Mary Anthes - SVP, Corporate Relations Irwin Simon - Founder, President, & CEO John Carroll - EVP & CEO, Hain Celestial United States Steve Smith - EVP & CFO.

Scott Mushkin - Wolfe Research Scott Van Winkle - Canaccord Genuity Bill Chappell - SunTrust Robinson Humphrey Amit Sharma - BMO Capital Markets Ken Goldman - JPMorgan David Palmer - RBC Capital Market.

Welcome to The Hain Celestial First Quarter Fiscal Year 2015 Conference Call. (Operator Instructions). I will now turn the call over to your host, Mary Anthes. Please go ahead..

Thank you, Stephanie and thank you all for joining us today. Welcome to Hain Celestial's first quarter FY15 earnings call.

Irwin Simon, our Founder, President and Chief Executive Officer; John Carroll, Executive Vice President and Chief Executive Officer, Hain Celestial U.S.; and Steve Smith, Executive Vice President and Chief Financial Officer and several members of Hain Celestial's management team are with us today to discuss our results.

Our discussion today will include forward-looking statements which are current as of today's date. We do not undertake any obligation to update forward-looking statements, either as a result of new information, future events, or otherwise.

Our actual results may differ materially from what is described in these forward-looking statements and some of the factors which may cause results to differ are listed in our publicly filed documents, including our 2014 Form 10-K filed with the SEC.

A reconciliation of GAAP results to non-GAAP financial measures is available in our earnings release which is posted on our website at www.hain.com under Investor Relations. This conference call is being webcast and an archive of the webcast will be available on our website under Investor Relations.

Our call will be brief, so please limit yourself to one question. If time allows, we will take additional questions and management will be available after the call for further discussion. Now, let me turn the call over to Irwin Simon, our Founder, President and CEO.

Irwin?.

Thank you, Mary and good morning, everyone. I hope everybody had an opportunity to review our first quarter FY15 earnings call. Hain's diversified portfolio of organic and natural brands continues to generate robust growth worldwide across various sales channels in the quarter.

This demand for healthy, better-for-you products led to a record quarterly performance. Net sales were up 35% to more than $642 million, adjusted for our nut butter voluntary recall initiated in August. This recall was tough for us, since MaraNatha is one of our top brands, but I'm proud of the team who handled it.

We've been back in production and shipping at last year's levels and we've made up for sales. The fact that we had such a great quarter speaks to the brand strength of the business and the diversity of our business across so many product lines, portfolio categories and geographies.

It's also great to see the consumption of MaraNatha nut butters growing as quickly as they are and John will talk about that later. As a company that sells healthy products, we pulled our products back from our consumers, retailers and warehouses.

Various employees and consultants have spent numerous hours at the facilities and elsewhere to ensure the safety of our products. The cost incurred shows our commitment to future growth; reflect a premium price brand and high-priced commodity products in our nut butter business.

Both net sales and adjusted earnings were up solid double digits for the 16th consecutive quarter, with another quarter of high single-digit organic growth. We had strong results in the U.S., along with Hain Pure Protein -- the UK, Europe and Canadian business.

Our acquisitions added $131 million in sales which included growth from increased sales as a result of our ownership, our new distribution of products and excluding expansion into new customers and new geographies.

That's truly positive momentum and I'm proud of what we've been able to do to build out the store deeper into key accounts with a wider selection of brands, products, SKUs, to capitalize on distribution whitespace opportunities which we discussed so many times.

Awareness of the word wellness has grown rapidly in the last several years, with the vast majority of industry professionals and consumers familiar with the term and concept. Only 10% of consumers knew the term wellness 20 years ago when I started this company -- approximately 90% are familiar with it today.

Millennials make up 50% of the population today, but they're 100% of our future population and Hain has products for every one of them. Today, consistent organic growth can be hard to find globally. Hain continues to deliver with our mission to be a leading manufacturer of organic natural better-for-you products around the world.

This speaks not only to the strength of the brands we've acquired, but equally the importance of the strength of our brand investment, global team sourcing and distribution around the world. Consumers are increasingly seeking healthier better-for-you products, including non-GMO.

Consumer tastes are shifting and view on health and wellness are evolving. Hain has been the first to capitalize on these opportunities over the years and our products and brands are even more compelling today than when I started this company.

Today, our products are not just available at your local natural food store or grocery store, but across mass-market convenience stores, white tablecloth restaurants, fast-casual dining and what's called our eCommerce business is growing tremendously across our omni-channels, providing consumers, including millennials, with a seamless shopping experience of bricks and mortar and clicks.

Our strategic acquisitions have enabled us to have a fully branded product offering across aisles, categories, channels, in many, many countries.

Our organic natural better-for-your product offerings are growing in over 65 countries around the world and, through Tilda, with a new office in India which I plan to visit next week and expansion opportunities in the Middle East and many other countries where Hain products were not previously sold and will be in the near future.

Looking at the first quarter in more detail, our brand performance was strong, with broad-based increases. We had 23 brands around the world up double digits, 6 brands up mid- to high-single digits, that is phenomenal growth.

Now, let me focus on key drivers that led to our strong sales performance, as I mentioned, organic growth was up in the high-single digits.

We continue to experience growth with new distribution with Sensible Portions stacked chips which is a great product; Imagine frozen desserts; and new listings of Greek Gods Kefir almond non-dairy yogurts at retailers, mass market, natural-food stores around the U.S. and the rest of the world.

Importantly, we're growing deeper in key accounts, based on strong, consistent consumer demand. And you know I want to sell our products wherever there is a cash register. Today, millennials embrace healthy living as a part of their personal social identities. And, often, major life decisions are based on their desire to live a healthy lifestyle.

These results, combined with our operating leverage, drove our record first quarter adjusted earnings of $0.68 versus $0.52 in first quarter last year, up 31%. Our adjusted gross margin, excluding Hain Pure Protein, was 25.3% and 23.5% adjusted with Hain Pure Protein included.

As I mentioned when we acquired the 100% of Hain Pure Protein due to the fresh nature of the business, Hain Pure Protein operates with lower gross margins in the high-single digits and mid-single digits operating margins. We effectively continue to do that -- manage our SG&A to report a 37% increase in adjusted operating income, $58.8 million.

In the UK, net sales were up strong double digits, including over $40 million in net sales from our Tilda business. The soup season has just started and our New Covent Garden Soups are up double digits and now we plan to go on air with TV sponsorships. The Linda McCartney brand was up in double digits in the frozen category.

We've secured new listings in Pret A Manger, Tesco, Sainsbury, our Yum products. We've launched our non-dairy frozen dessert business in the UK and the UK team has now taken over our non-dairy, plant-based milk business and looks to roll that out on a much larger spectrum in our UK.

We also plan to roll out Celestial Seasonings and our snack business in a bigger way. In our spreads business, Sun-Pat nut butters, Gale's Honey, our Hartley's jelly and jam performed well and now are featured on national TV spots including The X Factor.

Our chilled-dessert line ramped up on schedule and we're now getting ready for the busy holiday season to provide our Sainsbury consumers. Ella's Kitchen continues to be -- and this is a major accomplishment, to be the number-one-selling baby food in the UK.

It's amazing when you walk a major retailer in the UK and walk down the aisles and see the amount of SKUs and products that Hain has in major retailers within the UK market. Cully and Sully in Ireland have performed well and the Cully and Sully team have taken over a lot of Hain products and continue to get distribution in that market.

Our Tilda brand performed well, up 10%. Our ready-to-heat which we see tremendous expansion, was up 18%. Although a fire broke out October 25 at our UK rice mill in (indiscernible) and fortunately, there was no injuries, our team has done an outstanding job to ensure minimal disruption to our operations with the fulfillment of all orders on time.

We're working on getting the facility back in full production soon and we have outsourcing capabilities to pick up on production. Fortunately, this did not affect our ready-to-heat business which is our one of our fastest-growing businesses within Tilda.

Hain Celestial Canada, under the rest of the world segment, performed well, up double digits in local currencies, led by Europe's Best, Sensible Portions, Terra, Greek Gods, Spectrum which shows when we acquire brands and bring them to our Canadian operation, there's great growth for these brands in that market.

Also in the rest of the world, our Hain Celestial Europe business, excluding Grandma which we divested last year, continues to grow double digits. We look for great growth in brands like that Natumi, Danival, our Rice Dream business and really look to expand our non-dairy business under the Dream throughout our European market.

Additionally, Hain Celestial Europe launched limited range of Ella's Kitchen and secured a lot of new listings in Belgium for Lima and Danival. Hain Pure Protein which we acquired 100% in July, contributed more than $70 million in the quarter, up double digits.

The consumer today is looking for more and more protein, more and more protein that's antibiotic free and no nitrates.

If you walk into a Chipotle, Chop't, Dig Inn, Pret, fast-casual dining, you will find a Hain Pure Protein product being sold in there and that will continue to expand into more and more fast-casual dining and more and more retailers across the U.S.

This year we will sell over 1.5 million organic and antibiotic free turkey for this year's Thanksgiving. It's unbelievable that we're sold out, so you better get your Plainville turkey soon. Last year's two acquisitions provided Hain with opportunities in new categories and geographies. We continue and will continue, to look at M&A opportunities.

We see a lot, we'll evaluate a lot, but it's got to be right for Hain as we build out our infrastructure, products and distribution.

Hain has the proven ability to expand great brands into various channels and key categories, with product attributes including non-GMO, gluten free, free from, including plant-based products like our Dream, Rudi's, BluePrint, Greek Gods, Tilda, Earth's Best and Ella's Kitchen, just to name a few.

We'll continue to build out our infrastructure to support future growth with additional investment in CapEx to support our growth over the coming years. In addition, productivity remains a key strategic initiative for Hain and for FY '15, we believe we can achieve $55 million in worldwide productivity.

So, for Q1, we closed $10 million in productivity and have a good roadmap to look for those in the next three quarters. Our balance sheet remains strong, as does our ability to generate good free cash.

Today, we're excited to be able to enhance shareholder value through the issuance of a dividend with our stock split in the form of a dividend, subject to shareholder approval at our annual shareholder meeting. Our business was strong in October. And we head into this year's cold weather season -- we're prepared for it.

We have strong teams working on our worldwide sourcing procurement, with inventory levels to meet the needs of our growing business and growing consumer demand. We continuously look for additional opportunities for supply and growth out there. We have a solid infrastructure and production in place for a busy holiday selling season in cold weather.

We believe we're well positioned for another record year and future growth long term. With every major retailer focused on eCommerce opportunities, we're well positioned and invested in our team to build out a platform for eCommerce, social media and digital strategy with Hain as a major player in this evolving omni-channel.

We have dedicated full-time employees, for the first time working in this area with dotted line responsibilities from logistics, finance and other functional areas of the company involved with its growth. Our executive team remains committed to increasing shareholder returns.

Our balance sheet provides us with financial flexibility for us to pursue strategic acquisitions as they present theirselves. In summary, we had a tremendous start to the FY15. And I look forward to the next three quarters. With that, I will turn it over to John and he will take you through all the great things that are happening in his U.S. business.

John?.

Thank you, Irwin. Good morning, everyone. Q1 was a really great quarter for Hain Celestial U.S.. Key highlights from the quarter included Q1 adjusted net sales of $347.4 million, up 11% versus year ago. If we look at Q1 adjusted net sales ex-MaraNatha, the U.S. was up 13% versus year ago.

Importantly, we had strong Q1 organic growth of 8% which, you need to remember, was on top of a 9% gain in the prior year. This was achieved while funding a $2.1 million, or 60-bp, shift to account-specific point-of-sale programs.

These programs, as we've discussed on previous calls, are classified as a reduction of sales and we still delivered 8% organic growth with that. Our Q1 12-week Nielsen AOC consumption growth ex-MaraNatha was 9.2% which was over 5 times higher than the AOC channel growth of 170 bps.

Our growth was achieved even as we lapped a strong year-ago comp, resulting in a two-year stack consumption gain of 21%. These results were driven by strong gains across the U.S. portfolio, including 14 brands with double or high-single digit increases.

Our Q1 adjusted operating income increased to $52.4 million, up 13% versus year ago and our Q1 adjusted operating income margin was 15.1%, up 20 basis points versus year ago. This reflected productivity savings offsetting inflation as well as increased leverage of our SG&A platform.

Now, on our previous calls, we reviewed five key factors that made us optimistic about the balance of the year outlook. The five factors we reviewed are consumption trends; AOC distribution growth; productivity; innovation; and our most recent acquisitions performance.

Today, for the sake of time, we'll review only four of these five factors, but we'll skip innovation to instead give you a MaraNatha update. Don't worry, our innovation results continue to be really, really stellar. We just want to give you more insight into MaraNatha. So, let's start with our first key factor which is our continued consumption growth.

Q1 was our 19th consecutive quarter of strong U.S. consumption trends. We drove growth across all key AOC channels, despite going against some strong year-ago comps and we delivered AOC growth ex-MaraNatha that was more than 5 times the channel average. Our second key factor is our AOC distribution growth.

If you look at our top 13 brands, ex-MaraNatha and these brands account for 80% of our AOC sales, we saw a distribution gain of 4% in Q1 versus year ago. You need to remember that this 4% gain was achieved despite lapping huge Q1 year-ago distribution gains at Walmart on Ella's Kitchen, Greek Gods and Sensible Portions.

And even though we're lapping those huge gains, we still drove a 4% increase in our distribution. Look, we're going to continue to fill the distribution white space on key brands and at key customers. Q1 saw some great distribution wins in key accounts. Let me give you a couple of examples. Start with Walmart.

At Walmart, we got four new Sensible Portions stackable veggie chip SKUs in over 3,000 stores in the first quarter. At Target, we gained 11 new baby food SKUs in all stores and 2 new Spectrum Oil SKUs in over 1,000 stores each. At Publix, we got four Greek Gods Kefir SKUs in 1,000 stores and three Imagine simmer sauces in 700 stores.

At Kroger, we got 1,000 stores for Spectrum refined coconut oil. At Whole Foods, we got national distribution for two new Terra seed saver chip SKUs and an Imagine MSC-certified seafood stock SKU. At Sam's Club, national distribution on 24-ounce Garden of Eatin' blue tortilla chips.

And, finally, at Sprouts, we got two new Spectrum seeded blends and Dream nutrition shakes in national distribution. These are just a few of our latest wins. So, as you can see, we continue to make significant progress in filling in our distribution white space and there's still a long way to go that we can continue to leverage every quarter.

The third factor fueling our optimism is our productivity program. Almonds, butter fat, egg whites and organic wheat flour costs were up significantly in Q1. We released price increases on the products affected by these commodities in the early summer, but they won't take effect fully until the second half of our fiscal year.

The key to offsetting cost increases in Q1 was our productivity program and SG&A leverage. Our productivity savings were $7 million in Q1.

We realized significant productivity gains from initiatives such as increased internal baby food pouch production at our Westchester plant; increased plant efficiencies at our snacks plants; reduced packaging costs across the portfolio; and mix and mode distribution savings.

The fourth key factor driving our optimism is our latest acquisition, Rudi's Organic Bakery. Rudi's delivered strong top- and bottom-line results in Q1. We realized significant synergy savings from the elimination of a redundant function, integration of Rudi's sales group into the Hain Celestial U.S. sales force and broker consolidation.

Our Rudi's Q1 AOC consumption was up 20% which reflects acceleration versus pre-acquisition trends. We had major distribution gains in Q1 on Rudi's, including three SKUs of Rudi's gluten-free bread in over 500 Target stores.

We also received strong acceptance of our new items in the natural food channel, most notably, our gluten-free double fiber bread and our organic white English muffin, a personal favorite. We implemented a price increase across the Rudi's line in Q1 to help offset the rising costs of organic wheat and egg whites.

In addition, we continue to improve production throughput and drive productivity at our Boulder bakery. And, finally, together with the Rudi's R&D team, we've built a tremendous innovation queue. We believe the brand is extendable, not only in the bread and baked goods category, but beyond that in other categories.

We're very excited about the opportunities to grow Rudi's Organic Bakery across both new product categories and new channels. Now, regarding our MaraNatha nut butters brand, since our voluntary recall of the line on August 19, we've gone back to shipping the brand nationally again in late September.

As of the last week of October, we have regained 60% of our AOC distribution and 61% of our AOC consumption. The response by retailers and consumers to what we call the MaraNatha reboot has been pretty remarkable and it demonstrates the strength and the resiliency of the brand.

In fact, throughout this period of time, a leading consumer contact question has always been, when is MaraNatha coming back? This is clearly a strong brand that consumers want to have and want to have in their pantry.

Now, look, we still have a lot of work to do to ensure MaraNatha regains all of its shelf space and consumption, but we're off to a very strong start. And we expect to get the majority of our AOC distribution and consumption back by Q3. To close, Q1 was a really great quarter for Hain Celestial U.S..

Highlights included 11% adjusted top-line growth, 8% organic growth on top of a 9% gain in the prior year and Q1 AOC consumption growth of 9.2% ex-MaraNatha. We also delivered a 13% gain in operating income and a 20-basis-point increase in our Q1 operating income margin.

We're very optimistic about our go-forward prospects, given our strong consumption trends, our growing AOC distribution, our deep innovation queue, our productivity initiative and the momentum we've got on our latest acquisition, Rudi's Organic Bakery. With that, I'll turn the call over to Steve Smith.

Steve?.

Thank you, John and good morning, everyone. I'm going to take you through the first quarter financial results and then we'll review our guidance. We had another outstanding quarter from a sales perspective.

Reported sales were $631.3 million, while sales adjusted for the voluntary nut butter recall and certain non-dairy rice drinks withdrawn in Europe were $642.6 million, with adjusted net sales up 35% versus the first quarter last year.

Sales growth was driven by increased distribution and consumption, as our existing portfolio of brands continued to perform well, while the acquisitions of HPPC, Rudi's and Tilda increased our sales by $131 million in the first quarter. This amount also includes brand growth under our ownership.

As a result, brand growth as a percentage of sales from both our existing portfolio and our acquisitions were high-single digits. Our adjusted earnings were $0.68 per share, compared to $0.52 per share in last year's quarter, improving 31%. We earned $0.37 per diluted share on a GAAP basis in the current year.

Adjusted operating income was $58.8 million this year, compared to $43 million last year, improving 37%. Operating income on a GAAP basis was $28.8 million, compared to $39.8 million in last year's first quarter.

As noted in our press release, our current quarter adjustments to income of $27.6 million which is $15.8 million net of tax, are principally from; one, the voluntary nut butter recall which was $14.2 million net of tax and $22.8 million before tax; start-up costs of $2.7 million related primarily to our chilled-desserts facility in the UK; $2.2 million, due to a voluntary withdrawal of certain non-dairy rice drinks in Europe, where the ingredients separated and which has since been reformulated; and, lastly, $2 million of acquisition related fees and expenses, including integration costs from HPPC, Rudi's and Tilda.

We also had $3.2 million of unrealized foreign exchange losses, primarily on inter-company balances and partially offsetting these amounts are almost $5.6 million of non-recurring income items, including a $5.3 million step up in the carrying value of the 48.7% of HPPC we owned prior to our acquisition of the remaining interest.

Gross margin on an adjusted basis was 23.5%, a 156-basis-point decrease from the same period last year, due to the acquisition of HPPC. As we previously discussed, this acquisition was expected to compress gross margins by 150 to 160 basis points for the full year.

Excluding the impact of the HPPC acquisition, adjusted gross margin would've been 25.3% for the first quarter this year. Versus our expectations, we were also affected by product customer mix and rising butterfat costs in the U.S. and, to a lesser extent, product mix in the UK and in the rest of the world.

SG&A expense for the quarter, on an adjusted basis and excluding amortization of acquired intangible assets, was 13.7% of net sales, a 170-basis-point improvement as compared to the 15.4% last year.

The rate of spend declined in the quarter, primarily from leveraging our infrastructure with the impact of our acquisitions, mainly the HPPC acquisition and as we achieved strong operating leverage. As a result, we continue to show operating margin expansion.

On an adjusted basis, operating income was 9.2% of sales this year, increasing 15 basis points from last year's first quarter. This is despite the gross margin compression coming from the HPPC acquisition. Excluding the acquisition of HPPC, on an adjusted basis, operating margin would've been 9.6%.

Operating income on a GAAP basis for the first quarter was 4.6% of net sales. On a GAAP basis, our effective income tax rate was 24.4%. This includes the effect of the step up in the basis of HPPC interest we owned prior to the acquisition not being subject to tax.

Our adjusted effective income tax rate for the quarter was 34%, compared to 33% last year. And, for the full year, our adjusted effective income tax rate is expected to be in the 32% range. Our balance sheet continues to be strong. Our working capital was $413 million, with a current ratio 1.9 to 1 at September 30.

Stockholders' equity was $1.6 billion and debt as a percentage of equity was 55.2% and debt to total capitalization was 35.6%. Net debt at the end of September was $794.8 million. And at September 30 this year, cash balance was $93 million, an increase of $28 million from the same period last year.

This strong cash position has allowed us to fund the HPPC acquisition with cash on hand and our capital expenditure requirements. This substantially accounts for the decrease in cash since June. For the quarter, operating free cash flow was a negative $10.6 million this year, compared to a positive $41.3 million for the prior year.

The decrease is principally the result of working capital requirements on a higher sales base. Also, in the UK at Tilda, they are building seasonal inventory, but their purchases are funded through borrowings and, lastly, the effects of the voluntary nut butter recall. Capital expenditures for the quarter were $13.2 million.

Our cash conversion cycle was 65 days for the quarter. Guidance for net sales for the full year remains unchanged and in the range of $2.725 billion to $2.8 billion. And this is both on a reported and adjusted basis.

Approximately one-third is base business growth, including the growth of acquired brands under our ownership and two-thirds of the growth is coming from acquisitions. With respect to the cadence of quarters from a sales perspective, our second quarter is historically our strongest quarter and will continue to be so.

We continue to anticipate earnings per diluted share in the range of $3.72 to $3.90 per share.

As indicated in our press release, our estimates do not include any results of discontinued operations, acquisition related expenses, integration restructuring charges, startup costs, unrealized currency gains or losses, reserves for litigation settlement and other non-recurring or onetime items, such as the nut butter recall and withdrawal impacts, or future acquisition activity.

At this point, I'll turn it back to Irwin..

Thank you, Steve and John. Let's open it up for questions..

(Operator Instructions). Our first question comes from Scott Mushkin with Wolfe Research. Your line is open..

I had two. Tilda in the U.S., a brand -- we've gotten some pretty good feedback on the brand, the quality of the rice. I'm surprised we haven't seen it here quicker or maybe I'm just missing it. I wanted to get an update there. It seems like it's an opportunity for the U.S. business. That's my first question and then I have another one..

Scott, you do see it if you go into ethnic markets and you will see it in Loblaws in Canada. We're in the midst of working with major retailers and there is two aspects of it. The ready to heat and the Tilda branded rice. So, you will see it. I'm not ready to say today where you will see it, but you absolutely will see it.

We've had many major retailers in this conference room that we presented to and loved it. So, it's just a matter of time, not when..

It seems like it could move. Everyone's looking -- you said wellness wasn't, I think you said, even a term most people were familiar with when you started the business, Irwin. Clearly, Tilda's gluten-free, great product, differentiated packaging, seems like right on trend. I was kind of curious..

What we're seeing tremendously on trend, you heard what I said, the ready to heat business up 18%. Spending a lot of time with Tilda is where your traditional Diwali was two weeks ago. Your traditional Indian family eats rice every day. As millennials look to eat rice, they're not sitting and cooking rice every day, they're ready to heat.

We just are putting more capital in our ready to heat facility to keep up with demand. We're at 100% capacity in our ready to heat facility in the UK and will spend about GBP6 million to build out capacity.

So, not only is it your traditional basmati rice and actually, there is a shortage of California rice because of drought which we see tremendous opportunities to be out there in front with basmati rice.

Not only rice, Scott, we're going to go into other grains with Tilda and you're going to see us go into other rice-based products under the Tilda brand. First was to integrate the business. We now have our 83-person office open in India. Middle East, get all on one system. We're seeing great growth against Tilda.

Unfortunately, just to mention, we did have a fire at our Rainham facility two Saturdays ago. It was our milling line that is down. Our packing line was not affected and our ready to heat. We will now have to outsource our milling products, but it ultimately can be packed in with our facility. So, that was just a little setback that we've had there.

Great on trend and we're really excited about the Tilda opportunities. Your second question, Scott, I don't know if that was intertwined..

No, it wasn't. I was just wondering about M&A here in the U.S.. We had Rudi's which I think's doing really well. We think the health and beauty care area is a place you could beef up. It seems to be a growing trend in the U.S., at least on pure products, there. Any thoughts on M&A here would be great, Irwin? Then I'll yield.

Thank you for taking my questions..

We saw what Annie's ultimately sold for, so we see what multiples are out there.

When I step back today and when I'm visiting stores and I say what should we be in and where are the categories and as you look at the frozen category moving more and more to fresh, as you walk down the aisles in a Whole Foods and we've got over 2000 SKUs within there where we're, but from a standpoint, personal care is still a big area for us to focus on.

Color is a big area for us to focus on. What we're looking at is more and more into the fresh category and where millennials are going. It's amazing what's happened with our snack business. The growth within there is amazing. What we see in the fresh. We do have a meat-free business.

I don't think we've grown it to the capacity and the ability that consumers looking for meat-free. I was looking at some numbers yesterday. The amount of consumers, not that are just vegetarians, that looking to reduce more and more, eating more and more meat.

I've never seen a category in growth like protein, today and where do we expand that area and we're looking at some things there. Scott, the other thing is we're looking at is the ethnic market because eating healthy is also moving over into ethnic markets and ethnic consumers. We've see that with our Queen Helene and our personal care.

As I look at Hain, there's a big field out there of health and wellness. Today, we're in food, we're in personal care and where else do we go are many, many thoughts that are going on. It's just not all the aisles you walk up and down the grocery store. Whether it's yoga, spinning, there are big opportunities out there today that enhance lifestyle.

Where that focuses with Hain is what's happening as we tie our social media together today. We have 12 million mothers a month or fathers that we bring within Hain that we can introduce to other health and wellness lifestyles. A lot of opportunities out there, just not in food. .

Our next question comes from Scott Van Winkle with Canaccord Genuity. Your line is open..

Irwin or John, I have a question about distribution gains, not so much Hain specifically, but we've gone through this heightened period where it seems like our last couple of years natural organic has accelerated its distribution in traditional supermarkets, mass, etcetera.

Can that be sustained? What do think -- over the next 12 months, is it the same for the sector? Is it a little lower, a little higher? I'm wondering where the trend is..

I'll answer that and I'll let John give an answer because we don't have prepared remarks. I will answer just within Hain. Scott, I have never seen more retailers -- and you heard what I said before -- looking for more and more healthier foods because that's what the consumer wants.

As you heard me say before, wellness 20 years ago was known among 10% of consumers. If you step back today and it's just not Whole Foods and Sprouts, but in the New England area, or Boston area, whether it's club stores -- you saw in the last Costco earnings, that they sold over $3 billion of natural organic foods.

So, it's something that will continue and it's something that will continue to evolve. You come back and look at just on baby food today, the percentage of baby food that's now pouches or the percentage of baby food that's now organic.

Ella's is the number one baby food in the UK, not the number one organic baby food which shows the consumer wants organic. You come back and see how pouches have moved away from jars. I come back and look at categories in regards to soup which will continuously move away from cans and where that will go.

I continuously come back and look at the snack category and see where Terra, Garden of Eatin' and where the growth is coming from vegetable, not potato chips, where Garden of Eatin' has with sprouted grains and with flaxseed and chia seeds.

Our veggie straws in regards to Sensible Portions, what we're seeing today and you walk through the store, Scott, the milk category has declined. The consumer today is looking for more and more plant-based and non-dairy products.

You heard me before talk about Hain Pure Protein, whether it's fast casual dining or looking for no antibiotics or organic proteins. Where do I see it? I see it again in early, early stages, all our research on millennials, all our research on wellness. Again, a big part of it is pricing supply.

Two states in Tuesday's election, Oregon which probably will get through and see the money that was thrown at it in Oregon is not, I thought it was winning. But if you come back and look at it, even if it's not, almost 50% of the voters are voting in favor of non-GMOs. It's on ballot.

I see it continuing at strong rates across multiple retail channels; not only in the U.S., around the world, Scott.

John?.

The only thing I would add to that is, as you look at the grocers and the retailers, not everybody is as well-developed on natural and organic like a Kroger or a Wegmans. There's a lot of leading grocers, leading mass merchandisers, club operators, even drug that are just not nearly as far along as there is potential for them to be.

Look, we talk about -- we have less than 100 SKUs in Target. There is a lot of runway in Target. That's a lot of runway at Walmart. That's a lot of runway across the board in terms of retailers. I think you've got three to five years that you can look out and say there is a distribution runway that can continue for at least that period..

Scott, just to add to that, the interesting thing is two things; number one, being with retailers have said to us, we thought this was a fad or a trend. We missed it. Now, we need to get into it, because that's what our consumers are looking for.

A recent large consumer packaged goods company was quoted as saying in The New York Times, we need to change our foods. We need to change our ingredients because consumers today want healthier products. So again, Hain will not do it alone.

What's healthier, whether the soda companies go to a 6-ounce soda, where it's only 100 calories and taking sugar out of their products. It will continue. White bread, white sugar, it's not white bread anymore, it's gluten-free bread. It's whole-grain, etcetera. That's something that will continue and evolve..

Quickly, if I could, on that trend, you see a growing number of more private labels, SKUs coming into traditional channels.

Related to you, does that have any impact on your ability to access contract manufacturing or is it getting tougher out there? Obviously, there are things like organic wheat that are in short supply and there's a dairy shortage out there in organic.

Has it put any stresses on you from the standpoint of outsourced manufacturing or supply?.

Absolutely. Again, demand, supply is something, as I say, one of our biggest obstacle that we have to fight out there. We had a nut butter recall. We wanted to go to another factory and start producing. It's just not available at your fingertips, here. One of the big things Hain will continue to build out its infrastructure to support its growth.

The other big thing is, we come back and we partner up with a co-packer, they know we've partnered up with them and we're going to be a long term supplier from them. That's what they want.

The other hand, Scott, sourcing and some of the things that we're doing in Honduras, some of the things we're doing in Africa today in sourcing and got a global team. I feel that in regards to procurement, we're out there.

The barrier to entry, to jump in her right away and say, I want 1000 SKUs in regards to private label becomes more and more difficult, especially when you come to GMO and if you're doing the real testing out there on gluten-free and everything. I'll step back and say, absolutely, there's lots of competition.

On the other hand, I feel the infrastructure we have in place -- we're ahead. The other big thing is innovation here. New products, new innovation are key, too, just not coming out with me too products..

Our next question comes from Bill Chappell with SunTrust. Your line is open..

Irwin, John, just as we look at the channels in the U.S. and I think it's been with conventional's been growing substantially faster than the supernatural independent. Have you seen real changes over the past three, four months? It seems like the conventional players are even doing better and attracting more consumers there.

Certainly, you're benefiting from that.

Just trying to figure out if, as we look over the coming quarters, does the drag or the slowdown at the super independent, the supernatural channel start to pull down your numbers?.

Actually as I look at, over the last three to four months, we've actually seen the supernaturals bottom out, probably about three months ago. Now, we're starting to see much more positive trends from them, not to the extent that we're seeing them in the AOC universe, but no longer is it a negative number or a flat number from the supernaturals.

We expect the supernaturals are in probably the mid-single digits, low to mid-single digits in terms of growth at this point, then you know where our AOC numbers are..

Bill, just to add to that. If you come back and look at supernaturals and you heard where Whole Food comps were last night and will hear it for Sprouts, but their commitment to open up stores is tremendous.

I've said before, they both open up 1,000 stores, just with Hain products for the amount each sell and over a period, that's close to $800 million, $900 million in sales along with its growth. Number one, I still see growth in supernaturals.

I still see a lot of runway for them to open up more and more stores and stores that are $1 million, $2 million a week stores..

From a modeling perspective, on Pure Protein, is the big quarter -- I guess with Thanksgiving and all that, is this upcoming quarter or did you see some benefit? I'm trying to understand, in terms of -- I know the gross margin and SG&A hit is not equal across all four quarters.

I'm right in saying the biggest hit will come this quarter?.

The biggest quarter is this quarter. We're trying to get another Thanksgiving in May. So we can have another one in May. It's interesting. This is the biggest quarter because of Thanksgiving. But what's going on in regards to every day procurement of antibiotic free chicken.

What's going on every day, today, for the procurement of everyday antibiotic free, nitrate-free turkey, turkey breast, ground Turkey for fast casual dining is tremendous. Yes, this is a big quarter. We'll sell 1.5 million turkeys which is unbelievable. It doesn't drop off like it used to be.

Turkey factories that used to close down, we were at 100% capacity today on FreeBird and have to look at what we're going to do in regards to keep up with supply. But, this is the biggest quarter, but there are good size quarters as we move out there, too, Bill..

I think on conventional turkey, if that's such a term, they don't make a whole lot of money on whole turkeys, it's more marketing or anything else. They make more money on further process.

Is that it pretty similar with Hain Pure Protein?.

We do okay on antibiotic free. There are lot different on the earn of every price on a whole turkeys on organic or antibiotic free. We do make money on a whole turkey..

Our next question comes from Amit Sharma with BMO Capital Markets. Your line is open..

Quick question on the modeling basis Steve, can you quantify the impact from MaraNatha for fiscal second quarter and third quarter, if there is any impact as well?.

In terms of second quarter, it's possible that we'll incur another $5 million to $7 million of costs in the quarter, that would be on a pretax basis and that would be before considering any potential insurance recovery. We're actively working with our insurance companies almost daily to process the claim.

In terms of beyond Q2, I would not expect any costs beyond Q2 to be material..

What about the sales impact as well?.

We expect that by the second half, we'll be back to our budgeted run-rate for MaraNatha. This quarter, we're building back our distribution, as we talked about. As we go through that process, we won't be up to year ago levels, but definitely in the second half..

Amit, we're not adjusting sales for not having any. I think as we've seen in the last quarter, we've gone out and made up these sales with additional brands and additional categories. So, I think that's what important. It shows you the strength of Hain is our diversified portfolio.

We were out of business on MaraNatha for a month and a half and still, we went out there and over shipped and oversold on multiple other products and categories.

So, it's supply customers, the biggest call for customers today are when can we get it, when can we get it, when can we get it? We've seen our Nielsen numbers out there last week consumption coming back pretty quickly when it's on the shelves..

Then one more, Steve.

If you can tell us FX impact on UK sales this quarter and what do we expect for the rest of the year?.

For the first quarter, the net currency benefit to sales -- and before I get into the actual number, it's important to point out that in most of our foreign geographies, while there could be a change in the top line due to currency, is almost an equal offset on cost and expenses.

So, the net impact to earnings per share or to the bottom line is typically very nominal in any one geography, for the first quarter, the net currency movement was $8.8 million. It was primarily in the UK, but that's net of a slight currency hurt in Canada of a little over $1 million.

As we move into Q2, it's a slight hurt to us, relative to the guidance we gave out in August and beyond that I'm not going to really comment at this time. I think we really have to see how the currency markets play out over the next couple of months. They've been very volatile over the last couple of months..

That's built into our forecast, Amit, that's what's built into our guidance. Built into our guidance is what the new currency rates are. To offset that with Steve, at the same time in the quarter, there was a divestiture I don't think you mentioned..

The currency benefits were pretty much offset by some items that we've talked about on prior calls.

The disposal of Grains Noirs there was some private label business we gave up in Europe and then, as John has mentioned, I think in his comments and we've mentioned on prior calls, the continued shift in trade spend between below the line and above the line which impacted the first quarter by a couple of million dollars as well.

We'll finally anniversary that sometime in the middle of the second quarter..

Just two more quick ones for me, Irwin, you talked about the ready-to-heat Tilda business and that's growing really rapidly.

Can you give us an idea of how big is that as part of the overall business? How do margin structure or margins in that business compare to the actually dry packaged rice business?.

I come back today and I look at that as I go after, I guess, in that whole ethnic rice consuming market, the ready-to-heat, margins are lower, but as you heard me say before, we're growing at an 18% rate and that's what the consumer is looking for today.

That's where the millennial consumer is looking for, that is eating rice on the go which shows that. Big market out there for us, a lower margin market though Amit..

That's lower margin compared to the packaged dry rice, right?.

Yes, lower margin compared to the packaged rice. What we are going to look to do there, as we add -- whether it's GSC, add other ingredients and stuff like that, we'll look to margin up with some of those. But, I've got to tell you and I spent a lot of time in the UK recently, looking at that category, it's us and Uncle Ben's.

I'll tell you, there's a big opportunity. There is a big market for us to go after that Uncle Ben's brand and that category and the same here in the U.S.. Anybody, any retailer that was asked the question before by Scott Mushkin, that ask us about Tilda here, every retailer today has approached us on ready to heat.

We just don't have capacity to supply the UK and our European markets, but we've committed capital to add new lines in our facility..

Just one more for me, you talked about HPP certainly outperforming versus our expectations.

But as we look at the second quarter, clearly the bigger quarter for you or even for the rest of the year, should margins be performed or in the quarter, should we expect them to get better as we go through the next three quarters or is this a good run-rate for the full year?.

I think this is a good run-rate for the full year. I think the good news is, grain prices continue to drop and as we continue to get good pricing out there for antibiotic free and organic and as someone asked before, we're able to sell our whole birds and make money on them. We should be consistent in our margins.

The other thing which we just started which was not built in is how we take some cost out of our Hain Pure Protein business over the next six to nine months as we integrate it within Hain, procurement, benefits, insurance, etcetera. There is some opportunities over the next six to nine months to get some efficiencies out of that business..

There is some upside to the margin in the quarter?.

Right, but I'm not ready to quantify..

(Operator Instructions). Our next question comes from Andrew Wolf for BB&T Capital Markets. Your line is open..

I'll ask one question, but I'll take a long time and probably embed three in there. Actually I just want to ask one question about supply chain risk. I mean, it's clear for quite a while now, you guys have shown, you could almost call it, excess demand, certainly huge demand, across retail and now across the internet.

But when I look at what's going on with acreage in the U.S., not really expanding much an organic with these GMO labeling initiatives going down, just the agribusiness power in this country is tremendous and seems to be thwarting way up the supply chain at the agricultural level, organic conversion.

Do you agree with that view? I hear that a lot of ingredients and I'd like to hear from Hain about this, that are increasingly, you're having of two source ingredients, whether it's organic grain, from overseas. I want to ask you, first, what do you think of that viewpoint about the U.S.

acreage not keeping up with supply? Secondly, is that a global markets such that a global company like Hain is really well-positioned with such tight supplies?.

Basically, I think an important thing to remember, is that Hain doesn't just source in the U.S.. We've developed sources, whether it be in South America, Irwin talked about Africa, different parts of Europe, different parts of Asia. We just aren't U.S.-based in terms of our sourcing. The other thing is Hain sources our ingredients directly.

We don't do a lot of sourcing via brokers which is where most other companies in our space do. They use brokers to go get ingredients. We have long term relationships, whether it be our key tea business sourcing herbs in Asia, whether it be us sourcing exotic root vegetables in South America.

These are relationships that we have cultivated, no pun intended, over a long period of time and have been able to work with these farmers and tell them where our demand is going so that they actually build out their capabilities to supply us.

So, I think the key here is we're not just U.S.-based in our sourcing and that we source direct with long term relationships and that has really served us well..

Andy, I think the big thing is within Hain, whether it's Arrowhead Mills, DeBoles, these are farmers that we've had long term relationship with and maybe as you look on a macro, we've grown out with them more and more demands and they've put more and more crops in the ground for us.

At the same time, Benjy Brecher has worked with a team in Honduras where we were growing nothing before, we're now growing organic sweet potatoes.

We're manufacturing them in Honduras and shipping them here to the U.S., whether to be bagged here, they're peeled, etcetera and we'll continue to do that, whether it's Honduras, Costa Rica, Dominican Republic, etcetera.

I'm in India next week and a big part is out there visiting farms with Jim Meiers and Randy Sias and Randy does all our procurement today out there for agriculture. As we're look at India, today, we're looking at coconut.

We're looking, of course, for rice and we're looking for rice whether it's for our rice milk, we're looking rice for other products. With that, with the infrastructure in place today, the team in the UK was down in Africa and Guam, a few weeks ago, looking to work with local governments of how we plant and irrigation systems in place, there.

One of the big challenges we're looking now is with almonds, as almonds mostly come from California and I'm not sure just because the drought is over this year in California that it's over. There is going to be continuously more drought and whether it's rice, almonds or whatever, we're not going to be exposed to it.

We're absolutely not going to be exposed to it. When I come back, as we've built Hain out over the last couple of years, we've really built out a global team today that's just not based in the U.S. It's based all over the world, procuring.

I do have a number, but it's not at the tip of my tongue here, how many countries we buy from today agriculture products. The other thing that we have been approached, working with groups to start growing more and more organics in the U.S., because what they want is a commitment on the other end where supply is going to go.

We've tried our own farm on a test basis this year where everything that was grown organically went to BluePrint. So, with that, we're well-entrenched in that, again, no different from distribution white space that we're looking to get more and more products in the store.

There is distribution agriculture out there that's around the world that we're looking for more and more products..

One quick follow-up on that is the last point, where you sort of guaranteed a farm's output.

Are they also looking for capital commitments? Is that something Hain would lockup supply on some of the commodities that are more short than others? Something Hain might consider?.

Absolutely and they are. The farm that we did here in the Northeast, we put the money up for it. We paid the farmers. We put the irrigation system in, fencing to protect it from deer, etcetera and took the product and took the risk. It was small. We would absolutely do that. We're not going to be farmers.

We're not going to be out there in the fields and have them work for us and we're not going to have it on our books and whatever, but we would absolutely invest in farms in regards to ingredients and that would continuously supply.

We're going to need to do some things like that because the demand for organic ingredients in BluePrint and just this week, looking for romaine lettuce is one I've heard and more and more (indiscernible). So, yes..

(Operator Instructions). Our next question comes from Ken Goldman with JPMorgan. Your line is open..

Two questions, if I can. Thank you for the detail about the ACV recovery on MaraNatha. That is helpful.

Can you just talk about, on a general level, when it comes to recalls and I know this is a bigger one than you've ever done before, but what are some of the challenges in getting back to that 100% ACV, where you used to be rather? You highlighted that customers are asking when is it coming back on shelves and they want the product.

Is it just that some customers are playing wait and see? How long does it take, in general? Specifically are you fully back with one of your biggest customers, Whole Foods, yet?.

We're not an expert at this because we've never had a recall up to this magnitude. The more and more we looked into it, there's over -- one of our customers says he has over 200 a month. This was of size because it was every SKU within the MaraNatha line that we took off the shelves over six months. We're back shipping, as John said.

There is no customer out there saying I don't want the product. Our biggest call to our hotline today from our consumers is, when will it be back on the shelves? So, from a branding, from a product and anything out there, from a damage, there is nothing we have seen so far on anything.

That's why we've done it right with the customer, with the consumer with the retailer, etcetera.

I think John, today, you're probably in, what, 60% ACV?.

I would just add to that, the quickest opportunity to regain our consumption and our distribution and our consumption, is through the AOC customers, because they generally carry a limited variety of products and in many instances, they are direct as opposed to distributors.

The longest route is getting back into some of the smaller independents as well as some of the supernaturals that have the widest array of products. It doesn't mean that our core SKUs are not on shelves, yet, but it's the periphery SKUs that'll take the longest to get through the distributors and into those independents and some supernaturals..

Ken, again, as I said, we took the extreme in regards to how far we went back and what SKUs. The other thing which we ensured is our plant was up 100% running right and efficiently and stuff like that. So, that's some of the things we've had to deal with that slowed down the process of getting products back out into the stores..

Steve, my second question is, I'm hoping you can help me understand some of the details of your GAAP - non-GAAP reconciliation a bit. Bear with me a bit, here, but I just want to make sure I understand it. I think what you're doing is the following. A, you're adding back the dollars you credited your customers.

B, you are removing unusual charges related to the recall, but C, you're not doing anything with the cost of producing the product, you're just leaving them in both the GAAP and pro forma P&L columns? Then D, you're not adding back any sales you speculate you might have had? Is that accurate? I can talk about this off-line if it's not.

I'm just hoping I didn't mess that up..

That's pretty accurate. Yes. We were not adding back any pro forma sales that didn't occur during the period we were out of stock. Your question, the COGS piece, is primarily related to inventory that's either had to be destroyed or right now is on quarantine hold..

Our next question comes from David Palmer with RBC Capital Markets. Your line is open..

Question on antibiotic free chicken, restaurants are talking about and testing the shift to ABF chicken. You mentioned the 100% capacity utilization. Do you have the ability to supply the national chain down the road in the medium-term? There's potentially a positive boom possible with regard to revenue there.

On the other side, is there a risk in the medium to long term that other major protein players get into antibiotic free and it becomes more commoditized as they ramp up supply?.

Well, again, David, commoditized, there is always that possibility, but there's the organic side that's growing. There are heritage birds that are growing. It's just not antibiotic free. On the other hand, like anything, there's a big chicken category out there.

There's going to be a conversion and there's a lot of chickens sold that will continuously convert from conventional chicken to antibiotic free.

I think what you're seeing with some of the big guys is, yes, they're going out and playing in it, but are they going to convert all their flocks to antibiotic free? As we look at what you follow on the fast casual dining, one of the biggest issues for them today is getting full supply to supply all their outlets.

So, do I think more and more of the big guys, the Tysons and Perdues and Perdue is in it with Coleman today and some of the other ones, Tyson, they ultimately will get into it. But, at the same time, there will be more and more shift coming from conventional chicken that there is tremendous opportunities for us to continue to supply.

I wish I had another full plant today. We could probably fill it if we had capacity available for us..

Where I'm going with that, it seems like something that would be great today because the demand, as far as we can see, is clearly there from a consumer level and from a restaurant customer level.

But I wonder if you're making a deal with the devil, in that, if you go there, you get some good margin today, some good supply today, but then, of course, there's going to be a lot of competitors competing for that, maybe not that far down the road. That's where I'm going with that..

But at the same time, as we grow out and expand our business with fast casual number one, they're looking for multiple suppliers. The other thing, David, I mean, we're going in for the process. We're going into -- whether it's meals, chicken nuggets, deli, etcetera. So, it's just not who gets there fast wins, antibiotic free becomes a commodity item.

No different than organic is going to become a commodity item or natural. There's a big, big category out there to go out there and supply. The big guys are just not going to convert overnight. David, we're growing out today our turkeys for Thanksgiving antibiotic free since June, July, when (indiscernible) go in the ground.

I will go back and say this again, whether it's FreeBird, Whole Foods brand, etcetera, the consumer is looking for -- whether it's FreeBird and if you walked into Chop't, you walk into other restaurants, that's what they want to be buying and know it's part of their fast casual dining.

I think more and more of the bigger guys will get into it, but it's not a race of who's going to get there first. I think there's just such a big -- the other thing you've got going on, David, is the consumer is eating less and less meat. Your average consumer eats 88 pounds of chicken a year and 18 to 20 pounds of turkey.

They're categories that are growing, where the other white meat, pork and beef are declining..

Thank you very much..

I think that is our last question. I want to thank everybody for listening today to our first quarter.

The withdrawal and the recall was bad for us, but it comes back and shows you how Hain dealt with it, how we're able to get back into business and how we're able to start shipping and go out there and still hit our numbers with multiple other categories.

As I step back and I look at where Hain is today, our diversified portfolio, our diversified customers, our diversified geographies around the world, you know what? When we're in business, whether it's dealing with agriculture products, there is always going to be challenges out there.

We've never had a fire in our facility and we had that at Tilda for the first time and whether it's co-packers, outsourcing, we'll deal with it and that's the strength of the management team, strength of the infrastructure. More important, what's out there is the demand by the consumer where millennials are going. You heard what I said on lifestyle.

We're ready for it. We're absolutely ready for it. So, we have the brands, we have the product, we have the infrastructure, we have the strategy, we have the capital invested and last but not least, we have the management team that's at the controls to make it all happen.

So, Happy Thanksgiving, make sure you have a healthy turkey, stuffing, gluten free, gravy, what else, we have tremendous amount of products and that is hitting the stores now. Thank you very much for your support. Have a good rest of the day..

Thank you. Ladies and gentlemen, that does conclude today's conference. You may all disconnect and everyone have a great day..