John Baumgartner: Good morning. Thanks for the question. Good morning. Wendy, I wanted to come back to your comments in the prepared remarks about headwinds in the macro environment. And I think historically, Hain typically leaned on a notion that the portfolio SKUs to higher income households. So, it it’s more insulated from the macro. Is something changing in the environment, either with more discretion among higher income households, or are you seeing maybe less trade up from mainstream consumers even? I’m just trying to better understand the context and the impact of these macro headwinds for you.
Wendy Davidson: Yes, that’s a great question. If you would’ve recalled maybe a year ago when I first joined, we were talking about the, historically you would’ve expected that natural and organic as a category, tended to outpace conventional. All of that flipped upside down during COVID when people gravitated back to conventional products, and in some cases supply chains made conventional more readily accessible. We were waiting to see that consumer behavior really revert back to expectation. Really pleased. You see this in the (Nielsen) data that we’re beginning to see, I think in the middle of last year, calendar year, we started to see the consumer revert back to historical behaviors. But what changed was they still wanted natural and organic products, but they want them available in more places.
So, they’re not just going to specialty retail anymore. They’re going to food and mass and away from home. That’s a great opportunity for Hain. But we also have been evaluating the move from brand to private label. Happy to say in the US market, we don’t see that. Europe is a different story. We’ve seen the consumer much more impacted economically in Europe, and that’s affected consumer behavior, both in number of shopping trips, but also the size of the basket. We’ve also seen private label recover faster in our international business in the industry than the brand. That benefits Hain because we actually are both private label and brand, and we’re seeing the recovery in our private label business faster than our branded business, but still outpacing category.
That’s why you see such strength in the international business, while North America is beginning to recover. And it actually I think is a great example of the value of our geographic diversification in our business because it gives us a geographic hedge as the consumer behaviors start to normalize.
John Baumgartner: So, I mean, if I build on that and look at your salty snacks business in the US, I can appreciate the shift from promotional timing and the innovation you’re ramping now, but I mean, baseline volumes have been down for the portfolio since like mid-2022. Is this – building on those comments, is this a situation where some of that baseline volume and consumption has gone from Nielsen channels into non-measured, and that sort of explains, I guess, the absence of more prominent velocity growth and baseline volumes in the portfolio? Or is there something else in salty snacks, in addition to innovation and promo, that needs to be tweaked to get better same-store sales and Nielsen data?
Wendy Davidson: Yes, I would tell you that if I look back at the early observations when I joined the company and what really led to some of our focus around Hain Reimagined, one is that you actually – we need to have a harder working core. We need to have an always on support around our brands. We need to make sure that we’ve got the right products on shelf and available where the consumer is shopping. And we need to have really meaningful innovation that we support both at launch, but we continuously support. What’s different now than I think what you would’ve seen in 2022, some of the challenges were, financially the company wasn’t in a position to continuously support with marketing and trade. We also had some significant supply chain disruption during that year, which pulled back a lot of promotional activity, and it also had our fill rates to the trade really below average.
I’m really pleased to say that our fill rates and on-shelf availability in snacks is in top tier and has been for the last 12 months. We are in an always on promotional support and marketing support behind the brands, but we’ve invested in really good consumer and category insights to make sure that our campaigns are meaningful, our price pack architecture is accurate, and that our innovation is meaningful to take to the marketplace. So, I think what you should see from us is, I think natural organic products. The consumer wants those products and they love our brands. We are putting ourselves in position to be better able to run the portfolio and to drive the right kind of growth, not just episodic growth quarter-on-quarter, but to have some good momentum.
And as I mentioned earlier, we’re seeing actually really good dollar growth in Garden Veggie in the latest four weeks in measured channels. If you add in non-measured, it’s even better. Terra Chips has actually really improved, especially in the latest four weeks, but we had unit movement in quarter two. So, I feel good about the snacks recovery and pivot to growth, but you would’ve seen a lot of historical noise in that.
John Baumgartner: Thank you, Wendy.
Operator: Thank you. Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Jon Andersen: Thank you. Good morning, everybody. Two quick ones. There’s been a ton of discussion rightly so about the snacks business. I’m wondering if you could talk a little bit about a couple of the other focus areas, Baby & Kids and beverages, whether that be second half recovery behind the maybe remedy of the formula shortage, which you referred to in the prepared comments, and more broadly around perhaps innovation and channel expansion, some of the demand driving initiatives that are part of Hain Reimagined. And then second, on gross margin for the year, I think you provided an updated outlook for 50 to 100 basis points of improvement. Could you remind us, is that a little, I think a little less than what you previously anticipated and what some of the puts and takes around that change are? Thank you.
Wendy Davidson: Yes, I’ll cover the categories and then flip it over to Lee. From a category standpoint, as you mentioned, so our snacks category was off, call it mid-single digits in quarter two, total company. And that was really tracing to some of this move in promotional activity. Feel very confident as we go into the back half of the year because of what we’re seeing in the latest four weeks. The baby category was off double digits in total for the organization. If you take out formula, the baby kids category was actually in growth, but formula was a significant drag. We have secured supply as well as incremental supply partners to ensure our availability to have that product in the back half. It will result in double-digit growth year-on-year in the back half of the year in the formula part of baby kids and get that entire category back to growth.
The beverage category was up high single digits between both North America and International. International was led by non-dairy beverage. That’s actually a great category for us to be in, and we’re a leader in both private label and brand, with a really powerful portfolio there that continues to perform. You would’ve heard us talk a year ago about some of the capacity utilization in our plants. All of that has been addressed and we’re running a solid operation five days a week. Really good capacity utilization with the ability to support our customers, and a much more diversified customer contract base. Meal prep was up high single digits across both markets, in North America, led by Spectrum and our nut butters and our soups, and in international by soups, as well as jams and jellies.
So, that’s a portfolio that continues to deliver. And then personal care was actually up almost 2% year-on-year as a total category, and that was led by both by Alba, Avalon Organics, and then Live Clean, which is a leading brand in Canada. So, we’re seeing really good bright spots at a category level. I feel good that we know what’s driving both snacks and baby kids, and those are short-term acute that we see improving trends as we’ve started quarter three that give us confidence in the back half. Lee?
Lee Boyce: Yes, so just answering your question on margin, we are seeing good margin improvement, but as you point out, we had previously indicated 100 to 200 basis points. We’ve now refined that to 50 to 100. So, a couple of elements there. We are seeing some plant costs deleveraging on the lower volumes versus our initial expectations. I’d say on the flip side, again, we are – and we’ve talked about this a number of times, we are seeing sequential improvements driven by Hain Reimagined initiatives, but again, a bit lower than our initial expectations. I’d say the second element is really some of the mix impact that we’ve seen. And a prime example of that is formula. We originally thought formula would only impact Q1, but it did also bleed into Q2.
We have secured supply in the second half, but again the full year is not in line with our initial expectations. I think more kind of on the positive side, we are seeing the benefits of pricing come through and the focus to RGM initiatives. Wendy had talked to a number of those. So, those are driving strategic pricing opportunities. Overall, also our productivity pipeline is delivering. And then I’d just say the third thing, and it does tie in a bit with RGM as well is, we continue to evolve our trade strategy. So, we are seeing a step up in ROIs versus history. But again, kind of what has changed as we’ve looked and within this current year is kind of just the expectations on the volume and then some of the mix. We will see that improve as we move forward and again, as we make these investments and we get that sequential improvement in the top line.
Jon Andersen: Thanks so much.
Operator: Thank you. And our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.
AnthonyVendetti: Thank you. Yes, most of the questions most of my questions have been answered, but I guess other than supply chain concerns or issues with baby formula, are there any other brands or SKUs that are dragging down just overall organic growth? And if so, are any of those brands or SKUs being – are you considering jettisoning them or shutting those down or selling those at this point? Or you’re still in the evaluation stage for some of those other brands that are maybe dragging down growth?
Wendy Davidson: Yes, thank you. I appreciate the question. We feel very good about the five categories of focus and the five geographies. What I would say is, as Lee mentioned earlier, in the five geographies, we want to make sure that that’s where we are focusing our most efficient assets and footprint. We’ll still distribute beyond those five, but we really want to streamline where we’ve got a physical footprint. In the five categories, we feel very good about the categories we’re in, that they are repertoire categories for the consumer, where they’re looking for better-for-you brands and products to support healthier living. But it does mean that there’s opportunities for us to ensure that we’ve got the hardest working portfolio in those five categories.
