The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q1 2024 Earnings Call Transcript

The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q1 2024 Earnings Call Transcript November 7, 2023

The Hain Celestial Group, Inc. beats earnings expectations. Reported EPS is $-0.04, expectations were $-0.06.

Operator: Greetings, and welcome to The Hain Celestial Group First Quarter 2024 Earnings Conference Call. At this time all participants’ are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Alexis Tessier. Thank you, you may begin.

Alexis Tessier: Good morning, and thank you for joining us on Hain Celestial’s first quarter fiscal year 2024 earnings conference call. On the call today are Wendy Davidson, President and Chief Executive Officer and Lee Boyce. During the course of this call, we may make forward-looking statements within the meanings of federal securities laws. These include expectations and assumptions regarding the company’s future operations and financial performance. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed from time-to-time with the SEC, as well as the press release issued this morning for a detailed discussion of the risks that could cause actual results to differ from those expressed or implied in any forward-looking statement made today.

We have also prepared a presentation, inclusive of additional supplemental financial information, which is posted on our website at hain.com under the Investors heading. Please note that remarks today will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP to the nearest GAAP financial measures are available in the earnings release and the slide presentation accompanying this call. This call is being webcast and an archive will be made available on the website. And now I’d like to turn the call over to Wendy.

Wendy Davidson: Thank you, Alexis, and good morning, everyone. Thank you all for joining the call today. I’ll begin by reviewing our fiscal first quarter results. I’ll then provide a high-level overview of our Hain Reimagined 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 that deliver our second consecutive quarter of Promises Made, Promises Kept. Organic net sales were in line with our guidance of down low single digit, and adjusted EBITDA came in ahead of our expectations. As we said previously, with Hain Reimagined, we will invest as we go.

So starting in quarter two and over the balance of the year, we plan to utilize the over-delivery from quarter one to invest back in the business. This is consistent with our stated plan to fund our strategy as we unlock fuel through accelerated growth and efficiencies. As we highlighted previously, the net sales decline in the first quarter was driven predominantly by baby & kids. On our last earnings call, we described headlines that we expected to face in the first quarter, the largest being baby formula, but the entire industry has experienced supply constraints. While we are working closely with industry partners to accelerate availability and bring on additional supply, we are now expecting these challenges in supply to continue into the second quarter, and to begin to recover sometime in the second half of the year.

Excluding the formula supply challenge, we are seeing progress across the business driven by our strategic focus on brand building, channel expansion, and innovation. We’ve leveraged our portfolio across better-for-you categories and gained distribution across platforms in grocery retail. We are making notable progress in away-from-home channels like convenience, colleges and universities, and the travel segment, which are margins accretive portfolio and provide expanded brand visibility. I will provide more details on this in a few minutes. As we’ve mentioned before, it is important to note that some of the bright spots in our growth may not be as clearly visible to you if you only view US syndicated consumption data. As a reminder, 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 pronounced. I’ll now review some of the positive momentum from the first quarter. In better-for-you snacks, our non-measured snack sales were up 18% in dollars in the 12 weeks ending October 8, led by Garden Veggie. We are driving growth in Garden Veggie primarily through strength in club as well as in e-commerce and away-from-home. As we execute on our strategy for channel expansion, we have gained incremental distribution in the away-from-home channel within segments like colleges and universities, travel and convenience stores. In better-for-you baby & kids, Earth’s Best continues to demonstrate robust growth of 12% in dollars in the last 12 weeks, excluding formula, supported by strong retailer partnerships and share gains in baby food and purees.

Innovation in snacks and our investment in the brand building campaign Good Food Made Fun are helping drive Earth’s Best snacks up low single digits in dollars and a 20% expansion at total distribution points. In better-for-you beverages, Celestial Seasonings bagged tea grew 1.3% in dollars in the latest 12 weeks, with both dollar and unit velocity pacing ahead of the category, and we gained share across both herbal and wellness segments. Our brand building investments are delivering us clients with the successful Magic in Your Mug campaign launched in the back half of fiscal 2023, and we have strong customer acceptance confirmed on innovation, including Sleepytime melatonin and throat cooler. Our International non-dairy beverage segment continues to gain momentum, building upon positive performance in June and growing 10.6% in the first quarter.

The return to growth is being led by our private label business, but we are also seeing momentum in parts of our branded portfolio. Natumi was up 13% in the quarter. As we mentioned on Investor Day, we believe our portfolio combination of strong brands and private label in this category is an advantage for Hain across Europe. Within better-for-you meal prep, Greek Gods Yogurt continued its standout performance in the US of 7% in dollars in the latest 12 weeks on increased velocity. Growth internationally in meal prep was led by the UK, where we continue to benefit from our portfolio, which spans both branded and private label. Private label is historically a larger mix in the U.K., with over 40% of its unit share compared to mid-teen category share in the U.S. We are well positioned and see strong growth within discounters and private label internationally as the consumer responds to the macro environment.

Our private label jams and spreads are both up double digits, gaining share in the latest 12 weeks. And on the branded side, our Hartleys jams and all of our marmalade brands also grew double digits in the latest 12 weeks and picked up share in their respective categories. Also in the meal prep category, our soup brands continue to perform well, of 15% in dollars in the last 12 weeks, gaining 200 basis points of share. Our Cully & Sully, Yorkshire Provender, and New Covent Garden brands all grew double digits. As you may recall from our Investor Day, these brands, these three brands, are the number one, number two, and number three in the category in this market, and these results are well before we hit the peak soup season. We are also seeing encouraging signs of stabilization in our global meat-free category.

We continue to believe in the long-term growth potential of the global meat-free category as consumers are seeking veg-forward, flexitarian, and vegetarian options that deliver on taste and convenience. As we see consolidation in this category, consumers are returning to leading brands in this space. Our Yves brand, the number one meat-free brand in Canada, is gaining share despite category softness. We are up 270 basis points in fresh and 70 basis points in frozen in the last 12 weeks. In the UK, our Linda McCartney brand is seeing increased velocities in frozen of 20% in the latest 12 weeks with distribution of 12%. We are excited about our upcoming meat-free innovation, Linda’s Best Burger, which will hit UK supermarkets in the spring. In the better-for-you personal care, we continue to focus on stabilizing this business.

We are seeing some encouraging signs with our personal care business growing 6% in the quarter in the e-commerce channel. In addition, personal care grew in the drug channel of 70% on total distribution point growth of 160% in the latest 12 weeks. Across the business, our performance trends are more favorable in unmeasured channels than measured channels, driven by strengths in our better-for-you snacks portfolio. Given recent distribution gains, however, we are beginning to see measured channel trends also improve as store shelf resets begin to take shape for both snacks and tea. We are pleased to see the first quarter performance in line with our expectations, and we are reaffirming our full fiscal year guidance. I’m now excited to share some of the early progress we’re making in executing our Hain Reimagined transformation strategy.

At our Investor Day in September, we introduced Hain Reimagined, our strategy to pivot the business to profitable growth. It was wonderful to see so many of you there. Hain Reimagined represents a bold transformation of our business and is built upon four strategic pillars, focus, growth, build, and fuel. We are focusing our winning portfolio of brands around five consumer centric global platforms, snacks, baby & kids, beverages, meal prep, and personal care. And we will simplify our footprint in five core markets, the US, Canada, the UK, Ireland, and Europe. Our growth pillar will drive brand strength, share gains, and channel expansion in three of our core better-for-you platforms, snacks, baby & kids, and beverages. We are building and enhancing critical capabilities to execute our growth plan, including improving brand building, accelerating innovation, and driving channel expansion, particularly in e-commerce and away-from-home, which has historically been underdeveloped at Hain.

And 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 an improved discipline in revenue growth management, executing initiatives against working capital, and driving end-to-end operational efficiency. Our plan is designed to deliver a compelling and achievable long-term financial algorithm with attractive shareholder returns. The plan represents a material transformation of our P&L, influencing our pipeline growth, and driving margin improvement. Our long-term financial algorithm seeks to achieve at least a 3% organic net sales growth CAGR through fiscal ’27, with at least a low double digit EBITDA CAGR, achieving at least a low double digit EBITDA margin by fiscal year ’27.

As you heard us say on Investor Day, this is our commitment, not our aspiration. And I’m excited that we’re already seeing encouraging early momentum from our Hain Reimagined strategy. Under the build pillar, we have made notable progress on expansion into margin accretive channels. We’ve enhanced our away-from-home capability with new, experienced industry leadership and dedicated expertise to drive growth in this important growing channel. We are pleased to share that our convenience store sales grew 14% in the last 12 weeks, driven by our snack business, which was up 18% in dollars on 10% incremental total distribution points. In addition, we have gained incremental placement with our snack brands in North America across travel, restaurants, on-the-go retail, colleges and universities, and convenience stores.

We also have plans to expand and away-from-home in the UK, which is off to a good start with soup launching in a large restaurant chain in the first quarter. E-commerce continues to be a growth area for us, accounting for nearly 10% of company sales in the first quarter. We have established a dedicated team to drive omni-channel and e-commerce and provide greater focus and support for expanding into this margin accretive channel. We are making our brands more accessible to consumers away-from-home and online, increasing brand reach and visibility at the same time. Hain has been a market leader in better-for-you for over 30 years, so we understand the evolving needs for our consumers. As we mentioned on Investor Day, we are building out our innovation capabilities and pipeline, working to develop breakthrough, scalable innovation, leveraging key insights from our global platforms and across geographies.

And we are improving both our launch capabilities and our support post launch. We now have better visibility into our innovation pipeline across our key categories and are excited about our innovation experience center that we are building out at our new global headquarters location in Hoboken, New Jersey. To that end, we are looking forward to introducing new and disruptive innovation for our better-for-you snacks platform in the third quarter. And while we can’t share details quite yet, we will be supporting the launch by activating our agile and amped brand building model designed to deliver fully integrated omni-channel campaigns that drive awareness, trial, and repeat purchase, both on-shelf and online. A key part of our growth pillar is gaining incremental distribution in both existing channels and entering new channels.

In addition to the away-from-home wins I mentioned earlier, our snacks, baby & kids, and beverage brands have earned incremental distribution across existing channels. The drug channel grew 5% in the latest 12 weeks. And recent distribution gains 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 geographies, the US, Canada, the UK, Ireland, and Europe and streamlining our manufacturing footprint in these five markets with efficiencies in our own production and our co-manufacturing network. We recently consolidated our meat-free manufacturing footprint in Canada and continue to look at improving our capacity utilization and our operations leverage across all of our geographies.

As we aim to unlock our full potential as a leading global better-for-you 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 in our core five markets. To achieve our aspirations, we have recently established our global RDQ operating model, regulatory, R&D, and quality and made important shifts in our design work to further integrate our teams globally. These enhancements, which include progressing with development of our global centers of excellence across marketing, procurement, and R&D to deliver on the evolving needs of our consumers and our customers are already creating demonstrated value to the business. The last pillar is fuel, 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 planned fuel initiatives for the year with early momentum in RGM as reflected in trade efficiency and effectiveness. One of our key working capital opportunities involves bringing our payment terms in line with industry benchmarks. We have begun the process and this initiative is on track to deliver working capital improvements in this fiscal year. Productivity in the first half of the year is primarily being driven through packaging automation, enabling us to improve our throughput and reduce waste in the system. We are executing against identified initiatives across our three fuel levers to unlock value so 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 team for their passion and their dedication to Hain Reimagined. This is a bold plan and transformation of not only what we do, but how we are organized and how we work. You are instrumental in delivering on our strategy, but more importantly our purpose in inspiring healthier living and I am proud to work alongside you. Lee, please go ahead.

Lee Boyce : Thank you, Wendy, and good morning, everyone. As anticipated, first quarter consolidated net sales decreased 3.3% versus the prior period to $425 million. Organic net sales for the first quarter adjusted to exclude the effects of divestitures and discontinued brands decreased 2.9% versus the prior year period, consistent with our guidance of a low single digit decline. The decrease was primarily due to lower sales in the North American segment partially offset by sales growth in the International segment, as expected. We delivered first quarter adjusted EBITDA of $24.1 million versus $36 million in the prior year period. This came in ahead of our guidance range due to lower trade spend and marketing expenditures and we expect to reinvest the beat into the business over the course of the fiscal year.

Adjusted gross margin was 20.5% in the first quarter and decreased by approximately 95 basis points versus the prior year period, driven by the leverage on lower sales volume and by cost inflation partially offset by pricing and productivity savings. SG&A increased roughly 3% to $77.2 million, representing 18.2% of net sales for the quarter. The increase was driven primarily by wage rate increases and inflation in other support costs, with marketing expenses roughly in line with the prior period as we deferred some incremental investments. As Wendy mentioned earlier, we have also begun to make progress in executing initiatives under the Hain Reimagined multiyear global growth and transformation program we announced during last quarter’s Investors’ Day.

During the first quarter we took 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 $13.2 million due to the higher interest rate environment, partially offset by a lower borrowing base. As a reminder, we have hedged our rate exposure on approximately 50% of our loan facility with fixed rates at 5.6% and I will come back to in a moment, we are keenly focused on driving down net debt over time. All of these factors combine to produce a net loss for the quarter of $10.4 million, or $0.12 per diluted share, compared to net income of $6.9 million, or $0.08 per diluted share in the prior year period.

Our adjusted loss per diluted share was $0.04 versus adjusted EPS of $0.10 in the prior year period. And now to our individual reporting segments. In North America, reported net sales decreased 9.8% to $260.1 million in the first quarter. Organic net sales decreased by 9.3% versus the prior year period due to a sales decline in baby & kids, which as we mentioned last quarter, is a function of continued industry-wide challenges in organic formula supply. Second, the timing shift of a sun care program in our personal care portfolio. And third, optimization of promotional activities for Terra, as we aim to unlock a more profitable growth mix over the long term. These temporary declines more than offset the bright spots of growth we achieved in other strategic platforms, such as beverages, with Celestial Seasonings bagged tea and non-dairy beverage and baby & kids excluding formula.

First quarter adjusted gross margin in North America was 20.8%, a 190 basis point decrease versus the prior period that was driven by a deleverage on lower sales volume and cost inflation, partially offset by pricing and productivity savings. Adjusted EBITDA in North America was $18.7 million, a 39.2% decrease versus the prior period, and adjusted EBITDA margin was 7.2%, a 350 basis point decrease from the prior year period. These year-over-year declines resulted from lower gross profits and margin on roughly flat SG&A spending. In our International business, reported net sales increased 9.3% to $165 million in the first quarter, and organic net sales growth was also 9.3%. Our growth was mainly driven by meal prep from private label grocery as well as soup, as well as in non-dairy beverages and baby & kids.

International adjusted gross margin was 20%, up 95 basis points year-over-year, driven by pricing and productivity, partially 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%, up approximately 70 basis points versus the prior year period. Shifting to cash flow in the balance sheet, first quarter cash provided by operating activities was $14 million versus cash used in operating activities of $5.1 million a year ago, or a $19 million improvement. The higher operating cash resulted from working capital management, including our accounts payable optimization initiatives, focused inventory management, and an improvement in AR recovery.

Paying down debt and strategically investing in the business continue 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 for fiscal 2024. Finally, we ended the quarter with cash on hand of $38.3 million, and net debt of $776.7 million, translating into a net leverage ratio of 4.3 times, as calculated under our amended credit agreement. Note that we do expect leverage to increase and peak in the second quarter, given the timing of restructuring and an anticipated seasonal increase in net working capital and other cash outflows, before trending back down through the second half of fiscal year 2024. Consistent with our stated priorities for cash, we have reduced net debt by $70 million since the end of Q1 2023, and as we have previously indicated, our long-term goal is to reduce balance sheet leverage to not more than 3.0 times adjusted EBITDA.

And now to our outlook, while a number of the top nine headwinds we faced in the first quarter were isolated to the period, the industry-wide challenges in organic baby formula supply will continue to adversely affect our sales volume in the near term. We are working hard with industry organizations and our co-manufacturers to ensure that consumers have access to organic formula, where 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. Our Hain Reimagined strategy is designed to be self-funded and flexible, [indiscernible] growth, adjusting the pace of investment as we progress. For fiscal 2024, we continue to expect organic net sales to increase by 2% to 4% year-over-year; adjusted EBITDA to be between $155 million and $165 million; and free cash flow of $50 million to $55 million.

Our 2024 guidance assumes that currency exchange rates will not materially affect our performance. At today’s rate, the dollar is converting at around 2% more strongly than factored into our initial full-year 2024 guidance. And if this trend continues, it would slightly dampen our overall revenue growth, but have very little effect on profitability. We also assume that pricing will recover most expected cost inflation. We have made good progress on a number of revenue growth management initiatives, ranging from pricing to trade efficiency in the mix. And lastly, we assume productivity will drive gross margin expansion and fuel investments. And now I turn back to Wendy for closing remarks.

Wendy Davidson : Thank you, Lee. I am proud that we delivered a second consecutive quarter of Promises Made, Promises Kept. We believe we have set a bold yet achievable plan, and we are laser focused on executing upon it. Hain Reimagined was the result of a thorough evaluation of every aspect of our business to identify inefficiencies, as well as key unlocks to drive our business. Now we shifted to execution, and I couldn’t be more excited about the journey. Hain is a pioneer in better-for-you, building upon 30 years as a market leader in natural, organic, and better-for-you food, beverages, and personal care. Our portfolio of beloved brands across global better-for-you platforms differentiates us from others in this space and provides us with a unique opportunity to capture lifelong consumers from infant to adult, both in-home and away.

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. Hain’s size, benefits of scale in global platforms, deep consumer focus, portfolio breadth and agility enables us to out-small the big and out-big the small. Thank you again for joining the call today. We appreciate your interest and continued support. Operator, please open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] 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.

David Palmer: Thanks. Good morning, Lee and Wendy. I want to ask you about gross margin for 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 20.5% in fiscal 1Q and do you see this year playing out with gross profit growth happening this year, offset partially by G&A? So any thoughts about timing and progress and the components of EBITDA growth would be helpful?

Lee Boyce : Yeah, so it’s Lee here. Yeah, I mean, as we said, with Hain Reimagined our productivity growth will build as we go through the year and also just some of the benefits that come through Hain Reimagined is we, flex and invest behind it. So we do see that continuing to build as we go through the year. The other thing is, as well, we will get leverage on our top line as that builds sequentially, specifically as we get into the back half.

Wendy Davidson: Yeah, and good morning. I’ll add a little bit to that. As we said, when we outlined what the drivers were in quarter one, there were three really discreet drivers for North America that really change as we go through the year, that actually will help us from a mixed standpoint. Then when you look in the fuel program around revenue growth management, there’s quite a bit of work relative to net price realization and trade efficiency. We saw some of that trade efficiency play out in quarter one in North America. You’ll see some of that as we continue to go through the year.

Operator: The next question we have is from Ken Goldman of JP Morgan. Please go ahead.

Ken Goldman : 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 1Q’s over delivery, I’m just curious to what extent you’re still expecting improved sequential organic sales growth and EBITDA growth in 2Q versus 1Q?

Wendy Davidson: Yeah, good morning, Ken. The challenges around formula, obviously, we outlined for quarter one. They’ll continue a bit 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, we’ve looked at where we’ve got early momentum in distribution gains, channel expansion across the balance of the portfolio. And some of those are actually coming on faster than we would have expected. So we would expect to be able to deliver on our expectations for pivot to growth, even in light of the challenges with formula.

Ken Goldman : Okay, thank you for that. And then for the follow up, Wendy, in the first earnings call you joined after 2Q ’23, 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 historically, Hain’s 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 bake that into organic sales growth, which I think is fair to say, is even rarer. So what I’m hearing from some investors this morning is a little bit of concern that this decision to become less transparent, 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 Lee’s opinion on if those concerns that I’m hearing are unjustified, in your view?

Wendy Davidson: Yeah, you’re right in what we said earlier this year, the intent is to be transparent. I also want it to be accurate. And so you will see us as we go forward, be more overt in disclosing price, volume and mix. This particular quarter, we weren’t comfortable that we had the numbers exactly where we would want to 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, when it’s material, we’ll certainly be calling that out. But we didn’t want to have quite a bit of adjustments in the numbers, but I’ll let Lee provide a bit of policy there.

Lee Boyce: So currency was favorable in Q1. It was about $11 million favorable. The one thing I would call out, as you look on the year-to-go basis and kind of had it in the opening comments, it is a 2% drag versus what we had when we originally set guidance. However, there’s not a material impact to EBITDA. But we did want to put that in there, that 2% headwind was seen particularly on pound sterling. But again, just for the first quarter, just as context, it really is a top-line impact, about $11 million, not a material EBITDA impact.

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

Andrew Lazar: Great. Thanks. Good morning, everybody.

Wendy Davidson: Good morning.

Andrew Lazar: 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 were supposed to be isolated specifically to the first quarter. It was the sun care timing shift and the promotional optimization at Terra. And I think at that time you said, those two collectively might be about, or maybe it was all three, I can’t remember, a sort of a 10-point hit, if you will, to organic sales in 1Q. 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 North America sales would have been without those two sort of discrete items that I mentioned. And if that’s what you think North America sales would, organic sales would approximate in 2Q?

Wendy Davidson : Yeah. Let me unpack a little bit relative to the categories, just the broad buckets, and then have Lee provide some follow-ups specific to North America. You’re right in that the three drivers we saw for quarter one that we had called in guidance would be formula, would be really the promotional optimization on Terra, and then would be the timing on sun care. If you look in those categories, certainly the impact in snacks was Terra driven, but offset by nice growth in Garden Veggie. So that gives us confidence as we go into quarter two that the Terra impact in the snack portfolio is a quarter one challenge. On the formula side in our baby kids category, all of the decline in the baby category was driven by formula.