The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q2 2025 Earnings Call Transcript

The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q2 2025 Earnings Call Transcript February 10, 2025

The Hain Celestial Group, Inc. misses on earnings expectations. Reported EPS is $-1.15359 EPS, expectations were $0.12.

Operator: Good day, everyone, and welcome to The Hain Celestial Group, Inc. fiscal second quarter 2025 earnings call. Today’s call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Thank you. At this time, I will now turn the call over to Alexis Tessier. Please proceed.

Alexis Tessier: Good morning, and thank you for joining us for a review of our second quarter results. I am joined this morning by Wendy Davidson, our President and Chief Executive Officer, and Lee Boyce, our Chief Financial Officer. Slide two shows our forward-looking statements disclaimer. As you are aware, during the course of this call, we may make forward-looking statements within the meaning 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.

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. As we discuss our results today, unless noted as reported, our remarks 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, everyone. I’ll start the call by walking through today’s key messages. I’ll then review our second quarter results, category performance, progress on our Hain Reimagine strategy, and the building blocks to support our pivot to growth in the back half of fiscal 2025. Lee will then provide more detail on our financial results along with our updated outlook. Despite a disappointing revenue quarter, we generated strong operating cash flow and continued our progress to further reduce net debt. We drove sequential improvement in baby and kids driven by the recovery in infant formula supply and in meal prep led by the continued momentum in our soup brands across both regions, and growth in Greek as yogurt.

However, sales growth in the quarter was hindered by poor in-store performance in snacks, driven by marketing and promotion effectiveness, as well as short-term supply challenges, particularly in our international segment, where demand outpaced our supply in several of our core categories and brands. To address these issues, we have improved in-store marketing activation, added production capacity to rebuild inventory and support growth, and reorganized our customer service supply chain. We are confident that these actions, combined with the previously communicated promotion, fully recovered infant formula supply in North America, brand campaign momentum, and confirmed distribution gains in both regions will drive organic net sales growth in the second half.

Organic net sales declined 7% in the second quarter. While not satisfied with this result, we did generate free cash flow of $25 million and continue to make progress on net debt, reducing it by $12 million in the quarter. Adjusted EBITDA in the quarter was $38 million and adjusted EBITDA margin increased 350 basis points from the first quarter. We remain confident in the building blocks we have in place to deliver top-line growth in the back half. However, due to the softer than expected front half, and a more volatile macro environment, we feel it is prudent to approach our guidance with a more cautious outlook for the full year. We will provide details shortly. Before I get into the detailed category performance, I want to touch on our positioning, which is particularly relevant in today’s environment.

Better for you trends continue to outpace traditional categories with consumers increasingly looking for healthier options without sacrificing taste, convenience, or affordability. We also acknowledge the evolving trend of individuals opting for better for you products to align with their diverse dietary goals. Our purpose is to inspire healthier living through better for you brands. It’s part of our ethos and something we’ve been focused on for more than thirty years. We view the consumer demand shift and evolving regulatory space as a tailwind. Our positioning and free from artificial portfolio is a true differentiator, particularly in the US. Today, 100% of Hain’s global portfolio is free from artificial colors. Historically, we’ve not used red dye number three in our portfolio, and in the US, we only use colors from natural sources such as fruits and vegetables, and we do not use artificial flavors.

Internationally, more than 95% of our portfolio is free from artificial flavors, but we don’t use any artificial colors. We have partnered with experts to understand the unique nutritional needs of consumers on GLP-one treatments and assess our portfolio against those needs. We are currently developing our criteria to define what is GLP-one friendly, based on available science. And we have already identified a number of products in the US that are a good fit for these consumers across our beverage, soups, and yogurt brands. We plan to begin marketing certain items within our portfolio to GLP-one users in the near future. These authentic better for you credentials position us well to meet increasing consumer demand for better for you products.

Let’s now review each of our categories and early signals in our pivot to growth in the back half of fiscal 2025. Sales growth in snacks was hindered by in-store marketing activation and promotion effectiveness. As we mentioned at the start of this fiscal year, snacks were affected by a shift in our promotional activity on the Garden Veggie brand and by key retailer shelving changes for Garden Veggie and Terra as we discussed last quarter. Garden Veggie remains a strong brand with high brand awareness, one of the highest levels of household penetration among better for you snacks. The shift of our promotional activity from the first half of the year to the second half impacted absolute sales volumes in both time periods and had a carry-on effect in overall velocity.

As a result, we have adjusted our in-store activation and shopper marketing for the second half of the year based on these learnings. Despite these impacts, Garden Veggie delivered mid-single-digit distribution growth in the quarter and continues to be a top velocity snack brand in convenience stores. We continue to expand in this important channel and have confirmed distribution expansion up 17% year on year in the back half of the year. Terra saw strong base unit velocities up 9% and in the UK, our leading snack brand, Hartley’s, also delivered mid-single-digit distribution growth in the quarter. We expect to see accelerated snacks performance in the second half of the year driven by expanded distribution of our brands, including a 5% increase in distribution for snacks at our largest retail partner.

We will also have new innovation, including exciting flavors in Garden Veggie Flavor Burst, which was recently named the top new product in the tortilla category by Newsweek. Beginning in this quarter, we have better placement in aisle with key customer resets as well as increased merchandising and promotional activity across top customers. To support consumers sticking to their healthier living resolutions, we have robust new year, new you campaigns in place for this quarter. And we have actively shifted our marketing spend to social. This shift enables us to expand reach across a broader set of usage and audiences and leverage influencers with user-generated content to drive engagement. In baby and kids, we continue to see sequential improvement in year-over-year organic net sales trends.

Earth’s Best infant formula supply has fully recovered. With the return of all formulations and sizes at the end of December as planned. As expected, consumption of infant formula pivoted to growth in the quarter, increasing 29% year on year, further demonstrating the strength of the Best Brand. Outside of formula, consumption of Earth’s Best snacks and cereal were each up double digits in the quarter. And household penetration for Earth’s Best has increased. We believe in the return to leadership in infant formula led by the strong brand awareness and loyalty in Earth’s Best. In fact, 83% of Earth’s Best dairy formula shoppers won’t substitute for another brand, but will instead seek their preferred formula at another retailer if what they’re looking for isn’t on shelf.

We expect baby and kids trends to continue to improve in the second half of the year driven by the full recovery of infant formula supply, additional distribution gains, increased marketing, especially in e-commerce, and exciting new innovation with our self-feeding platform which reinforces our leadership from birth to backpack. We are excited to continue our progress towards regaining leadership in organic infant formula. Our Earth’s Best brand has been a pioneer in organic formula and a trusted leader in the growing powdered formula market for more than thirty-five years. And Earth’s Best was recently recognized by Baby Center as best organic baby formula of 2024. In Ella’s Kitchen, the leading baby food brand in the UK, we grew distribution by low single digits and outpaced the category on volumes in the quarter.

Fiscal year to date, Ella’s has gained share in its core wet baby food category. And we are strengthening our storytelling and partnership with a large retailer with branded in-aisle activation, in more than two hundred top stores. Early results are promising with sales up high single digits in the quarter. In the beverage category, non-dairy beverage sales moderated in the quarter with industry shifts to discount channels where we are under-indexed. Despite these category headwinds, Nutumi continued to grow share in the natural channel. Celestial Seasoning sales in the quarter were impacted by short-term service issues driven by a shortage of a long lead time raw material used in our blends which resulted in spill rate issues at the beginning of the hot tea season.

This issue has since been resolved and consumption improved throughout the quarter as we moved past these service challenges and our Taste Our World brand campaign gained momentum. Celestial Seasonings has high brand awareness in our recently launched innovation, Celestial Seasonings Lemon Honey Drop, and the Sleepytime Biogen Beauty Rest are both performing well. We’ve seen continued strength in Sleepy Time with Melatonin launched last year, which remains a top one hundred item in the category. Our efforts to reduce plastic waste led to recognition by beverage industry, and we were named best beverage packages of 2024. We are leaning into our marketing on taste and wellness through our new mass brand campaign, Taste Our World, building strong PCs and programs, and expanding our away-from-home presence to drive greater trial and awareness.

Additionally, we will be expanding offerings in the second half with innovation focusing on all-day wellness, women’s health, and GLP-one support. In meal prep, our largest global category, we saw sequential improvement in year-over-year organic net sales growth trends. Green Dot Yogurt is showing healthy velocities at key mass customers and has lapped the impact faced last year from customer shifts. The Greek God’s brand remains strong with increased household penetration fiscal year to date. We continue to see strong growth in branded soup in the UK, with double-digit dollar sales growth and share gains in each of our three leading brands. We grew distribution by 25% outpacing the overall category. Our recent launch of Destination Lunch has delivered strong early results in market, up 22% in the quarter compared to 9% in the category at the same retailer.

Demand was so strong in fact that we had to pull back on certain promotions in the quarter to ensure we could service our customers. As we look to the balance of the year, we expect trends to improve in the back half as we fully lap the private label contract loss in our UK spreads and drizzle business. We have increased soup capacity and are expanding our rollout of destination lunch merchandising based on the early success in quarter two. And Greek God’s growth in the back half will be supported by a new brand campaign in the third quarter to support gains in incremental distribution in key channels. And finally, personal care, our smallest category, the progress we have made towards stabilizing our personal care business is driving improvement in gross margin sequentially and in sales trends in our core channels of natural and e-commerce.

With the goal of further advancing the focus pillar of our Hain Reimagine strategy and simplifying our portfolio to concentrate on better for you food and beverage, we are exploring strategic options for this business. We believe this is the best path to focus the organization, simplify our business, and create long-term value for shareholders. We continue to make progress in the transformation we outlined in our Hain Reimagine strategy to position the company for growth. While our shift to growth has taken longer than initially anticipated, we remain confident in the pivot to growth in the back half and in our ability to execute on our transformation strategy. The progress made to date under our focus pillar has simplified our operations and our portfolio.

This includes today’s announcement on personal care, and last year’s portfolio divestitures footprint consolidations and SKU simplification initiatives some of which impacted year-on-year organic net sales in the first half of 2025 as expected. We estimate these actions account for an approximately 1% impact on organic net sales growth year to date. In addition, our new North America commercial structure designed to better align our go-to-market model for improved customer focus and consumer engagement was implemented in the first half of this fiscal year. We are seeing notable improvement in our customer engagement with increased distribution at major customers on our largest brands in the second half of the year. Quantitative and qualitative feedback from customers has been positive, and we have innovation and collaboration sessions with top retailers scheduled over the next few months, including in our innovation experience center recently opened in our Hoboken, New Jersey headquarters.

We expect this new commercial structure to be a key enabler of our future growth. Underpinning our fuel pillar, we started fiscal 2025 strong, delivering above-target savings in the first half. And for the full year, we expect to outpace the record delivering savings we achieved in fiscal 2024. We expect to continue to enhance our revenue growth management capabilities including trade optimization, for improved price, volume, and mix as well as gross margin expansion. Within working capital management, you’ll recall we unlocked approximately one-third of the total Hain Reimagine target of $165 million from working capital improvement in our first year. We continue to make progress in fiscal 2025. From our starting point in fiscal 2023, we have extended payables by 19 days and reduced inventory levels by 5 days.

In fiscal 2025, we continue to expect fuel to deliver gross margin expansion with further reduction in debt, improvement in leverage, and investments in our brands and our capabilities. We are seeing continued progress under the build pillar in our channel expansion strategy, especially away from home. We have recent distribution wins with strategic convenience store customers. And we’ll have at least two snack items in eleven of the top fifteen c-store retail chains by year-end up from five in fiscal 2024. In the fiscal second quarter, away from home net sales grew 38% in North America and 52% in international. Garden Veggie remained strong in convenience stores with dollar volume up over 40% in the quarter, gaining over 200 basis points of better for you salty.

We have a clear line of sight to growth in the back half of fiscal 2025. We have a number of second-half initiatives in place, including the previous communicated promotional activity shifts adjustment of our marketing actions, increased promotional activity on brand campaigns, known distribution gains, and a return to full supply of our infant formula business. We remain focused on execution to deliver growth and drive operational improvements across the business in particular through our enhanced commercial go-to-market model in North America. Our supply chain team over-delivered on our fuel pillar in fiscal 2024 and we are confident in the work being done to address the short-term supply challenges in international. And now I’ll turn it over to Lee to discuss our second quarter financial results and updated fiscal 2025 outlook in more detail.

Lee Boyce: Thank you, Wendy, and good morning, everyone. For the second quarter, we saw organic net sales decline 7% year over year. The decline was driven primarily by lower sales in the North American segment. The decline in organic net sales growth reflects a five-point decrease in volume mix and a two-point decrease in price. We delivered adjusted EBITDA of $38 million in the second quarter compared to $47 million a year ago. Adjusted EBITDA margin was 9.2%, a 350 basis point increase from the first quarter. Adjusted gross margin was 22.9% in the second quarter, a decrease of approximately 60 basis points year over year. The decrease was driven by cost inflation, and pricing due to higher trade spend on promotional activities and efforts to execute winning portfolio actions, partially offset by productivity.

SG&A decreased 5% year over year to $70 million representing 17% of net sales for the quarter as compared to 16.3% in the year-ago period. The decrease was primarily driven by lower employee-related efficiencies from our integrated operating model. During the quarter, we took charges totaling $7 million associated with actions under the restructuring program including contract termination costs, asset write-downs, employee-related costs, and other transformation-related expenses. To date, we have taken $75 million in charges associated with the transformation program which is comprised of $72 million of restructuring charges, and $3 million of expenses associated with inventory write-downs. Of these charges, $29 million were noncash. As previously discussed, the total transformation program charges are expected to be $115 million to $125 million by fiscal 2027, inclusive of potential inventory write-downs of approximately $25 million related to brand and category access.

Restructuring charges excluding inventory write-downs are expected to be $90 million to $100 million by fiscal 2027, and are excluded from adjusted operating results. Interest costs fell 21% year over year to $13 million in the quarter, driven by lower outstanding borrowings and a reduction in interest rates. As a reminder, we have hedged our rate exposure on more than 50% of our loan facilities, with fixed rates at 5.6%. We continue to prioritize reducing net debt over time. Adjusted net income, which excludes the effect of restructuring charges amongst other items, was $8 million in the quarter, or $0.08 per diluted share as compared to $11 million or $0.12 per diluted share in the prior year period. Turning now to our individual reporting segments.

In North America, organic net sales declined 9% year over year. The decrease was primarily driven by lower sales in snacks, due to in-store activation and promotional timing shifts, as well as by lower sales in personal care, in part due to SKU simplification initiatives. We expect North America to return to growth in the back half of the year driven by snacks, on the promotion timing shift, improved shelf placement and distribution and execution of marketing, Informa on recovered supply and t on recovery from supply chain issues. Innovation, and the new brand building campaign. Second quarter adjusted gross margin was 25.2%, a 40 basis point increase versus the prior year, driven by productivity partially offset by pricing due to trade spend as discussed.

Adjusted EBITDA in North America was $25 million as compared to $31 million in the year-ago period. The year-over-year decline resulted primarily from pricing and deleverage on lower volume partially offset by productivity. Adjusted EBITDA margin was 11%, a 60 basis point increase year over year. In our international business, organic net sales declined 4% in the quarter, driven primarily by lower sales in meal prep, and short-term service challenges. We expect the international segment to return to growth in the back half of the year as we lap the loss of the private label spreads contracts, accelerate growth in Hartley Snacks, Ella’s Kitchen accelerates on increased TDPs and brand building, and we realize the benefits of innovation and new contracts in non-dairy beverage.

International adjusted gross margin was 20%, approximately 160 basis points below the prior year period, driven by inflation and deleverage on lower volume and mix, partially offset by productivity. International adjusted EBITDA was $23 million, a decrease of 13% compared to the prior year period, as deleverage on lower volume and product mix more than offset productivity. Adjusted EBITDA margin was 12.4%, down approximately 160 basis points year over year. Shifting to cash flow and the balance sheet. Free cash flow in the second quarter was $25 million compared to $15 million in the year-ago period and an outflow of $17 million in the first quarter. The increase was primarily due to improved cash flow from accounts receivable and accounts payable, partially offset by a reduced benefit from the inventory related to short-term supply challenges.

We continue to see the benefit of our days payable at Landing, as well as an improvement in our days inventory outstanding in the second quarter. Days payable outstanding improved to 56 days from 37 days in fiscal 2023. Days inventory outstanding improved to 77 days from 82 days in fiscal 2023. We continue to make progress against our Hain Reimagine targets of 70 plus days payable outstanding and 55 days inventory outstanding by fiscal year 2027. CapEx of $6 million in the quarter was in line with the prior year period. We now expect expenditures to be less than $40 million for fiscal 2025. Finally, we closed the quarter with cash on hand of $56 million and net debt of $672 million. Our net leverage ratio as calculated under our credit agreement picked up modestly to 4.1 times.

We expect our net leverage to end the year in the high threes. We remain comfortable that we have sufficient headroom under our existing covenants. Paying down debt and strategically investing in the business continued to be our priorities for cash and we reduced net debt by $12 million in the quarter. Our long-term goal remains to reduce balance sheet leverage to three times adjusted EBITDA or less as calculated under our credit agreement. Turning now to our outlook. While we continue to expect to pivot to growth in the back half of the year, given performance year to date, and the challenging macroeconomic backdrop, we are adjusting our full-year outlook. For fiscal 2025, we now expect organic net sales to be down 2% to 4%. Adjusted EBITDA to be flat year over year.

Gross margin to expand by at least 90 basis points year over year, and free cash flow of at least $60 million. Please note that while changes in exchange rates do not impact organic net sales growth, it does impact adjusted EBITDA. The impact on adjusted EBITDA of exchange rate movements since we gave our initial guidance is approximately $2 million unfavorable. In terms of cadence for the balance of the year, we expect gross margin and adjusted EBITDA to improve sequentially with a material step up in Q4. While we have made significant progress in executing our Hain Reimagine strategy, growth has taken longer to realize. As we’ve discussed. As such, we want to provide an update to our Hain Reimagine growth algorithm. We expect that organic net sales growth will improve throughout the Hain Reimagine high margin with a sustainable exit rate of 3% plus by fiscal 2027.

We continue to expect gross margin of at least 26% by fiscal 2027. We continue to expect 12% plus adjusted EBITDA margins by fiscal 2027, and we also continue to expect to unlock $165 million in working capital improvement by fiscal 2027. And we continue to expect to achieve leverage between two and three times by 2027. And now I’ll hand it back over to Wendy for closing remarks.

Wendy Davidson: Thank you, Lee. With leading brands and better for you, Hain is well positioned to meet increasing consumer demand for better for you products. We have made progress against our Hain Reimagine strategy particularly in the focus and fuel pillars of our transformation. We have simplified our portfolio of brands and SKUs, our geographic footprint, and our operating model. We launched our fuel program delivering strong cash flow, which we have used to reduce net debt while investing in our brands and capabilities to drive future growth. We are confident in our portfolio of brands in categories that are positioned for growth with ample white space to drive distribution. We have strengthened our relationships with top customers and are partnering to enable them to support consumer trends and better for you.

We are focused on driving improved commercial execution and supply chain reliability to enable our pivot to growth in the back half of fiscal 2025. Before I close, I want to acknowledge our team members, our supply partners, and our customers. We believe that better for you doesn’t have to mean separate taste, convenience, and availability. Together, we can deliver on the promise to inspire healthier living. Operator, please open the line for questions.

Operator: Thank you. The floor is now open for questions. Keypad to raise your hand and join the queue. If you are called upon to ask your question and are listening via Loves speaker on your device, please pick up your handset. And ensure that your phone is not on mute when asking your question. We do request for today’s session that you please limit to one question and one follow-up. Again, press star one to join the queue. And your first question comes from Jim Salera with Stephens. Please go ahead.

Q&A Session

Jim Salera: Hi. Good morning. Thanks for taking our question. Wendy, you had mentioned, you know, on the snack side, just some poor in-store performance driven by marketing and promotion effectiveness. You just give us a little more detail on what you saw specifically and then maybe what gives you confidence that some of the promo you have shifted into the back half of the year will be more effective as we progress through the year.

Wendy Davidson: Absolutely. Good morning, Jim. Talking about the strength of those brands, in their awareness and that our biggest challenge was actually driving distribution. While they were beloved brands, we made it very hard for you to find them. The shift in promotional activity from quarter one into the back half of the year didn’t just have an absolute dollar impact of just those activities from front half to back half but it also impacted the awareness just broadly with consumers because those feature and display actually had a disproportionate impact on overall velocities in our brands. And that was learning that we got in quarter one. I would also say that we identified that we had strong awareness in what we needed was to actually have conversion-driven marketing activation in-store rather than awareness building.

So what does that look like? It looks like in quarter one, we did a master brand campaign on Garden Veggie. What we really needed to be doing was driving specific conversion and reaching consumers where they were and driving a Cajun-based marketing. We’ve done a pretty dramatic shift in the overall snack portfolio. We have the known distribution gains and the known promotional activity that moved front half into back half, we have incremental distribution that comes in the back half. In C stores alone, we will go from five chain c stores with two of our SKUs to eleven of the fifteen largest chain c stores. We also picked up 5% distribution in our largest retail partner and we’ve added the value channel with twenty thousand stores beginning in March.

So we have some really good incremental distribution and incremental availability what we’ve done to shift our marketing is to actually drive it in lower funnel activity. So much more on social, which you should start seeing actually be seeing in the last couple of weeks to really drive awareness and reach to a broader consumer cohort in driving conversion.

Jim Salera: Okay. Great. And then maybe a follow-up on that. I know in December, in particular, there’s a little bit of softness in salty snacks. Is that something that also impacted this, or is it really just what you guys saw from the, you know, the store effectiveness. Just trying to parse out, you know, category impact relative to kind of pain specific impact.

Wendy Davidson: Yeah. You know, there is overall in the snacking category. There was softness in the December time period. What’s interesting though is Better for Youth Mac and continues to perform and we think actually those are tailwinds overall for Better For You but also for Hain. So we don’t see a lot of transfer between conventional snacking and our brand. So for us, it really was about availability in all the right places, promotions, just display, and promotional effectiveness. I think I’ve told you before our brands don’t respond to deeper discounts. They do respond to feature and display. So more frequency available, more and that’s what you’ll see us driving in the back half.

Jim Salera: Great. Appreciate it, Taylor. I’ll hop back in the queue.

Wendy Davidson: You bet. Thanks, Jim. Your next question comes from the line of Andrew Lazar with Barclays. Please go ahead.

Andrew Lazar: Great. Thanks so much. You know, Wendy, in the last several quarters, you’ve talked a lot about the executional issues in various segments. And certainly, I can appreciate some of the wins you have in distribution coming up and having put some of the supply issues in the rearview. Guess I’m curious if you’re building in some flexibility in your back half guidance for any other potential unforeseen challenges that may arise. Particularly in light of what is, as you noted, is still a very dynamic sort of packaged food environment.

Wendy Davidson: Yeah. To be quite honest, and as we said in the prepared remarks, we’ve built in some caution in the back half, both given the history we have on some of the execution challenges but also in the broader marketplace, and I think we’ve appropriately guided for that in the back half. What I would also say though is that each one of the challenges we face really since we launched Hain Reimagine and the team have addressed those with PACE. And we were ahead in our commercial execution turnaround in international. You saw that reflected in the international numbers up until this last quarter. The impact in international in quarter two were all about service challenges and those have since been addressed. North America was about a year later in some of the commercial go-to-market shifts. But given the results that we’ve seen in international go-to-market chain gives me a lot of confidence that the in a very different commercial execution.

Andrew Lazar: Got it. And then Lee, you talked about the cadence in the back half of the year. On gross margin and adjusted EBITDA. Was hoping you could shed some perspective around the cadence when it comes to organic sales growth. Thanks so much.

Lee Boyce: Yeah. So, I mean, you know, as we look through the second half versus the first half, I mean, we did say we’d actually pivot to growth. From an EBITDA perspective, I think that was the first part of the question. EBITDA perspective, I mean, we expect to see that sequentially improve. As we go through the balance of the year. We’ll see that also just from an Imagine perspective, I think is consistent with prior calls. You know, we said that we’d have a step up our productivity steps up as we go through the balance of the year. So what you’ll see is sequential improvement, a step up particularly as we get into the fourth quarter.

Andrew Lazar: Got it. Sounds like organic though, should pivot to growth. It sounds like your expectation there would be even starting in the third quarter, if I’m hearing you right.

Lee Boyce: Yes. Yeah. We should be pivoting to growth.

Andrew Lazar: Thank you so much.

Wendy Davidson: Your next question comes from the line of Kaumil Gajrawala with Jefferies. Please go ahead.

Kaumil Gajrawala: Hey, guys. Good morning. I guess a couple of things on snacks and I guess, this pivot to more on the conversion side. How much flexibility do you have in managing the P&L and the margins with, you know, the shift in promo activity? Looks like, you know, when you go top of funnel, bottom of funnel, we can certainly understand how you would get an increase in volume. But at the same time, you’re managing a balance sheet and margins. So can you just talk about the calculus there?

Wendy Davidson: Yeah. We’ve said before that we felt good about the amount of money that we have allocated for marketing spend. That we needed to shift to more effectiveness. So working versus nonworking and spend it better with better effectiveness before we simply increase that spend. So what you’re seeing us do is actually shift from what I would say were more awareness driving activities to more conversion type activities but inside the envelope of our normal spend within marketing. So just driving effectiveness first and foremost.

Kaumil Gajrawala: Okay. Understood. And is this when we think about some of the, I guess, some of that slowdown or some of that pivot, sort of what was maybe the logic on having sort of the pendulum more on the awareness side and now moving it to the conversion side. Maybe the logic for the awareness piece. Initial.

Wendy Davidson: Yeah. I would say that a year ago, the belief was that we needed to drive greater brand awareness around our three primary snack brands. So that was the biggest challenge that we had, driving both distribution and awareness. We’ve had a really good run on picking up distribution. In quarter two, we picked up substantial distribution gains coming in the back half that were either known distribution gains shift in promotional activity, known innovation launches, or incremental distribution gains, especially in the value channel and in convenience stores. What we learned though last summer when we did remember we that was first multi-brand promotion that we did, the Savor Your Summer promotion. What we found from that was that we were driving awareness where we already had high brand awareness.

And in Garden Veggie, we actually have the top household penetration of better for you snack brands. So our issue isn’t that consumers know the brand, it isn’t that consumers are regularly buying the brand. It’s the frequency they’re buying it and are they buying it for whole family or are they buying it just their kids. So we needed to drive more occasion-based marketing and more conversion marketing and really lean into social. Especially in better for you brands and in more nimble social activation is much more effective than is leaning into that kind of strategic agility.

Kaumil Gajrawala: Got it. Thank you.

Wendy Davidson: Your next question comes from the line of Matt Smith with Stifel. Please go ahead.

Matt Smith: Hi. Good morning, Wendy and Lee. Thank you for taking my question. When it comes to the second half organic sales pivot, you called out initiatives across the major product categories. If we look at just the US business, would you expect growth organic top-line growth in the second half to be broad-based as you benefit from formula distribution, snacks distribution in the promotion shift. And you have the recovery in the beverage supply chain. Are there categories or some of those categories where you’d call out more confidence in that pivot to growth or more risk?

Wendy Davidson: I think there is I’ll start, and I’ll let Lee add a little bit of color behind it. But we’ve talked before about full recovery in infant formula as of December we’ve actually had a really nice pickup in distribution and we’ve said before that our velocity. You have a very meaningful pivot in Earth’s Best in the back half from the front half. In snacks, we’ve talked before about the distribute or the promotional activity that shifted from quarter one into quarter three and quarter four. So that is also a very meaningful shift in just the optics of the year. I think with beverage, in both international and in the US, business there’s incremental activity promotional activity, innovation, and then the branding work that you’ll see drive some growth.

And then we have the continued success in our soups category across all three brands in international and then our U.S. brands that continue to grow. I would say those are probably the biggest drivers. And then the last, I would say, is Greek yogurt. We had a shift in customer distribution earlier last year and we’ve lapped that now. So now the increased distribution we’ve seen in other customers, you now start to see that play out and the velocities are very strong in that brand.

Lee Boyce: Yeah. And I guess just supporting that. So, you know, despite the challenges in Garden Veggie and Terra brands, we did see mid-single-digit distribution growth. So as we look forward, you know, we’ve got accelerated performance, you know, driven by the expanded distribution, innovation launches, and then increased promotional activity. In baby and kids, and we talked about baby and kids, you know, repeatedly on prior calls, though, you know, we have seen the supply fully recovered, and we expect to see the second half it continued distribution gains and an increased marketing environment. On beverages, we did actually have some short-term challenges there. We resolved them. Companies leaning into the marketing on taste and wellness through the new master brand campaign. And then as Wendy mentioned on meal prep, I mean, we’re seeing really good trends, increase household penetration on Greek Gods, you know, good momentum on the international side as well.

Matt Smith: Thank you. And as a follow-up, the initiatives you’ve taken on the personal care business have gotten that to the business to a place where you’re now able to undergo a strategic review there. I’m curious if the learnings through that process if you’re at a point where you can look across your portfolio and see opportunities for similar actions across other product categories or geographies. And if that’s part of the shift in the Hain Reimagine organic sales target where you’re now moving to more of an exit rate rather than a sales growth rate across the period?

Wendy Davidson: I would say from day one of Hain Reimagine, we, in the focus pillar, had identified that we needed to appropriately drive an intense focus on stabilization of particular parts of the portfolio. And once those businesses were stabilized, we would then determine where in the portfolio they fit or if they fit somewhere else outside of the company would be a better place for that. And you’ve seen us do that. Over the last year and a half, we moved non-dairy beverage from stabilization into our maintained categories. Instant formula up until this quarter we had in stabilized. It’s we needed to get the supply and the overall recovery of that. We’ve moved that back into grow in Earth’s Best. We have some of our snack brands and some of our personal care brands that we divested.

They were in stabilized and then we divested of those. And now the personal care portfolio margin expansion is actually ahead of where we expect it to be and significant slide that the team have done to tighten up the footprint, tighten up the SKU mix and portfolio and really improve the overall shape of that business, the divestiture of that will allow us to be a pure play food and beverage company in better for you. And so I think we will always evaluate parts of the portfolio that are below our algorithm either in top line or in margin. And decide what is the best way for us to improve the overall shape of those businesses whether that’s in our portfolio or somewhere else.

Lee Boyce: And I guess just both just as a tiny piece. I mean, you know, and we’ve said this before. I mean, we believe we’re in the right geographies. And in the right category platform. So I guess to Wendy’s point, we will continue just to look just to continue to optimize you know. And then in terms of stabilized right now, I mean, it’s about 10% of our portfolio is still sitting and stabilized. So we continue to assess it.

Matt Smith: Thank you. I’ll pass it on. Thanks.

Wendy Davidson: Your next question comes from the line of Michael Lavery with Piper Sandler. Please go ahead.

Michael Lavery: Thank you. Good morning.

Wendy Davidson: Good morning.

Michael Lavery: You’ve touched a lot on distribution gains and how important that is. But then in snacks in the second quarter, you already had mid-single-digit gains. And so maybe can you just help us understand a little more clearly what’s different about the expected gains versus what you already had in hand because obviously, the sales declines accelerated this.

Wendy Davidson: Yeah. The issues we had in snacks in quarter two were less about distribution absolute points of distribution because we continue to grow those. It was the velocity on shelf where the real driver was. And that’s where marketing activation and effectiveness and promotional activity play such a key role. So that’s why in the back half the continued growth in distribution is a good thing. But even more important is the promotion display, shift in marketing activation, and driving purchase activity will be that much more important in driving the turnaround in snacks.

Michael Lavery: And then just to maybe unpack that a tiny bit further, obviously, the promotional activity usually has a pretty quick consumer response where some of the marketing execution can build more over time. How should we think about as you mentioned some of the ways you wanna kinda pivot the marketing approach, how quickly do you expect to get to see results there? Does social media have a quicker response time than kinda historically, but, you know, other marketing approaches? Or is that really kind of a little bit of a longer-term build too? So that we shouldn’t expect anything too quickly?

Wendy Davidson: You will see some improvement in absolute growth of snacks in quarter three. The distribution gains will be a benefit and the promotional activity will be a benefit. To your point around social, we will see that continue to build. Especially as we have an always-on social activation rather than always-on traditional media. But you’ll see that build over time. But I think that the absolute distribution gains and the absolute promotional activity will be a bigger driver for us in quarter three and quarter four.

Michael Lavery: And maybe just lastly, a quick follow-up on the distribution center you the press release on, I think, a week or so ago. Any sense of the magnitude of savings that might generate for you?

Wendy Davidson: I don’t think we’ve quantified it. I would say it falls within the overall margin expansion goals that we outlined in Hain Reimagine. Remember, we said had about an 800 basis points disadvantage to industry peer benchmarks. We established a 400 to 500 basis point around cost reduction through the Hain Reimagine plan. And that’s part of what will be included in that sort of overall. I would tell you I think the bigger benefit is the fact that it allows us to be a better partner to our market so we can have speed to shelf. So as volumes peak, as we have peak promotional periods, we were, in some cases, three or four days from resupply to some of our key markets. So now having distribution nodes in all the various parts of the country allows us to be a better partner to our customers.

Michael Lavery: Okay. Thanks so much.

Wendy Davidson: You bet.

Operator: Your next question comes from the line of Alexia Howard with Bernstein. Please go ahead.

Alexia Howard: Good morning, everyone.

Wendy Davidson: Good morning.

Alexia Howard: So the first question is really about what indications you’re perhaps already seeing in the marketplace to show that this pivot in promotional and marketing spending in snack is working. We’re already about five or six weeks into the third quarter. Are you seeing evidence that the new pivot is actually working on the top line?

Wendy Davidson: We are seeing improved consumption trends in market.

Alexia Howard: Okay. And then secondly, on the distribution announcements that you put out a few days ago, that sounds like a fairly significant in delivery route mileage of 66%, and it seems as though it’s opening fairly quickly. Is that gonna have a material impact on productivity improvement, cost savings in the back half? And are there other benefits in terms of service levels and so on that that’s new distribution center could bring? Thank you, and I’ll pass it on.

Wendy Davidson: It absolutely has a twofold impact. It is a part of our productivity outlook and as we’ve said before, the back half margin expansion is largely driven by both the pivot to growth but also by our productivity pipeline. The team have a very good track record in delivering the productivity pipeline and we are in a good place as we go into the back half of this year. This distribution expansion is a key part of that as well. So it ties into that pipeline. More importantly, it will improve our speed to shelf and our fill rate on shelf with our customers. And as we lean into really trying to be our customer’s preferred partner in better for you brands, this is a great opportunity for us to be better positioned by having product resupply within one or two days of our customers rather than three or four.

Alexia Howard: Great. Thank you. I’ll pass it on.

Operator: Your next question comes from the line of Andrew Wolf with CLK. Please go ahead.

Andrew Wolf: Thanks. Good morning.

Wendy Davidson: Morning.

Andrew Wolf: Continue on hype. The North American snacks weakness in the quarter. Could you discuss, like, to what extent if any, you know, the category captain issues that you discussed, that occurred last quarter. I’m not sure if it resolved yet. Impacted the sales there. I think that was it. At your largest customer. Has the category been reset? And when would that be reset?

Wendy Davidson: It absolutely had a material impact on that particular account. Because of shelf placement, but also assortment it impacted the velocities in that large retail partner. Those will be resolved in the resets that happened inside this quarter. But we did have some incremental promotional activity with them for New Year, New You as a potential ramp-up into those store resets, but you should see those resets as we hit the latter part of this quarter. That gives us confidence as we go into quarter four.

Andrew Wolf: Okay. Now the vendor who ran the camp, who was responsible for the category captaincy. Has that vendor or anyone else haven’t done a copycat type of product due to the flavor burst? Just out of curiosity.

Wendy Davidson: We have not actually seen anyone try to replicate flavor burst. We actually have two new flavors. One is an exclusive with one customer that launches this quarter. We have another variant that actually launches in this quarter as well. So stay tuned for now for flavor variety, the flavor burst. I think I mentioned in the prepared remarks that it was named the top new product in the tortilla category by Newsweek.

Andrew Wolf: Okay. And just last thing is on Celestial, the ingredient shortage. Could you give a little more background on that and why it’s fixing? Was that the market or did you maybe go to single source there and you know, yours just sort of what occurred and why that’s is there any prophylactic issue with it? Do you have to go to double source or something? Or is it more just something happened in the market with a certain ingredient?

Wendy Davidson: It actually wasn’t in market. I would tell you that it was actually an internal execution mistake. It’s a long lead time ingredient. That enough wasn’t purchased to have on hand. And as demand picked up at the start of tea season, we were unable to source the ingredients fast enough to be able to resupply. I would say that as of the end of December, we were back in supply of that ingredient and we’re able to then reap pipe into the marketplace on Celestial Seasonings tea. So it was a short-term blip, it impacted quarter two. But it isn’t an ongoing concern.

Lee Boyce: Yeah. We have put additional steps in to mitigate the risk in the future.

Andrew Wolf: Okay. Thank you. Appreciate it.

Operator: Next question comes from the line of Jon Andersen with William Blair. Please go ahead.

Jon Andersen: Yeah. Good morning, everybody.

Wendy Davidson: Good morning.

Jon Andersen: Wendy, when you talked, during your at the top of your prepared comments, about better for you as a tailwind overall in food and referenced the kind of ingredient profile of your products. And I think for the first time really call that also, you know, GLP ones. I’m just wondering if you could tell us a little bit more about how you view how you’re defining kind of better for you within the context of your portfolio. And what that’s doing or not doing perhaps to shape your perspectives on innovation and messaging importantly to the consumer. Also throwing the GLP One angle in there as well. Thanks.

Wendy Davidson: Yeah. Absolutely. This is one that I think we’ve mentioned before that we started a piece of work about a year ago with consumer research to really understand what consumers were looking for and better for you. Because we continue to say that we’re a leader in better for you, we believe in healthier living but we wanted to make sure that we had real science and real consumer insight to back. We learned from that very clear attribute the consumer was looking for. They don’t wanna sacrifice taste. They don’t wanna sacrifice convenience. They don’t wanna sacrifice availability and affordability. They don’t want pure health, but they do want healthy nudges. So it is a presence of positive and a little bit of a nudge down of the negative.

And so we will be really relooking at our portfolio through that lens to ensure that our products are providing a better than what option to items that consumers would want in their pantry, and regular part of their diet routine. So we think that we have products that actually taste as good. They are as convenient. They are available for consumers without having them have to sacrifice good health and good ingredient profile. We 100% of our North American portfolio is has an absence of any artificial flavors or colors. And our international portfolio is 95%. We have a few artificial sweeteners and some products which will actually be removed over a period of time. So we really are going to lean in do better for you and positives for the consumer without sacrifice.

As it relates to GLP-one, it’s almost like every other diet. Keto, high protein, gluten-free, dairy-free, etcetera, consumers have particular needs and we wanna make sure that it is easier to shop our portfolio to make it easier for them to eat without sacrifice for whatever diet they’re on. As we’ve worked with our experts to look at our portfolio through the lens of the GLP-one diet, what products do we have that are ideal for that first three months of GLP-one what are products we have that are really good for in the middle, and then what are those products that are ideal for maintaining and we will message openly to the marketplace to make it again easier for consumers be able to be on whatever diet they’re on and Hain will be there to help support their healthier living.

Jon Andersen: Great. Thanks. I guess, you know, I think you’ve done a good job of explaining, you know, a lot of the execution-related matters, both external, internal, that are leading you to kinda revise your outlook on the top line for the current fiscal. But the you know, what are we to make of the revision to kind of the long-term algo on the top line? What are you maybe trying baking in there and what are you trying to kinda maybe communicate from an expectation standpoint that, you know, we may not get that kinda three percent plus run rate until, you know, we’re exiting fiscal twenty-seven.

Wendy Davidson: Yeah. I would say and you’ve been really good as well as investors and asking me the question of so as you go along and, Hain Reimagine, what have you learned? What’s working? What’s not working? How is that adapting as you go? Made in the portfolio but also. And as we’ve looked at both the changes we execution challenges and then importantly, the macro environment we have tweaked some expectations around part of the portfolio based on that. Still believe very strongly in our fuel delivery. We feel very strongly in the focus initiatives we’ve announced to date and the focus initiatives that we are exploring. We also feel very good about the margin expansion in the future. I would say we are ahead in productivity pipeline in supply chain particularly in procurement and in our operations.

We are behind where I would have expected us to be in revenue growth management and you’ll see us aggressively leaning into that around price back architecture, pricing, trade effectiveness, and trade promotion. We’re doing well in overall marketing awareness of our hero what we call our hero brands. I would say we’re doing improvements based on learning to drive real execution of marketing into conversion and purchase. And we are doing a fantastic job on the commercial side in building an improved relationship with our top customers. That I feel confident will lead to better outcomes as we go forward. But I think we’ve tried to then build an outlook that is acknowledging the areas that are taking longer to two times. While at the same time the areas that are continuing to deliver while as Lee said our exit rate at three plus doesn’t mean that we won’t get there before then.

It’s just us trying to set an expectation at a rate basis on an annualized number rather than a CAGR over the life of Hain Reimagine. So I would view it two thousand.

Jon Andersen: Okay. That’s helpful. I know you asked for two questions. I’m gonna try and squeeze in a third if I could. I’m just back of the envelope math. It looks like again, we may be off on this, but it’s the guidance for fiscal twenty-five on the top line almost calls for flattish kind of organic in the second half of the fiscal, I guess, depending on where you come out of the range. So I guess my question is on the pivot to growth in the second half. You know, what that really means? Does that mean on a full second-half basis? Does it mean you pivot somewhere in the quarter? Or in the second half, meaning maybe the third quarter is flatter down and the fourth quarter is up? Just some more help with the cadence of this. I think from a modeling perspective, is really important at this point.

Wendy Davidson: Yeah. I’ll let Lee answer this specifics, but I would say we’re looking at it and the range is pretty wide as you can tell because we’re acknowledging the challenges in the front half and the macro environment, we’re not assuming that we will cover all of the challenges in the front half, but we will pivot to growth in the back half on a full back half basis. And I’ll let Lee talk to the.

Lee Boyce: Yeah. And, I mean, you know, we’re looking to pivot, as I said earlier, in q three. So you can kind of you know, we wanted to give guidance again on the overall back half, but we are looking to pivot to the growth in q three time frame.

Jon Andersen: Great. Okay. Thanks, John.

Operator: Your next question comes from the line of John Baumgartner with Mizuho Securities. Please go ahead.

John Baumgartner: Good morning. Thanks for the question.

Wendy Davidson: Good morning.

John Baumgartner: I wanted to come back, Wendy, to the macro environment. Some clarification there. It sounds as though Better for You continues to outperform. And, you know, one of Hain’s merits is the skew towards higher income households. So are you seeing some incremental headwinds for this higher income group at the shopper level, or is the macro commentary directed more at sort of, like, the retail category competition at the shelf?

Wendy Davidson: I think it’s more acknowledging that in general, there’s a lot of volatility right now. In consumer sentiment in general and in the marketplace. And so we’re trying to be fairly cautious related to that. What we are seeing and probably the same thing you are is this real buy for consumer. That at the high end, we’re seeing premium and super premium continue to grow. And then we’re seeing on the low end value and value channel and discounters as well as value products continue to grow. It’s that middle that’s really gotten squeezed in general, and that’s more of a general comment, not just specific to the Hain portfolio and so as we look at our portfolio we tend to play at that entry price point to premium, which we think is an ideal position.

We think the consumer tailwinds as it relates to better for you and health concerns are a real tailwind for Hain and we as we’ve leaned into making our products more accessible and available to more people, you’ll see our distribution gains in the discount channel and in the value channel as well as driving distribution and growth online. Will continue to help us meet the needs of both consumers at all value price points.

John Baumgartner: Okay. And for my follow-up, I wanted to come back to the comments on ingredients. And I understand Hain’s point of differentiation for clean ingredients, the red number three, and so on. But in an environment with a regulatory backdrop, let’s say, Titan, you have larger companies required to eliminate more of these artificial either by government directly or by consumers indirectly, I think that would, you know, sort of narrow the playing field a bit and dilute Hain’s differentiation on the shelf for quality. How do you think about the playing field potentially changing on the ingredient side? And how would it maybe require Hain to pivot or adjust in terms of how to differentiate in the future?

Wendy Davidson: Well, I would hope that more companies are leaning into those ingredient claims. So I’m not viewing free from as a moat that we want to maintain. I’d like everybody to move in that direction. Especially as a company that believes in inspiring healthier living. But we are ahead. And we think that we have brands that deliver on great taste and convenience. And our goal is to drive greater availability of those as the and improved ingredient profile for all. Makes it easier for all.

John Baumgartner: Okay. Thank you.

Operator: Your last question comes from the line of Anthony Vendetti with Maxim Group. Please go ahead.

Anthony Vendetti: Thank you. I know it’s been, like, a little over an hour, so I’ll just just a very high-level question. I guess related to an earlier question, Wendy. I just as you move into the second half, and I know we’ve talked about that a little bit, but know, if you had a talk about and there’s lots of variables. Your level of confidence, are you highly confident that with these reduced expectations, you can hit sort of the guidance you have out there for the second half? And if you are highly confident, what are the I guess, if you could foresee or you know, sort of look at the second half challenges. What would be the one thing or couple things that could, you know, make the second half not as strong as you think it could be.

Wendy Davidson: I believe that we have set the right guidance for the things that could go well and the things that could be a risk in the back half. I think we’ve given the appropriate range. I feel very confident about our Earth’s Best and Ella’s Kitchen. So the baby category, I feel very confident in the beverage category as we go into back half. Soup. In the international business. I would say where I am cautious is in snacks. We have very good distribution gains and assortment gains in the back half. But we definitely need to see the improvement in productivity of our marketing actions play out. And I think we’ve built that into our outlook for the back half. To appropriately account for that.

Anthony Vendetti: And then just a quick question on personal care. Obviously, that was very weak this quarter. When did you decide or, you know, make say she’s looking for strategic alternatives. And how far along is that? Is that process just starting? And do you think that will take six months, a year, or are you aggressively trying to figure out what to do with that? Thank you.

Wendy Davidson: Yeah. Well, first, I would wanna say, remember in quarter two, some of the impacts in personal care relate to the SKU simplification but for SKUs that don’t get organic treatment. So there is a disproportionate impact on the personal care portfolio optics because of some of that SKU cleanup that doesn’t get reversed out for organic treatment. That said, we feel really good that we’ve stabilized the top line, that we have done a nice job in expanding the margins in that business. Is in a better shape for us to be able to explore optionality. We began the process actually in quarter two. We have engaged the bank to begin moving forward with that. We would hope to be able to execute that inside the fiscal year, but you know how those things go so we’ll see how that plays out. In the meantime, we are 100% focused on continuing to run that business well to execute well with our customers and take care of those brands.

Anthony Vendetti: Okay. Thanks very much. I appreciate it.

Wendy Davidson: You bet.

Operator: We have no further questions at this time. I will now turn the conference back over to Wendy Davidson, CEO, for closing remarks.

Wendy Davidson: Yeah. I really want to reiterate my thanks and appreciation to our Hain team, to our supply partners, and to our customers. As we said, we don’t believe that better for you means you have to sacrifice flavor, convenience, availability, or affordability, and we look forward to working together to inspire healthier living. Thanks for this morning.

Operator: Ladies and gentlemen, that does conclude today’s conference call. Thank you for your participation, and you may now disconnect.