Hain Celestial Group Inc. (NASDAQ:HAIN) reported its fiscal third-quarter 2024 results, revealing mixed performance across its product categories and outlining its strategy for future growth despite facing several challenges. The company is executing its Hain Reimagined strategy with four priorities: focusing and simplifying its portfolio, delivering cost savings, building capabilities, and growing in core categories and brands.
Despite setbacks in top-line results, Hain Celestial has seen continued margin expansion and momentum in adjusted EBITDA, free cash flow, and net debt reduction. Challenges included supply issues in infant formula and underperformance in the snacks and personal care categories.
Still, the beverage category showed positive momentum, and the company is investing in areas such as non-dairy beverages to meet strong consumer demand. The company adjusted its fiscal year 2024 guidance and remains confident in its ability to achieve sustained growth.
Key Takeaways
- Hain Celestial focuses on four priorities under its Hain Reimagined strategy.
- The company has made progress in streamlining its portfolio, unlocking cost savings, and improving supply chain effectiveness.
- Beverage category shows strength, driven by Celestial Seasonings Tea and non-dairy beverages.
- Challenges in infant formula supply and personal care category impact top-line results.
- Adjusted fiscal year 2024 guidance anticipates a decline in organic net sales and a modest increase in adjusted EBITDA.
- The company is confident in its financial goals and growth strategy.
Company Outlook
- Hain Celestial expects to pivot to growth in the second half of fiscal 2024.
- The company revised its fiscal year 2024 guidance, expecting organic net sales to decline by 3%-4% year-over-year.
- Adjusted EBITDA is projected to be between $150 million and $155 million, with gross margin expansion up to 50 basis points.
- Free cash flow is anticipated to be $40 million to $45 million.
Bearish Highlights
- The personal care category declined significantly due to an over-proliferation of SKUs.
- A failure by the infant formula supplier to meet commitments has affected the supply.
- Snacks distribution expansion and stabilization in Personal Care underperformed expectations.
Bullish Highlights
- The beverage category continued to grow, with net sales increasing in the high-single-digits year-over-year.
- Soup was among the best-performing categories, with strong growth in both the UK and North America.
- The company is taking actions to stabilize and invest in growth areas, with 85% of the portfolio performing above expectations.
Misses
- Top-line results fell short of expectations in the third quarter.
- The company is working to recover from operational shutdowns by its infant formula supplier, Perrigo.
- Personal care and formula categories have not met expectations, affecting overall growth.
Q&A Highlights
- Wendy Davidson, CEO of Hain Celestial, could not provide guidance for the next year but emphasized driving stabilization and identifying growth areas.
- The company is reviewing its portfolio to ensure brands are worth the investment.
- Marketing spending may increase due to disappointing organic sales growth, focusing on areas with a decent return on investment.
Hain Celestial Group Inc. continues to navigate through a transitional period, addressing specific challenges while remaining committed to its long-term growth strategy. The company's focus on efficiency, cost savings, and strategic investments in high-demand categories such as non-dairy beverages positions it to potentially overcome current obstacles and achieve its financial goals in the near future.
InvestingPro Insights
In the context of Hain Celestial Group Inc.'s mixed fiscal third-quarter 2024 results, InvestingPro data and insights offer a deeper understanding of the company's financial health and market expectations. The company's market capitalization stands at $609.96 million, reflecting the market's current valuation of the business.
Despite challenges, the InvestingPro Tips highlight a positive outlook with expectations of net income growth this year, indicating potential for recovery and profitability. Moreover, with a price that has significantly retreated from its 52-week high, currently at 45.87% of that peak, there could be an opportunity for investors considering the company's valuation and future prospects.
The company does not pay dividends, which aligns with a strategy focused on reinvesting earnings into growth and operational improvements. Still, Hain Celestial's current P/E ratio is negative at -6.73, emphasizing the importance of the company's strategy to pivot to profitability. The InvestingPro Tips also note that the stock has faced a substantial decline over the past year, with a one-year price total return of -56.87%, signaling a period of investor caution and reevaluation.
For investors seeking a comprehensive analysis, there are additional InvestingPro Tips available that delve into aspects such as valuation, liquidity, and stock performance trends. To access these insights and make informed decisions, visit https://www.investing.com/pro/HAIN and use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, there are 9 more InvestingPro Tips listed that could provide valuable guidance in evaluating Hain Celestial's potential for growth and profitability.
Full transcript - Hain Celestial Group Inc (HAIN) Q3 2024:
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.
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 (NYSE:JPM).
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. We are streamlining the SKUs and the categories that we're in by brand. You'll see a chunk of that flow through in quarter 4. And then it will begin to really play out in quarter 1 and quarter 2 as we really get that to be a rightsized portfolio. All of those decisions help us get to an improvement of 11 margin points on the Personal Care business, but more importantly, puts us in position to make some decisions about that business, but also to better manage that business because it will be a much simpler portfolio. There are some strong brands in that portfolio, but we've not allowed them to actually really be able to be successful because they were really buried in lots of subcategories that we really shouldn't be in. So I think we'll be in better position to make some decisions. But our -- but to your question around distraction of management's time, there is a dedicated team focused on personal care. So -- and it is the smallest portfolio, so it really doesn't take a lot of everybody's time.
Jon Andersen: That's super helpful. Switching to, I guess, your largest business, meal prep, could you talk Wendy a little bit about what you're seeing in that business? I think that grew last quarter. It was down a little bit this quarter. What maybe has changed over the past few months there? And what your expectations or focus areas are for that part of the business going forward?
Wendy Davidson: Yes. The meal prep category actually took a bit of a step down, really driven by the plant-based meat-free category. And that's not unlike what others are seeing in the space with a lot of the industry consolidation taking place. So it really was driven by meat free in the U.K. with the Linda McCartney’s brand and in Canada with the Yves brand. ironically, because the category is consolidating, we're actually gaining share. In fact, we gained share with the Yves brand in Canada. So we are declining less than the category and picking up distribution and gaining share, but we are still seeing some of that category contraction. In the U.K. business, we made a bit of an aggressive move in really rightsizing both what our manufacturing capacity was but also rightsizing the SKU mix that we have in the Linda McCartney’s brand to get to the hardest working core. And so you see some of that SKU reduction playing into the meal prep data in the quarter, but that -- but I feel like we will have a much more productive overall mix there. offsetting that in meal prep is the continued strength of the soup category that's just on fire, and it's actually in both regions. So the Reimagined soup business in the U.S. grew double digits in the quarter. And in the U.K. and Ireland, we have the number one, number two and number three soup brands with Cully & Sully, Yorkshire Provender and New Covent Garden and are by far the share leader, especially in the refrigerated soups category. So feel really good about the soup part of the portfolio. In Greek Gods Yogurt, you would have heard us talk about that as growth in the past. We've done some reset of our retailer relationships and the assortment on shelf. And so you will see the Greek Gods business return into growth as we go forward, and we feel very good about that brand.
Operator: Our next question comes from Michael Lavery with Piper Sandler.
Michael Lavery: Just want to come back to the portfolio and you promoted formula. You touched on that just a minute ago, but also promoted the non-dairy beverages to maintain and touch on some of the execution improvement there. But I guess a couple of things. Is that a reflection of a definitive commitment to it? You've characterized stabilize is a little bit of a get it fixed and figured it out, at least, obviously, for personal care. Does it reflect stronger consumer demand? What are all the right pieces of the context there to understand how that shift took place?
Wendy Davidson: Yes. That's a great question. When we look at what's in stabilized, we actually ask ourselves a bit wider of a question. Is it a category that is large and growing? Is it a space where we have a brand that can compete? Do we have capabilities that make us unique and distinctive? Is it the right place to be? And can we make money at it? So can we grow and can we make money at it? When we look at the non-dairy beverage category in the markets where we play, it is a very large and growing category. We have a wonderful position in both private label and brand, but the issues that we had in the past were because we were highly concentrated with a particular partner. So our manufacturing capacity was eaten up in that way. We weren't running the plants in a normal 5-day work week. We were running a lot of overtime. So they were inefficient in our operations. And we weren't really investing behind the brands with a core assortment to be able to win in the markets we were in. So when you check the boxes of is it a category we want to be in, is it a category that's large and growing, are we unique and distinctive, can we compete and when? All of those check the boxes. So then it became an internal end-to-end fix. How do we need to rightsize our operations, how do we make sure that they're well run, how do we make sure we're investing around the right brands. You would have heard us, I think, in the last quarter, talk about the SKU portfolio work that we did in nondairy beverage where we reduced about 50% of the SKUs in one of the brands and got to a much harder working core that grew velocities double digits. So driving right assortment in the brand on shelf with better productivity for us and for retail partners. So all those things combined now is delivering a business that quarter-on-quarter is up double digits and driving great margin. So it's a place where we want to be.
Lee Boyce: Yes. And we've had three straight quarters of growth on that business. And as Wendy said, I mean we've had improving profitability, positive outlook for the growing category. So it fits in all the criteria.
Wendy Davidson: But to your question on baby formulas, the reason why we set that into stabilize is, again, we look at the same criteria. Yes, we want to be in baby formula because of how we recruit consumers into our Earth's Best brand. Yes, it is a category that is large and growing, especially in the organic baby food category. So those all check the box. But the challenge we have is stable and reliable, consistent, high-quality supply, and that's what needs to be stabilized. So it doesn't mean that the business necessarily is an area where we feel the need to stabilize, but we definitely need to acknowledge that we've got to have a much more available supply of baby formula.
Michael Lavery: That's great color. And just a little bit of a follow-up for the brands that aren't on the page for, I think, it's Slide 12, for example. How do we think about those? They're almost all quite small. There's 10 maybe at least I can come up with that aren't listed. What's their future look like? And is there a buyer for any of those? Is there just brand discontinuations that makes sense? How do they fit in?
Wendy Davidson: Oh, in the ones that we have mapped out on grow, maintain and stabilize?
Michael Lavery: The ones that aren't shown yes, like a Farmhouse Fair or a Hollywood or Health Valley or Lima or any of those that are just a bit smaller, obviously, quite a lot smaller, I think.
Wendy Davidson: Yes. I would tell you that those -- the things that aren't on this slide are what I would refer to as sort of bits and bobs in the portfolio. And doesn't necessarily mean anything other than they don't require a substantial amount of investment or time and they don't represent a large percentage of the sales. Pretty common in most of the companies I worked, there are some brands that just don't really ever pop to the top, but I wouldn't read anything into it other than that.
Michael Lavery: So just as you're looking at things like SKU rationalizations, there wouldn't be a risk of sort of a cleaning house where there's a hit from those getting reconfigured somehow?
Wendy Davidson: I would say that our view of portfolio simplification in the focus pillar will always include a review of brands, categories, SKUs, footprint, all of those things. So I wouldn't put it off the table that we're not taking a hard look at every brand to make sure that they are a brand that is worth us spending both time and resources against.
Operator: Next with Andrew Wolf with CL King.
Andrew Wolf: I'd like to start with kind of a top line question for you. Did the business kind of pivot to growth if you exclude personal care and baby infant formula?
Wendy Davidson: Well, certainly, as we said in the prepared remarks --
Andrew Wolf: Also, less than expected, that's what I'm really getting at.
Lee Boyce: So the one thing we -- I mean, we did say, and that's how we broke out the portfolio, 85% of the portfolio on a year-to-date basis was up over 3%. And if you go back to Hain Reimagined, the 3% was our long-term algorithm. So -- that's why we kind of isolated the two pieces. But yes, 85% of the portfolio year-to-date was up over 3%.
Andrew Wolf: And we're the attendant profit expectations reasonably close to what you would have expected? Or were some of the supply chain issues impacting that as well or to get to
Lee Boyce: No, I would say they were in line with what we've expected. I mean one of the big things as part of the Hain Reimagined was fuel, as we looked at our supply chain initiatives, and not necessarily just on the P&L and on the cash flow side in terms of net working capital delivery, both of them being positive ahead of our expectations.
Andrew Wolf: Okay. Let me ask you about guidance before I get back to Wendy with this, the more of the operations side. Could you kind of parse out the guidance reduction between -- I think you said Q3, even though versus the Street, it was an upside was below your internal expectations. So between -- versus internal, the Q3 miss and the -- what you took down Q4, just to get a sense of where you think the momentum in the business is versus your expectations?
Lee Boyce: So in terms of guidance, just -- and again, we kind of -- as we went through -- I mean, in terms of guidance change, the three elements, obviously, we're personal care. So as we said, 85% of the business was growing, but personal care pace of stabilization there didn't deliver against our expectations. So that was one piece. And obviously, we're making overall changes, simplifying the portfolio and the operating footprint. The second piece Wendy kind of gone through this was really around formula. And based on the commitment from Perrigo, we expected to have more stable and dependable formula to meet the demand. So that was the other large element. And then the final piece that we've touched upon is really just kind of the execution in snacks. Snacks is growing, but it was not -- it was short of our expectations. So those are the three elements that changed in the quarter that impacted our full year guidance.
Andrew Wolf: So just -- I'd like to follow up on two of those. So Wendy, on labor did that also get impacted by supply chain? And do you mean like your co-packers were -- you were shorted?
Wendy Davidson: No. So Flavor Burst, yes. Flavor Burst has been an outstanding launch. In fact, our production attainment is right at 100% of where we expected to be. So I feel very good about the supply on Flavor Burst. We've begun the distribution. We were in limited distribution really inside quarter 3. You'll see that ramp up in quarter 4, and it will be available in lots of locations. So I'm expecting you to buy it everywhere that you see it. And then you'll see it featured as a part of our Summer of Snacking promotion with multi-brand merchandising.
Operator: [Operator Instructions] We will move next with Kaumil Gajrawala with Jefferies.
Kaumil Gajrawala: The common theme, I guess, through this call or through the recent months has been on supply chain issues, whether it's Veggie or Terra. So I'm just wondering, is there something different at the core of maybe how the infrastructure was set up earlier or how you're changing it because it's just -- you seem to be relying on what might be a fragile supply chain, and many of the issues are linked to a lack of supply. So I'm just curious if there's anything we should know about in terms of just maybe the like operating philosophy that used to exist versus what -- how you're approaching it now?
Wendy Davidson: Yes. I guess -- let me clarify, we have one category where we have challenges in supply chain, and that would be in formula. The others are legacy supply chain issues that began during COVID that actually gave clarity around and visibility to issues that we had in our end-to-end supply chain. The work the team has done in the last 18 months has been to create a much more reliable and sustainable supply chain. And it's everything from planning, production and delivery. We have best-in-class safety in our facilities in the last year. We have best in industry availability on shelf as measured by Sircana better than our peer set. And we have a much more predictable and reliable work that the team has done, all while reducing inventories in days on hand. So when we said that we've had a lot of supply chain work, in this first year of Hain Reimagined, as a foundational year, we did focus on fuel, and that was both delivering productivity savings, but it was also ensuring that we have the foundations of the company to be able to enable consistent reliable growth. I feel very confident in our supply chain and whether that's co-manufacturers, excluding formula, but whether it's our co-manufacturer partners or our own manufacturing the team that's been put in place to manage our supply chain, including our co-mans, is best-in-class. And I'm very excited about what that will do for us being able to go out to our customers and walk them through the reasons why we should have more shelf space of our core brands because they're highly productive and we can assure them reliable supply on shelf.
Operator: We will move next with Anthony Vendetti with Maxim (NASDAQ:MXIM) Group.
Anthony Vendetti: Okay. So just Wendy, on the 6% SKU reduction, and I know a lot of the SKU reduction is in personal care. I guess you said 62% there. Is that 6%, is that more than the normal SKU rationalization as you look at the portfolio? And if it is, where is it more than personal care, which I know is the significant portion of the SKU reduction? And then the second part is, if it is more, how is this different from sort of when Mark took over for Owen Simon, he put in a multiyear SKU rationalization. Have things changed significantly since then that's requiring further SKU rationalization? I was just wondering if you could put that whole thing in context.
Wendy Davidson: Yes. Great question. I would say it's two things. So is 6% more than we would expect in the average? Absolutely. And certainly, the 62% of Personal Care is much more than you would expect in any portfolio. I would view this less about peer's SKU and much more around portfolio rationalization. So in terms of SKUs, we talked about the sort of regular brands portfolio maintenance. That's going to be in Baby and Kids, a little bit in snacks and some of what's taking place in in the beverage category is much more around that portfolio maintenance, where you just -- you have underperforming SKUs in the tail, you move those out as you bring in innovation is sort of this normal ebb and flow. Personal care and plant-based meat free are much more significant. And those are us recognizing that there are subcategories we really shouldn't be in that aren't productive. So it's less about SKU pruning and much more about category pruning that's more significant. I'm not familiar with the work that was done by Mark and team in the prior strategy. I've seen some of it, but I'm not sure what it was predicated on, but hopefully, that helps explain some of the things that we're driving here.
Anthony Vendetti: Yes. And then maybe this is more for Chad. Chad mentioned first to mind, first to find. And then, Wendy, you mentioned that Terra chips is hard to find. How do you fix that? Or what's the strategy to fix that since it's obviously one of the brands you're focused on?
Wendy Davidson: Yes. Let me start, and then I'll flip it over to Chad, giving him credit for only being here for 4 weeks. But on the -- so with Terra in particular, the challenges that we had, it's a beloved brand that people see as unique and distinctive but because of the supply chain issue 2 years ago, the company rationalized where they were selling it because they couldn't keep it on shelf everywhere because of some of those supply chain issues. So it made it very limited in distribution, which is why I mean it's beloved but hard to find. We've worked really hard in the last 18 months to invest in capital to add capacity and capability on Terra that will allow us to control our destiny on the brand, and we've made investments around the brand campaign to support Terra as we go forward. All of that combined puts us in position to take that brand love and make it available to the consumer where they're shopping. But I'll let Chad talk about the work that he's driving and driving distribution expansion.
Chad Marquardt: Sure. So I think, first and foremost, Anthony, I think as Wendy mentioned, I think we're now taking that story external in terms of helping them understand what we've done different as Hain in terms of our investments into our supply and that consistency of supply. In my first month, I've already been a part of now 3 specific snacks meetings externally with key customers, and they're very excited about the future of Terra. Now it's us working together on what that distribution build looks like based on their timeline, but we're very excited for that future. And as Wendy mentioned earlier, we also will have a new campaign starting in '25, really to start reinvigorating that brand love to a broader audience of consumers.
Operator: Our next question comes from Matt Smith with Stifel.
Matt Smith: I wanted to ask a follow-up question on guidance. The implied fourth quarter EBITDA margin takes a step back sequentially and year-over-year. Can you talk about the level of investment in the fourth quarter? Is that stepping up, or is the margin performance more a reflection of volume deleverage and maybe less benefit from pricing and productivity? Just trying to get a better understanding of margin exiting the year as we look ahead to fiscal '25?
Lee Boyce: Yes. So a couple of things. As you go through, there is the margin deleveraging. There is -- sorry, volume deleveraging, there is the mix impact of our formula just year-over-year in the fourth quarter, though, we are lapping a benefit that we had in international in the prior year as well. So that actually increased the margin percentage in Q4 of the prior year was a onetime impact. So we're lapping that as well. So we continue to feel good about the margins overall. I mean, we talked about the productivity delivery, the $61 million that we're seeing through. From an inflationary expectation, I mean, we continue to see some moderation there from commodity inflation. So again, I think for the fourth quarter, again, year-over-year is kind of the lapping of this prior year benefit that we saw.
Matt Smith: And just a follow-up on the personal care discussion. Can you talk about the cash costs associated on a go-forward basis? And then the 11-point increase in margin that you're targeting from the rationalization, does that timing lineup with the SKU rationalization that Wendy discussed, fourth quarter, first quarter and second quarter, upcoming? Or is there a longer tail to realize that margin benefit?
Lee Boyce: No. I mean the margin benefit is going through into the second half of 2025. So I think those pieces align. And then just kind of on the cash cost overall -- I guess I would just tie back to the overall restructuring costs, where we talked about the 90% to 150% of that being cash and noncash. I mean nothing's fundamentally changed on that overall profile. And that's what we've seen kind of year-to-date. If you think about it, so 90 to 100, we've had $50 million year-to-date, half of it being cash, noncash. So everything falls within that kind of overall envelope.
Operator: Our next question comes from Alexia Howard with Bernstein.
Alexia Howard: So I just have one question around the marketing spending. I remember when you laid out Hain Reimagined, there was a relatively modest increase in the plan for increasing marketing spending company-wide. And the idea was to reallocate and really focus on the areas where you could get a decent return on that. Are you rethinking that given the disappointments on the organic sales growth side? Do you need to up the marketing spending? Where are you in terms of where you think the appropriate long-term level might be?
Wendy Davidson: Yes, I appreciate the question. And you're right. We said early on that when we turned back on marketing as a company, we wanted to make sure we had an always on pressure to support our brands, but that we wanted to get more efficient before we simply spent more. And you'll see that reflected in the numbers. On a consolidated basis, we'll be up slightly this year versus last year, but we're also more weighted to the back half of this year than we were to the front half because we wanted to make sure we were supporting some of the big launches and some of the key seasons like sub season in the U.K., like the Celestial Seasonings tea season in the winter and then supporting the Flavor Burst launch with appropriate support. We've seen sequential improvement in our working to nonworking. So the shift is working. We're also gaining and growing brand awareness and growing household penetration across our core brands. And as Chad mentioned, we're driving incremental reach with some of our distribution gains, all of those things focused on share. The issues we're seeing in the top line are really very acutely tied to a couple of things. It's tied to personal care and it's tied to baby formula. Spending more money against those would have both been bad spend because I would spend against baby formula and not had available supply, I would have spent against personal care subcategories that we really shouldn't be in. So I'm not concerned with where the team chose to spend the dollars because I think where we've spent it when we evaluate marketing effectiveness, we are seeing promotional lifts. We are seeing household penetration gains. We are seeing the share gains, and we are seeing a growing awareness where we've invested our dollars. Our goal is to get those -- that 15% of the business that needs to be stabilized to stabilize so that where we're investing for growth, we're seeing that deliver all the way through the consolidated numbers and not just in the 85% of the business.
Operator: And I will turn the call back to Wendy for closing remarks.
Wendy Davidson: As we said earlier, we're very pleased with the progress that the team has made around focus and fuel initiatives because it's allowed us to expand our margins, it's allowed us to deliver strong free cash flow, and importantly, to reduce our debt, which we know are all things that are very important to the investment community. And I feel very proud of the work that the team has done in our end-to-end supply chain and the overall business. We're investing, I think, appropriately around brand building and around building our capabilities, and we look forward to more than 85% of our business pivoting to growth as we go forward. But again, I want to thank everybody for your time this morning and for your belief and confidence in Hain as we reimagine our future.
Operator: And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
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