The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q3 2024 Earnings Call Transcript

The Hain Celestial Group, Inc. (NASDAQ:HAIN) Q3 2024 Earnings Call Transcript May 8, 2024

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: Good day, everyone, and welcome to the Hain Celestial Fiscal Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Alexis Tessier, Vice President of IR. Please go ahead.

Alexis Tessier: Good morning, and thank you for joining us on Hain Celestial’s third quarter fiscal year 2024 earnings conference call. On the call today are Wendy Davidson, President and Chief Executive Officer; Lee Boyce, Executive Vice President and Chief Financial Officer; and Chad Marquardt, President, North America. 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 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. Please note that remarks made today will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to the nearest GAAP results are available in the earnings release and 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. At Investor Day in September, we laid out the 4 priorities underpinning our Hain Reimagined strategy: one, to focus and simplify our portfolio and footprint; two, to deliver cost savings via fuel to expand margins and invest in our business; three, to build the capabilities needed to drive scale; and four, to grow in our core categories and brands. Today, you’ll hear about the progress we’ve made on the focus and fuel pillars of our strategy, which have been our first priorities in this foundational year, unlocking efficiencies in our P&L. Under the build pillar, you’ll hear how we are investing in capabilities to accelerate our return to growth.

And under the grow pillar, you’ll hear more detail about how each of our categories are performing. You’ll also hear that our starting point in some areas was less developed than we initially anticipated, requiring a heavier lift and causing the pivot to growth to take longer than expected. While we are disappointed in top line results in the quarter, we are pleased to deliver continued margin expansion and momentum in adjusted EBITDA delivery, free cash flow and net debt reduction. The proof points that I’m sharing today reinforce our confidence in our ability to achieve the financial algorithm outlined with Hain Reimagined in September. Under the focus pillar, we said we would focus on 3 initiatives to simplify our business. Creating a winning portfolio, consolidating our footprint and integrating our global operating model.

First, as we shared last week, we have removed underperforming SKUs representing 6% of items in our global portfolio. This includes the previously announced sale of the Fenster brand in Snacks, the streamlining of our plant-based meat-free portfolio in Meal Prep and additional refinements in Baby and Kids and beverages as part of ongoing brand maintenance. The largest portfolio reduction is in personal care, where we are removing underperforming SKUs, representing 62% of items or 30% of net sales in the category, enabling us to focus on driving stronger velocities within the core assortment, reducing unnecessary complexity and delivering margin expansion. Second, we have streamlined our operating footprint to leverage synergies across the business and drive scale as we focus on our five core geographies.

We announced the consolidation of our personal care manufacturing footprint, reducing our number of Hain facilities from two to one and eliminating 60% of our co-manufacturers from the personal care network. We also announced that we ceased all production and operations within our nonstrategic joint venture in India and will be servicing the EMEA market via distribution model. These focused initiatives will drive increased capacity utilization and lower costs. And third, we have made tremendous progress on our global operating model, transforming the company into a truly integrated enterprise. Historically, Hain has operated as a collection of siloed entities without a common operating model, systems or processes and without leveraging global capabilities.

Over the course of the year, we have created the foundational building blocks that will result in a more proactive and resilient growth-driven company. We have established functional centers of excellence across end-to-end supply chain, procurement, R&D, quality, IT, HR and finance to both drive synergies and leverage scale, and we are beginning to see results. Our work in end-to-end supply chain effectiveness has resulted in improved reliability and service levels. For the third quarter, Hain in-stock rates were over 94%, increasing 130 basis points from quarter 2 and 400 basis points better than our peer set. This is a significant improvement and positions us better to partner with our customers, expand distribution and ensure reliable supply to invest in promotional and customer support.

Moving on to our fuel pillar, where we have made significant progress in unlocking cost savings through revenue growth management, working capital management and [Technical Difficulty] driving better net price utilization and promotional effectiveness. We are beginning to see this progress show end market in the U.S. with our promotional list improving in quarter three over the prior quarter in salty snacks and Meal Prep, in particular yogurt, soup and nut butters. On working capital management, we have leveraged new digital technology and improved processes to reduce inventory level by nearly 10% year-to-date and extend days payable outstanding by 9 days. And we are driving end-to-end operational efficiency to sourcing and productivity initiative, putting us on track to deliver $61 million in productivity for the year.

These efforts have enabled us to expand margins and deliver strong cash flow while both offsetting inflation and investing in capabilities to enable our pivot to growth. When we announced our transformation strategy, we highlighted our 5 focus categories where our leading brands have an opportunity to drive greater awareness, reach, penetration and share. And we said we would drive more effective mix of working versus nonworking investment to get better before we increased our marketing spending. For the third quarter, we increased our marketing slightly as a percent of revenue with a priority focus on snacks, beverage and baby with continued support for this category, in particular, to support sustained category leadership in the U.K. Our brand building investments in the Celestial Seasonings brand are driving household penetration, share growth and velocity gains in our top retail and e-commerce partners, and we are seeing momentum with successful innovation launches, including Garden Veggie flavor and Celestial Seasonings Sleepytime with melatonin and Throcooler and the new Earth Best Immunity Boost In addition, we are progressing our channel expansion strategy in margin-accretive channels.

Year-to-date, Away-From-Home revenues have grown 13% in North America and 8% internationally. And as you see on the slide, in the third quarter, we drove dollar share shift in channel mix to food, convenience, mass and e-commerce. As for the grow pillar in the last call, we said we expected to pivot to growth in the overall business for the back half of this fiscal year and 85% of our business has grown over 3% year-to-date, in line with our Hain Reimagined growth algorithm. Offsetting this growth are double-digit declines in the remaining 15% of our business, which is targeted for stabilization, including baby formula. Specifically, in the third quarter, softness year-over-year was driven by the U.S. region, primarily by the personal care category where we recently announced significant portfolio and manufacturing footprint simplification as a part of the stabilization plan.

In addition, we faced continued challenges in our infant formula supply driven by Perrigo’s operational shutdowns to ensure their ability to meet FDA guidelines for safe and assured supply. You’ll recall that in February, we stated that we had received a commitment to rebuild our formula supply in the second half of fiscal 2024. While we understand Perrigo’s interventions and investments to drive quality controlled and reliable manufacturing, these actions and corresponding allocation of supply have had a material adverse impact on our business. We have been working closely with Perrigo to ensure we recover as quickly as possible to meet the needs of the consumers who love our Earth’s Best brand. they are committed to a full recovery beginning in the second half of 2024.

We believe these 2 issues are short term in nature and are working swiftly to correct them. Let’s review our brand and category performance. As I mentioned, in aggregate, our grow and maintain brands, excluding formula, which together account for approximately 85% of our revenues year-to-date are growing. Net sales were up 1% in the third quarter. Our stabilized brands, along with formula, are the source of the softness with net sales down 25% in the quarter. As a reminder, the grow category should expect to receive disproportionate investment and deliver better than category growth and share gains. Maintain businesses are an important of our portfolio, but do not require outsized investments to enable their growth. And those businesses ring-fenced and stabilized are both underperforming and require focused effort to stabilize and provide optionality.

Once stabilized, we will determine where and if they fit within the Hain portfolio. In snacks, net sales for the third quarter were essentially flat year-over-year, which is an improvement from the second quarter. The main driver of the improvement was strength in Garden Veggie and the successful Flavor Birth Innovation launch, which is still ramping up. Offsetting Garden Veggie strength with softness in Terra as it is taking longer than expected to expand our channel mix outside of prior concentration in a low-margin channel. As we build upon the brand, we know the Terra consumer loves this product. and the brand is without a clear substitute. Our investments in supply chain capacity now put us in a comfortable position to leverage that brand love with expanded distribution.

Driving distribution expansion remains a key strategy for growth in snacks. We have identified significant fair share opportunities by driving the core assortment of our products, and we believe we are in a position to fix our mix to unlock both distribution and velocity across our brands. This summer, we will leverage our better-for-you snacks portfolio of brands in our Savor Year Summer Snacking promotion our first-ever national multi-brand merchandising program. In Baby and Kids, net sales were essentially flat year-over-year, excluding formula. Despite the challenges of formula supply, we continue to see strength in our baby business, where we have leading brands in Earth Best and Ella’s Kitchen. In fact, Earth’s Best grew dollar share in the quarter in natural cereal, pouches and toddler snacks, and distribution was up double digits versus a year ago.

In the U.K., Ella’s Kitchen is the clear leading brand, and we have had success leveraging our global baby category teams to share insights, innovation and commercial strategies across both of our brands with a robust opportunity pipeline for fiscal 2025. The beverage category continued its positive momentum with third quarter net sales of high-single-digits year-over-year, our fourth consecutive quarter of growth. Growth has been driven by both Celestial Seasonings Tea and non-dairy beverage. Within Celestial Seasonings, we are outpacing the category in gaining share due to the lastly gains and brand building and end market data shows our promotional list on tea is outpacing the category in the quarter. Non-dairy beverage have continue to deliver growth led by own label and the Natumi and [indiscernible] brands in Europe are focusing on innovation.

The non-dairy beverage market and our core geography is an attractive space with strong consumer demand in overall category growth, up mid-single digits in value and low double digits in volume. And we are adding shifts to meet new contracts and increase demand. Our success in non-dairy veverage is an example of progress from the end-to-end rigor applied to our stabilized brands. From supply chain reliability to portfolio optimization, brand building innovation, and channel expansion, this coordinated effort is enabling us to shift the non-dairy beverage business from the stabilized category and into maintain, and we are well positioned in branded and own label to drive growth. Meal Prep net sales declined low single digits in the quarter, primarily driven by plant-based meat-free.

While the overall plant-based meat-free category is still struggling in the market, the Eves brand in Canada continues to outperform the category and gain share. For the Linda McCartney Foods brand, we have made both portfolio and operations changes to reduce costs and increase efficiency. In contrast, soup continues to be one of our best performing categories with strong growth in our branded soups in both the U.K. and in North America. And finally, net sales and personal care. Our smallest category declined over 30%. Our brands have struggled with over proliferation of SKUs across many subcategories that simply haven’t been productive for either our retail partners or Hain. We are hyper-focused on the execution of our stabilization plan. This shrink to grow turnaround plan is expected to add 11 points to gross margins and provide overall business optionality going forward.

While stabilization is taking a bit longer than initially expected, it does not change our near-term strategy. As you can see, we have taken a number of actions to deliver progress towards our Hain Reimagined goals. We set a high bar for change for ourselves when we announced our strategy in September. And while we may not be where we expected to be at this time, we are confident. [Technical Difficulty]

Chad Marquardt: I’ve also had the opportunity to meet with some of our largest customer partners to understand what is working and what we need to improve upon to enhance our strategic partnerships. I’ve seen the strength of our brands with consumers, but that we need to make them more available whenever and wherever they are shopping. And we need to drive household penetration with messaging and marketing that is disruptive and delivers on our potential as a challenger in our categories. As our brands grow, we will help our retail partners grow through insight led solutions and the creation of stronger partnership and performance. I’m incredibly excited for the opportunities we have before us. We are an organization that can drive the capabilities and power of a scale enterprise, but with the agility and creativity of challenger brand companies.

Our teams are focused on driving first-to-mind, first-to-find in all that we do to drive awareness and expanded distribution. We will bring the magic of Hain to life for our consumers who love our brands and with our customers who will help us meet the needs of making better for you available and within arm’s reach of our shoppers. To unlock our team’s full potential, we have already initiated several new work streams designed to accelerate our performance, continue our productivity efforts with RGM, and elevate our engagements with our consumers and our customers. I’m thrilled to be a part of the Hain Reimagined journey and I look forward to sharing our success with you into the future. And now I’ll turn it over to Lee.

Lee Boyce: Thank you, Chad, and good morning, everyone. Despite strong progress in the focus and fuel pillars of Hain Reimagined, Q3 results fell short of our expectations. While the pivot to growth is taking longer than anticipated, we are pleased with our free cashflow generation, gross margin expansion and improvement in leverage as we continue to prioritize the reduction in debt. Let’s look at the quarterly results in more detail. Consolidated net sales for the third quarter were down 3.7% year-over-year to $438 million. Organic net sales for the third quarter, adjusted to exclude the effects of divestitures and discontinued brands, also decreased 3.7%. Organic net sales growth in the third quarter reflects a 1.3 percentage point benefit from foreign exchange.

The decrease in organic net sales was driven by lower sales in the North American segment, partially offset by sales growth in the International segment. Key factors driving the decline in North America were personal care and baby formula, as Wendy discussed, representing drags on consolidated organic net sales of approximately 310 basis points and 50 basis points, respectively. We delivered third quarter adjusted EBITDA of $44 million, up 17.5% year-over-year. Adjusted EBITDA margin was 10%, representing a 180-basis point increase versus the prior year. Adjusted gross margin was 22.3% in the third quarter, increasing approximately 90 basis points year-over-year. The increase was driven by productivity and pricing on the success of fuel and revenue growth management initiatives, partially offset by deleverage on lower sales volume, mix and cost inflation.

SG&A decreased 11.1% year-over-year to $67 million, representing 15.2% of net sales for the quarter as compared to 16.5% in the year ago period. The decrease was driven by a reduction in the accrual for our incentive program. Excluding the reduction, SG&A as a percent of net sales would have been roughly flat year-over-year as cost optimization and the realization of operating model savings offset inflation. During the quarter, we took charges totaling $10 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, $2 million were noncash. Year-to-date, we have taken $50 million in charges, including $26 million in noncash charges of the expected $90 million to $100 million total for the restructuring program.

These charges are excluded from adjusted operating results. Interest costs rose 5.3% to $14 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. These factors combined to produce net loss of $48 million or $0.54 per diluted share compared to a net loss of $116 million or $1.29 per diluted net share in the prior year period. Adjusted net income, which excludes the effect of restructuring charges amongst other items, was $11 million or $0.13 per diluted share versus $7 million or $0.08 in the prior year period.

Turning now to our individual reporting segments. In North America, reported net sales decreased 6.5% year-over-year to $268 million. The decrease was primarily driven by a decline in the Personal Care business, which represented a 480 basis point drag on North America sales and lower sales in baby formula which was a 70 basis point drag. This was partially offset by growth in beverages. Third quarter adjusted gross margin in North America was 22.2%, a 40 basis point increase versus the prior year period, driven by productivity and pricing on the success of fuel and revenue growth management initiatives, partially offset by cost inflation and deleverage on lower sales volume. Adjusted EBITDA in North America was $28 million, a 2.5% increase year-over-year and adjusted EBITDA margin was 10.4%, a 90 basis point increase.

The year-over-year improvement resulted primarily from lower SG&A partially offset by lower volume and inflation. In our International business, reported net sales grew by 1% to $170 million. Organic net sales growth was also 1% in the quarter. This reflects 3.4 percentage points of growth from FX. As Wendy mentioned, demonstrated growth in the quarter. This was offset by continued softness in plant-based meat free, a stabilized business in our Meal Prep category. International adjusted gross margin was 22.4%, up approximately 180 basis points year-over-year, driven by pricing and productivity, partially offset by deleverage on lower volume. International adjusted EBITDA was $25 million, a 15.4% increase year-over-year, driven primarily by pricing and productivity, partially offset by lower volumes.

Adjusted EBITDA margin was 14.4%, up approximately 180 basis points. Shifting to cash flow and the balance sheet. We generated third quarter cash from operating activities of $42 million versus $29 million a year ago. The increase resulted from working capital management initiatives. Our days payable outstanding improved to 46 from 37 in fiscal year ’23 and our days inventory outstanding improved to 77 from 82 in fiscal year ’23. While we still have a long way to go to reach the targets set out in Hain Reimagined of 70-plus days payable outstanding and 55 days of inventory on hand by fiscal year ’27, we are pleased with the progress we are seeing. CapEx was $12 million in the quarter, and we continue to expect expenditures to be in the mid-40s for fiscal year 2024.

Finally, we closed the quarter with cash on hand of $50 million and net debt of $728 million, translating into a net leverage ratio of 3.9x as calculated under our amended credit agreement. We drove leverage lower than expected due to better cash flow and momentum from our fuel initiatives. We expect our net leverage to tick up modestly in the fourth quarter and the first quarter of fiscal year ’25 before ending fiscal ’25 in the high 3s. We are comfortable we have plenty of headroom under the existing covenants. Paying down debt and strategically investing in the business continues to be our priorities for cash, and we have reduced net debt by $47 million since the beginning of the fiscal year. Our long-term goal remains to reduce the balance sheet leverage to 3x adjusted EBITDA or less.

Turning now to our outlook. We have made solid progress under Hain Reimagined, particularly in the focus and fuel pillars. However, the pivot to growth which we are actively addressing is taking longer than anticipated. The largest driver in our outlook revision is the fact that our infant formula supplier did not deliver upon their commitment. In addition, while our performance in the snacks categories continued to improve sequentially, execution in snacks distribution expansion has been short of expectations. Lastly, stabilization in Personal Care is taking longer than expected, and we are aggressively taking action to simplify our portfolio and operating footprint. Taking these factors into consideration, along with performance to date, we are adjusting our guidance for the full year.

Our revised fiscal 2024 guidance is as follows. We expect organic net sales to decline approximately 3% to 4% year-over-year; adjusted EBITDA to be between $150 million and $155 million; gross margin expansion of up to 50 basis points; and free cash flow of $40 million to $45 million. And now I hand it back over to Wendy.

Wendy Davidson: Thanks, Lee. In my first year with Hain, we have spoken with a lot of investors, and we’ve heard some very clear themes, your belief in the potential of our business, your desire for more visibility into drivers and your need for more clarity on where we believe Hain can win, the potential of our brands and the actions we’re taking to accelerate our performance. We hope that by providing details on category performance this quarter has helped with visibility. In addition, we plan to report price, volume, mix and currency elements of sales growth starting in fiscal ’25. While our year 1 progress in driving improvement in our top line is behind our expectations, we have made significant headway in the focus and fuel pillars of our Hain Reimagined strategy.

We have focused our business by creating a winning portfolio, simplifying our global footprint and building a more effective and efficient integrated operating model, which extends far beyond how the business is structured, to how it’s managed, reported and wired across common functions. This will enable greater focus on execution, a reduction in cost and improved control of our business from end to end. And we’re generating fuel by leveraging our scale and driving operational efficiencies in our supply chain, unlocking working capital and strategically focusing on revenue growth management. We will continue to build our capabilities by investing in brand building and innovation and driving channel expansion in underpenetrated markets. Ultimately, this will enable us to reliably grow our business through focused investments and innovation in snacks, baby and kids and beverages while continuing to pay down debt.

Hain is a leader in better-for-you brands across key developed markets, and we are uniquely positioned with the better-for-you consumer to deliver sustained category growth in natural and organic. Our work in building our end-to-end supply chain capacity and in brand building puts us in a position to partner with our retail customers to win with the consumer. We have ample distribution white space, and we have begun to ramp up our channel expansion with an improved core assortment to ensure we have the right products at the right price in the right place to meet consumer demand. We set a high bar for the pace of change, and we are just 8 months into our multiyear strategy. And while much of the progress we shared today is not as big outside the walls of Hain, internally, we are fundamentally a very different company than we were 1 year ago.

Our teams are stronger, our capabilities are more robust and the team is working together more effectively as a global enterprise. A true transformational step change in Hain’s 30-year history. And now we’re doubling down on execution. The progress we’re making already fortifies our confidence in the strategy and in our ability to drive reliable and sustainable growth. We remain confident in our ability to achieve the full potential of Hain Reimagined. Before we open it up for Q&A, I would be remiss if I didn’t thank all of our team members who are committed to our strategy, to our brands and to our purpose of inspiring healthier living through better-for-you brands and to harnessing the power of performance as one Hain team. Operator, please open the line for questions.

Operator: [Operator Instructions] I will take our first question from Jim Salera with Stephens Inc.

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Q&A Session

Jim Salera : I wanted to drill down a little bit on the execution in snacks distribution, that you mentioned. Is that part just due to kind of the overall consumer backdrop and maybe retailers being more sensitive on price and wanting to expand some private label offerings? Or is there anything that you guys can give us detail on had you helped to improve execution on snacks in the near term?

Wendy Davidson: Yes. Great to hear from you. Snacks is actually sort of a tale of 2 cities. So if you look at Garden Veggie, for instance, we’ve actually had very strong execution and very strong performance. In fact, some of our data now shows that Garden Veggie core SKUs actually turn at a greater velocity on shelf than some of the leading brands in the better-for-you space that have more distribution. But in the past, you would recall that we had some supply chain challenges that made assured supply a bit of a challenge. We are in a better position to earn our place on shelf with greater distribution because we have really a stronger supply chain. The Garden Veggie core is performing very well. We’ve actually picked up incremental distribution.

I think in the last quarter, we talked about the incremental distribution in C-store, somewhere north of 10,000 stores on Garden Veggie. And then obviously, the successful launch of Flavor Burst, which is actually still in fairly limited distribution is just now starting to ramp up broader distribution, but the turns of Flavor Bursts are better than we expected and north of 80% is incremental to the category. So we feel very good about innovation, we feel very good about brand building and very good about channel expansion on garden veggie and we haven’t even begun the master brand campaign that starts this summer. Terra, if you recall last year, well, probably the last 18 months or so, we had some significant supply chain challenges. We’ve made investments in capacity and capability on Terra.

We’re less dependent on additional outside manufacturing to support Terra. So we’ve rightsized our operations footprint to assure supply under our control. Counter to that, we also were very concentrated in the club channel. And that meant that we didn’t have the ability to expand distribution in other points of distribution. For the combination of a more stable supply chain, better consumer, better on-shelf availability and the work that’s taken place around channel expansion will help Terra in the long run. And we’ll see some of this play out as we go into the summer because this summer will be the first multi-brand snack promotion that we will have ever done as a company. will be the Savor Your Summer multi-brand merchandising program, where we’ve had really good pickup in secondary placements.

Jim Salera : Great. I appreciate all the detail. Maybe just as a follow-up on that. Can you just comment on how sensitive retailers are to price gaps between snacking SKUs in private label, just again, given that we’ve seen consumers being more value-seeking in certain subsegments channels?

Wendy Davidson: Yes. Sorry, I missed that part of your question. Actually, what we’ve seen in some of the consumer data is actually in the snack category, the consumer is less private label sensitive probably of all the food categories. I think something less than 15% of the category is actually penetrated by private label. Second to that, when we look at our brands in the research that we’ve done, for instance, I’ll talk Terra. Terra has no natural substitute. And the consumer, what we learned is the consumer loves the brand. We’ve made it hard for them to find it, but they don’t see another substitute for the Terra brand. So our opportunity is to actually take that brand love and make it available to the consumer in more places.

But where we are premium, we’re not super premium. We’re at an affordable premium to conventional categories. And thus far, we’ve not seen either retail push to us or consumer pushback relative to price, but we’ve probably been a bit more surgical in our pricing and have focused instead on net price realization through our revenue growth management initiatives. One thing I would add to that as well, we’ve been tracking promotional spend, and in snacks, we’re promoting at about the same level as the category, but we’re seeing a greater lift than category. So I think our promotion effectiveness has been more productive for us in the last year since we’ve invested around revenue growth management.

Operator: Our next question comes from Ken Goldman with JP Morgan.

Ken Goldman : First, just a quick one. On infant formula, you mentioned that the issues with the supplier are store term. But at the same time, you relegated formula to the stabilized bucket. I’m just trying to reconcile these two items if the issues are primarily short term why relegate?

Wendy Davidson: The issue that we face is — and so Perrigo is our primary infant formula supplier. You would have heard Perrigo speak to some of their supply chain shutdowns on their earnings call this week as well. We believe that the issues are relatively acute. But to be honest, we’ve had challenges over this last year with Assured Supply. So we’re taking a prudent approach in setting it and stabilize, realizing two things. One is we need to ensure that we have stable supply that’s reliable. The other is because we’ve been off shelf for a while, we have to re-earn that space on shelf with our retail partners. We’ve had to rationalize and focus our distribution with a few customer partners, and we need to go back and make sure that we are in a good solid position there.

So that’s really the reason for putting it in that category. I would say that the guidance that we gave for a quarter — for the balance of this year includes all the inventory we have on hand. So we don’t have a supply risk to our outlook and forecast for the balance of this fiscal year, but I think we’re taking a prudent approach as we go into fiscal ’25 around supply availability, how we drive customer reach and how we make sure that we’ve got a balance between supply and where we’re on shelf. As you know, infant formula is how we recruit the consumer into our Earth Best brand. And I think it says a lot about the strength of the brand that we’ve continued to grow baby food, puree and toddler snacks, when we’re not able to recruit people in at the infant stage.

So we’re excited about the work to be able to do to rerecruit while we leverage the strength that we’ve got in baby food and puree.

Ken Goldman : Okay. And then shifting topics, I appreciate you haven’t given guidance for 2025 yet. But given that we’re only 7 weeks away from the end of ’24, I’m hoping you might be in a position to speak directionally. And I guess, to cut to the chase, consensus is looking for low single-digit sales growth next year despite some fairly clear headwinds in personal care and meals, et cetera, but obviously, some excellent growth in the majority of the business, at least what you’re seeing today. So do you think it’s reasonable for the Street to model low single-digit growth at this point? Or is it just too soon to say for sure.

Wendy Davidson: We’re really not in a position yet to give guidance for next year, but I think that you’re appropriately looking at where we think some of the growth areas would be and where we think some of the weaker areas as we aggressively drive stabilization. So more to come.

Lee Boyce: So I would just build up on that. I mean, a couple of things. We talked about formula getting stabilization of that moving forward. So we’ve got some things that have obviously negatively impacted us in the current year. Personal Care, we’ve obviously got that. In Stabilized, we’re making some actions on that in terms of the SKU pruning. So some of those things, again, have been headwinds in the current year that we should cycle against as we move forward.

Operator: Our next question comes from Jon Andersen with William Blair.

Jon Andersen: I know it’s a smaller part of the business, but on the Personal Care front, can you talk a little bit about where you are in terms of the full efforts on SKU rationalization? And maybe more important, how you think about that business longer term? Is that core to the Hain portfolio? How much kind of management time and financial resources do you want to kind of apply to that on an ongoing basis?

Wendy Davidson: And I appreciate the question. So relative to personal care, it’s the smallest part of our portfolio. It is the one category where, unfortunately, I think I mentioned this in the prepared remarks that we’ve got an over-proliferation of SKUs. To be honest, we took some of our brands into every possible personal care category, where we really didn’t have a right to play or a right to win. That just creates a lot of complexity in the business and a lot of excess inventory all the way around. So it’s just very inefficient. And those were highly unproductive SKUs, both for us but also for our retail partners, and they just sat on shelf. And so not a good place to be. We actually ring-fenced the Personal Care business.

So there is a separate team that’s focused on Personal Care stabilization, with the goal of getting that business stabilize so then we have optionality and to decide then where and if it falls in the Hain portfolio. But we do need — certainly for to do the best thing for our shareholders is to get that business stabilized for the best option. We’ve made some very aggressive decisions that were a part of Hain Reimagined, but we’ve pulled them forward into fiscal ’24 really to stabilize that business more quickly. So rationalizing our supply chain from 2 Hain locations down to 1 improve our capacity utilization at the core facility. We’ve reduced our co-mans by 5, which is about 60% of the co-manufacturers on the personal care business that takes a lot of complexity out of managing that network and reduces what’s on shelf.