremental investment of 12% year-over-year in our top 11 brands in quarter 1. While these investments are expected to drive expanded distribution in fiscal 2019, which I'll highlight in a moment, it is worth noting that for the quarter 1 of fiscal '19, we anticipate the impact of SKU rationalization will be approximately $10 million versus prior year, which equals approximately 4% headwind to our top line. As a result, we expect quarter 1 net sales will be down slightly and our profitability will be impacted as well, which James will discuss in more detail.

In fiscal 2019, we're optimistic about our ability to drive low to mid-single-digit growth year-over-year. We believe this will come from the confirmed expansion and distribution on 7 of our key brands across 6 major retailers. We have a total of approximately 10,000 new points of distribution in c-store for our Terra and Sensible Portions brands included in the net new 49,000 distribution points, I mentioned earlier, and we will have strong Club programming for personal care. All of these will begin to roll out in quarter 1 and we expect the benefit to our financial results to build as the year progresses. From a channel perspective, we will continue to invest on e-commerce expansion ahead of sales, with expected double-digit growth for fiscal '19. As a result of our brand investments, planned distribution gains and price optimization, we expect to generate improved growth and profitability beginning in the second quarter of fiscal 2019, which we expect to accelerate to the balance of the fiscal year as more Project Terra initiatives are completed. We remain optimistic about our opportunities for future growth and improvement.

This concludes my overview, and I'll now turn the call over to James.

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [5]

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Thank you, Gary, and good morning, everyone. As a reminder, the results of operations, financial position and cash flows related to Hain Pure Protein segment are presented as a discontinued operation for the current and prior periods as we plan to complete the divestiture in the first half of fiscal 2019. Today I will focus my discussion on our financial results from continuing operations, unless otherwise noted.

For the fiscal year, we met the revised guidance numbers provided last quarter. In the fourth quarter, consolidated net sales increased 3% to $620 million or essentially flat on a constant currency basis. When adjusted for constant currency acquisitions, divestitures and certain other items, net sales would have increased 3%. Adjusted gross profit was $130 million or 21.1%, a 290 basis point decline year-over-year. This decline was due to higher trade investment and increased freight and commodity cost primarily in the U.S., partially offset by Project Terra cost savings. SG&A as a percentage of net sales was 13.2%, a 70 basis point increase year-over-year primarily due to higher marketing and headcount investments in the U.S., U.K. and Canada, partially offset by Project Terra savings. Adjusted EBITDA was down 25% to $61.4 million from $81.6 million in the prior year period. We reported adjusted EPS of $0.27 compared to $0.41 in Q4 last year.

I will now provide you with key financial results for each of our business segments. For the U.S., Gary discussed the top line highlights, so I will discuss the underlying financial results. U.S. adjusted gross margin declined 550 basis points year-over-year to 22.4%, largely due to trade and promotional investments and higher freight cost. U.S. SG&A was flat compared to the prior year period. And U.S. adjusted operating income decreased to $23.2 million from $42.3 million as we continued to invest in the U.S. business.

In the U.K, net sales increased 10% to $239 million over the prior year period or 5% on an adjusted basis. Adjusted gross profit increased $3.8 million and our gross margin was essentially flat as commodity inflation was offset by Project Terra cost savings and price realization. U.K. adjusted operating income decreased to $20.2 million from $21.7 million in the prior year as a result of higher marketing and headcount investments, partially offset by Project Terra savings. Net sales for Rest of the World increased 12% to $111 million over the prior year period or 6% on a constant currency basis, with Canada and Europe growing mid- to high single digits at constant rates. Rest of the World adjusted gross profit increased $1.1 million, driven by strong performance in Canada and Europe. Adjusted gross margin decreased 140 basis points to 21.7% and adjusted operating margin decreased 120 basis points to 9%, primarily due to decreased profitability within Cultivate.

Now turning to our cash flow and balance sheet. For the fiscal year ended June 30, 2018, capital expenditures was $71 million and operating free cash flow was $50 million, a decrease of $135 million from the prior year. The change in operating free cash flow resulted from increased capital expenditures in the current year increased accounts receivable primarily due to timing and increased inventories due to the company making strategic commodity purchases to take advantage of pricing. In addition, in the U.S., we are building inventory to support the new distribution wins and increasing inventories in personal care in advance of our manufacturing facility transition. As of June 30, our cash balance was $107 million and net debt was $608 million. Our bank leverage ratio was 3.32x at the end of fiscal 2018 compared to 3.11x in fiscal 2017.

Similar to Q3, Hain Pure Protein's results are reported as a discontinued operation and are not included in our earnings from continuing operations. In the fourth quarter, results for Plainville and FreeBird were below our projections. The fourth quarter results as well as negative market conditions in the sector required the company to reduce the internal projections for Plainville and FreeBird, which resulted in lowering the projected long-term growth rate and profitability for the business. This indicated that the fair value of the business is below carrying value. The impairment charge is primarily associated with Plainville.

Now moving to fiscal 2019 guidance. First, on Project Terra, I have recently taken over full responsibility for the cost savings and productivity initiatives globally. I am working closely with our working group comprised of members of the Board of Directors, and we have significantly enhanced the level of assistance from the AlixPartners team to ensure we achieve all of our stated goals and objectives across the global organization, including seeing material improvements in our margin profile. This is a comprehensive global plan that the entire organization is aggressively working on. I'm excited about the opportunities we have to reduce cost and complexity as well as driving more profitable sales growth.

On Slide 24 of the earnings presentation, you will note that for fiscal 2019, we expect to achieve $90 million to $115 million in cost savings, which we expect to build quarter-over-quarter as we progress throughout this year. Some of the things we are working on include: a thorough review of our promotional events at key retailers, which will allow us to achieve planned sales volume with reduced trade support; we expect to see significant improvement in our gross-to-net realization during the second half of the year; we also expect further improved gross margin through continued focus on raw material, sourcing and strategic negotiations with our co-manufacturers, this includes updating certain product formulations; we are enhancing our S&OP capabilities with the goal of managing down our distribution and inventory carrying costs, while improving the service level of top-selling SKUs. Finally, we are conducting a detailed portfolio review to optimize our business, drive efficiency and even further reduce costs as we work to create value for stockholders.

We expect reported net sales from continuing operations in the range of $2,500,000,000 to $2,560,000,000, an increase of 2% to 4% as compared to fiscal year 2018 or an increase of 3% to 5% on a constant currency basis. We are expecting the U.S. and the U.K. to be up low to mid-single digits on a constant currency basis and Rest of the World is expected to grow mid- to high single digits. We expect adjusted EBITDA of $275 million to $300 million, an increase of 7% to 17% compared to fiscal year 2018. This reflects $90 million to $115 million in Project Terra cost savings, and increase brand investment globally, and we expect to approximately 2% COGS inflation from ongoing freight and commodity cost headwinds.

For your reference, on Slide 27 of the earnings presentation, we have an adjusted EBITDA bridge from fiscal year 2018 to fiscal year 2019. I want to provide a little more color on our cadence for net sales and profitability. We expect growth in net sales and adjusted EBITDA to be weighted towards the second half of fiscal 2019 as we benefit from the planned strategic brand investments, realized distribution gains and price optimization efforts in the U.S. As a result of these continued strategic brand investments and cost headwinds as well as the timing of new distribution wins, we expect first quarter of fiscal 2019 net sales to be flat to slightly down and adjusted EBITDA and EPS to be down year-over-year on a percentage basis similar to Q4 of fiscal 2018. Q1 FY '18 adjusted EBITDA was $54 million and adjusted EPS was $0.20. In addition, Project Terra cost savings and productivity benefits will accelerate as the fiscal year progresses. We expect adjusted earnings per share in the range of $1.21 to $1.38, which compares to $1.16 in fiscal year 2018. We expect our effective tax rate for fiscal 2019 to be 27% to 28%. We acknowledge that our stockholders would like to see year-over-year improvement in Q1, however, we are confident we will see continued top line and profitability improvement throughout the year, and we have a very good plan in place to achieve our guidance for fiscal 2019.

On the top line, as Gary mentioned, we have already won the distribution, and the benefit of those distribution gains will be reflected in sales in 2019 based on the timing of when they occur. And on the bottom line, we have a detailed cost reduction plan that the organization, along with AlixPartners, is working intently on every day.

Now turning to our outlook for fiscal 2019 cash flow. Based on fiscal 2019 EBITDA and working capital expectations, we anticipate cash flow from operations of $100 million to $150 million, and we expect capital expenditures of $80 million to $100 million. We are making investments in manufacturing facilities in our higher-growth businesses to meet demand. Our cash flow guidance includes $35 million of charges associated with the CEO succession agreement and $40 million of costs we expect to incur to implement certain Project Terra initiatives and other related items. As a reminder, our guidance is provided on a non-GAAP or adjusted basis from continuing operations, excluding the impact of any future acquisitions, divestitures or other nonrecurring items, which we will continue to identify with our future financial results. In summary, our team remains focused on the execution of our strategic initiatives, and we are very excited about our prospects for fiscal 2019 and beyond.

With that, Irvine, Gary and I are now available for your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Rupesh Parikh with Oppenheimer.

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Rupesh Dhinoj Parikh, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [2]

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So I had 2 questions related to your U.S. operating margins. So clearly a rebase this year. Do you feel like U.S. operating margins have now bottomed? And then where do you see the potential for the operating margins going over time?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [3]

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So this is James. So we believe that the Q1, it'll be down -- Q1 of '19 will be down year-over-year as we just went through, and that's continued to the investments that we're making. But starting in Q2, we'll see improved profitability throughout the year. So the operating margins will improve starting in Q2 of FY '19. So I would say Q1 is the bottom for the U.S. business.

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Rupesh Dhinoj Parikh, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [4]

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Okay. And then as you look forward, do you see a path back to double digits for your U.S. business?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [5]

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Yes.

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [6]

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Yes. that's for sure.

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Rupesh Dhinoj Parikh, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [7]

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Okay. Great. And with all the distribution wins that you expect to have this year, what are you doing differently to actually sustain those distribution gains?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [8]

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Yes, so it's a great question. It's Gary here. I think the fundamental thing we've been working on in the last 12 months diligently behind the scenes with our retailers is sharing our insights, a demonstration of why our brands matter to the categories and how we can help grow the categories. And a lot of the investments you've seen starting in quarter 4 and some additional will happen quarter 1 is really in direct support of those distribution gains and to rebuild momentum in this business. And I'd just point out that in quarter 4 already, in the latest 12 weeks, we saw in our unmeasured channels mid-single digit growth and for our top 500 SKUs, double-digit growth. And of course, we've seen 390 basis points of improvement already in our latest 2 -- 52-week versus 12-week read for MULO. So the momentum is building, and we anticipate that we will continue to see that build as we support our brands as we expand this distribution.

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Rupesh Dhinoj Parikh, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [9]

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Great. And then a quick housekeeping question. Does your guidance at all assume the deployment of HPP proceeds to share buybacks or debt paydowns?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [10]

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No.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [11]

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No. Does not assume any proceeds in our guidance.

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Operator [12]

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Our next question comes from Rob Dickerson with Deutsche Bank.

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Matthew Jacob Fishbein, Deutsche Bank AG, Research Division - Research Associate [13]

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It's Matt on for Rob. Just on that topic, in previous decks and conversations around cash allocation, particularly as it relates to the sale of Hain Pure Protein, a special dividend had been listed as an option between the share buyback option and the reinvestment option. Today it's not included in the presentation. Is the special dividend option now off the table? Just want to understand if anything with the process there changed.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [14]

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No. I don't think anything is off the table. I think as we said, share buyback, invest back in our business, and It does make sense for shareholder dividend, we'll definitely look at that.

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Robert Frederick Dickerson, Deutsche Bank AG, Research Division - Research Analyst [15]

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Okay. Perfect. And then just one quick one. Of the 1,100 SKUs identified for rationalization, how many or what percentage would you say of those SKUs are currently out of production and reflected in Q4's results?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [16]

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So of course, this is a process of removing them from the trade as and when we go through line reviews and to replace them with more productive SKUs. So I would say approximately half of those SKUs are already out of production. The balance we were tailing through them as we go through these line reviews, with the anticipation that we're obviously fully out of them by the end of fiscal '19 or earlier. But we're doing it very much as a surgical process of ensuring that wherever we can, we are protecting our shop position with all productive SKUs at the time we exit.

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Operator [17]

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Our next question comes from Scott Mushkin with Wolfe Research.

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Scott Andrew Mushkin, Wolfe Research, LLC - MD and Senior Retail & Staples Analyst [18]

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I wanted to talk SKU rat, just strategically a little bit on kind of the thought process. I mean, the natural and organic industry has always been a little bit like food fashion and of course, Hain has been always much more a batch manufacturer than maybe a big brand like the General Mills or something. So I'm just trying to understand how you guys view the business going forward? And as you do these SKU rats, when does it stop? And then could you talk about the flip side, the SKUs maybe you're adding, obviously, the company was acquisitive in the past, so the growth side of the equation?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [19]

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Yes. Good question. So obviously, we've made our call around the core SKUs that we want to keep and the core brands that we want to focus on, which is the top 11 brands. For now, this is where we sit in terms of the rationalization process. We're totally focused on growth, right now. And if you just look at what has happened in this business and the momentum that started to build over the last 12 months, you think back to where Celestial Seasonings was as a business just 2 seasons ago, going through the repackaging and reformatting process. This year, Celestial had a near record year in terms of its performance. So a dramatic turnaround and on a tighter shelf set and a tighter SKU set. So we're getting more productive, with less SKUs and with better innovation. The same can be said for Earth's Best, which went through a challenging couple of years, and very competitive category. A lot of players coming in and a lot of competition for shelf space. And we definitely were hurt over the last couple of years in different places where we lost distribution. And we're seeing a dramatic turnaround in performance. If we just look even in the last 2 weeks, we were announced as category captains with a very important retailer to us in the Baby category. And if you look at the results for Earth's Best, the turnaround is quite stark. We're up 8.4% in the latest 12-week read of [A12] in MULO, and also performing very strongly in the non-measured and natural channels as well. So there's a complete flip of the performance of this business. And these are the types of the impetus and the energy that we're putting into rebuilding momentum in the business because we believe we've got great brands and we know consumers love our brands. We've got to do a better job and we are doing a better job, I believe, supporting them on shelf and supporting them out in the digital community as well. That's our core focus now. The SKU rat, it processes pretty much one of a mechanical process of just exiting cleanly and ensuring that we protect our shelf space wherever we can.

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Scott Andrew Mushkin, Wolfe Research, LLC - MD and Senior Retail & Staples Analyst [20]

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Okay. Do I get a follow-up or no? I can't remember (inaudible).

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [21]

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Sure go ahead, Scott. Scott, go ahead.

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Scott Andrew Mushkin, Wolfe Research, LLC - MD and Senior Retail & Staples Analyst [22]

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Okay, great. I just wanted to – good. So the sale of Pure Protein, I know you guys made some comments about the asset itself. How should we think about this sale as the industry conditions have actually been quite difficult? Was your expectation -- the price being realized on this would be lower? Just maybe some more color around the comments you made regarding that asset and then on yield.

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [23]

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Scott, no we continue to believe that HPP is an attractive business, an attractive asset. But at this time, we expect to complete the sale of HPP in the first half of 2019. However, that this is an ongoing process, it would not be appropriate for us to comment on where we are on any value as we're in the middle of the process. So we, at this point, would not comment further because we're in the middle of the process.

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Operator [24]

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Our next question comes from Ken Goldman with JPMorgan.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [25]

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Irwin, is this your last call as far as we can tell, as CEO?

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [26]

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I'll keep you in suspense, Ken. I figured the only reason you get on today and didn't go to your other event was because it could have been my last call. So I'll keep in suspense and make you pay the admission to listen to a few more.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [27]

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Well, either way, it's been a wild and fun ride. And thank you for all the help you've provided the Street over the years.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [28]

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Thank you, Kenneth.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [29]

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Hopefully, we'll stay in communication. But a couple questions for me. Maybe you mentioned this, if you did, forgive me. But originally, Project Terra was supposed to drive $100 million in savings in fiscal '18. I think it came up to $14 million short of the goal. Can you give us a bit of color as to where that gap was?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [30]

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Ken, this is James. It was really more around timing. A lot of it is, as you're going through this and you're looking at reformulations or strategic sourcing and you get RFPs out, it really is more of a timing issue than anything real specific that we missed on. So it just really was more of a timing issue than anything else.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [31]

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Okay. If that's the case then shouldn't we expect -- I know you've guided to somewhat of a wider range in 2019, but should we expect some of that to benefit 2019 a little bit more than what we otherwise might have?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [32]

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Yes. And so that would be in the $90 million to the $115 million. But just to be clear, so when we're guiding to the $100 million, that also included HPP. So we're actually -- when you're backing out HPP, the $90 million to $115 million is actually better than what we would have been forecasting earlier with HPP included.

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Kenneth B. Goldman, JP Morgan Chase & Co, Research Division - Senior Analyst [33]

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Got it. Okay. That make sense. And then I just wanted to understand a little bit on the tax rate guidance. A little bit higher than I would've had for '19. Can you just help us understand what was the best way to think about for beyond '19 is in terms of an ongoing tax rate for the company?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [34]

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So right now I would say, we're working through. So we're guiding right now 27% to 28% and that's actually a little higher than where we wound up in FY '18, Ken. So right now, I would say future guiding, I would say 27% to 28% is safe. And the one thing we have in the -- included in the tax reform is a tax on foreign earnings. I don't want to get too into the weeds. That was not previously taxed in the U.S. It's the global intangible low tax income or better known as guilty. So we're being -- so the issue that we have is the guilty tax is, the tax on foreign earnings is you can reduce that tax through the use of foreign tax credits. However, we don't have a significant foreign tax credit balance to offset the tax. So that's what's negatively impacting our rate on a go-forward basis. So I would use 27% to 28% for any modeling you're doing, Ken.

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Operator [35]

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Our next question comes from Akshay Jagdale with Jefferies.

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Akshay S. Jagdale, Jefferies LLC, Research Division - Equity Analyst [36]

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Irwin, thanks for your help over the years. Hopefully, we'll have a couple more calls to chat.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [37]

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Thank you.

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Akshay S. Jagdale, Jefferies LLC, Research Division - Equity Analyst [38]

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But my question -- first question is on the distribution numbers, and we really appreciate all the additional disclosure, it's helpful. Does the net (inaudible) include or exclude Sensible Portions?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [39]

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This is net new distribution, Akshay, for fiscal '19. I mean, we've already -- feel like accounted for the loss of Sensible Portions. It's happened to us already in fiscal '18. So this is our net distribution looking forward in all of the reviews that we're cycling for fiscal '19.

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Akshay S. Jagdale, Jefferies LLC, Research Division - Equity Analyst [40]

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Yes. No, my question was -- that's helpful. You mentioned it's for 7 brands. So I was just wondering which 4 brands weren't included in that?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [41]

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Well, just bear in mind, actually, we're not concluded in fiscal '19. So I don't want to discount that the others won't get distribution gains. So I purely want to confirm the ones that I can say today concretely we do have gains. So if we look across the brands whether it's Sensible Portions, we do have some distribution gains, excluding what's already happened in fiscal '18. We have gains for Imagine soup, some broad-based gains across a couple of key retailers for fiscal '19, which is very exciting. So it'll dramatically broaden our MULO footprint for Imagine. We will also see strong gains for MaraNatha where our core innovation has been well accepted and is already going into one of the large mass retailers. We have expanded distribution for Earth's Best as well, as well as Celestial Seasonings. For Alba, we have expended distributions. So if you look across our range of our core SKU sets, we have very broad distribution gains and as I said across a broad retail set. I don't want to say that the remaining 4 will not get distribution gains, that would be unfair because at this point, we're still going through some of the review of the sets. So I think the key message here is it's broad distribution gains across a broad set of the SKUs. And most importantly, it's high-quality distribution and it's distribution we absolutely intend to support and protect.

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Akshay S. Jagdale, Jefferies LLC, Research Division - Equity Analyst [42]

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Got it. That's super helpful. And just on Sensible Portions, obviously, you've had some issues there with a particular retailer. You've made some significant changes, I think, in your go-to-market team and there's been some issues with the supply chain that seem to be behind us. Can you give us an update on that? I know you were -- there was some incremental positive with the pallet program, et cetera. But where are we with Sensible Portions with that retailer?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [43]

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Well, let's talk holistically first. Sensible Portions as a brand is in excellent shape. Outside that one mass retailer our core MULO growth is plus 14% in the latest 12 weeks. So the brand itself is performing very well. In the unmeasured channel, it's also performing well, we now have organic straws in Whole Foods for the first time, and it's also performing very strongly and is performing well in Club as well. So as a brand, it's doing extremely well. We have one retailer, yes, where we have some challenges. We've conducted a pallet program with good success there. I mean ultimately, there is a review process and a review cycle we have to go through. I indicated in my notes that it's March fiscal '19, March 2019 is when we're due for that review process to take place. And obviously, we will put our best foot forward with all the data we can shows that we have a great brand and a good reason, I believe, to argue for distribution gains back. But that's something we have to address with that retailer through that review process. But in the meantime, elsewhere, the brand is doing very well. And on the supply question, no supply issues. That's been completely reconciled. I think we mentioned back in quarter 3 that we've completely passed all of that, and we have high-quality supply and no issues.

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Akshay S. Jagdale, Jefferies LLC, Research Division - Equity Analyst [44]

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Got it. One last one on profitability. Again, appreciate the extra disclosure here on the cost savings, et cetera. But what your guidance implies is your cost savings are actually going to have a positive impact on EBITDA, right, amongst other things. Because this year, you had $40 million or so incremental cost savings, but your EBITDA was actually down at $20 million. So there's going to be a pretty big reversal that'll happen sometime after 1Q. Can you point to 1 or 2 things that are going to allow that to happen relative to what happened this year?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [45]

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Yes. So this year, we obviously had some headwinds that we weren't foreseeing going into the year. So we had some commodity headwinds, we had the freight issue that most manufacturers are dealing with. So that was a significant headwind. With those headwinds, we continued to invest, we thought it was important to continue to invest in the brands. We even made a big investment, as Gary mentioned, in Q4. Going into Q1, we're still going to be investing in the brands and in the U.S. that could get to accelerate growth. And we have a very detailed plan laid out right now with AlixPartners to -- going into '19. So obviously, it's more back-half weighted, Akshay. But we have identified the savings, the $90 million to $115 million, which obviously is more than the $68 million that we -- $63 million that we got in FY '18. So we have clear line of sight to the reduction plan. And obviously, we have the distribution gains that we're seeing and the growth that's more back-half weighted. So that's what gives give us a lot of comfort, and we have clear line of sight for the savings for FY '19.

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Operator [46]

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Our next question comes from David Palmer with RBC Capital Markets.

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David Sterling Palmer, RBC Capital Markets, LLC, Research Division - MD of Food and Restaurants and Consumer Analysts [47]

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Just a question on your core U.S. brands. In your fiscal '19 guidance, what do you assume your core U.S. brands in terms of top line growth with or without the SKU rationalization drag? And then longer term, what do you expect from your core U.S. brands in terms of long-term growth?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [48]

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Yes, so thanks for the question. So our anticipation for fiscal '19 is low to mid-single digit growth in the top line and that's net of the SKU rationalization. So we should expect that we have good strong growth, as being mentioned several times here. The anticipation is that we really started to see that accelerate in quarter 2 as the new distribution comes onstream. And of course, quarter 2 is a very important quarter for us in terms of just our seasonality of the business between tea and our soups business and of course coming into the holiday season. So we expect low to mid-single-digit growth should be the longer-term expectation of this business as well.

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David Sterling Palmer, RBC Capital Markets, LLC, Research Division - MD of Food and Restaurants and Consumer Analysts [49]

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And in your slide, you show the U.S. gross margin decline of 550 basis points and trade and promotion spending was mentioned even before some of the trucking cost. What would you say to concerns that -- and this isn't just a Hain question, it's something that's faced in U.S. food companies in general. But with Hain, here we have this big margin decline, trade and promotion spending is in there, what would you say to concerns that Hain lacks pricing power to return to a balanced top and bottom line growth algorithm?

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [50]

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Yes. Well, I think it's important to understand that we're building momentum in the business. I know we can't fix the business in 1 quarter, but we're absolutely making targeted investment behind building momentum. And the proof points are we're seeing it. We're seeing it live in the business today. I think the medium term suggests that we are back to position where we have a sustainable line of sight to how we build our trade plans. James mentioned earlier, we have a number of tools we're using with AlixPartners to help us additionally with how we manage that trade spend and that investment more effectively. But of course, the momentum is important, and you have to invest ahead of your investment, the momentum that's coming to the business. We have the distribution coming through the end of quarter 1 and ultimately a lot of this investment is in support of that distribution gain. And I believe that then we get back to a steady state over the medium term that suggests that this is totally sustainable at the normal run rate of spend. This really is very much targeted around momentum building in the short term.

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Operator [51]

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Our next question comes from Bill Chappell with SunTrust.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [52]

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Just wanted to follow-up on David's question a little bit more. I guess, I'm trying to understand the goal of mid -- low to mid-single-digit growth both -- especially in the near term. If you look at some of your categories like Baby or tea or oils, those categories aren't even growing that fast. And so I'm trying to understand how you're going to grow that much faster than kind of standard packaged food even just -- not that you're not getting distribution gains or doing that, but what gives you confidence you can get back to that type of level versus more kind of in-line with into the low single digits that you're seeing from some of those categories?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [53]

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So one is -- this is James. One is -- and I'll let Gary to follow-up. One is that, obviously, it's an easier comp as well as the one thing I think we touched upon is we're seeing very strong demand in personal care. So personal care, we're seeing very strong growth. So that's what's helping drive the low to mid-single-digit growth in the U.S.

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [54]

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Yes, that's a key part of it, and of course, if you look inside our businesses, we have tremendous opportunity to take share and grow out of our categories. It's not as if we have high ACVs in these categories and there is no growth white space for us. Absolutely, if you look in our snacks business and even our soups business where we expect strong growth this year, it's coming on the back of us expanding distribution and availability with key retailers and in these categories where there's still tremendous opportunity for us to grow. And even to your point on Earth's Best, for example, in the Baby category, as I mentioned before, it's growing at over 8% in the latest 12 weeks. So here, we are clearly gaining share in the category. And this is obviously, where we're investing, where we believe we have the opportunity with great brands to take share and grow.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [55]

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Okay. I guess switching to your bridge on EBITDA for 2018, just trying to understand on the SKU rat FX breakout, I think it's about $20 million, $26 million hit. Can you split that out, how much are you expecting headwinds from FX versus SKU rationalization?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [56]

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So FX is roughly transactional and translational is about $10 million, $10 million to $12 million. The SKU rat is probably $5 million to $7 million. And then there's just some other inflationary, other cost out there that inflationary costs that's in that number as well to make up the difference.

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William Bates Chappell, SunTrust Robinson Humphrey, Inc., Research Division - MD [57]

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And then last one from me. On Hain Pure Protein, it has been difficult market conditions, tariffs and everything going on, is there any thought to pulling that and postponing it till market conditions are better?

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [58]

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No, our plan is to continue, as we said, look to have this divested by the end of our fiscal year -- by the end of our calendar year, sorry.

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Operator [59]

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Our next question comes from Steve Strycula with UBS.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [60]

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First question would be on the EBITDA outlook for up 7% to 17% for the full year, especially if it's a little softer in Q1. Can you speak to, Irwin, maybe what the world looks like if we're at the low end of the range at the end of this fiscal year and what it looks like maybe at the high end? Just to kind of walk us through what are the key variables that you're seeing over the next 12 months?

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [61]

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I'm going to let James do that, Steve.

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [62]

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So from a -- I'll start with -- the low end for us would be -- 2 things that potentially get us to the low end, one would be, if we're at the low end of our Project Terra savings in $90 million instead of the $115 million, like I've said is, we're very comfortable and confident in getting to hopefully the higher end of that. But like I said earlier, there's always timing issues with some of those projects, but that would potentially -- if we're at the lower end, we'd probably be at the lower end of our guidance on the Project Terra savings and then obviously if the sales in the U.S., if it's -- we believe with the distribution gains, we're going to see strong growth more weighted towards the back half. So obviously we'll get the lower end if the U.S. sales came in the lower end of our range instead of the higher end, but we're seeing the distribution gains and that. So hopefully we'll be at the high end. So that's what it really comes down to, it would be the U.S. sales and where we will end up with Project Terra savings.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [63]

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Steve, the big thing is we can back is execution here. As we've shown throughout the year, we've executed around the world, we executed in Europe, we executed in the U.K, we're executing in Canada. Now Project Terra is a big, big part of it and you see the amount of Project Terra savings that we're expecting in '19. We have spent tremendous amount of additional dollars on marketing and trade. We've picked up tremendous amount of distribution. New distribution, there were 49,000 new distribution points. So at the end of the day, it all comes back to execution here. So it's all lined up to hit the sales, execute on distribution, get the Project Terra savings. And I think one of the biggest thing, we got a price increase that we been able to get and getting in front of some of these headwinds on freight and warehousing and working with AlixPartners on these things and that's why we're feeling good about the EBITDA numbers that are out there.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [64]

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Okay. That's helpful. And then did I hear right that the COGS inflation for the full year is 2%? If so, (inaudible) a little bit lower than what a lot of the other packaged food companies are doing right now. So it's very good cost management. Can you speak to maybe what's -- if that's the right number, what's enabling that relative to maybe some of the broader industry trends we're seeing right now?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [65]

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So part of it is, is that we work with AlixPartners in the second half of 2018. We went out and we did a lot of strategic sourcing and looking at the comments, we went out with RFPs. So part of that when you look at the cost base, we've got that benefit in there, so we're comfortable we've identified all of the headwinds. We've kind of went line by line, so we're comfortable that when we look at our cost base and cost of goods sold that the 2% is a reasonable number for us.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [66]

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And I think the other thing is about 55% of our products that we produce in-house, the other 45% is in a Coeman. So it's a fixed cost plus a totaling arrangement. So that's -- and as they're procuring from a bigger pool, I think that helps us tremendously with the Coeman.

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Steven A. Strycula, UBS Investment Bank, Research Division - Director and Equity Research Analyst [67]

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Okay. And my final question, I'll pass it along, would just be – Irwin, what is the feedback you're getting right now from a lot of the retailers that enabled you to get the price increase and then some of the new distribution? I mean, what are they being more responsive to present-day relative to maybe how they've been in the past?

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [68]

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So I think, and I come back -- and that's a good question, Steve. I come back, I think we're one of the first ones that went out with price increase back in March, April. And we were thrown out of many retailers' offices when we went in there with it. But number one, retailers today are also in the private label business. They heard in the procurement agreements and they know the COGS that are going out. So I think they can push back and fight, but at the end of the day, it's either they're going to take a price increase or we got to stop spending on the brands and stop spending on the products. We stop spending on the brands and products, consumers aren't going to buy them. And it's helpful to them too on their margins, it's helpful to them on sales. So with that, I think the most important part of it is, is taking a price increase, showing them why we're taking a price increase and in our fourth quarter, we spent an additional $13 million, $14 million on trade and marketing and that was very helpful to go in there and sort of say wait now, this is just not a money grab and this is not just to drop in our pockets. We're here to support our brands, grow our brands and we're investing money back in the business. We need to offset this entire commodity cost and higher cost. And I think that has helped us tremendously to get our price increase through with most of our retailers.

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Operator [69]

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Our next question comes from Anthony Vendetti with Maxim Group.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [70]

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First I'd like to echo some of the prior sentiments. Irwin, I want to thank you for all your help and candidness over the years. It was greatly -- and has been greatly appreciated.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [71]

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Thank you, Anthony. I appreciate it.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [72]

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On the online sales, I know we talked about the natural channel, but specifically Amazon, can we talk about what the sales growth has been specifically on the online side of the business this quarter? And then just one follow-up.

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Gary W. Tickle, The Hain Celestial Group, Inc. - CEO of North America [73]

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So this quarter, our – well, our full year performance, first of all online has been double-digit growth. It was slightly slower in the last quarter predominantly because of a couple of specific issues with one e-com partner. I won't go into detail because of commercial interest. But ultimately, we had some specific issues with one e-com partner that we had to work through for the quarter, which we have done and ultimately we're still set up for long-term growth and as I mentioned in the call, I expect us to have, again, double-digit growth in fiscal '19. I think the key thing for e-commerce for us is that we're trying to build a broad-based approach to growth. It's not just about Amazon or one particular e-com partner. We're seeing great growth in Walmart.com, Kroger click and collect, Vitacost, we have a broad range of e-com partners that we're working with and all of them are taking distribution gains from us. So I see us as setting up a nice broad-based growth platform for '19. And expanding beyond what was, let's say, our strong traditional hub where we started in Baby and expanding that more strongly into personal care and snacks going forward.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [74]

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And then just lastly on margins and this is more of a high level, you expecting that to sort of bottom in the first -- fiscal first quarter here '19. Once Project Terra works its way through, where could operating margins go to in the next couple of years? What's the goal?

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James M. Langrock, The Hain Celestial Group, Inc. - Executive VP & CFO [75]

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Obviously, Anthony, we provided '19 guidance. And we believe with the Project Terra cost savings in '19 and in 2020, that we'll have significant margin expansion. But we're not going to give out the specific numbers right now on our future outlook 2020 and beyond. But we believe (inaudible) future...

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Operator [76]

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This concludes the question-and-answer session. I would now like to turn the call back over to management for closing remarks.

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Irwin David Simon, The Hain Celestial Group, Inc. - Founder, President, CEO & Chairman of the Board [77]

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Thank you, everybody. I want to thank everybody for joining today's call. I want to thank you all for your nice comments and whether this is my last Hain earnings call or not, it was great to work with everybody on the call, from the analysts and shareholders, you all have been true professionals and we've always had great 2-way relationships and good back and forth.

Secondly, I really got to tell you guys, the management team at Hain that has worked endlessly, worked weekends, if you come in here on the Saturday and Sunday, you're going to see a full finance group and lots of other here working. And again, it's been a hard 2 years. It's great to get this SEC inquiry behind us. And no individual wrongdoing, I'll tell you, it's taken a lot of wind out of our sails, it's taken a lot out, but I got to tell you, full stretch forward and that is big to have behind us. So again, I got to -- just the team that's here, it's tremendous and the efforts they've put in here, to be able to get all this work done, to get our filings and we're a lot farther than we were in fiscal 2016 and then when we were in 2017. So guys, Mike, James, Gary, team here, thank you very much.

To our board who's very supportive and who has worked endlessly, I want to thank our board. As you heard me say in my remarks, there's 16 board members that have added a lot of value to Hain and our shareholders should really appreciate that. To all you out there, thank you for all your support of Hain throughout the years and there's a lot more to come. I've never seen an industry change so much. It's amazing how fast 25 years have gone. One thing I can rest assure, eating healthy is not a fad, not a trend and is going to be around a long, long time. And I'm not sure I would want to be starting Hain today from scratch and out there trying to pull together some of the brands of products that we own. I have met over the last year with almost every major retailer, every major e-commerce. The change that will happen in the next 3 to 5 years, where e-commerce will become over 20% of sales. Pick N' Click will become a big part of sales and where brick-and-mortar will go and just where the whole health and wellness will.

So with that, everybody enjoy this last week of summer. Be careful out there. Be safe and eat healthy. There's a lot of great Hain snacks, as Gary said, there's a lot of supply of Sensible Portions, there's a lot of Terra Chips out there. There's a lot of Blueprint, there's a lot of our great products, our Celestial Seasonings Ice tea. So thank you, everybody, and look forward to speaking to you again soon. Have a good day.

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Operator [78]

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Ladies and gentlemen, this concludes today's conference. Thanks for your participation, and have a wonderful day.