Good day, ladies and gentlemen. And welcome to The Hain Celestial Group Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. .

I would now like to turn the conference over to Mary Anthes, Senior Vice President, Corporate Relations. Ma'am, you may begin. .

Good morning. Thank you, Shannon. And thank you all for joining us today. We're pleased to finally be reporting Hain Celestial's Fourth Quarter Fiscal Year 2016 and First, Second and Third Quarter Fiscal Year 2017 Earnings Results. .

Irwin Simon, our Founder, Chairman, President and Chief Executive Officer; Gary Tickle, Chief Executive Officer, Hain Celestial North America; and James Langrock, Senior Vice President, Finance and, as of tomorrow, CFO, have joined us as well as several members of our management team. .

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 [ material ] from what is described in these forward-looking statements.

And some of the factors [ that ] may cause results to differ are listed in our publicly filed documents, including our 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. The conference call is being webcast. And an archive of the webcast and the accompanying presentation will be available on our website under Investor Relations.

[Operator Instructions].

Now let me turn the call over to Irwin. .

Thank you, Mary, and good morning, everyone, and we appreciate everyone joining us on this call. Man, it's been a while since you've heard from us, and we're pleased to be back speaking with you today. .

I'd like to begin by thanking our employees, our Board of Directors and shareholders for their support. I'd also like to give a big shout-out to our finance teams, legal teams for getting us across the finish line. The accounting review and audit process has been a thorough and time-intensive effort. We're pleased that this is behind us.

At the same time, we've used this opportunity to review the strengths of our global business, taking a deep dive across our operations to expand Project Terra and put in place new initiatives to drive Hain Celestial's future growth.

I am confident that our leading natural organic brands, our strong teams and strategic initiatives position us well to execute on our mission to create and inspire A Healthier Way of Life, which is important to us. .

Hain Celestial remains uniquely positioned in the growing organic, natural and Better-for-You products industry. We have continued to make significant progress across key areas of our business. .

Our net sales grew 4% on constant currency basis over the last 9 months. During this time, we also generated $148 million in operating cash flow and completed 1 strategic tuck-in acquisition in the U.K., Yorkshire Provender, a premium fresh soup business. .

Importantly, we've done a lot of work to better the position of Hain Celestial for the future in the current challenging operating environment. We're executing on our strategic plan to drive growth, build brand awareness and, last but not least, enhance shareholder value. .

Across our team, we looked at all areas of our business and have expanded Project Terra to streamline our operations, improve our efficiencies and, last but not least, which is important, drive out cost.

The savings realized from Project Terra will enable us to invest at least $40 million to $50 million annually in incremental marketing dollars to support our top brands. John Carroll, a proven leader with more than a decade of experience at Hain, will lead this project.

We've established a strong leadership team across our organization, adding deep consumer and operating expertise to drive the execution of our strategic plan. .

As we focus on driving growth, we also expect to generate substantial cash flow that we plan to continuously invest in our business and return value to shareholders. Since we last spoke, the validity of our brands and mission has only been reaffirmed.

We believe Danone's acquisition of WhiteWave and Amazon's pending acquisition of Whole Foods have highlighted the strategic and financial value of our brands in the category of health and wellness. .

We are one of Whole Foods' largest suppliers of natural organic products across many categories. Amazon is one of our fastest-growing customers. We expect the combination to be very positive for Hain Celestial as we sell more products through brick-and-mortar and e-commerce.

We have taken the important steps to increase and build availability of our brands across all sales channels around the world. I have never been more excited about the prospects for Hain Celestial.

We have a stronger team than ever before with a deep bench and the right strategic plan with new processes, new procedures in place to deliver long-term growth and profitability. .

Many of you have wondered why the completion of this process took so long. The review was self-initiated and involved a fully independent review led by our Audit Committee, with independent counsel, our independent auditors. We also engaged a revenue recognition expert and a global consulting firm to assist in this review.

This was an intensely comprehensive effort encompassing 3 years of audited financials as well as numerous customer transactions-related entries dating back to fiscal year 2014. .

As a result of the matter identified in Q4 of 2016, we first looked at a series of steps to ensure that there was no intentional wrongdoing related to the preparation of our financial statements.

Our accounting team then undertook a global review of the financial statements, including a review of all revenue policies, procedures and contractual arrangements. We performed an evaluation of trade spending, reviewed other major financial statements to ensure we were in compliance with U.S. GAAP.

This comprehensive global review was substantially completed in Q3 of 2017 and resulted in no material changes to our previously reported financial statements. We have made significant improvements in people, processes and systems. As a result, we believe we now have best-in-class in financial controls. .

Turning to the findings of our accounting review.

James Langrock, our new CFO, which we announced today, will take you through the details, but you should be reassured there was no material changes to our previously reported financials, no impact on cash flow or cash balances, no impact on the validity of underlying transaction and no change to Ernst & Young's previously issued audit opinions.

We have expanded and strengthened our finance teams with seasoned professionals. .

We have announced this morning that Pat Conte, our CFO, has decided to leave to pursue other opportunities. I want to thank Pat for his many years of contribution over the last 8 years to Hain and wish him well in his new endeavors. .

I'm pleased to announce that James Langrock, as I mentioned before, our SVP of Finance and Treasurer, has been promoted to Executive Vice President and Chief Financial Officer. James has more than 25 years? experience in the financial and executive leadership positions.

I have the highest confidence in James, his expertise, his experience, and look forward to continued contributions to the execution of our strategic initiatives. .

Working closely with James is Mike McGuinness, our Chief Accounting Officer, who also has been a very important leader on our financial team. The efforts of James, Mike and the entire team were instrumental in the completion of our internal review and audit process. .

Before I turn the call over to James, who's getting ready to talk and is chomping at the bit, I'd like to formally introduce Gary Tickle for the first time, our CEO of North America. Many of you have met Gary at Expo West, and you will continue to meet him over the year.

Gary joined us in the fall from Nestl?. And Gary has spent 20 years around the world with Nestl? in the infant nutrition's business and many other. Gary will drive the future growth in North America as we achieve greater cost savings and invest behind our top-performing brands. .

Now I'll turn it over to James. Let's go, James. .

Thank you, Irwin, and good morning, everyone. I'm extremely excited to lead to The Hain Celestial finance team as we execute on our strategic initiatives. .

We have made tremendous improvements in our financial controls, improving processes and upgrading and adding key personnel. We have expanded our team with new hires, including a new Controller for the U.S. segment, a global revenue Controller, a Head of Internal Audit and a Chief Compliance Officer. .

We have also improved our financial controls globally through enhanced standardized contract accounting policies, expanded review processes and monetary controls over contracts with customers, customer payments and incentives, and the implementation of an extensive revenue recognition and contract review training program, as well as new policies and procedures around revenue recognition and other significant accounting matters.

Strong financial controls and accuracy in financial reporting are our highest priorities. And we have taken the learnings from the accounting review to ensure that we have best-in-class accounting and internal controls in place. .

Looking at Slide 9, you can see that the impact of the corrections to the historical net sales and EPS were not material. Net sales changed by 3% or less in fiscal 2014, fiscal 2015 and for the 9 months ended March 31, 2016. Non-GAAP earnings per share changed 5% or less in fiscal 2014, fiscal 2015 and for the 9 months ended March 31, 2016.

It is important to note that these adjustments also did not change the historical trending of the financial results and there was no impact on our cash flows or cash balances. .

The changes to net sales related to the following items. We corrected certain promotion expenses that should have been classified as a reduction of revenue but were recorded primarily as SG&A expenses. These corrections are reclassifications on the income statement and do not impact net income.

This reclassification represented 80%, 60% and 90% of the revenue adjustments made in fiscal 2014, '15 and '16, respectively. The remaining adjustments to revenue relate to the timing of the trade and promotional accrual and certain sales cutoff adjustments.

The items I just referenced, as well as other immaterial adjustments, are described in more detail in our Form 10-K for the year ended June 30, 2016. .

I will now review our financial results for the 9 months ended March 31, 2017, referenced on Slide 10. Please refer to the GAAP to non-GAAP reconciliation table in our earnings release for additional information on our financial statements.

Net sales were $2.1 billion, a decrease of $20 million or 0.9%, which includes $96 million of unfavorable foreign currency impact. Net sales increased approximately 4% on a constant currency basis. Net sales in the U.S. segment were $882 million, a decrease of $60 million or 6%.

Net sales were negatively impacted by $55 million due to an inventory realignment at certain customers and a SKU rationalization as well as $11 million of unfavorable foreign currency due to Ella's Kitchen, which is part of our Better-for-You Baby platform based in the U.K. After giving effect to these items, net sales would have been up 0.5%. .

We are encouraged by the growth in our business -- in our other business segments. Outside of the U.S., every segment grew on a constant currency basis. U.K. net sales were $574 million. Foreign currency exchange rates impacted our U.K.

results by $84 million, while the benefit of the Orchard House Foods acquisition contributed a net increase of $75 million, which includes growth under our ownership. On a constant currency basis, net sales increased $100 million or 17.8%. During the first quarter of fiscal 2017, the U.K.

segment divested its private-label juice business and associated facility, which represented approximately $25 million in net sales during fiscal 2016. .

Our rest of world segment, net sales were $285 million, an increase of 6.5%, which now includes the Cultivate platform. On a constant currency basis, net sales for Hain Celestial Canada increased $7 million or 7%. And net sales for Hain Celestial Europe increased $19 million or 17%.

The acquisition of Mona contributed a net increase of $13 million, which includes growth under our ownership. .

Hain Pure Protein net sales were $387 million, an increase of 2.1%. We faced difficult comps during the Thanksgiving and holiday season as our competitors recovered from a supply shortage, which contributed to lower pricing this year compared to the prior year.

We were also impacted by supply disruptions, production constraints at our facilities in the current year. .

Adjusted EBITDA for the first 9 months of 2017 was $190 million, a decrease of $98 million compared to the prior year due to several factors I will discuss further on the next slide. .

We earned $0.64 per diluted share or $0.79 on an adjusted basis. Foreign currency has impacted reported results by $0.09 per share. The effective tax rate was 29.8%. .

2017 has been a transitional year at Hain, during which we undertook proactive initiatives to drive future growth. Like many other companies, we have experienced a challenging global economic and food retail environment. .

For the first 9 months of fiscal 2017, adjusted EBITDA was $190 million or 8.9% of net sales as compared to $288 million or 13.4% in the prior year period.

The primary drivers of the decline were a $31 million decrease in EBITDA within our HPP segment, driven by price declines for turkey, supply disruptions and production constraints at our facilities. .

EBITDA within our U.S. segment decreased $60 million due to pricing and trade spend investments as well as unfavorable sales mix. The U.S. segment was further impacted by an inventory realignment at certain customers as well as SKU rationalization, which negatively impacted EBITDA by $17 million.

Foreign exchange negatively impacted EBITDA by $14 million. There was an impact of $12 million related to duplicative overhead costs partly due to the accounting review as well as Cultivate brand investments. .

Finally, $8 million of our U.K. segment EBITDA decreased due to operational inefficiencies related to lower fruit yields. We believe that all of these negative factors are behind us. We are seeing momentum in our fiscal 2017 fourth quarter. And we are well positioned to substantially increase profitability in fiscal 2018. .

Now moving to Q4 2017 guidance on Slide 12, presented on an adjusted basis that is further detailed in our press release. We made significant progress on our strategic initiatives in 2017. We are confident that we have reached an inflection point, and that the company is well positioned for long-term growth and profitability.

We are experiencing solid momentum in the fourth quarter, and we expect net sales to be in the range of $715 million to $735 million. Q4 2017 is expected to be negatively impacted by approximately $40 million of foreign currency headwinds, which is assumed in the net sales guidance.

At the midpoint of our guidance on a constant currency basis, net sales would increase approximately 4% over the prior year's fourth quarter. Within that growth, we expect the U.S. to be flat and the other business segments to grow in the high single digits. Adjusted EBITDA is expected to be in the range of $80 million to $85 million.

At the midpoint of our guidance, EBITDA on a constant currency basis will be relatively flat with the prior year. .

It is important to note that the majority of the operational issues that we faced in the first 9 months of the year have been successfully resolved in Q4 2017, reflecting recovery in HPP and currency-related price realization in the U.K.

In addition, SKU rationalization and inventory realignment are nearly complete even as we increase our brand level investments. We expect these improvements to continue and have a favorable impact on margins in fiscal 2018. We expect fully diluted adjusted EPS to be between $0.40 and $0.43.

Excluded from adjusted EPS in Q4 of 2016 is a noncash pretax goodwill and trade name impairment charge of $124 million, which primarily related to our U.K. segment. .

With respect to cadence of our quarters from a sales perspective, our second quarter is historically our strongest quarter with the third and fourth quarters roughly consistent and our first quarter being the lowest. .

Looking ahead to fiscal 2018, we expect a strong recovery as we realize increased benefits from our productivity and cost-savings initiatives. We are confident that a majority of the factors that affected us in fiscal 2017 are behind us. For fiscal 2018, we expect net sales to increase by 4% to 6% on a year-over-year basis.

We are expecting low- to mid-single-digit growth in the U.S. and HPP, while the U.K. and the rest of the world will grow mid- to high single digits. We expect some sales impact from our U.S. SKU rationalization, but expect it to largely abate by the end of fiscal 2018.

We are anticipating strong growth in profits with adjusted EBITDA to be in the range of $350 million to $375 million, which reflects $100 million of Project Terra savings, including annual productivity and an increase of marketing of $40 million to $50 million, primarily in the U.S.

We believe these investments are critical to deliver continued top line growth over the long term. .

Our fiscal year 2018 adjusted EBITDA target is a combination of 3 primary factors. First, Project Terra cost savings of $100 million. Our productivity and cost saving opportunities are driven by further optimization of our business systems, processes and personnel. Second, core business growth of $30 million of $40 million.

We have capacity in place to key growth area -- in key growth areas to leverage top line growth into robust margin contribution. We want to outperform the categories in which we operate. And our strategic plan outlines specific growth targets to each of our businesses. .

In summary, while we expect significant contributions in fiscal 2018 from top line growth and margin enhancement, we also plan to continue to invest in the business..

For the first 9 months of fiscal 2017, we generated operating cash flow of $148 million, an increase of 12% over the prior year. Capital expenditures for the first 9 months of 2017 were $45 million and operating free cash flow was $104 million as compared to $74 million of operating free cash flow in the prior year period. .

At March 31, our cash balance was $163 million, and net debt was $627 million as compared to net debt of $792 million at the same point in the prior year. From January 1, 2016, through March 31, 2017, we paid down $170 million in debt. We expect to pay down approximately $40 million during the fourth quarter of 2017. .

Now turning to fiscal 2018 cash flow. Based on fiscal 2018 EBITDA expectations, we anticipate cash flow from operations of $235 million to $270 million. We expect capital expenditures to be in the range of $65 million to $75 million, which will provide us with cash available for allocation in the range of $160 million to $205 million. .

Our strong cash flow generation provides us with financial flexibility to support our strategic initiatives, including acquisitions.

With our improvement in EBITDA and free cash flow generation and assuming $100 million debt paydown, our leverage ratio would improve from 3.2x to between 1.8x and 1.9x before taking into account strategic bolt-on acquisitions and share repurchases. .

With that, I will turn the call over to Gary. .

Thank you, James. I'm delighted to be a part of The Hain Celestial team and to be speaking with all of you today. I'm excited about the prospects for our operational improvement and an enhanced growth in our business. .

Demand for organic, natural and Better-for-You products continues to grow, and we are well positioned with a broad range of products in attractive categories to capitalize on this growth.

We have products with authentic, compelling stories -- brand stories as well as differentiated product mix to appeal to our customers and consumers who are looking for Better-for-You products. This is the DNA of who we are at Hain Celestial. .

Within our industry-leading organic, natural and Better-for-You brand portfolio, we are capitalizing on our core strengths and resources to drive growth. Beginning in fiscal 2017 in the U.S., our brands are being managed under strategic platforms.

This grouping was determined by common consumer needs, route to market or internal advantage to leverage our management capabilities and resources in these core platforms. The core platforms have also enabled us to develop opportunities for incremental growth and margin improvement aligned with our consumer demand.

With these platforms in place, we are focused on brand-building initiatives in existing markets, product innovation, continued expansion of our core product availability and driving improvements in people, processes and technologies. I'll give you a bit of detail on how we plan to enhance some of the focus platforms in our U.S. business. .

Firstly, Better-for-You Snacking, we plan to drive growth through distribution, innovation and strategic brand investment as we solidify our top 10 snack position at Terra Chips, Garden of Eatin' and Sensible Portions. For Fresh Living, we will drive new innovation in the yogurt category with the Greek Gods brand.

As we stabilize our plant-based business, we are looking to grow by harnessing our European knowledge and expertise for future innovation in this category. .

In Better-for-You Baby, we are focused on expanding Ella's Kitchen in the natural channel and continuing to support the Earth's Best brand and its strong growth. These initiatives include further improving profitability. .

In Better-for-You Pantry, we'll increase support for MaraNatha and Spectrum Brands with new innovation, while strengthening Imagine's leadership on the back of a very strong 2017 performance. .

In tea, our objective is to reinforce our #1 herbal tea brand position with new marketing and branding initiatives on the back of improved performance in the fiscal 2017 tea season for Celestial Seasonings. .

For Pure Personal Care, as we support the U.S. launch of Live Clean, we will also increase brand investment in Alba Botanica, Avalon Organics and JASON. .

Turning to Slide 19. We believe we have tremendous opportunity to grow in our categories. Of the total CPG landscape measured by MULO and Convenience in the 52-week period to April 16, 93% of turnover is in the conventional food space, representing potential growth and share opportunities for Hain Celestial.

Put another way, organic and natural products represent just 7% of sales. This presents immense opportunities for Hain Celestial as we look not only to engage the natural and organic shopper but to become part of the consideration set of the conventional shopper. .

Our growth roadmap requires us to deliver on 4 specific strategies. Firstly, focus resources on leading brands and products that represent 90% of our business and of which -- which are outgrowing our entire business.

Secondly, continuing to drive cost out of our business and the streamlining of our product portfolio and supply chain to reduce complexity. Thirdly, increasing investment in our leading brands and consumer engagement with a focus on innovation where our cost savings will fuel our investment plans to create a virtuous circle of growth.

And fourthly, enhancing our in-market retail activation within the store and online to improve sales execution with more effective trade investment. .

Our goal for the U.S. is to drive low to mid-single-digit net sales growth by increasing market share and household penetration for our top 500 products. We also expect to grow operating income faster than the top line in percentage terms, driven by our reinvestment plans and operating leverage.

We are actively reshaping our portfolio around our core brands with a continued focus on the top 500 SKUs, which account for 90% of MULO+C. You will recall that MULO+C represents around 60% of our U.S. net sales with the balance in the natural channel, club, e-commerce, foodservice and military.

In my commentary, I'll reference the May 21, 2017, IRI MULO+Convenience read, unless otherwise specified. In the 52-week period, our top 500 SKUs grew over 5% in MULO+C, and they continue to outperform our total business. Looking at the latest of 12 weeks MULO+C, the total channels shows less than 1% growth, while our top 500 grew at more than 1.5%.

In the same 12-week period, our TDP for the top 500 was 3.4% MULO+C with a strong TDP growth of over 5% in the last 52 weeks. .

We have seen broad industry trends toward recalibrating inventory and focusing on SKU efficiencies. We've taken positive actions aligned with this trend, actively reducing finished goods inventory at certain customers to reduce spoil, increase product freshness and improve our customer service levels.

This reduced our top line sales in the first 9 months of fiscal 2017 by $36.4 million with a minor impact on the top line expected in the fourth quarter. .

We are continuing our efforts to rationalize approximately 600 SKUs that represent over 20% of our total SKUs in MULO+C. As part of this rationalization in the U.S., we reduced our top line for the first 9 months of fiscal 2017 by approximately $19 million. We expect this to be concluded in fiscal 2018. .

Going forward, we will continue to review our portfolio to ensure we are optimizing our mix. This rationalization has been a drag on our top line growth of around 2% during the first 3 quarters of fiscal 2017 with an expectation of around 1% in the fourth quarter.

However, we plan to benefit from reduced planning and manufacturing complexity, improved retail execution and lower spoils over the long term. The impact of our SKU rationalization has resulted in a 1.8% drag on MULO+C consumption in the first 9 months of fiscal 2017. Excluding this, our underlying 9-month consumption growth for the U.S.

business would have been 2.6%. Consumption for our top 11 brands was up 4.9%, excluding SKU rationalization. .

As part of the transformation in our business, we are making clear and deliberate choices around how to reinvest our cost savings to accelerate growth in our business. In 2017, our brand building investment increased by 20% over 2016 as we rolled out our strategy.

We have continued to expand our investment in consumer insights to better inform our strategic choices and investment in brand positioning and communication. .

With respect to branding, we have commenced significant redesign work on our MaraNatha the brand with new packaging coming to the market in the last couple of months. We are already seeing both TDP growth and unit growth in the most recent 4 and 12 weeks of MULO+C through to June 11, 2017. .

As we develop new assets for deployment in the case of our brands to raise consumer engagement levels, we have already started working the digital space.

We've invested in branded digital programs to drive increased brand awareness and broaden household penetration, a recent example in our Celestial Seasonings tea business, where we made a significant investment in a strong 360-degree digital consumer campaign, The Magic of Tea campaign, started last fall, which reached approximately 46 million consumers and garnered 352 million impressions.

We also increased trade funds for in-store executions where we saw a double-digit growth with one of our major retailers. This grew herbal tea volume share by 1% in the hot tea season from October '16 through to March 2017, further solidifying Celestial Seasonings' position as the #1 share brand in herbal tea in the U.S.

The learnings from these programs position us for a strong fiscal 2018. .

Importantly, we also remain focused on innovation.

To call out a few of the 75 products we launched at Expo West, we've already had a great consumer feedback on our Terra Plantain Chips and Garden of Eatin' bold-flavored tortilla chips, our Celestial Seasonings Sleepytime Herbal Assortment and the Live Clean personal care launch, which started in January 2017. .

And lastly, I make special note of the excellent year we're having on Imagine soups and broths. Following product development and reformulation, revised branding and packaging and a strong support program, Imagine brand generated growth of 32% in MULO+C in the last 52 weeks. .

Innovation, of course, goes beyond purely product, and we continue to challenge our end-to-end processes to look for improved ways of working that will drive efficiencies, lower complexity and increase our responsiveness to the marketplace. We have tremendous opportunities to further market penetration with our existing products.

While about 50% of U.S. households purchased at least one Hain Celestial product in the course of the year, this is achieved with household penetration rates still well below conventional averages. For example, looking at household data for all channels in the recent 52 weeks, MaraNatha is at 3% household penetration compared to Jif at 40%.

Similarly, Sensible Portions is at 13% compared to Lay's at an average of 72%. These trends make it clear that we have significant room to grow our brands, which appeal to a broad range of multigenerational consumers, including millennials and baby boomers. Our top 500 SKUs and top 11 brands will be the focus.

These brands are Celestial Seasonings, Dream, Earth's Best, Garden of Eatin', Imagine, MaraNatha, Sensible Portions, Spectrum, Terra, The Greek Gods and Alba Botanica, which represents 79% of our sales in the last 12 weeks. .

We have strong foundations to build on. With Garden of Eatin', Sensible Portions and Terra Chips, we have 3 of the top selling snacks in the natural category. Sensible Portions is growing by double digits in all but one retailer in MULO+C. And Terra has recorded 14% growth in MULO+C for the 12-week read.

We will continue to increase in-store activation and investment behind this strong platform for growth. .

We are also making significant gains with our Earth's Best baby products with 8.6% growth in the latest 12 weeks in MULO+C read, including retaining our #1 share position in organic infant formula, posting double-digit growth for our Earth's Best Sesame Street products in key accounts and strengthening frozen offerings with chicken nuggets leading the growth and retaining Earth's Best position as the leading kids' natural frozen entr?e SKU.

.

We also undertook a strategic review of price value mapping and reduced pricing on key products to reflect shifts in commodity prices and to achieve competitive price points in the market.

These actions, which reduced net sales by $5.6 million over the first 9 months of 2017, primarily impacted Spectrum oils, MaraNatha nut butters as well as certain SKUs in the Earth's Best baby portfolio. We expect a further $1.4 million net sales impact in the fourth quarter. .

Today, we are encouraged by the unit growth and, more recently, the unit share growth we have experienced as a result of these pricing actions. We want more consumers to try more Hain Celestial products more often.

We'll enhance investments in consumer engagement with a focus on brand-building assets, consumer insights research and consumer communication. We'll also invest with our retailer and distributor partners to drive improved execution in stores as well as to expand our online offering and partnering with e-retail channels. .

With the recent announcement of Amazon's intention to acquire Whole Foods, we see further positive opportunities for growth. We are one of Whole Foods' largest suppliers of branded natural and organic foods. Our largest assortment of product is found in Whole Foods today with over 1,200 items selling in the latest 12 weeks.

And we currently have 2 representatives on the Whole Foods supplier advisory council.

There is a great deal of speculation about how Amazon may choose to leverage Whole Foods, but we feel that the hallmark -- hallmarks of what makes Amazon successful, being consumer convenience and greater product accessibility, coupled with competitive pricing and data-driven customization, are likely to be applied in some form to Whole Foods.

This presents us with a real opportunity to increase availability and household penetration for our range and to further expand the growth of natural and organic offerings to the conventional shopping space, which, as I mentioned earlier, still represents around 93% of the shopper basket today. .

In summary, with great products and a clear plan to support our core brands to drive growth, we're executing our strategic roadmap to transform the U.S. business. To that end, we've made significant enhancements to our U.S. team, bringing in seasoned professionals with broad CPG, natural foods industry and brand-building experience.

We have a strong team in place to execute on our strategic plan. These new additions, as well as the existing leaders in our business, all have proven track records across a range of categories and companies. It is a great privilege to lead the North American team. .

So in closing, 2017 has been a year of significant transformation. Briefly recapping, we have reduced our SKU count by around 20% with a top line impact of $19 million year-to-date, reducing complexity and increasing focus on our core range, impacting our operating income negatively by $4.3 million.

We have realigned our finished goods inventories with the top line impact of $36 million in order to move to a more consumption-driven operating model. This also has impacted our operating income negatively by $12 million.

We have generated savings of $22 million year-to-date and, at the same time, started to accelerate our brand and marketing spend by around 20% year-on-year. We've also invested in capability and new talent and building new business processes. .

In 2018, we'll have a stronger focus on the top 500 SKUs and top 11 brands. We'll have a smaller portfolio of higher-performing products, giving us a stronger shelf performance and greater consumer relevance and a leadership role with our customers.

We'll have more than a 50% increase in total brand marketing spend compared to 2017 funded through our productivity savings plan. This should drive low- to mid-single-digit growth on the top line, while improving bottom line performance by low double digits.

2018 is a year of exciting opportunity for growth in Hain, and we are looking forward to winning in the marketplace. I look forward to meeting many of you in the coming weeks and to continue to update you on our U.S. business. .

And now I'll turn over back to... .

Thank you, Gary, and lots to look forward to. And I promise you, just because we haven't spoken for 4 quarters, I won't keep you on the phone for 4 hours of commentary. .

I want to briefly review our U.K., rest of the world, our Hain Pure Protein segments and our Cultivate business. To start, U.K. sales were up 18% in constant currency year-over-year and U.K. being a tough, tough market. We have a strong position with key brands in the U.K.

Tilda, which is the #1 basmati rice, broadening everyday use with Super Grains, Pulses & Rice. And now, we're coming off a strong Ramadan. Ella's Kitchen, the #1 organic baby food in the U.K., was recently acknowledged by The Grocer for 11 years of consecutive double-digit growth, outperforming the market and increasing its share in the U.K.

We're expanding this brand throughout Europe, China, India and the Middle East. .

We also held the #1 fresh soup business in the U.K. with New Covent Gardens in Ireland and growing strongly in this category with planned launches in new channels and new geographies throughout Europe. Linda McCartney, our meat-free brand is outperforming the overall market with branded offerings.

And we're investing in additional manufacturing capabilities for this product. Our further U.K. brands also hold #1 positions in fresh fruit, Hartley's and Sun-Pat, and other categories. And we're also expanding our U.S. businesses, such as our Dream, our Celestial Seasonings and MaraNatha.

We are well positioned to execute our growth strategy and focus on new customers, new sales channels, product innovation and emphasizing our manufacturing in the U.K. .

We expect to generate $755 million to $765 million in net sales in the U.K. in fiscal 2017, which includes an impact of $115 million due to unfavorable currency. And right now, it excludes Ella's Kitchen, which reports into the U.S. segment.

We expect adjusted EBITDA for fiscal 2017 to be $66 million to $69 million and primarily [ due ] to FX transactions -- translations and operating inefficiencies, which relate to our fresh fruit business, which James had talked about.

And we are seeing some good rebounds in our yields in our fresh fruit business as well as the delay in a regulatory approval on the Orchard House acquisition. For Q4, I'm pleased to report, as I said before, experienced a great turnaround on our businesses and our fruit business and our price increase. .

We look forward to 2018. We expect high single-digit top line growth as we realize our full year recovery from FX-related price increase, better fruit yields. And we're expecting strong performance from Tilda, Linda McCartney, Yorkshire Provender and our other soup business.

We also expect EBITDA rebounds strongly ahead of 2016, driven by contributions from what I've mentioned above, and Project Terra related to the integration of warehouses, manufacturing, our back-office consolidation and looking at our private label business. .

Europe net sales were up 17% in constant currency for the first 9 months of 2017. Next to Danone, we are the second largest producer by volume of nondairy-based beverages, including our Dream, Joya and Natumi brands. Lima and Danival, which are organic brands, are mostly sold in natural food stores and the Benelux brands in Germany. .

We're up mid-single digits in health food channels and low double digits in the grocery channel, driven by our expansion in distribution and presence of new products. We're expanding our successful global brands, like Ella's Kitchen, Celestial Seasonings and Terra in Europe.

We remain focused on increasing household penetration of our branded and private label products in Europe by leveraging our position in grocery and health food channels. .

Canada net sales were up 7% in constant currency for the first 9 months of 2017. In Canada, our meat-free business, Yves, is the #1 meat alternative brand and has a growing position in the U.S. We're launching many new products to broaden the appeal of the brand behind core vegetarian consumers.

Europe's Best is the #1 branded frozen fruit business in Canada. We also sell many of our global brands like Terra, Celestial Seasonings, Sensible Portions and Tilda in Canada. .

Going forward, we will leverage our strong market position to continue our growth in Canada and throughout other global products, focusing on top-selling products and leveraging production capabilities of our personal care products. .

Our Cultivate platform was created, like many other companies have done, as an incubator for small brands that need extra love and attention, and small brands that grow into big brands. At Hain, we will support this by a dedicated infrastructure and R&D.

We've made key investments in innovation, underscoring the additional value of this platform, which it can create. Already, we're seeing great success in brands like DeBoles, GG Crackers, BluePrint, et cetera. We expect Cultivate to be profitable in 2018. .

We'll continue to drive international growth and profitability through the execution of our strategic initiatives. For fiscal 2017, we expect to generate $380 million to $390 million in net sales, and $38 million to $40 million in adjusted EBITDA.

For fiscal 2018, we are targeting high single-digit top line growth, including low double-digit growth from Europe, driven by our nondairy, plant-based business, as well as mid-single-digit growth from Canada, driven by Yves, Live Clean and our Sensible Portions brand.

We expect low double-digit growth in adjusted EBITDA in our -- fiscal '17, leveraging top line positive contribution from Cultivate brands and Project Terra cost savings. .

Hain Pure Protein remains an important segment for future growth in a compelling on-trend industry. We are an innovator here and a disruptor in the fresh, antibiotic-free and organic poultry category. And we expect the organic protein category to grow double digits.

We have a great opportunity to leverage our position as one of the largest suppliers in this space. Fiscal 2017 has been a transitional year for this business. We still achieved an 8% increase in pounds sold as prices remained at multiyear lows. And we experienced disruptions and product delays related to our new FreeBird plant.

To help us capture the profitability, we believe we are capable of putting in place new products, new innovation, and we have also put in place new leaders in this business. .

The plant start-up delays we experienced during the first 9 months of fiscal 2017 are now behind us. Our cost-cutting initiatives are taking place now.

Our growth strategy for this business includes completing our operational turnaround, driving synergies to our poultry infrastructures between HPP and Empire Kosher, improving our product mix and expanding our presence in the fast casual and meal kit delivery areas. .

We expect strong profitability in Hain Pure Protein as we look ahead to 2018. As we just discussed, the protein category, particularly our segment in organic and antibiotic-free is growing. We expect 2017 net sales of $515 million to $525 million for this segment, followed by low- to mid-single-digit top line growth in fiscal 2018.

We expect profitability in fiscal 2018 to recover back to at least 2016 levels. This will primarily be driven by improvement in growth in our operations. The momentum we started to experience in Q4 of 2017 reinforces our confidence for our recovery in HPP next year. .

Today, our global team is executing on a 4-point plan to enhance shareholder value, expanding on Project Terra. On a global basis, we're also increasing our focus on top-performing brands and capabilities to drive innovation and a higher level of consumer engagement. Through Project Terra, we are aggressively taking cost out of our business.

We have made key hires across our global organization with strong industry expertise to help execute on these strategic priorities. And finally, we are pursuing a balanced approach to capital allocation. We'll continue to effectively manage our strong free cash flow, while we return excess capital to our shareholders. .

I'd like to refer to our brands and our intellectual property behind them as a resource bank. And let me tell you something, this is a rich bank. The extensive capabilities, competencies and value we bring to each product and platform are a result of the processes and people across our brands, investments that we've made over many, many years.

These resources enable unique capabilities, including being a first mover in on-trend categories and product innovation. .

In addition, we have critical scale across geographies, procurement, distribution as well as expertise in operations and integration to expand both organically throughout -- and throughout strategic acquisitions. The barrier to entry in the organic category is not easy.

We believe there are significant competitive advantages that differentiates us in the industry. We have successfully managed through varying macroeconomic cycles over the last 2.5 decades as well as adapted to previous shifts in consumer behavior.

What has made us successful, what will drive our continued success in the future is our ability to evolve our business as we grow our Better-for-You brands, expand relationships with new and existing customers and attract new consumers globally. .

Today, we have a global and diversified customer base with multichannel distribution across traditional grocery, club, convenience store, fast casual, mass market and natural food stores. .

plant productivity, co-pack savings, network optimization in the area of manufacturing, sourcing and other productivity improvements in logistics, supply chain investments that will enable us to drive efficiencies and lower costs across manufacturing, logistics and planning infrastructure.

Importantly, a portion of these savings will be reinvested to fund our strategic growth and enhance our margin initiatives. .

Just as we've taken a deep dive into our operations, we've also taken a detailed look at our organization structure and management team to strengthen our capabilities.

Specifically, we've recently created several new roles for proven executives, made key hires with deep consumer products and natural foods and operating experience, both globally and in the U.S.

I am confident with the global team we have assembled and their operating expertise, which helps us further extend our leadership position in organic, natural and better-for-you industry. .

Hain Celestial has a solid balance sheet that provides the foundation of our capital allocation priorities. We will continue to make high return on invested growth and productivity investments in the business.

At the same time, we'll continue to evaluate opportunities to further streamline our portfolio from categories standpoint -- from a category standpoint. And we will consider noncore brand divestitures that do not meet our return on invested targets or no longer fit strategically within our core portfolio.

While strategic, accretive acquisitions help further enhance scale in our core platforms, we remain, like we always have, disciplined in our approach to M&A.

We'll also look at opportunities to return to shareholders and pleased to announce a new $250 million share repurchase program, which reinforces management and the board's confidence in our strategic plan.

Consistent with our commitment to be best-in-class in corporate governance, we appointed Andy Heyer, Chair of the Audit Committee, a seasoned consumer goods investor, as Lead Director of our board in May of this year.

We regularly evaluate our board to ensure we have the right mix of expertise, relevant experience, and we're in active discussions with accomplished executives to refresh our Board of Directors. .

Finally, after a long quiet period, and it's been long and it's been quiet, we look forward to interacting with the financial community and resuming our active dialogue with each and every one of our stockholders. We're pleased with our Q4 business momentum and expect our plans and our initiatives to deliver a strong rebound in fiscal 2018. .

Over the medium term, we will generate 4% to 6% top line growth through a combination of mid-single-digit top line growth and on-trend business innovation. And we anticipate achieving 9% to 11% growth in EBITDA, reflecting 200 basis points of margin expansion from operating leverage and Project Terra cost savings. .

In closing, I'd like to reinforce that our team of over 7,800 employees remain focused on the execution of our strategic initiatives as we drive Hain Celestial's next chapter of growth and success.

Our team is energized and focused on the execution of our strategic initiatives as we further capitalize on our core strengths and resources to drive growth and position our business for long-term success. .

Thank you so much for listening today. With that, I will finally now open it up for questions. Thank you, everybody. .

[Operator Instructions] Our first question comes from Andrew Lazar with Barclays. .

I guess, I think, per the slides, it looks like you look to reinvest on, perhaps, around 1/2 or little less than 1/2 of the sort of cost savings and productivity over the next 3 years on marketing. And I'm trying to get a sense of what does that sort of marketing include.

Is it consumer, trade and all price investments kind of rolled up into one? Or is that primarily just the consumer side? And the reason I ask is because I know that before the accounting review and about a year ago, some of the issues that you were starting to talk a bit about and that you mentioned on the call today was the need to be, in certain categories, perhaps a bit more price competitive, in certain areas, the need to ramp up the consumer spend side of the equation, so trying to get a sense of what that reinvestment incorporates.

.

Andrew, I'll let Gary talk about it from the U.S.

side, then I'll talk about it from the global side, okay?.

Thanks, Andrew. Thanks for the question. So the -- to answer your question, first of all, you're correct. As I indicated in my discussion, we certainly have taken some price initiatives already to be more price competitive. But the future plans are predominantly around brand investment for consumer and shopper market activation work.

So this is really about building brands, building brand equity, improving our household penetration through that work. So this is really geared towards not price but towards brand and consumer. .

And Andrew, that's the same around the world. It's -- again, we have some great brands around the world. As you heard me talk about, whether it's Ella's being the #1 baby food, whether it's Tilda, whether it's Hartley, it's spending towards the consumer.

And in regards to price, a big thing there is how we take out costs is as we consolidate co-packers. We have looked at every formula. We've looked at the cost of manufacturing. We looked at products coming from plant to our warehouse, realigning our distribution systems.

So with that, hopefully, we could take a lot of cost out that can be directed back towards the price. .

Great. Got it.

And then just a quick just follow-up and general one, which is, I guess, some of the questions that I've gotten so far this morning have been while you've had a lot of discrete items that you pointed out that impacted fiscal '17 that hopefully won't obviously repeat in '18, you're obviously still looking for a pretty significant growth, right, in sales and EBITDA in '18.

And I guess, the question I'm getting is just, how do we know you're giving yourselves, I guess, enough room to get the business back to where it needs to be for the, call it, medium long-term? And is the -- I guess, is the reinvestment enough in '18 based on what you're hoping to get out of it from an EBITDA standpoint?.

So Andrew, I think a good -- one telling tale is what we're seeing in Q4, and we're seeing some good things in Q4, and so that's #1. We're seeing a good turnaround on our Hain Pure Protein business. We're seeing our fruit yields in the U.K. business. We've got pricing on most of our products in the U.K.

Gary has gone through his SKU rationalization and inventory alignment. We've gone through with our Cultivate business, is cleaning up a lot of those businesses. For instance, in BluePrint, we eliminated one SKU of cashew milk, which was a $3 million to $4 million hit for us. So we've replaced it. We've grown the business.

So there was a lot of one-offs and -- that added up to a lot of money, and a lot of things happened. But the good news is we're already seeing the actions that have been put in place to recover going into 2018. .

Our next question comes from Scott Mushkin with Wolfe Research. .

So I wanted to -- and welcome back. So I wanted to get some clarification on the recent U.S. trends. I've kind of missed that a little bit when Gary was going through it.

So I was wondering if you guys could just revisit that? Had that -- has that slowed down a little bit?.

Yes, Scott. So you've seen obviously the broader industry trends. And of course, in MULO+C there's certainly been a slowdown. I mean, some of our unreported channels, we see strength across mass, club where we see better performances. And of course, online is double-digit growth for us. But it's the top 500, obviously, that's our core focus.

This is where we know our future is going to be. This is where the consumption trends are definitely stronger. If I look at some of the trends for the key items that are important to us, Imagine Soup is up 33%, 34% in the latest 52. We're really encouraged to see with the work we've done for MaraNatha.

Their very recent numbers in the last 4 weeks, we see dollar growth for the first time we've seen in 12 months. The work in snacks, Sensible Portions is in double-digit growth everywhere except for one retailer. And if we look across our broader range for Earth's Best, the baby business is somewhat masked by the fact we've had the pullback for Ella's.

But for Earth's Best organic baby food jars and for infant formula, we're seeing strong growth. So we see, net of some of these drags, our top 500 is growing around 4.9% net of SKU rationalization in the latest 52 read. .

And Scott, I think, again, what Gary said in his script, 60% of what you see of our business today goes through MULO. The other 40% is channels you don't see. And again, we're in a transition here with our SKU rationalization, number one; with some price decreases, number two.

And the other big thing is what we're seeing is we've done a lot of overhauling on our products and packaging, MaraNatha, major rollout on MaraNatha on our new packaging, so it's new SKUs coming in, old SKUs going out. Same with other packaging on Spectrum, same with packaging on our personal care.

So this past year, we have spent $20-plus million on repackaging, rebranding, repositioning a lot of products. And that's what you're seeing is old products coming in, old products coming out. And as Gary said before, that tail of about 1,000 products out there is still what affects us when you look at MULO. .

So then my -- and then my second question, that was kind of could lead into it, Irwin, is just with the proposed transaction between Amazon and Whole Foods, I was just kind of doing some poking around on pricing and seeing what -- a couple of your items are priced on Amazon versus ATB, which we've done some work on and Whole Foods, and there are very large differences.

I mean, if you look at JASON's, it's $10.99 on Amazon, it's for 30 ounces; it's $14.99 at Whole Foods and $11.99 at ATB.

Assuming the Whole Foods prices migrate towards Amazon's over time, like how do we think about that vis-?-vis your business? And I guess the other thing is why are there such large discrepancies, in your opinion?.

Well, I think, Scott, I think what you should do is just not look at our products, I think look at... .

So I think it's everybody.

I mean, it's not just Hain, right?.

It's all products that are sold on Amazon versus Whole Foods. Listen, as you heard me say and I'll let Gary talk, I think this is great for us. I think the strength that it brings Whole Foods, the opportunity for more and more consumers to get our products.

We are one of Whole Foods' largest suppliers of products, and Amazon is one of our fastest-growing customers out there. Amazon loves to know about consumers buying at Whole Foods, so the combination of both. The other thing is, that we all know, Whole Foods has not been growing. So now with better pricing, there's a better opportunity for them to grow.

We've been working with Whole Foods. And you heard Gary mention that we have 2 people on their counsel in regards to their category management. So with that, I am pretty excited about the combination.

And at the same time, we had Sprouts in here yesterday and the combination -- with their growth and their opportunities, we're pretty excited about that also.

The other thing is, Scott, every retailer out there today, as they look at Whole Foods range of products -- Whole Foods is one of the best showrooms for Hain, and as other retailers walk in there and see our products, they want more and more of our products in their stores. .

Gary, did you have any comments on that? I mean, are you guys making the same margin or?.

Well, just to come back to Irwin's point, I think the opportunity to create a physical presence, a wider physical presence for us through Whole Foods and a higher virtual presence through Amazon is a great mix because, again, we have a very small window -- a very small opportunity right now at 7% of the total population buying organics, so we've got 93% still waiting to really experience our products.

So this is a great opportunity for them to leverage their scale and their ability to get the product to the consumer base, which has a very high overlap with their prime membership. So they've got a very loyal consumer base that can potentially access our products, so there's huge upside potential for us.

I don't want to comment specifically too much on margins because I think that the business models are very different today. But ultimately, if they have better quality access and, let's say, competitive pricing, it's got to be good news for us. .

And, Scott, I think what's important is, I'd rather be selling a lower-margin product with 5% growth than a higher-margin product with negative growth, okay? It's not a race to the bottom, it's a race to the top. So I think that's what we're looking at, the big-time growth opportunity for us on the combination of both.

And along with that, there's plenty of efficiencies to take out of -- continuously take out of the business. .

Our next question comes from Amit Sharma with BMO. .

Gary, a question on your streamlining of the portfolio and then a couple of related questions on that.

So you talked about that a little bit, can you provide a little bit more color around your top 11 brands? What's the strategy going forward on those brands? How are they going to be different than what it has been in the past? And as you talk about $40 million to $50 million incremental spending, what does that bring the spending level to now with that incremental spending as you think about these core brands?.

Okay, so thanks for the question, Amit. Obviously, for us, the top 11 brands are the critical driver for our future. It really will be brand-dependent. We won't have enough time maybe to go into absolute detail. But clearly, we have an outlined plan for each of those brands as to what is the key objective around engaging the consumer.

Some, it's greater awareness. Some, it's more shopper activation work in stores. But -- and some of it's more digital. So there's a broad range which we'll get a chance maybe to talk in more detail about.

But we have clear plans for each one of them and how we intend to invest to better engage the consumer and also turn up better in the store for the consumer.

To your question around where does that put us in levels, I think it makes us far more competitive with the broader landscape of spend and what we anticipate will be the competitive environment for spend against brands. I mean, it's a significant investment, as you can see, year-on-year.

And I still think there's upside for us in the future to reinvest more of those savings based on generating this virtuous circle of generating savings, driving the top line then ultimately making smart choices on how we invest. But we have very detailed plans for the next 3 to 4 years on how we plan to invest behind the brands. .

And Amit, I think we have -- I don't think, I know we have some great strategic plans how we spend our trade dollars and the benefits we get for those.

And there's a circle here in regards to the reduction of inventory by our customers, which is good, which gets better shelf life, gets better selection, it gets your pressured product moving through, it gets better promotions in place.

So there's a lot in place in regards to not so much reduce trade dollars, it's just that you're going to get benefit from instead of just going into someone else's margins. .

Yes, I think the fabulous thing for us is we have very authentic brand stories to tell, and we have a consumer base out there who loves to hear about them. So we intend to tell those stories well. .

And just to be clear, what is that level of trade spending, Irwin, today? Even if you're not reducing the dollars on that, as a percent of sales, are you able to say?.

Around 15% -- overall, company-wide, it's about 15%, Amit. .

And then below the line spending is how much after the incremental spending?.

You're talking about dollars or percentages here, Amit?.

Percentages of sales.

So if trade is 15%, how much of below the line spending do we have on marketing and other promotional activities?.

Yes. I won't go into too much specifics other than to say, as you can see, it's about a 50% increase on where we land in 2017, so it's a very significant investment, and it's all predicated on, obviously, us driving the savings to fuel the investment. .

Got it. And just one more from me. Irwin, a pretty substantial slowdown in the HPP business and then looking for a pretty solid recovery in '18 as well. Can you talk about it? You said all of that doesn't really assume turkey pricing recovery there.

So can you talk about why we expect HPP business to recover to '16 levels in '18?.

Sure. Listen, the big thing that happened with HPP is 3 things. Number one, we built a new plant and getting our plant up to snuff and getting the plant running and just having capacity to be able to deliver. So now our new FreeBird plant is up and running. And with that, we're producing a lot of chicken.

Secondly is, we've rolled out a major organic deli program, both under the FreeBird Plainville name and some other owned brands, so good margin from that business, and we expect some good growth from that business.

The third piece, last year during Thanksgiving, we went to a third-party warehouse and we had tremendous inefficiencies in getting our turkeys out even though we sold 2 million turkeys and cost us a ton of dollars. That's behind us and that's fixed. Turkey prices came down and you saw other major turkey-branded companies talk about that.

During avian bird flu, you were able to get $4 or $5 a pound, but you saw our poundage up by 8 million pounds. The big thing is we have now taken a lot of costs out of our business, Amit, to offset a lot of that. We've also integrated our Empire business and our HPP business to take a lot of backroom costs out of that. We've also focused on our feed.

We focused on our grow-out. So a big part of it is just getting more and more efficiencies out of the business, going to higher-margin products like deli, further processed, working on the branded side of the business.

And some of the big growth in the area for us is like HelloFresh types of business, our fast casual, which helps Hain get into other foodservice and other categories for us. So we're already seeing, in the fourth quarter, a good turnaround in the business and we expect that to continue through 2018. .

And just is this portfolio still belong longer term with Hain?.

Listen, you heard what I said in my script. We are going to look at all our businesses, all our categories and evaluate what strategically make sense. Listen, the organic category is growing nicely, but this is a different business to manage. So we are going to look at everything. And is it a long-term business for Hain, I can't answer you now.

But I will tell you, we will evaluate where and when it makes sense. .

Our next question comes from Akshay Jagdale with Jefferies. .

It's been a while, so good to have you back. It's -- I just wanted to ask about the inflection in the EBITDA and the margins. When you look at '17, it's a bit shocking how much the EBITDA has declined, and I think you did a good job with that bridge that you presented.

So when you look at the '18 bridge, you have 2 big components there, right? One is the savings from Project Terra, $100 million. I believe they were $70 million in '17, so they're $30 million higher. But a good chunk of that is going to be -- the incrementality is going to be reinvested in marketing.

So really, what it comes down to, I think, is your core business growth has to improve very, very significantly. And the way I look at it, half of the problem was U.S., and half of the problem was U.K. and HPP. So can you just -- I mean, I know you gave us a lot of data, we're trying to digest all of that.

But coming off a year where you saw a significant decline in margins and EBITDA, what gives you the greatest confidence that things will improve? If you could start with the U.K. business.

HPP, I think it was pretty clear that you were saying you were going to see a $30 million increase year-over-year, roughly, and none of that is predicated on commodity prices improving, so that's a strong enough statement.

But help us understand U.K., why do you see -- why are you going to see that inflection? And then maybe Gary can talk about what was -- why are the things that you saw in the U.S. one-off? Obviously, the investments in the team, we get that.

But if you could get into a little bit of why were they were one-off? And are you seeing them turn around?.

All right, so Akshay, good question. Number one, Akshay, throughout our 9 months or a year, on a constant currency and an adjusted basis, we are still seeing 4% growth, okay? So where do we feel confident about next year of 4% to 6%, or a little -- we feel confident because we have seen it.

And with all the distraction and everything going on here and seeing 4% growth across the businesses. And other than the U.S. businesses, you see high single-digit growth. So with that, take the time that we've been focused on everything else and put that towards our business, we should -- we feel good about our growth.

Stepping back and looking at the U.K. at some of the things that distract -- or some of the things that happened. Number one, currency hit us by almost $20 million. Now, part of the currency we're not getting back because the pound is at $1.27 to $1.29 not $1.40 to $1.42 where it was last year around this time.

With that, unfortunately, we buy a lot of products in U.S. dollars, and we got hit hard by another $10 million where we never got pricing through. Throughout the year, we were able to get approximately GBP 10 million of price increases through our U.K. business, which we'll start to see the reflection in the fourth quarter, which is a big number.

The second thing is, El Ni?o and weather-wise, being in the fruit business is something you can't control. Unfortunately, fruit this year did not have a good crop, good season and our fruit yields were terrible, which hurt us in the first 3 quarters.

Our fruit business, which did not make a lot of money in the first 3 quarters will make somewhere around GBP 3.5 million to GBP 4 million in the fourth quarter, which is a good indication of what we expect to see next year. Third thing is, in the U.K., we did our acquisition of Orchard House, which included a fruit and juice business.

We got held up for almost 9 months with the CMA, which delayed integration of our fruit plants, which delayed integration of our juice business and ultimately forced us to sell our juice business. We -- it was about GBP 25 million of sales -- or $25 million, and about GBP 2.5 million of profit that we had to sell in that business.

So just with those alone, that adds up to significant increases that we've -- and opportunities that we're seeing in Q4. So that's why I'm feeling good about the rebound in the U.K. business. We have a new leader in the U.K. business, James Skidmore, that joined us last July. We are going through plant optimization there.

We are going through backroom optimization there, and we see a lot of opportunities to take costs out of our U.K. business. In regards to Hain Pure Protein, I think I went through it. In regards to cost optimization, in regards to going into branded products, in regards to our new plant onboard, and we're seeing good success in the fourth quarter.

So that's why we're feeling comfortable about going into 2018 as we already see some of these one-offs that happened already in place. .

Yes, and maybe just to talk a little bit about the U.S.

Obviously, I went through some detail around the one-offs that related to the work we've done in SKU rationalization and also the realignment of our inventory -- finished good inventory in the supply chain, which obviously are both significant impacts, which -- while we'll have the abating of the SKU rationalization in '18, the majority of the impact is in '17.

And that's obviously a significant hit for us to take. But the underlying performance of the business is still around about 50 basis points of growth, net of all of these one-offs. What's also encouraging, as I mentioned, is when we look at the top 500, it's definitely outgrowing the pace of the broader category.

And the TDP growth is encouraging as well. So we're getting expanded distribution for these products. And we've had some one-off declines we know. And they've pulled back for Ella's Kitchen, which was significantly through Target this year, has been a drag on the business.

And of course, we took some pricing this year to become more price competitive, so we expect that to continue to give us traction through 2018.

And of course, with a very significant investment tailwind that's coming behind these brands in 2018 to get us back into low to mid-single-digit growth, I feel very confident that we have all of the things in place now to make '18 a success. .

And Akshay, we are going through the organization in regards to our SG&A and other savings. And we've kind of almost had one hand tied behind our back during this process and where we've had duplications in personnel, where we need efficiencies. So with that, we have embarked upon a major cost initiative in Project Terra.

We're also looking at the organization in regards to personnel, where we are duplicated, where we have to integrate backrooms, and we'll make those changes where they have to happen also. .

And just on the Project Terra, $350 million, can you help me parse out what's truly incremental relative to the $100 million or at least $100 million you had talked about a year ago? Because I think now you've got another extra year in the time frame, and then you also have annual productivity savings.

So how does it compare to the, in my estimate, the $100 million is going $150 million, and the rest is the productivity savings annually. Is that roughly correct? Or can you help us... .

So when we announced Project Terra, it was basically the U.S., now it encompasses around the world. And it encompasses whether we're producing rice in the U.K. or producing rice in India, shipping it directly to the U.S. and Canada. It encompasses looking at all our plants in Europe. It encompasses what we're doing in backrooms.

It encompasses procurement on a global basis. So when we announced Project Terra last year, it was basically the U.S., and it was based, over a 3-year period, approximately $50 million or so a year.

What now this encompasses is everything around the world, including Project Terra but going longer and deeper into plants, into distribution centers, looking at how many offices, rents, people, et cetera. So it encompasses everything, and that's what the difference is. So there's only one cost savings now. It's Project Terra.

It's not our everyday productivity plan and Project Terra. Everything is consolidated into one. .

But the increase relative to what you said a year ago is truly incrementally it's $50 million, right? It's not $250 million.

Is that correct?.

It is truly -- it is incremental than what we said a year ago. .

Okay. And then just one last one for Gary. So in the U.S., it's 2-part question. One is, when we look at the Nielsen data, recently, it's been down, right? So I know the measured channel is only a component, but that's all we can look at and everybody looks at it.

So what should we expect from the measured channel in relation to your targets for '18, as we go through '18? And related to that, what is the margin impact, roughly, of the SKU rationalization on your U.S.

business? And why didn't that already started to take hold in '17?.

Sure. Okay, so you're right. You can't see all of the channels, and it's a mixed bag, of course, because from what you can see publicly related data for the natural channel, it's been softer. And we had a higher exposure to the tail in the natural channel, so obviously the SKU rationalization had a bigger impact in the natural channel.

But if you have a look at our, let's say, nonreported channels where we have online, club channel, there we're seeing strong double-digit growth and we expect that to continue.

So if you look at the mix through '18 for the MULO+C, I would still expect us to see, once we pass some of the drag that we were in, the things like the Ella's pullback, I think the biggest drag that we will continue to face will be for Sensible Portions because that was in the MULO read, where we had one of our major customers cut our distribution, so that's had an impact and that will probably carry through till maybe quarter 1, quarter 2 next year.

But I would still expect us to get back into growth, low single-digit growth in MULO+C. I haven't modeled it out completely to be so clear, but I would expect that, that would be reasonable given we get past most of this drag in '17. And you asked about margins. Sure, we had a number of things to take in this year.

Obviously, with the distributor and customer finished good realignment, that had a significant impact on top line sales and the margin that went with it. And of course, the SKU rationalization, they were lower-margin SKUs.

But we also had some other headwinds that we had to absorb as well as an increase in marketing spend this year of around 20%, which was a conscious choice, as we started to move into this strategy of investing behind the brands. So it was a conscious choice to start that process immediately to set us up for 2018.

So as a consequence, you don't see all of that fall to the bottom line. But for sure, that's why we expect a stronger performance in 2018 as we get through these one-offs and this transformation in '17. .

Our next question comes from John Baumgartner with Wells Fargo. .

Irwin, if I'm hearing you correctly, it sounds as though you're more willing to accept lower margins in return for better growth going forward.

And I guess, if so, how are you thinking about the role of private label? I mean, is there a case you've made now that private label price points are needed to sustain volume growth for the natural organic industry.

Just given how many, the interest levels from middle- and lower-income consumers and now your cost savings allow you to hit those margins better? Or is it your vision that you'll be able to build enough equity in your brands to move forward more as a branded company? How do you think about the balance between brands and private label?.

So number one, brand equity, brand equity, brand equity. And when my twin boys were born, I wanted to call one brand and one equity, so that's how much I believe in brands versus private label. 93% of our business in the U.S. and Canada today is branded business. And I'm a big believer of millennials and consumers will buy brands.

In this country, in the U.S., only 18% of sales are branded products. I think there's a place for branded products. And where Hain is, we'll build upon our brand business. But, John, I don't want to be the highest-priced product in the store with no sales. And I think we have to come to a realization factor.

Price is important in the natural organic industry; also how do we sell more products? And that is, volume driven is one of the most -- best ways to do it and how are we going to take costs out? So I think working together with our retail partners and that is on manufacturing, on distribution, we're going through and looking at our packaging, our formulations, on how do we get better margins out of our products.

So in the U.K., it's a different world, where private label is a much bigger percentage of products. And when you have your own plants and you cover a lot of overhead and absorption of overhead and alongside with shipping.

So brands are our key priorities, focusing on brands, focusing on growth, and with that, hopefully, getting the right margin between growth, taking costs out that we did if we weren't going to get the growth. .

Our next question comes from Ken Goldman with JPMorgan. .

Irwin, just one from me, because I know we're running a little long here. You highlighted your strong presence with Amazon. And I really do appreciate some of the benefits to Hain of the merger that's going to come.

But, is there maybe an offset in that Amazon doesn't have a strong private label natural and organic brand, that's about to change? Might there be some pressure on you as Amazon starts to emphasize it's 365 and Whole Foods brands? Or is that really smaller in your view compared to what some of the tailwinds might be?.

Listen, I never ever, ever don't take for granted or don't be serious about their 365 and their private label. On the other hand, Ken, we've been doing this for 23 years. And the barrier to entry and supply of organic is difficult out there from a manufacturing standpoint, from a supply standpoint and continues to be.

And again, that is why spending money on our brands and being price competitive -- a consumer is going to buy a brand over private label if you're price competitive and there's something unique about the brand. So what Hain has to do is invest in its brands, have its brands connect to consumers. At the same time, innovation is key to us.

We've introduced over 93 new products, got to have continuous supply. And by the way, there is a lot of other retailers that want our products, too.

It's not just Amazon and Whole Foods, okay? And I've had multiple, multiple calls from retailers and saying, "Hey, make sure you've got enough product for us." So I think it's important for us to build upon our brands, focus on our brands and sell products. The big thing is, Ken, natural organic foods should not be for the 1%.

It should be everybody that wants to buy a food product. And I think the opportunity for Hain here is this year. What Amazon and Whole Foods combination will do is drive more and more awareness to natural organic products.

And that's where the big opportunity for us is to pick up a big piece of that conventional market that wants to convert to natural organic. And we see it in baby food on the WIC program. Organic baby food, which is jars, became part of the WIC program. And most of you know what the WIC program is.

And what we've seen in our growth in jars, because being on the WIC program shows how everyday consumers want organic baby food not conventional baby food. .

Our next question comes from David Palmer with RBC. .

Just a big-picture question. I'm just trying to think about your long-term growth rate. Clearly, your business has had a tough go in fiscal '17. But if we give you a strong -- the credit for a strong rebound in fiscal '18, your business will still be flattish for a couple of years.

The big picture feels like organic and inorganic growth has gotten way more expensive than it used to be. And that the reality is generally the same now as it was or was starting to be a little over a year ago.

So beyond a near-term rebound, what are some reasonable long-term target growth rates for Hain if the environment remains as it is?.

So, David, I'm a little confused here because I think, number one, we've talked about 4% to 6% growth in '18. So that's, first of all, what we're looking at from a company standpoint. Secondly, what we've said in regards to organic becoming more expensive, I think I've talked about how we are looking to make organic more and more affordable.

And from a standpoint on our growth across the rest of the world, we've seen mid- to high single-digit growth in all our businesses around the world. And as Gary talked about in his North America business, with focusing on his top 500 SKUs. With focusing on taking inventory reductions out there within the trade.

He's looking for low to mid-single-digit growth next year in his U.S. business. .

So you think that, if I were to summarize, that the savings, you can keep these types of savings going such that you can compete with these food companies that are clearly getting more into the business that you've done, which is promoting and getting shelf space but also buying assets that you think that you can maybe have a flywheel going that lasts more than this year such that you could be more competitive.

Is that a good summary?.

That is a very good summary. .

Our next question comes from Pablo Zuanic with SIG. .

I have a big-picture question for you, Irwin, and then I'll -- just a brief follow-up. These happened on your watch, right? And when I say these, the earnings restatement, no results for 4 quarters, shipping issues that relate to -- or said to find, and then apparently still ongoing SEC investigation.

So on your side, I mean, what is it that you need to do different? I mean, do you need to delegate more? Do you need to focus less on acquisitions? Can you just comment on that, if you can, just more on a personal level?.

So, Pablo, I want to correct you. There is no restatement here. And everything has happened on my watch, so I accept responsibility. So there is absolutely no restatement, no material change to our financials. So I want to make sure we correct you on that. On 2017, it's been a tough year.

It really has with -- looking back at our financials, it's been distraction. It's been a distraction of resources. It's been a tough 2017 for every other food company, but that's not what I need to worry about. I need to worry about Hain. But what I can come back and say is, this year, we are a company of good brands, good strategy, great people.

And one of the things that happened in 2017, we enhanced our organization. We've made lots of changes. In the meantime, in 2017, Pablo, with all that was going on, we still threw off $148 million of cash. We'll pay back almost $220 million of debt. We've invested over $50-plus million in CapEx. We grew our top line 4%.

And with that, we went through one of the most extensive look at our numbers over a 3-year period and come out with some pretty good results. So, yes, it was not a stellar year from our performance. But what we're seeing is a great turnaround in Q4 and some good forecasts going into 2018. .

Then I agree. It's quite remarkable in that context. Look, just a brief follow-up. When you talk about customer inventory reductions, is that something channel specific? Is it Hain specific? Or is it something that the industry is seeing as a whole? If you can you elaborate on that, please. .

Pablo, I think it's an industry as a whole. It's customer-specific. It's around distributors, whether it's customer slowdown, whether it's part of the SKU rationalization, whether it's mix, wanting to have a better selection of shelf life out there, a better selection of inventories.

One of the biggest things we need to ensure, and we went through it last year, in 2000 -- in '17, we were running at 93% to 94% service levels. We can't run at 93% to 94% service levels. We need to run at 97%, 98% service levels. We've got to have the right inventories in the system and the right inventory at our customers.

And with that, this was a big part of it. So it was an all-around effort by our distributors, by our customers.

And just from our standpoint, in regards to taking cash -- taking costs out of our business, having better cash, less inventories out there, fresher shelf life, less spoils, having a better mix, reducing out-of-stocks, there's many, many business benefits why we did this. .

And just very quickly, in terms of the categories, I mean, you've talked about what's doing well, what's not doing well, but on those top categories, when we're trying to look at this kind of data, where should we expect the high -- the better-performing categories and where -- which should be the less performing or the ones that are declining? Just give us a range in terms of -- I am not asking for guidance at the product level, but just to try to have an idea about, okay, we should be expect Hain Celestial tea -- Celestial tea to continue to decline, Earth's Best flat, maybe chips growing, just give us a sense in terms of how do you expect that at the category level?.

Look, Pablo, it's Gary here. Thanks for the question. Obviously, when you look across our core platforms, we have some clear growth drivers. In the case of snacks, we expect that to be back in growth.

I mentioned we have one point of drag from Sensible Portions because of one retailer but, broadly speaking, we expect growth in that business to be consistent in 2018. If you look across our pantry business, we expect MaraNatha, Imagine Soups to be continual drivers. In baby, Earth's Best, we expect continued growth.

Some of the drag from Ella's will abate in '18, so that should definitely see improvement. We should see a turnaround of growth again for Greek Gods with the new innovations that's coming. So -- and personal care, we expect continued strong growth behind Live Clean as well as the core platforms we already have out there.

So we expect broad-based growth across many of our businesses for '18. .

And Pablo, I think, as I said earlier, what we're going through today is, where are categories we're not in? Where are categories that we shouldn't be in? And should we be divesting certain categories? Where are the growth categories for the future? Now the big thing is, we look at innovation, we look at new categories, what are the trends, what's going on out there.

And a big part of cultivate is, where are there small companies out there that are going to grow into big companies like a Greek Gods, like Ella's, like we just bought Yorkshire Lavender in the U.K.? So we're going to look at that, and [ is ] there categories that we just don't see the future of the growth, and we've identified those within the Hain portfolio to make some decisions on.

And whether some of the distribution channels have changed, the method of the product, it's a commodity now, it's no longer unique, so we are going to look at every bit of that and make some decisions on divestitures, make some decisions for future acquisitions and where do we streamline the portfolio. .

We have time for one more question. Our next question is from Alexia Howard with Bernstein. .

So I guess the biggest question that I'm getting from investors is, is this going to end up being a cycle where pricing needs to continue to come down over time? You've obviously got a lot of brands that are in the health and wellness area, which is great because they're pretty fragmented brand set.

And the concern is that when you're up against really big retailers like Walmart, how much pricing power and negotiating leverage do you really have? Or are you going to have to -- in order to keep distribution, are you going to have to continue to take pricing down over time? How do you respond to that question to make us comfortable that it isn't going to end up being a vicious circle downwards?.

So if I step back for a second and look at our brands today, I think if you look at us, whether it's our nut butters, whether it's our snacks, whether it's Earth's Best, I think we do a pretty good job in regards to pricing to some of the bigger companies and do a good job at pricing our product lines out there.

I think the good news about Hain is when you say we have a bunch of fragmented brands, not really, the underlying denominator in a lot of these products are organic fruits and vegetables. There's a lot of common denominators of procurement here. A lot of the products are made in the same plants.

A lot of the products are shipped on -- out of warehouses on the same trucks. So, yes, there may be fragmentation in -- Earth's Best is maybe not as big as Gerber as a conventional product. But we do have some significant size and scale in a lot of our products here.

And that's one of the reasons, Alexia, we are looking at our top 500 SKUs to really get scale and invest in those. The second thing is, Alexia, which we really come back and think there's a big opportunity for growth for us to keep going after conventional products.

And the category in food, as you know, is not growing, but there's a bigger and bigger shift going on from conventional products to more and more natural organic. So, yes, pricing may come down, but hopefully, from size and scale, we'll get the benefit there. .

Yes. I would just add to that, I think the other piece of this is really about value and value perception for the consumer because price is just dictated partially by how the consumer sees the value of the product.

And our whole intention is to make sure we have good investment behind our core brands, that the consumer understands the value proposition and why they would pay the price that is on the shelf today and why they would understand that, that's a better choice to make.

And to Irwin's point, that they would see, as a conventional shopper why even paying $0.01 more would make sense to convert to be a natural organic selection in their portfolio rather than a conventional choice. And that we should be the brand of choice because they see us as the best value proposition. .

I'd like to turn the call back over to Irwin Simon. .

Thank you very much, operator. With that being our last question, we expect, over the next few weeks, to get around and see all our shareholders out there and talk to all of you. We expect to be back in August with a major in-depth review of 2017.

And our outlook for '18, we'll go into a lot more detail on sales, margin, segment, et cetera, have a lot more for you. As you know, we traditionally give guidance on 2018 in August. We'll give you a lot more. It's been a tough year, it's been, from a personal standpoint, from a team standpoint, I am happy with the news that came out today.

I'm happy, as I said, I am with the team that is surrounded by myself to go out -- move this business forward. And if the amount of time that was put into looking back at our numbers is put into our business, just watch out of what we're going to do..

So I want to thank, once again, all our employees, and let me tell you something, they deserve a big round of applause because I don't think there's one weekend that most people have not been here, whether it's Father's Day, Mother's Day, Thanksgiving, et cetera, and they deserve a lot.

I want to thank our shareholders who have stuck with us, who have supported us, and we will be spending time with you and talking to you about the future of our business. I want to thank our consumers and customers that always buy our products..

The important thing is, we feed infants and toddlers their first foods. We feed a lot of food out there that is very important to health and wellness and the future of food. We feel a big part of reducing, whether it's childhood obesity, health and wellness, and we'll continue to be a big part of that..

We look forward to talking to you again in August. And most likely, over the next few months, we'll talk to you. Thank you very, very much for your time today, and have a great day. And if you need a list of our products to buy, it is online, and it's available at most retailers across the U.S. and Europe. Thank you. .

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day..