HAIN - NASDAQ

Good morning, ladies and gentlemen, and welcome to the Hain Celestial Fiscal First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. This call is being recorded on Thursday, November 7, 2024. I would now like to turn the conference over to Alexis Tessier, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for a review of our first quarter results. I'm joined this morning by Wendy Davidson, our President and Chief Executive Officer; and Lee Boyce, our Chief Financial Officer. Slide 2 shows our forward-looking statements disclaimer. As you are aware, during the course of this call, we may make forward-looking statements within the meaning of federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to our annual report on Form 10-K, our quarterly reports on Form 10-Q, and other reports filed from time-to-time with the SEC as well as the press release issued this morning for a detailed discussion of the risks. We have also prepared a presentation inclusive of additional supplemental financial information, which is posted on our website at hain.com under the Investors heading. As we discuss our results today, unless noted as reported, our remarks will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying this call. This call is being webcast and an archive will be made available on the website. And now, I'd like to turn the call over to Wendy.

Thank you, Alexis, and good morning, everyone. I'll start today's call with a high-level review of first quarter results before walking through today's key messages, the progress we've made on our Hain Reimagined strategy and reasons to believe in our pivot to growth in the second half of fiscal 2025. Lee will then provide more detail on our financial results along with our outlook. Our performance in the first quarter built upon the momentum generated in the foundational year of Hain Reimagined. The capabilities we have put in place along with initiatives to streamline and strengthen our global operating model have positioned us well for growth in the back half of fiscal 2025 as expected. In our last earnings call, we spoke to a number of expected headwinds in the first quarter, including a promotion timing shift in snacks out of the first quarter and into the third, the late second quarter recovery of instant formula supply in all formulations and sizes, and the short-term impact of portfolio simplification initiatives, including SKU reductions announced last year. These impacts led to an organic net sales decline of 5%, similar to the rate of decline we saw in the fourth quarter of 2024 as we said would be the case. Importantly, the actions we've taken on our stabilized businesses are generating better-than-planned net sales and improved profitability. Adjusted EBITDA was $22 million. We achieved adjusted gross margin expansion in the quarter, driven by strong fuel delivery, and we continued to make progress in reducing net debt. As a reminder, the first quarter is typically our seasonally smallest of the year. We are confident in the building blocks to deliver on our pivot to growth in the back half of the year, and I'm pleased to reaffirm our fiscal 2025 guidance. Let me now discuss the progress we've made on the four pillars of our Hain Reimagined strategy. Our focus pillar was one in which we made tremendous progress in fiscal 2024, and we have continued to advance initiatives this year. In the first quarter, we further simplified our brand portfolio to drive greater focus within our five core categories with the sale of ParmCrisps, a non-core brand. Furthermore, our North America organization has undergone a holistic redesign of the commercial structure to better align our go-to-market model for improved customer focus and consumer engagement with the goal of making our brands first to mind, first to find. This new organizational design went live in the first quarter to enable, unlock, and drive accelerated growth moving forward into fiscal 2025. We have said before that Hain is a very different company as we transform into an integrated enterprise. We are leveraging insights and expertise across global categories, driving synergies across functions and leveraging scale in our supply chain. Key retail partners are beginning to take notice of the changes, which are driving improved relationships, increased distribution, category advisory opportunities, and strategic conversations around our brands. We expect this to be a key enabler of our pivot to growth. The fuel pillar delivered strong progress in our foundational year, and the momentum has continued into fiscal 2025. We have a robust productivity pipeline and are confident that we will realize our fuel target in fiscal 2025. We have enhanced our revenue growth management capabilities, building a full-trade optimization suite in-house to optimize promotion design, maximize ROI, and improve decision making. In the quarter, we drove a 20-basis point improvement in trade rates. RGM will be a key enabler of improved price, volume and mix as well as our gross margin expansion goals of Hain Reimagined. Within working capital management, you'll recall we outlined a $165 million in cumulative cash release from working capital improvement as a part of our multiyear strategy. We unlocked approximately a third of that in just our first year. Through the first quarter, we have extended payables by 18 days since fiscal 2023, and investments in digital technology and processes have reduced inventory levels by two days from fiscal 2023. We expect fuel in fiscal 2025 to continue to deliver expansion in adjusted gross margin with further reduction in debt, improvement in leverage, and investment in our brands and our capabilities. Under the build pillar, we are seeing progress in our channel expansion strategy, especially away-from-home and e-commerce, both margin-accretive channels for Hain. In the fiscal first quarter, away-from-home net sales grew double-digits in both North America and international. We again saw particularly strong growth in C-stores for Garden Veggie with dollar sales up 41% and TDPs up 44% in the latest 12 weeks. E-commerce also grew in the first quarter, driven predominantly by growth in the pure-play channel. In North America, we saw double-digit growth in pure play for Celestial Seasonings tea, Garden Veggie Snacks, and Earth's Best. And in international, online share for our refrigerated soup brands increased by 300 basis points. We continue to expect both e-commerce and away-from-home to be meaningful drivers of growth in fiscal 2025 and beyond. Our focus on brand building has driven improved household penetration on key brands such as Garden Veggie, Terra, and Ella's Kitchen. We have new brand campaigns, including new master brand campaigns for Garden Veggie Snacks and Celestial Seasonings tea as well as Linda McCartney Meat Free in the UK. These campaigns are targeted to drive improved awareness, reach household penetration and share. Our redesigned innovation pipeline process has positioned us to increase the percentage of our growth coming from new products. Historically, our innovation renewal rate has been in the mid-single-digit range. Our goal in Hain Reimagined is to shift this to high-single-digit contribution by fiscal 2027. In the first quarter, we launched two new teas, Sleepytime Biotin Beauty Rest and Celestial Seasonings Lemon Honey Drop Herbal as well as Yorkshire Provender Jacket & Toast Toppers in the UK. In addition, building upon the Garden Veggie Flavor Burst launch, we will continue to expand distribution, drive trial and leverage our portfolio of leading better-for-you snacks delivering craveability and convenience. Consumer demand for better-for-you options, especially in snacking, continues to grow and shoppers are looking beyond natural grocery stores to find them. As a global leader in better-for-you, Hain has been uniquely focused in this space for more than 30 years and is well-positioned to meet this need. As we outlined in our Hain Reimagined strategy, we have significant opportunity to drive availability and reach with key brands that have brand awareness of 70% or more, yet household penetration in the low-teens, some even in the single-digits. As we've said before, we have the loved brands, but we have made them very hard-to-find. Driving distribution expansion will be a key enabler to meet this consumer demand. We have a clear line-of-sight to growth in the back half of fiscal 2025 with a number of initiatives in place, including promotional activity in snacks that shifted into the third quarter, the return to full supply and rebuild of our Earth's Best infant formula business, the ramp-up of key brand campaigns, and the lapping of our portfolio simplification initiatives primarily in personal care. Let's now review each of our categories and the reasons to believe in the pivot to growth in fiscal 2025. As I mentioned earlier, our snacks category was impacted by a key Garden Veggie promotional event, which shifted from the first quarter to the third quarter. We faced additional softness in the first quarter on retailer execution impacting both Garden Veggie and Terra, which we expect to rebound in the quarter three reset. Despite these quarter one impacts, Garden Veggie saw mid-single-digit TDP growth in the quarter. Flavor Burst continues to be the number one new launch in the better-for-you salty snack category in MULO plus C year-to-date. Where we saw a strong trial, repeat is accelerating and sales are 80% incremental to the Garden Veggie brand, driving increased basket size for retail partners. We will continue to support brand awareness with the launch of disruptive digital and social media engagement in the second quarter along with sampling events to drive trial. In addition, our new Garden Veggie master brand campaign, YUMbelievably Delicious, launched in the first quarter and to date has generated nearly 41 million impressions across the U.S. and Canada, contributing to increased brand awareness. Other bright spots and snacks include improving velocities for Terra, up double-digits in the latest 12 weeks, a new price pack architecture relaunch for Hartley's snacks, which is leading to new listings with major retailers in the UK. We expect momentum in snacks to continue to accelerate throughout fiscal 2025 as we focus on driving first to mind, first to find through elevated marketing and expanded distribution. In Baby & Kids, we saw improvement in year-over-year organic net sales growth trends. The Earth's Best infant formula recovery is going well with the return of supply across all formulations in limited sizes. We continue to expect the balance of the portfolio to be fully in stock by the end of quarter two. At our largest retailers where we have regained distribution, we have returned to or are beating historical velocities on key SKUs, demonstrating the strength of the Earth's Best brand, which has been trusted by parents for over 35 years. Furthermore, online sales grew double-digits in the quarter. The organic formula category has grown dramatically over the last few years, and we are aggressively working to regain our leadership position by emphasizing our superior support for parents and babies compared to other brands on the market with USDA certified organic infant formula that is non-GMO, promotes brain and eye health, and contains prebiotics. And we offer a broader range of USDA organic options with dairy, sensitive, gentle and toddler formulations. Outside of formula, we will focus on an always-on approach with the Earth's Best master brand campaign, Good Food Made Fun, which is delivering ROIs close to double the U.S. benchmark. Earth's Best snacks and cereal each grew dollar sales by double-digits in the quarter. And in the UK, our Ella's Kitchen brands volume outpaced the category and has gained 5,000 distribution points as we enter the second quarter. In the Beverage category, Celestial Seasonings bag tea grew dollar sales low-single digits in the quarter. Consumption is expected to improve as we shifted our marketing investments from quarter one to quarter two behind our new Taste Our World campaign, which just went live. This new master brand campaign focuses on taste, the biggest driver of consumer choice in the tea category, and highlights the quality of our ingredients and our sourcing. We are building strong PCs and programs and expanding our away-from-home presence to drive greater trial and brand awareness. In non-dairy beverage, Natumi grew share by more than 300 basis points in the natural channel. Growth for the overall category moderated in the first quarter, and there was a shift to discounters and private label where we are a key player. Our non-dairy beverage growth slowed along with the market while holding share in the quarter, and we have seen trends rebound in October. We have gained new listings at key retailers for the second half of fiscal 2025, providing confidence in our full-year outlook. In Meal Prep, we continued to see strong growth in branded soup in the UK with each of our brands, New Covent Garden, Yorkshire Provender, and Cully & Sully, demonstrating organic net sales growth in the double digits. Heading into soup season, we expect to extend our number 1, number 2, and number 3 positions as we have double-digit TDP wins across key retailers and new private-label launches. In addition, we recently launched Destination Lunch, a section adjacent to fresh soups for convenient and affordable hot lunch offerings, showcasing recent innovation including risottos, jacket potato & toast toppers, and hot lunch bowls. The decline in the overall Meal Prep category was primarily driven by softness in private label spreads and drizzles as we lost private label contracts. These short-term impacts will moderate by the end of the second quarter as we anniversary the contract loss. Greek Gods yogurt declined in the quarter as we diversified our channel mix away from historical concentration. In customers with distribution, Greek Gods is showing strong velocities and growth. Household penetration is up in the latest quarter and unit velocity is up versus the prior year. We will be supporting Greek Gods with incremental marketing investment in the back half of the year to support new distribution. We continue to believe in the strength of our leading meat-free brands despite industry challenges in the overall category. Yves, the number 1 meat-free brand in Canada, continues to grow velocities and gained share in the frozen category. And Linda McCartney, the number 2 meat-free brand in the UK is the best-performing of the major brands in the market and the only major brand in the category showing TDP growth and gaining share. Linda McCartney's biggest marketing activation in 12 months rolled out at the end of the first quarter. Van on the Run sampling events have reached over 24,000 consumers to drive trial and address a key concern in the meat-free category's taste. And lastly, Personal Care. As we outlined previously, we are executing our shrink to grow stabilization strategy in Personal Care. This strategy incorporates the elimination of over 60% of SKUs, representing over 30% of the net sales in this category, the consolidation of our manufacturing footprint and an expected gross margin improvement of 1,100 basis points. As a result, first quarter organic net sales of this focused portfolio declined double-digits; however, performance was better than expected and a notable improvement from the prior quarter. Our manufacturing consolidation and winning portfolio execution are driving margin improvement, and we are seeing momentum in both the natural and e-commerce channels. Fiscal 2025 is a critical year as we build upon the momentum of our foundational work in Hain Reimagined to return the business to growth in the back half. We expect growth in the second half to be driven by a few critical building blocks in our Snacks, Baby & Kids, and Beverage categories. In Snacks, we have the timing shift of the Garden Veggie promotions, new distribution gains and the new Garden Veggie Snacks master brand campaign. In Baby & Kids, the full recovery in Earth's Best infant formula supply and distribution gains. And in Beverages, we have key innovation in Celestial Seasonings tea coupled with the new brand building campaign along with new non-dairy beverage contracts in Europe. Our growth will be further supported by channel expansion in particular Snacks and C-stores and both Snacks and Baby and e-commerce. In addition, we will continue to leverage revenue growth management, working capital optimization and productivity to generate fuel we will use to invest back in the business, pay down debt, drive gross margin expansion, and improve profitability. And now, I'll turn it over to Lee to discuss our first quarter financial results and fiscal 2025 outlook in more detail.

Thank you, Wendy, and good morning, everyone. For the first quarter, we saw organic net sales decline 5% year-over-year. This decrease, which was driven by lower sales in both the North America and International segments, was similar to the rate of decline in the fourth quarter as we communicated on the last earnings call. The decline in organic net sales growth reflects a 4-point decrease in volume mix and a 1-point decrease in price. We delivered first quarter adjusted EBITDA of $22 million compared to $24 million a year ago. Adjusted EBITDA margin was 5.7%, in line with the margin in the prior-year period. Adjusted gross margin was 20.8% in the first quarter, increasing approximately 20 basis points year-over-year. The increase was driven by productivity, partially offset by cost inflation and deleverage on lower sales volume. SG&A decreased 8% year-over-year to $71 million, representing 18.1% of net sales for the quarter as compared to 18.2% in the year-ago period. The decrease was primarily driven by our integrated operating model and commercial reset in North America, which enabled efficiencies resulting in lower personnel costs and lower services and fees. During the quarter, we took charges totaling $5 million associated with actions under the restructuring program, including contract termination costs, asset write-downs, employee-related costs, and other transformation-related expenses. To date, we have taken $68 million in charges associated with the transformation program, which is comprised of $65 million of restructuring charges and $3 million of expenses associated with inventory write-downs. Of these charges, $27 million were non-cash. As previously discussed, the total transformation program charges are expected to be $115 million to $125 million, inclusive of potential inventory write-downs of approximately $25 million related to brand and category exits. Restructuring charges, excluding inventory write-downs, are expected to be $90 million to $100 million and are excluded from our adjusted operating results. Interest costs rose 4% year-over-year to $14 million in the quarter, driven by slightly higher borrowing rates, partially offset by lower outstanding borrowings. As a reminder, we have hedged our rate exposure on more than 50% of our loan facility with fixed rates at 5.6%. We continue to prioritize reducing net-debt over time. Adjusted net loss, which excludes the effect of restructuring charges, amongst other items was $4 million in the quarter, or $0.04 per diluted share in line with the prior-year period. Turning now to our individual reporting segments. In North America, organic net sales declined 6% year-over-year. The decrease was primarily driven by lower sales in Snacks as we highlighted on the last earnings call due to the timing shift of a promotional event into the fiscal third quarter this year from the fiscal first quarter last year as well as by Meal Prep. This was partially offset by growth in Beverages. We expect North America to return to growth in the back-half of the year as Snacks growth accelerates driven by the promotional shift in brand building, infant formula supply fully recovers and key accelerates on innovation and the new brand building campaign. First quarter adjusted gross margin in North America was 20.6%, a 20-basis point decrease versus the prior-year period, driven by costs related to inflation and customer mix as well as pricing, partially offset by productivity. Adjusted EBITDA in North America was $12 million as compared to $19 million in the year-ago period. And adjusted EBITDA margin was 5.4%, a 180-basis point decrease year-over-year. The year-over-year decline resulted primarily from deleverage on lower volume and inflation, partially offset by productivity. In our international business, organic net sales declined 3% in the quarter, driven primarily by lower sales in Meal Prep. As we cycle the loss of a private-label spread contract, and lower sales in Baby & Kids. We expect the international region to return to growth in the back-half as we lap the loss of the private-label spreads contract. Ella's Kitchen accelerates on increased TDPs and brand building, and we realized the benefit of new contracts won in non-dairy beverage. International adjusted gross margin was 21%, up approximately 100 basis points year-over-year, driven by productivity and improved promotional efficiency, partially offset by lower volume. International adjusted EBITDA was $20 million, an increase of 17% compared to the prior-year period as productivity and improved promotional efficiency more than offset the impact of lower volume. Adjusted EBITDA margin was 12.5%, up approximately 190 basis points year-over-year. Shifting to cash flow and the balance sheet. Free cash flow in the first quarter, typically our lowest cash generation quarter of the year, was an outflow of $17 million compared to an inflow of $7 million in the year-ago period. The decrease was driven by the working capital impacts related to the timing and magnitude of accounts payable and restructuring charges versus the prior year as well as the customer and geographic mix of our receivables. We continue to make progress on our days payable outstanding and days inventory outstanding. DPO improved to 55 days from 37 days in fiscal year '23, and DIO improved to 80 days from 82 days in fiscal year '23. We are pleased with the progress we are making towards our Hain Reimagined target of 70-plus days payable outstanding and 55 days inventory outstanding by fiscal year '27. CapEx was $6 million in the quarter. As we outlined in the last call, we expect expenditures to be approximately $50 million for fiscal 2025. And finally, we closed the quarter with cash-on-hand of $57 million and net debt of $684 million. Our net leverage ratio as calculated under our credit agreement ticked up by 20 basis points as expected based on seasonal cash flows to 3.9 times. We expect our net leverage to remain constant in Q2 before trending down through the balance of fiscal 2025 and anticipate ending the year in the mid to-high 3s and remain comfortable that we have sufficient headroom under our existing covenants. Paying down debt and strategically investing in the business continues to be our priorities for cash, and we reduced net debt by $6 million in the quarter. Our long-term goal remains to reduce balance sheet leverage to 3 times adjusted EBITDA or less as calculated under our credit agreement. Turning now to our outlook. We continue to expect to pivot to growth in the back-half of the year and are reaffirming guidance as follows. We expect fiscal 2025 organic net sales to be flat or better. Adjusted EBITDA to grow by a mid-single-digit percentage. Gross margin to expand by at least 125 basis points and free cash flow of at least $60 million. We continue to expect the cadence of the year to follow the shape we discussed last quarter. As such, we expect flattish year-over-year organic net sales growth in the second quarter and accelerating growth in the back-half of the year. As Wendy mentioned, acceleration in the back-half will be driven by the promotional timing shifts in Snacks, the full recovery of an infant formula supply, distribution gains and brand building. Lastly, we continue to expect adjusted EBITDA growth for the full year to be driven by growth in the back-half as productivity ramps up and net sales increase. We expect the split of EBITDA to be approximately 40% to 60%, with 40% of EBITDA being generated in the first half of the year and 60% of EBITDA being generated in the back-half of the year. Furthermore, we expect EBITDA to step up sequentially in each of the second, third and fourth quarters. And now, I'll turn it back to Wendy for closing remarks.

Thank you, Lee. Fiscal 2025 is a pivotal year for Hain Reimagined, as we begin to see the benefits from the foundational building blocks we have put in place. We have completed much of the heavy-lifting, laying the groundwork for our success by streamlining our portfolio, resetting our global operating model, activating our fuel program, and investing in key capabilities. We are now hyper-focused on commercial execution to drive both top and bottom-line growth. While the macro environment remains challenging and the consumer remains stretched, better-for-you continues to be an area of growing interest for consumers and they continue to look for premium products. We are well-positioned to meet shopper needs and we have ample white space to drive growth for our beloved brands. Our robust fuel pipeline and strong free cash flow generation will continue to enable us to reduce net debt and improve our leverage ratio while investing in the business and driving gross margin expansion. I remain confident in our ability to realize the potential of the Hain Reimagined strategy we introduced last year. As always, I want to thank all of our team members who remain dedicated to inspiring healthier living through better-for-you brands and who bring our values to life every single day. It is their commitment to our company and our customers that makes Hain Reimagined possible. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Jim Salera from Stephens. Your line is now open.

Hi, guys. Good morning. Thanks for taking our question. Wendy, I wanted to ask --

Good morning,

Yes. Good morning, guys. As we think about this ramp into the back-half of the year, particularly in snacking, what are your thoughts around just overall category performance? And is there any variability if we see kind of continued softness at the category level on your distribution gains? Or do you still feel like you have really good line-of-sight regardless of kind of category performance on that?

Yes. I appreciate that, Jim, and good morning. When we think about our Snacks category, as we mentioned on the last earnings call, there were some known moves from quarter one into quarter three. And so that automatically gives us visibility to the drivers of quarter one in snacking, but confidence as we go into the back-half of the year because those are known programs. They're fairly substantial. In fact, without those two drags in quarter one, Garden Veggie would have been up low-single-digits and the overall snack category would have been up low-single-digits. So they were a material drag in quarter one to the Snacks category. At the same time, as we said in the remarks, we were gaining distribution and so we're looking at the back-half with those two activities that fall in quarter three, some incremental promotional activity as we go into quarter four, and then the continued success of Flavor Burst as that continues to ramp up in incremental distribution beyond where it sits today.

Great. And maybe to clarify, when I meant total snacking, I meant not your total snacking, but like total snacking across the entire store, like the entire category. And so, just thoughts on kind of the snacking category at retail in any variability that that softness might have into the back-half of the year on your expected distribution pickups across channels?

Oh, that makes sense. Okay. So let me give a little perspective on what we're seeing in the broader snacking environment. There was clearly some very deep discounting by some large players during the summer season to drive velocities. As we've said before, our biggest opportunity is actually to drive distribution. That's where all that white space is. In the case of Garden Veggie and Terra, they've got a north of 70 awareness, but they've got a household penetration in the single-digits. So we know that consumers love the brands, they just can't find them. So that's an opportunity for us that probably doesn't exist for others. But when we see the irrational pricing behavior that drove some of that deep discounting, I think it affected everybody in terms of velocities. We're seeing some of that stabilize a bit, but at the same time where we have distribution, we're seeing nice velocities, especially on Terra. We're seeing TDP gains on Garden Veggie. And I think what we're most excited about is the recent launch of our master brand campaign on Garden Veggie, which, as we mentioned, has had really strong impressions. We will continue to lean into that as we go forward. But our number one objective is making sure that the brands that people love, they can find and at the same time working with our retail partners to create some in-store excitement that will generate success for both of us. Where we've done that, it's been successful, but we know our brands don't respond well to deep discount. Our trade dollars are best spent driving feature display and that's sort of traffic disruption for the consumer on their journey. And then obviously, the comments that we have made last quarter and this quarter relative to driving C-store distribution in snacking, that's a really underpenetrated channel for us and is a great opportunity for awareness and reach to consumers that we will continue to lean into. And as we mentioned in this quarter, our Snacks distribution was up double-digits in the C-store channel.

Great. Appreciate that. I'll hop back in the queue.

Super. Thanks.

[Operator Instructions] Your next question comes from the line of Anthony Vendetti from Maxim Group. Your line is now open.

Thank you. Just wanted to hone in a little bit on Baby's formula. Maybe just if you could expand on the full-year outlook there. And then, have you built in supply chain redundancies to prevent any future shortages? And then I just have a follow-up on the leverage.

Yes, absolutely. Good morning. As we've said before, Earth's Best formula is a key growth vehicle for us and it's also a margin-accretive category for the Earth's Best brand. And Earth's Best is still the leading natural and organic brand in North America. The formula disruption was meaningful and material for us. We are back in supply on all of the formulations, but not fully in all the sizes. So, all the varieties of our baby formula are available, just not in all the sizes, but they will be by the end of this quarter and quarter two. We've built in two elements of redundancy. One is that we are carrying more inventory than we had historically to give ourselves some timing redundancy and our partner has -- our formula is qualified to produce in more than one location. So that also gives us location -- manufacturing location redundancy that we feel very, very good about. So the combination of those things, we feel very solid on our supply. What we're more focused on now is regaining our shelf space and where we have either gained new distribution with new retail partners or where we've regained distribution of our prior distribution, the velocities are at or better than they were prior to the supply disruption, which tells us that consumers love and trust the brand and have trusted it for over 35 years. They've been looking for the brand as a trusted brand and where we've made it available, we're seeing the velocities pick back up. We are also turning back on social and digital marketing this quarter. And you will see us continually advertising to the consumer, the unique qualities of Earth's Best brand in the marketplace. The ease of a consumer switching from another formula to Earth's Best where we know that they will have difficulty in finding supply from some of our competitors and where we see opportunities to continue to point out the unique and distinctiveness of our brand. We are one of the few that actually provides baby food from birth to backpack and being that parent's partner on that journey from the time the baby is born all the way until they're headed to school, we see that as a tremendous opportunity for us. So it will be a key growth vehicle. I'm happy to say that as we've picked up distribution, we're actually seeing some over-delivery to our expectations on formula. And so, we believe that it will be a continual driver for us.

Okay, excellent. Thanks. And then, on the leverage, I know that you're looking to reduce leverage. Obviously, organic cash flow is being used to do that. Are there any other steps that you're taking to reduce leverage outside of purchase from traditional cash flow?

So right now, you're right, it is organic cash flow. So I mean, we're pleased we bought the leverage down since Q1 of last year, we've bought it down, I think, over $90 million. But that is the key focus, obviously driving the kind of EBITDA profile and then secondarily, the net working capital initiatives that we have in place. So you saw that we continue to kind of make momentum there. And just a reminder, it was $165 million on unlocking net working capital. We unlocked a third of that or over third of it in the first year. So that's our continued focus. As we get into the back-half of the year, we'll see the leverage. I mean, at least flattish in the second quarter and then we'll see it come down in the back-half of the year.

Okay. Are there any other divestitures that could -- or that are planned for fiscal year '25 that could help reduce leverage? Or not at this point?

There's none that we're prepared to speak to today. We've talked before in our simplification pillar that we also look at our geographic footprint and we have some previously-announced office consolidations, distribution expansion, manufacturing location consolidations. Some of those are still taking place. They were announced in the last year, but they're still playing out in the front-half of this year.

Okay. Great. Thank you. I'll jump back in the queue. Appreciate it.

Sounds good. Thanks.

Your next question comes from the line of Andrew Wolf from CL King. Your line is now open.

Good morning. I had to join the call a little late, but Wendy, could you just talk about kind of what your -- or expand upon if you have talked about it, kind of the consumer behavior in North America and Europe or UK if it's different when some people are -- some segments are feeling kind of tight or stretched. They're switching to private label or switching channels to more discount stores. So, how is that either impacting you or expect to impact Hain's brands and how is that consumer behavior looking versus your expectations -- or coming in versus your expectations?

Yes. Sounds good. Good morning, Andrew. Let me speak to it sort of in broad terms in both markets because as we've talked before, they're a little bit different in the way the consumer is behaving, but also in the dynamics in the marketplace. So I'll start on the international side. We know that the inflationary environment and the consumer feelings about the economic environment were much more acute in the international markets for us in Western Europe and in the UK and it resulted in a couple of things. It resulted in consumers trading down to private label. It included the consumer shifting between channels into a lot of discounter behavior and so -- and also stretching meals. Where we saw that both benefit and impact our business over this last year, we saw a shift from brand to private label in a few of the categories. The benefit for us is that we are also in private label, in non-dairy beverage, in meat-free, in spreads and drizzles, because we produce all of those products ourselves. So we actually benefited from that, although it did have some shift in the overall mix of the business. We also saw the consumer stretching their meals more or their shopping occasions. That also benefited us in a few areas where we are an ingredient supplier in spreads and drizzles and where we have a lot of ingredient meat-free options in our Linda McCartney brand, especially in things like ground meats and minces and in meatballs and items like that where we saw some of the consumer demand shift. And then, the third element around discounters, we actually -- the team had over the last year leaned into a broader market reach in the UK, especially to ensure that our brands were available in all the points of distribution. So we saw -- as an impact, we saw the consumer behavior shift in product, a little bit in channel, and certainly brand and private label, and it looked like a mix shift for us, but we benefited in a variety of ways and you saw that show up in the growth of the international business. We've seen the market stabilize there, and inflation rates come down to more of a normalized level. In the U.S. market, we saw a couple of things. The consumer bifurcation, so those that had more discretionary income continuing to lean into premium and super-premium, although they were buying from different locations than they did before. We saw consumers, who were more value-focused and cash strapped, were shopping more often smaller basket size and different locations. And two things have played out for us. One is ensuring that our team is driving the right price pack architecture to make sure that the right products are available in the right locations. We've also done a lot of work around our channel expansion. Historically, the Hain business has been concentrated in a few large retail partners, and there was always an opportunity for us to lean into continued channel expansion. So we are continuing to drive that, but that's sort of what we're seeing in the consumer behavior. Similar to the UK, we've seen inflation rates come down to a more normalized level. We're seeing shopping behavior, however, continue to play out. So traffic levels in discounters continues to play out. We have seen a shift. You've probably heard this from others as well in traffic and convenience stores and in drug stores shifting to more mass and certainly into club as people look to buy maybe premium items, but they're buying them in bulk or they're buying them in larger quantities. So those are sort of the shifts in behaviors that we've seen. And our goal continues to be brand building to make our products and brands first to mind, channel expansion to make our products easy to find, and innovation that drives clear consumer value in better-for-you that is available, accessible and affordable to more people. Did I lose you, Andrew?

I'm trying to -- can you hear me?

Yes.

Yes.

Is the U.S. mix therefore more discretionary overall? Because there's no private label as sort of -- for the value seeking -- the more value seeking --

Remember, we don't do a lot in -- first of all, for Hain, we don't do a lot of private label in the North American market. Second, the market really isn't penetrated in private label in the categories that we play in. So we haven't seen private label be a big impact in the categories we're in, certainly in better-for-you, but definitely in this geography, which is very different than what you see in the European market.

And I assume your guidance is probably mainly bottom-up from the brands. But to the extent it might be at all influenced by the outlook, is the outlook sort of more of the same? Or is -- there are some discretionary sectors that are actually starting to see better sales and like restaurants and kind of thinking that in a post-election, post-COVID inflationary period consumers might come back to more discretionary purchasing. Could you comment on your outlook with that in respect to that point-of-view?

I'll start and I'll let Lee fill in a little bit additional. But our outlook is very much based on where we are driving brand building and the impact that we believe it will have, where we're driving channel expansion and where we have current distribution at the expected velocities, and then where we have innovation that continues to perform. So I guess to your question, yes, it's very much bottoms-up and less so dependent on category performance for a part of our growth or channel performance for a part of our growth. And we've said that before that we want to plan our business based on what we can control, less so participation in categories that will have natural growth rates. But I don't know, Lee, if you want to --

And I guess from a bottoms-up perspective, I mean our outlook and if you're talking about our outlook with regard to kind of the guidance outlook that we gave, it's driven by a number of factors. I mean, obviously, we've talked about -- and factors that we control. So we've talked about the promotion in Snacks. We've talked about Baby & Kids and the expansion in formula and then by programs that we put in place driving our tea category. So for us the outlook as we think through the guidance that we gave it implies a step-up in the second half, again, it's driven by controllables that we have and continued expansion of our distribution.

Got it. Thank you.

Thanks, Andrew.

Your next question comes from the line of Ken Goldman from JPMorgan. Your line is now open.

Hi, it's Elsa Evans on for Ken. So just on your full-year gross margin guide, how should we think about the cadence of gross margin expansion throughout the year? Is that largely expected to be back-half weighted? Or how should we think about gross margin expansion in the second quarter relative to the back-half?

Yes. So just the way I would look at it, we do see gross margin sequentially improving as we go through the year, so sequentially quarter-to-quarter. But as you think about it versus a year ago, the expansion really will occur in the back-half. So, for a number of different things. I mean, we feel really good about our productivity pipeline, that productivity pipeline that will continue to step up quarter-to-quarter. So again, second-quarter -- yes, second quarter is probably going to be similar to what it was a year ago with the expansion taking place in the back-half.

Thanks. I'll pass it on.

[Operator Instructions] There are no further questions at this time. I will now turn it back to Wendy Davidson. Please continue.

Wonderful. Thank you. And I appreciate everybody joining us on the call this morning and especially want to thank our team members around the world for their continued commitment to re-imagining our business to delivering on our strong execution and delivering on the promise around our brands. And with that, look forward to further conversations with everybody later today.