The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q2 2024 Earnings Call Transcript

The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q2 2024 Earnings Call Transcript February 7, 2024

The Hain Celestial Group, Inc. misses on earnings expectations. Reported EPS is $-0.15071 EPS, expectations were $0.11. The Hain Celestial Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to The Hain Celestial Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I’ll now turn the conference over to your host, Alexis Tessier, Vice President of Investor Relations. You may begin.

Alexis Tessier: Good morning, and thank you for joining us on Hain Celestial’s second quarter fiscal year 2024 earnings conference call. On the call today are Wendy Davidson, President and Chief Executive Officer, and Lee Boyce, Executive Vice President and Chief Financial Officer. 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 our 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 made today will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results, 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, and thank you all for joining us today. I will begin today’s call by first reviewing our second quarter results, and then provide an update on the progress with our Hain Reimagined strategy to return the business to profitable growth. Lee will then review our financial results in more detail, along with our outlook for the year. We are pleased that our second quarter delivered sequential improvement from our first quarter as anticipated in revenue, gross margin, and adjusted EBITDA. Our international business segment continued its strong growth, led by pricing, distribution, and currency benefits, and our North American business segment improved revenue trends compared to our first quarter.

Adjusted EBITDA for the first half came in ahead of our plan, but was down versus prior year due to lower volume and increased investments in marketing and SG&A, offset by both pricing and productivity. Lee will provide greater detail in his remarks. We are making continued progress on the four pillars of our Hain Reimagined strategy, focusing our business in our five core categories and our five core geographies, progress in building our organizational capabilities to scale our brands and gain share, driving growth through innovation and channel expansion, and progress in generating fuel through working capital management and productivity savings to expand our margins and transform our business for sustained performance. This momentum contributed to the sequential improvement in both our top and bottom-line trends and is expected to drive growth in our second half.

As we outlined on Investor Day, fiscal ‘24 is the foundational year of our multi-year transformation strategy. In the first half of the year, we prioritize execution against the focus and fuel pillars of our strategy, which will enable us to fund incremental investments in capabilities for the build pillar in the back half of the year to support accelerated growth. Let’s look now at some highlights across the business for the second quarter. Our snack category dollar growth trends have improved since the start of the fiscal year, and I’m pleased with the momentum we are building. This improvement in trend occurred despite the first half strategic changes we made in our promotional strategy and channel mix, which resulted in short term impacts on our overall snacks category trends.

Our largest snack brand, Garden Veggie snacks, grew dollar sales more than 3% in the second quarter across all customers, measured and non-measured. And Terra chips grew dollar sales 8% in the quarter, and grew units 5% and gained share. With channel expansion a key growth lever for our snacks brands, we are pleased to see our non-measured trends outpacing measured channels, and both non measured and C-store sales continuing to grow double digits. We are excited for our Flavor Burst innovation launch in the Garden Veggie brand that should further drive our revenue growth in the second half, which I’ll elaborate on more shortly. In the Baby & Kids category, industry-wide organic formula supply shortages persisted from quarter one into quarter two.

We continue to work with industry supplier partners, and I’m happy to report we have secured supply commitments that we expect to support double-digit year-over-year growth during the second half, and improved end market consumption by the fourth quarter. Excluding formula, our overall global Baby & Kids category continues to perform well. Earth’s Best snacks and baby food are outperforming the total category, driven by pricing and distribution gains, with expansion into Canada this year. And our UK-based Ella’s Kitchen brand grew net sales year-on-year, gaining share in e-commerce by optimizing online visibility and enhancing customer planning. In our beverage category, we grew net sales year-over-year. Celestial Seasonings, the number one bagged herbal tea brand in North America, grew dollar sales in the most recent quarter, and gained share, driven by success in both brand-building with our Magic in your Mug campaign, and with innovation, with the continued performance of both Sleepytime melatonin and throat cooler.

In the international segment, we grew non-dairy beverage net sales for the second consecutive quarter, driven by both private label and brand growth across our Lima and Nutumi brands. Our meal prep category grew net sales year-over-year, led by Spectrum Oils, MaraNatha nut butters, and Imagine Soup in North America, and branded soups, Hartley’s Jams and jellies, as well as our private label grocery business in international. Spectrum Oils grew dollar sales by mid-single digits, driven by strong velocity. And our branded soup portfolio continued its strong momentum, with mid-single digit year-over-year growth, ahead of the category and gaining share. Our three international brands, New Covent Garden, Yorkshire Provender, and Cully & Sully, are the number one, two, and three leading fresh soup brands in the UK.

Private label spreads showed continued strength, growing dollars by double digits and gaining share. In the plant-based category, the overall category continues to be challenged. However, it returned to growth in the UK in the latest quarter in frozen, where the majority of our plant-based meat-free sales come from. We have two leading meat free brands, Yves, the number one brand in Canada, and Linda McCartney Foods, the number two brand in the UK. Yves is performing better than category, resulting in both distribution and share gains, and we are seeing recovery in both branded and private label in the UK. Lastly, we continue to concentrate on stabilizing our personal care business. While we acknowledge we still have progress needed, we delivered year-over-year net sales growth overall led by Alba suncare, Avalon Organics, and in Live Clean, a leading personal care brand in Canada.

We’re seeing growth in e-commerce and other non-measured channels, leading to non-measured growth for our overall portfolio, and we’ve made progress optimizing our manufacturing capacity utilization for improved efficiency. As Lee will outline, we will be pulling forward some of the Hain Reimagined initiatives originally planned in fiscal year ‘25 that will result in a top line drag to the personal care portfolio in the back half of this fiscal year, but enable us to accelerate key business mix improvements. Overall, we continue to be encouraged by the bright spots we’re seeing across our five categories and our five geographies. Turning to our Hain Reimagined progress, as we’ve said, fiscal ‘24 is the foundational year of our strategy.

We’re making great strides towards focusing our business, resetting our global operating model, enhancing critical capabilities across brand-building, channel expansion and innovation, and in implementing our fuel program. Our second quarter results demonstrate a marked improvement sequentially in year-over-year trends. This improvement is even more pronounced if you exclude the short-term impact of baby formula. This reinforces confidence that our Hain Reimagined strategy is on track as we begin to deliver on our promise of returning our company to profitable growth. As a reminder, Hain Reimagined is built upon four strategic pillars, focus, grow, build, and fuel. Starting with the focus pillar, we’ve made great progress in simplifying our business and aligning our global teams and functions to support a high-performance culture.

We recently welcomed a new Chief People Officer, Amber Jefferson, to our global executive leadership team. Amber will be instrumental in building out our people strategy to enable our high-performance culture and a strong pipeline of talent to help us deliver on our full potential. During the quarter, we also made strong progress on streamlining our footprint as well, opening our right-sized headquarter in Hoboken, New Jersey, consolidating our sales offices in Europe, and continuing to optimize capacity utilization in our manufacturing facilities across both meat-free and personal care. The rollout of our agile working model to leverage our hub and spoke footprint is delivering on our high-performance culture objectives. In the past 12 months, our applications are up 300% on fewer job openings, and applications are up 500% with women.

Our turnover remains below industry average, and our engagement scores improved by 8%. Looking ahead to the balance of the year, we will be pulling forward several focus pillar initiatives designed to establish a winning portfolio of SKUs, streamline our operations, and simplify our geographic footprint. These initiatives are an important step towards eliminating complexity in our business, allowing us to concentrate our resources more effectively on the areas where we have the greatest right to win. Under our growth pillar, our goal is to drive share gains across our core snack, Baby & Kids, and beverage platforms. These platforms have gained incremental distribution across mass and grocery channels, reinforcing our confidence that this momentum will continue to build throughout the year and support our pivot to growth in the back half.

Our build pillar is centered on brand building, channel expansion, and innovation. As we mentioned previously, we’re driving improved marketing efficiency through a reshaping of working and non-working media, and leveraging both paid and earned media to drive brand awareness and reach. We launched our Hain agile and amped brand building model globally, and began to ramp up brand campaigns in the first half of the year for Celestial Seasonings with Magic in your Mug, and the beloved Sleepytime bear, and targeted marketing on Greek Gods yogurt. We’ve begun to leverage global platform insights and campaigns for our leading Baby & Kids brands, Earth’s Best with good food made fun in North America, and eat, play fun for Ella’s Kitchen in the UK.

Our improved effectiveness in our brand building spend will drive more from our core products and brands, and also support new innovation launch success. For innovation, we continue to enhance our capabilities and pipeline, working to leverage key insights to develop breakthrough, scalable innovation. Our recent launch of Garden Veggie Flavor Burst tortilla chips is a prime example. Created from consumer research, highlighting a gap in the Better-for-you snacking segment, Flavor Burst fills the better-for-you tortilla chip void by combining the craveable flavors of Nacho Cheese and Zesty Ranch, with wholesome ingredients, including non-GMO corn and colorful veggies, with no artificial flavors and no artificial preservatives. Consumer testing results have been outstanding, and we’ve received nearly 100% retailer acceptance in both the US and Canada.

Flavor Burst will hit the market with strong initial ACV, and we expect distribution to build based upon retailer commitments, setting Flavor Burst up to be the strongest innovation launch in recent company history. We’re supporting the launch through a robust omnichannel activation, leveraging our agile and amped brand building model to drive awareness, trial, and repeat purchase, both on shelf and online. Flavor Burst tortilla will be a strong driver of our year-on-year second half growth in this next category. To support the strong launch, you will see a sequential increase in marketing investment in quarter three. In addition to innovation, we are strengthening our channel expansion capabilities in both away from home and e-commerce. As our new teams scale up, we are pleased to see our C-store sales up 15% in the quarter, driven by our snacks business, which was up 18%.

Further, in January, we expanded snacks distribution to more than 10,000 C-stores. Increasing our store count in this margin-accretive channel by double digits. And Garden of Eatin has had several significant wins in commercial restaurants, helping drive both revenue and reach. On the e-commerce side, we are pleased to see digital sales penetration at our unified commerce retailers growing and outpacing grocery category averages. Brand building, innovation, and channel expansion are key drivers of our pivot to growth in the back half of the year. Our last pillar is fuel, which is designed to unlock efficiencies across our business to fund our growth and drive margin expansion. Our productivity pipeline, as measured by cost savings initiatives and our manufacturing operations, is robust and on track to deliver our targeted savings to offset inflation within the year.

Our revenue growth management initiatives are on track for fiscal ‘24 expected savings, largely in trade and non-trade efficiencies, net price realization, and price tech architecture. Our working capital initiatives are also on plan to reach fiscal ‘24 targets. We have approximately 80% of our payables targets committed to date, and our raw and pack inventory is over 20% lower than a year ago, and our finished goods remain below the expected seasonal build for the first half, better than we projected on the last earnings call. We are continuing to unlock value through our fuel program, which will facilitate reinvestment in the business and the return to growth in the back half of the fiscal year. I’m excited that we’ve made strong progress in our fuel initiatives and for our plan to deliver continued sequential improvement in our business and year-on-year growth in quarter three and quarter four.

With formula supply recovery, distribution gains and innovation and channel expansion and continued momentum in our international regions, we have many reasons to believe in our outlook for a pivot to growth in the back half, in spite of the challenging macroeconomic environment. Before I hand the call over to Lee, I want to thank the entire Hain team for their dedication, their passion, and their hard work. As we’ve reimagined Hain Celestial and redefined the future of better-for-you purpose-driven brands, our global team has played a pivotal role in putting new plans into action, coming together to grow our brands, our business, our impact, and our people. I want to thank them for their continued commitment to lead with purpose, to live our Hain values, and to demonstrate possibility thinking.

With that, I’ll turn the call over to Lee.

Lee Boyce: Thank you, Wendy, and good morning, everyone. Q2 delivered a sequential improvement in both top line and bottom-line performance versus Q1. This was driven by the focus on fuel pillars of Hain Reimagined, and establishes the pathway to continue to deliver sequentially improving growth rates as we move through the balance of the year. Consolidated net sales for the second quarter were flat versus the prior year period at $454 million, an improvement sequentially from the first quarter decrease of 3.3% year-over-year. Organic net sales for the second quarter, adjusted to exclude the effects of divestitures and discontinued brands, increased 0.2% versus the prior year period, an improvement sequentially from the 2.9% year-over-year decrease in the first fiscal quarter.

Organic net sales growth in the second quarter reflects an approximately two percentage point benefit from foreign exchange. The increase in organic net sales was driven by sales growth in the international segment, offset by lower sales in the North America segment, as expected. Formula was a 2% drag on organic net sales growth in the quarter. We delivered second quarter adjusted EBITDA of $47 million versus $50 million in the prior year period. Adjusted EBITDA margin was 10.4% as compared to 11% in the prior year period. Adjusted gross margin was 23.5% in the second quarter, an increase of approximately 60 basis points versus the prior year period. The increase was driven by pricing and productivity savings, partially offset by deleverage on lower sales volume, and by cost inflation.

For full fiscal year ‘24, we anticipate gross margin to show an improvement of 50 to 100 basis points versus the prior year. SG&A increased 2.2% year-over-year to $74 million, representing 16.3% of net sales for the quarter. The increase was driven primarily by higher marketing expense and people-related expenses on the reinstatement of bonus accrual, as expected. Looking ahead, we expect to ramp up marketing spend in the third quarter in support of our Flavor Burst launch, and additional programming in the back half of the fiscal year on our priority brands. During the second quarter, we took charges totaling $31 million associated with actions under the restructuring program, including contract termination costs, asset write-downs, employee-related costs, and other transformation-related expenses.

Of these charges, $21 million were non-cash. Interest costs for the second quarter rose, 49% to $16 million, due to the higher variable interest on the unhedged portion of our debt, partially offset by lower outstanding borrowings. As a reminder, we have hedged our rate exposure on approximately 50% of our loan facility with fixed rates at 5.6%, and remain keenly focused on driving down net debt over time. All of these factors combined to reduce net loss for the quarter of $14 million or $0.15 per diluted share, compared to net income of $11 million or $0.12 per diluted share in the prior year period. Adjusted net income, which excludes the effect of restructuring charges, amongst other items, was $11 million or $0.12 per diluted share versus $18 million or $0.20 in the prior year period.

Now, turning to our individual reporting segments. In North America, reported net sales decreased 5.2% year-over-year to $268 million in the second quarter. Organic net sales decreased by 4.8% versus the prior year period due to a sales volume decline in Baby & Kids, which is a function of continued industry-wide challenges in organic baby formula supply, as previously discussed, and lower sales in snacks, as we shifted our promotional strategy and optimized our channel mix for improved trade efficiency and profitability. This was partially offset by growth in beverages. Formula was a 3% drag on organic net sales in the quarter. Second quarter adjusted gross margin in North America was 24.8%, a 40-basis point decrease versus the prior year period, driven by deleverage on lower sales volume and cost inflation, partially offset by pricing and productivity savings.

Adjusted EBITDA in North America was $31 million, an 18.9% decrease versus the prior year period. And adjusted EBITDA margin was 11.7%, a 190 basis point decrease from the prior year period. These year-over-year declines resulted from lower volume, inflation, and marketing investments, partially offset by productivity. In our international business, reported net sales demonstrated continued strength, increasing 8.5% to $186 million in the second quarter. Organic net sales growth was also 8.5%. This reflects 5.8 percentage points of growth from FX. As Wendy mentioned earlier, our growth was primarily driven by meal prep, including private label and branded jams and jellies, private label meat-free and our branded soups brands, and non-dairy beverage growth.

International adjusted gross margin was 21.6%, up approximately 260 basis points year-over-year, driven by pricing, partially offset by inflation. International adjusted EBITDA was $26 million, a 35% increase from the prior year period, driven primarily by pricing, partially offset by lower volumes in inflation. Adjusted EBITDA margin was 13.9%, up approximately 270 basis points versus the prior year period. Now, shifting to cashflow and the balance sheet, we generated second quarter cash from operating activities of $21 million, versus $3 million a year ago. The higher operating cash resulted from continued working capital management, including our accounts payable optimization and inventory management initiatives tied to the fuel pillar of Hain Reimagined.

CapEx was $6 million in the quarter, and we now expect expenditures to be in the mid-40s for fiscal 2024. Finally, we closed the quarter with cash on hand of $54 million and net debt of $756 million, translating into a net leverage ratio of 4.2x as calculated under our amended credit agreement. We drove leverage lower than we have previously projected due to better cash flow on momentum from our fuel initiatives. Paying down debt and strategically investing in the business, continue to be our priorities for cash utilization. Consistent with our stated priorities for cash, we have reduced net debt by $91 million since the end of Q1 2023. And as we have previously indicated, our long-term goal is to reduce balance sheet leverage to 3x adjusted EBITDA or less.

Turning to our outlook, we are making early progress against Hain Reimagined, especially in the delivery of fuel as planned in this foundational year of the restructuring program. We have accelerated some of the initiatives outlined in the focus pillar, primarily portfolio and channel mix improvements. This is expected to create a near-term revenue headwind as we rationalize lower margin SKUs and sales. As a result, we believe it is prudent to take a more conservative view of the balance of fiscal 2024. In addition, we expect less of a tailwind from foreign exchange than when we initially provided guidance in August. Considering these factors, as well as performance year-to-date, we are adjusting our guidance for the full year. On the bottom line, we delivered better results versus expectations through Q2 year-to-date.

However, as previously stated, a tenet of Hain Reimagined is to link our brand-building innovation and channel expansion investments to the supporting generation of investment fuel. Consequently, the over-delivery in the first half of fiscal year 2024 will be utilized in the second half to step up investments to drive longer term volume growth and margin expansion. Our revised fiscal 2024 guidance is as follows. We expect organic net sales growth of approximately 1% or more year-over-year, adjusted EBITDA to be between $155 million and $160 million, and free cash flow of $40 million to $45 million, which now reflects 2024 costs associated with Hain Reimagined. Our 2024 guidance assumes that first, currency exchange rates will not materially change from today’s rates, resulting in an approximately one point net sales benefit from foreign exchange.

This compares to an approximately two-point net sales benefit when we gave guidance in August. Second, net pricing will recover most of the expected cost inflation as we continue to make progress on revenue growth management initiatives. And finally, the productivity will drive gross margin expansion and fuel investments. Lastly, we are now projecting the annual effective income tax rate to be 32% to 33%. This is primarily as a result of a shift in the geographical mix of earnings, the associated impact related to global intangible low tax income, and limitations on certain deductions. While we are not providing specific guidance for the fiscal third quarter, we do want to provide some color on the shape of the balance of the year. In keeping with our expectation of momentum building throughout the year, we anticipate organic net sales growth in the third fiscal quarter to be greater than that in the fiscal second quarter, and organic net sales growth in the fiscal fourth quarter to be greater than that in the fiscal third quarter.

Similarly, we expect continued sequential improvement in adjusted EBITDA growth rates. Now, I turn back to Wendy for closing remarks.

Wendy Davidson: Thank you, Lee. Amid our company’s transformation, we remain committed to driving positive change for people, communities, and the planet through better-for-you brands. Making a positive impact on the world around is core to our Hain company purpose. To that end, we’re proud to share that we will soon be publishing our annual global impact report, which outlines the progress we are making towards our goals for healthier people, healthier products, and a healthier planet. You’ll be able to access the report and learn more on our company website. I am encouraged that we are continuing to report sequential improvements and fuel generation through our Hain Reimagined strategy. As we outlined on Investor Day, our approach will be to pay as we go to generate fuel and reinvest in the business to deliver profitable growth and margin expansion.

This is a multi-year strategy to transform the business, and we’ll continue to balance the pacing and prioritization to deliver steady progress to our goals. We are pleased to see the second quarter demonstrate our progress made and the momentum in our business. The accelerating trends, coupled with recent innovation and distribution gains across growth categories, give us confidence that we will pivot to growth in the back half of the year. And the progress we’re making in our fuel program, will enable us to reinvest in the business to get the flywheel spinning and to realize our potential as a growth leader in better-for-you brands. We firmly believe the best is yet to come, and appreciate you joining the call today. Thank you for your interest and for your continued support.

With that, operator, please open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Jim Salera with Stephens, Inc. Please proceed with your question.

Jim Salera: Hi guys. Good morning. Thanks for taking our question. Wendy, I wanted to double-click a little bit on the snacking growth. It seems like this data that we have visibility in with the track channels, don’t really capture the full picture. And so, if we think about the back half of the year, can you just maybe break out how much of the growth you expect to come from recovery and track channels from what we can see versus distribution gains/just organic sales growth in on-track channels.

Wendy Davidson: Yes, I appreciate the question. And as we said, when we leaned into Hain Reimagined on Investor Day, we were going to be driving disproportionate growth in channel expansion, especially in our snacks category. It’s important to remind, there were two big drivers in the snack category in the front half of the year. In quarter one, we had an impact in Terra because we made some decisions in optimizing promotion spend and in channel mix. And so, that was a quarter one impact. Pleased to say that we actually saw Terra in growth in quarter two in both dollar sales, as well as unit growth. In Garden Veggie, it was the opposite. We had good growth in quarter one. We made some choices in promotional shift, and again, some optimization around promotional spend in our RGM initiatives that impacted Garden Veggie straws, or the Garden Veggie brand in quarter two.

Really pleased that the distribution gains we’ve had in non-measured, so we mentioned in the earlier remarks that we now have our snacks brands in 10,000 C-stores starting in January. We obviously have the Garden Veggie Flavor Burst launch that takes place right now, and we’re beginning to see some momentum even in our measured channels in the latest four weeks. So, I think the combination of cleaning up our promotional activity, leaning on our channel mix, and the work that we’re seeing on TDPs, as well as velocity, combined with innovation and channel expansion in the back half, give us confidence in the snack portfolio.

Jim Salera: Great, and maybe a follow up on the channel expansion. As you guys enter a channel where you’ve been underpenetrated in the past, is it kind of a, you have to prove that the products can work, and so you come in with one or two SKUs, and then give the retailer a trial period to see if they want to add more? Or should we think of, there’s already kind of a plan in place that we should see distribution ramp in untracked channels as you guys introduce new products and get the promotional thing right-sized?

Wendy Davidson: It’s a great question, and the thing that I think we have felt all along, we know that we have beloved consumer brands. They’re just not able to find them everywhere. So, the opportunity for us isn’t proving the viability of the products or the viability of the brand. It’s making them more available to the consumer where they’re shopping. We’ve had great retailer take rate in alt retail, in food service and in C-store. We’re up double digits in – high double digits in all three of those away from home non-measured channels. That gives us a lot of confidence as we go forward, but I don’t think that this is a need to prove it. It’s a need to make it accessible and available to the consumer.

Jim Salera: Okay, great. Thanks, guys. I’ll hop back in the queue.

Operator: Thank you. Our next question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Andrew Lazar: Great. Good morning, everybody. So, Wendy, I guess I’d love to get a better sense, or maybe I’m just not clear yet on sort of what changed or what you’re seeing in the market that’s leading you to want to accelerate some of these focused pillar actions, and sort of what specific actions are really being accelerated. So, are there certain parts of the business, brands or categories, where you’re accelerating the sort of SKU rationalization?

Wendy Davidson: Well, remember – well, good morning, Andrew, but remember what we said on Investor Day that we would need to pay as we go. So, as we unlock fuel, we would be able to lean into investments, but also some of the simplification work that we knew would be needed, things like the work that was done with Joya last year in international, we eliminated 50% of the SKUs in the Joya portfolio, and the brand grew double digits, so a harder working core assortment in the Joya brand. We’re taking a similar approach across the entire portfolio where we have a tail of SKUs that are both adding complexity into our end supply chain. It adds added inventory both in raw and pack and in finished, but it also adds maybe unproductive SKUs in the assortment for our retail partners.

So, but that obviously when you do that kind of SKU rad, it’s a top line drag, and it can also be a bottom line drag. So, we knew we were going to need to pace that a bit. Because we over-delivered EBITDA in quarter one and quarter two, it puts us in a position to both invest behind some of the brand building that we wanted to do. It allows us to accelerate the adding of some of the organizational capabilities that we want, think headcount in revenue growth management and in away from home on the commercial sales side of our business, but it also allows us to accelerate some of those simplification things in SKU and footprint that we may have planned in fiscal 2025 because we didn’t think we’d be in a position to be able to do it. We’re in a financial position to be able to do it in fiscal ’24.

So, we’re going to pull those forward into quarter four.

Lee Boyce: And so, maybe I can just build upon that a little bit. I mean, the other thing is we do distribute our products into 75 markets. As we simplify our focus, it is on five key markets. So, it is an opportunity for us as well just to simplify where we’ve got physical assets. So, that’s come into account as well. Again, we will continue to distribute into kind of broader markets, but really focus on five key markets.

Andrew Lazar: Got it. No, that’s helpful. And then, Lee, just a follow-up for you. I think you said in your prepared remarks that 4Q organic sales growth would be greater than what we see in 3Q. And I’m just looking at it and just last year, right, the comparison in 3Q in terms of organic growth is far easier than in 4Q. So, I’m just curious, what are some of the things maybe you can remind us that are still expected to dampen organic sales growth in the third quarter that would make the fourth quarter organic sales growth better? Thank you.

Lee Boyce: Yes, I mean, so, so a couple of things. I mean, we’ve obviously got the ramp up of our new product initiative. Part of it is also just the pacing of our investments. So, we’re investing, we’re stepping up investment in Q3, and then that will kind of drive, and the focus in is driving that sequential improvement in volume. So, part of it is tied into kind of the pacing of our investments. And just as kind of as a reminder overall, we said we’d have a pay as you go model. So, with what we’ve delivered from an EBITDA perspective through the first half, that’s given us the ability to then invest – increase that investment in Q3, and then we’ll see that starting really coming through into the fourth quarter.

Wendy Davidson: Well, and let me add to that. Some of those distribution gains that we said that are coming certainly in this month, think C-store and some of the away from home, it takes time. And even Flavor Burst launch, it takes time for that to ramp up. So, we’ve assumed that we would fully realize some of that velocity in quarter four, but it takes some build time in quarter three. So, you see some of that around the timing of those as well.

Andrew Lazar: Great. Thanks so much.

Operator: Thank you. Our next question comes from the line of Andrew Wolf with C.L. King. Please proceed with your question.

Andrew Wolf: Thank you. Good morning. On the North American snacks business, could you unpack for me the changes in the velocity, or just the total sales for Garden Veggie and Terra? It seems to go in the opposite direction sequentially between distribution changes and promotional cadence. So, I’m trying to – like Terra, like just observationally, I saw it being promoted pretty heavily, at least at Whole Foods. So, I’m trying to get a sense of, was there a non-pro promotion aspect to this versus off promotion previously? And also, with Terra – I mean, with Garden Veggie, there’s so much of it sold through, or at least an appreciable amount sold through the club. Was there a change in any – a big change in the club distribution?

Wendy Davidson: Yes, well, as we mentioned actually in some of the guidance that we gave going into the fiscal year, quarter one would have some very specific drags, one of which would be Terra, because we were making a decision to reduce the depth and frequency of large promotions, particularly in the club channel on Terra. And that was going to have a quarter one impact. That allows us to have a much more stable distribution, but also promotional activity. And I would say, and I mentioned earlier, we’ve seen unit volume growth, as well as dollar growth in Terra in quarter two. And in the latest four weeks, we’ve seen double digit dollar growth, as well as our sales on promotion are about flat to where they’ve been. So, we’ve stabilized the promotion frequency and depth to be right-sized, I would say for Terra, and we can build from there.

Garden Veggies a bit different, less so in channel mix, but much more around the promotional depth. In quarter two, we didn’t pace the same promotions timing that we did a year ago. So, some of that you see as a year-on-year drag. Going into quarter three, strong distribution gains on Garden Veggie, both in measured and non-measured, but what we’re most excited about obviously is innovation news coming in Garden Veggie that actually creates overall brand news for the entire franchise of Garden Veggie. So, it gives us confidence as we go into the back half. But what you saw in the front half is a little bit of some of the cleanup in our revenue growth management initiatives impacting both timing and depth of volume. That’s just a timing issue year-on-year.