Katie Turner - Investor Relations Irwin Simon - Founder, Chairman, President and Chief Executive Officer Gary Tickle - Chief Executive Officer, Hain Celestial-North America James Langrock - Executive Vice President and Chief Financial Officer.

Rupesh Parikh - Oppenheimer Scott Mushkin - Wolfe Research Ken Goldman - JPMorgan Akshay Jagdale - Jefferies David Palmer - RBC Capital Markets Bill Chappell - SunTrust Steve Strycula - UBS Anthony Vendetti - Maxim Group.

Good day, ladies and gentlemen. Welcome to the Hain Celestial Group Fourth Quarter Fiscal Year 2018 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Katie Turner. Ma’am, you may begin..

Thanks, Shannon. Good morning. Thank you for joining us on Hain Celestial’s fourth quarter and fiscal year 2018 earnings conference call.

On the call today are Irwin Simon, Founder, Chairman, President and Chief Executive Officer; Gary Tickle, Chief Executive Officer, Hain Celestial, North America; and James Langrock, Executive Vice President and Chief Financial Officer, as well as several members of Hain Celestial’s management team are with us today.

During the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management’s current expectations and involve risks and uncertainties that could differ materially from actual results from those described in these forward-looking statements.

Please refer to Hain Celestial’s annual report on Form 10-K and other reports filed from time-to-time with the Securities and Exchange Commission and its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

A reconciliation of GAAP results to non-GAAP financial measures is available in the earnings release and a presentation, all of which are posted on Hain Celestial’s website at www.hain.com under Investor Relations. This conference call is being webcast and an archive of it will be available on the website.

And now, I would like to turn the call over to Irwin Simon..

Thank you, Katie and good morning everyone. It is great to speak to everyone today. I hope everybody has had the opportunity to go through our press release that was released this morning. Our team has continued to work diligently on our strategic initiatives, including our 4-point plan that we have talked to you during fiscal 2018.

There is a tremendous – and I mean, a tremendous amount of progress happening throughout our global organization. We believe the results of our efforts will become increasingly apparent as the rate of financial improvement and growth accelerates in fiscal 2019. We invested $17 million on our top brands and our capabilities to grow globally.

Our 5% net sales increased from fiscal year 2018 or 2% on a constant currency basis reflects strength of our international businesses. On a constant currency basis for the year, UK net sales increased mid single-digits. Rest of the world, including Europe and Canada, was up high single-digits.

We are very pleased with these strong results and increased profitability. For fiscal year 2018 from continuing operations, the UK segment adjusted EBITDA increased 19% to over $100 million and the rest of the world adjusted EBITDA increased 30% to over $50 million.

We are pleased the geographic diversification of our natural and organic business drove our annual results. In the U.S., we faced a number of challenges during the year. Our U.S.

team continues to diligently work on simplifying our business to focus on and invest in the top 11 brands and the top 500 SKUs, while continuing to execute on Project Terra SKU rationalization, cost reduction and efficiency initiatives. Gary will take you through these later. Our top priorities in fiscal 2019 are return the U.S.

business to growth and to definitely generate higher levels of profitability. On the global basis, we are accelerating our cost savings and productivity efforts, which James will review in more detail. For the fiscal year, we generated $63 million of Project Terra cost savings, although planned brand building investments, particularly the U.S.

and higher cost inflation muted the benefit. We continue to work on price optimization to help partially offset the increased cost. We expect the price increases in Project Terra cost savings to improve our margins in future quarters.

We enhanced our leadership team and added 6 highly qualified independent directors who will provide us with valuable industry expertise and new perspectives to help us deliver on our long-term strategic plan.

As we have discussed on prior calls our working group along with management has been working closely with our advisors to review our portfolio of businesses and operating strategy to maximize value for our shareholders.

This work includes the decision we made in fiscal 2018 to divest our non-core asset Hain Pure Protein, a leading organic and antibiotic free fresh poultry business. We expect to complete the sale process during the first half of fiscal 2019.

We plan to use the proceeds from the future divestiture of Hain Pure Protein to pay down debt, buyback stock or continue to invest in our business like we are doing. Now let’s focus on our fourth quarter results from continuing operations which again excludes Hain Pure Protein. Our UK adjusted net sales increased 5%.

This primarily reflects the 9% growth from Tilda, 4% growth from Hain Daniels brands and growth from Ella’s which was up 7% for the fiscal year. Hain Celestial Canada net sales grew 5% in constant currency and were driven by Yves, Alba, Sensible Portions and the Live Clean brand.

Hain Celestial Europe was up 8% in constant currency and had strong growth from its non-dairy business Tilda, Danival and other brands. In the EMEA region we remain excited about the tremendous opportunity in emerging markets with Hain Celestial branded organic and natural products.

Our joint venture with the Future Food Group in India is proceeding as planned and we expect to open our new plant in the first half of fiscal 2019. After 2 long years, I am very pleased to announce that we reached an understanding with the SEC staff subject to commission approval to resolve the ongoing SEC inquiry.

The settlement which there is no payment of penalty addresses Hain self-reported shortcomings and internal controls and books and records consistent with information we previously disclosed. We are happy to have this behind us.

When I founded Hain 25 years ago, one of my goals was to educate, change the way the world eats, lives through a relentless focus on providing organic and natural better for you products to consumers. I am incredibly proud of the company we have built. It has been a privilege to lead our dedicated team and drive our mission forward.

Believe it or not, this is my 101st earnings conference call, pretty incredible. As most of you know in June I announced my intention to transition into the role of Non-Executive Chairman upon the hiring of a new CEO.

I am confident now it’s the right time for the next generation of leadership and I firmly believe that some of our greatest opportunities definitely lie ahead. Our Board of Directors and I have been very pleased with the quality of CEO candidates that we have interviewed.

We are in the final stages of the process and expect to make an announcement in the near future on my successor. With that I will turn the call now over to Gary..

Thank you, Irwin. Good morning everyone. Our U.S. team continued to take steps to execute on our strategic plan during the fourth quarter. We are proactively reshaping the U.S. business.

We remain focused on our core strategic priorities to firstly simplify our portfolio, secondly reduce cost complexity and mitigate cost headwinds and thirdly make disciplined investments in our core 11 brands and top 500 SKUs to drive long-term growth.

In 2018 we achieved incremental progress in certain areas of our business from our planned growth investments.

Although internal results for the fourth quarter were below our expectations, we are seeing positive momentum building and our outlook on core distribution from our most recent round of customer line reviews, we already have confirmed 49,000 net new points of distribution for seven of our top brands across a broad range of retailers and channels.

These transformation efforts take time to show tangible results, but these initiatives are translating into improvements in our measured channel numbers. The impact of these most recent distribution gains will begin to have a positive impact in quarter two of fiscal 2019 based on the timing of retailer resets.

We are now seeing improving overall MULO+C trends since March 2018. With our latest August 12 MULO+C read showing a four-week trend is 390 basis points better than our 52-week trend. Focusing on our quarter four results in more detail, our U.S. gross sales were up 3.8% before SKU rationalization. Reported U.S.

net sales were down 5.5% or $15.6 million for the fourth quarter. Taking into account the $16 million impact from SKU rationalization and the divestiture of the majority position in Rosetta net sales were essentially flat.

In the quarter, excluding SKU rationalization, Terra snacks increased 22%, Personal Care increased 12%, and Better-for-You Baby business increased 3.5%. We implemented incremental strategic investments in trade and shopper marketing programs of $10 million year-over-year, which affected net sales growth by 3.4%.

This included incremental programs in the club channel across 3 customers for both our Sensible Portions and Terra snacks brands and our Alba Botanica personal care brand driving growth in the unmeasured channel in quarter four and driving trial in household penetration.

We have continued to see momentum behind these brands building in FY ‘19 quarter one. We also invested in shopper marketing programs in a major natural channel customer driving high single-digit growth in the latest 12-week read ended July 15, 2018 for our Better-for-You Baby platform.

We are also encouraged by our latest 4-week read from the same period in the natural channel showing double-digit growth. Net sales in the quarter were further affected by the loss of distribution for Sensible Portions and one large mass customer in March 2018, which negatively affected net sales in the quarter by $6.4 million.

We expect this to roll off by end of March 2019. Since June 2018, we have been running a successful front-of-store pallet program in the same mass customer translating to approximately $1 million in net sales since the inception of the program through August 9, 2018.

Spectrum net sales were down $4.1 million driven primarily by the continued category decline in coconut oil, which is down 18% in the latest 12 weeks. The restaging of this brand continues with the rollout of a patented bottle design and new infused oil innovations to reduce reliance on the coconut oil segment.

Please look for this high impact new Spectrum bottle on the shelf today and try these great infused oils. In our operations during the quarter, we also incurred significant cost headwinds, including inflation related to freight and logistics cost as well as higher warehousing costs.

Our sales results combined with the cost pressures and operational issues resulted in EBITDA down $19.7 million compared to quarter four last year.

As we begin to benefit from price increases that begin to flow through in quarter one fiscal ‘19 to partially offset these costs, along with Project Terra initiatives, including trade spend optimization that are currently underway, we expect to see these headwinds mitigated beginning in the second quarter of fiscal 2019 and further improving as we move throughout the fiscal year.

Now, I would like to focus on the most recent consumption data for the U.S. business. The latest 12-week MULO+C read of August 12 which will be referenced unless otherwise specified, was minus 5.5%. Excluding SKU rationalization, the trend was minus 3.3%.

We have seen improvements in our MULO+C read since March 2018 which are encouraging sign that our efforts are gaining traction on the back of our planned incremental investments and distribution gains. The latest 4-week read shows U.S.

business further improving to minus 3% or minus 1%, including the impact of SKU rationalization efforts, which is a full 390 basis point improvement on our 52-week trend.

While we expect our results to continue to be uneven in the measured channel in the entire term as we aggressively continue to take out non-core SKUs, we believe the core SKU distribution gains will help drive improved trends in MULO+C in fiscal ‘19.

Our target and expectations for the end of Q1 are for MULO+C growth rate to be approximately flattish after taking SKU rationalization into account and that will certainly better position us for growth in fiscal ‘19 as we expect improvements in subsequent quarters.

Turning now to the non-measured channels, which includes Whole Foods, the Natural channel, Amazon, club and specialty stores, our brands are strong and getting stronger. We are pleased to see our growth in non-measured channels at high single-digits net of SKU rationalization in the latest 12 weeks ending July 15, 2018.

In total, our business was up 0.7% in consumption dollars for the latest 12 weeks read across both the measured and non-measured channels excluding SKU rationalization. In Q4, our U.S. business results reflected the continuation of portfolio transformation.

As announced in quarter three fiscal ‘18 we added approximately 430 additional SKUs to our rationalization program for a total of over 1,100 SKUs to-date reaching more than 35% of our total U.S. SKUs. In total, SKU rationalization represented $14 million impact of quarter four U.S. segment net sales versus prior year.

This affected growth by 5% versus our stated expectation of 4%. The SKU rationalization is an important component of our efforts to reduce complexity, simplify the supply chain and drive sustainable long-term margin expansion.

Looking forward now to the first quarter of fiscal ‘19, we are seeing solid momentum in our top 11 brands in the MULO+C, with 400 basis points consumption trend improvement in the latest 4-week read of August 12 versus the 52-week grade. In our measured channels we have an ongoing trend of broad growth across the different retail formats.

We will continue to support this momentum with an incremental investment of 12% year-over-year in our top 11 brands in quarter one.

While these investments are expected to drive expanded distribution in fiscal 2019 which I will highlight in a moment, it is worth noting that for the quarter one of fiscal ‘19 we anticipate the impact of SKU rationalization will be approximately $10 million versus prior year which equals approximately 4% headwind to our top line.

As a result, we expect quarter one net sales will be down slightly and our profitability will be impacted as well which James will discuss in more detail. In fiscal 2019, we are optimistic about our ability to drive low to mid single-digit growth year-over-year.

We believe this will come from the confirmed expansion of distribution on seven of our key brands across six major retailers. We have a total of approximately 10,000 new points of distribution on C-store for our Terra and Sensible Portion brands included in the net new 49,000 distribution points I mentioned earlier.

And we will have strong club programming for personal care. All of these will begin to rollout in quarter one and we expect to benefit to our financial results to build as the year progresses. From a channel perspective we will continue to invest on e-commerce expansion ahead of sales with expected double digit growth for fiscal ‘19.

As a result of our brand investments, planned distribution gains and price optimization, we expect to generate improved growth and profitability beginning in the second quarter of fiscal 2019 which we expect to accelerate through the balance of fiscal year as more Project Terra initiatives are completed.

We remain optimistic about our opportunities for future growth and improvement. This concludes my review and I will turn the call over to James..

Thank you, Gary and good morning everyone. As a reminder the results of operations, financial position and cash flows related to the Hain Pure Protein segment are presented as a discontinued operation for the current and prior periods as we plan to complete the divestiture in the first half of fiscal 2019.

Today, I will focus my discussion on our financial results from continuing operations unless otherwise noted. For the fiscal year, we met the revised guidance numbers provided last quarter. In the fourth quarter consolidated net sales increased 3% to $620 million were essentially flat on a constant currency basis.

When adjusted for constant currency acquisitions, divestitures and certain other items, net sales would have increased 3%. Adjusted gross profit was $130 million or 21.1%, a 290 basis point decline year-over-year. This decline was due to higher trade investment and increased freight and commodity costs primarily in the U.S.

partially offset by Project Terra cost savings. SG&A as a percentage of net sales was 13.2%, a 70 basis point increase year-over-year primarily due to higher marketing and headcount investments in the U.S., UK and Canada, partially offset by Project Terra savings.

Adjusted EBITDA was down 25% to $61.4 million from $81.6 million in the prior year period. We reported adjusted EPS of $0.27 compared to $0.41 in Q4 last year. I will now provide you with key financial results for each of our business segments. For the U.S., Gary discussed the top line highlights, so I will discuss the underlying financial results. U.S.

adjusted gross margin declined 550 basis points year-over-year to 22.4% largely due to trade and promotional investments and higher freight costs. U.S. SG&A was flat compared to the prior year period. And U.S. adjusted operating income decreased to $23.2 million from $42.3 million as we continued to invest in the U.S. business.

In the UK, net sales increased 10% to $239 million over the prior year period, while 5% on an adjusted basis. Adjusted gross profit increased $3.8 million and our gross margin was essentially flat as commodity inflation was offset by Project Terra cost savings and price realization.

UK adjusted operating income decreased to $20.2 million from $21.7 million in the prior year as a result of higher marketing and headcount investments partially offset by Project Terra savings.

Net sales for rest of the world increased 12% to $111 million over the prior year period or 6% on a constant currency basis with Canada and Europe growing mid to high single-digits at constant rates. Rest of the world adjusted gross profit increased $1.1 million driven by strong performance in Canada and Europe.

Adjusted gross margin decreased 140 basis points to 21.7% and adjusted operating margin decreased 120 basis points to 9% primarily due to decreased profitability within cultivate. Now, turning to our cash flow and balance sheet.

For the fiscal year ended June 30, 2018, capital expenditures was $71 million and operating free cash flow was $50 million, a decrease of $135 million from the prior year.

The change in operating free cash flow resulted from increased capital expenditures in the current year, increased accounts receivable primarily due to timing and increased inventories due to the company making strategic commodity purchases to take advantage of pricing.

In addition in the U.S., we are building inventory to support the new distribution wins and increasing inventories in personal care in advance of our manufacturing facility transition. As of June 30, our cash balance was $107 million and net debt was $608 million.

Our bank leverage ratio was 3.32 times at the end of fiscal 2018 compared to 3.11 times in fiscal 2017. Similar to Q3, Hain Pure Protein’s results are reported as a discontinued operation and are not included in our earnings from continuing operations. In the fourth quarter, results for Plainville and FreeBird were below our projections.

The fourth quarter results as well as negative market conditions in the sector require the company to reduce the internal projections for Plainville and FreeBird, which resulted in lowering the projected long-term growth rate and profitability for the business. This indicated that the fair value of the business is below carrying value.

The impairment charge was primarily associated with Plainville. Now, moving to fiscal 2019 guidance. First on Project Terra, I have recently taken over full responsibility for the cost savings and productivity initiatives globally.

I am working closely with our working group comprised of members of the Board of Directors and we have significantly enhanced the level of assistance from the Alix Partners team to ensure we achieve all of our stated goals and objectives across the global organization, including seeing material improvements in our margin profile.

This is a comprehensive global plan that the entire organization is aggressively working on. I am excited about the opportunities we have to reduce cost and complexity as well as driving more profitable sales growth.

On Slide 24 of the earnings presentation, you will note that for fiscal 2019, we expect to achieve $90 million to $115 million in cost savings, which we expect to build quarter-over-quarter as we progressed throughout this year.

Some of the things we are working on include a thorough review of our promotional events at key retailers, which will allow us to achieve planned sales volume with reduced trade support. We expect to see significant improvement in our gross-to-net realization during the second half of the year.

We also expect further improved gross margin through continued focus on raw material sourcing and strategic negotiations with our co-manufacturers. This includes updating certain product formulations.

We are enhancing our SNOP capabilities with the goal of managing down our distribution and inventory carrying costs, while improving the service level of top-selling SKUs. Finally, we are conducting a detailed portfolio review to optimize our business, drive efficiency and even further reduce cost as we work to create value for stockholders.

We expect reported net sales for continuing operation in the range of $2.5 billion to $2.560 billion, an increase of 2% to 4% as compared to fiscal year 2018 or an increase of 3% to 5% on a constant currency basis. We are expecting the U.S.

and the UK to be up low to mid single-digits on a constant currency basis and rest of world is expected to grow mid to high single-digits. We expect adjusted EBITDA of $275 million to $300 million, an increase of 7% to 17% compared to fiscal year 2018.

This reflects $90 million to $115 million in Project Terra cost savings and increased brand investment globally and we expect approximately 2% COGS inflation from ongoing freight and commodity cost headwinds. For your reference on Slide 27 of the earnings presentation, we have an adjusted EBITDA bridge from fiscal year 2018 to fiscal year 2019.

I want to provide a little more color on our cadence for net sales and profitability. We expect growth of net sales and adjusted EBITDA to be weighted towards the second half of fiscal 2019 as we benefit from the planned strategic brand investments, realized distribution gains and price optimization efforts in the U.S.

As a result of these continued strategic brand investments and cost headwinds as well as the timing of new distribution wins, we expect first quarter of fiscal 2019 net sales to be flat to slightly down and adjusted EBITDA and EPS to be down year-over-year on a percentage basis similar to Q4 of fiscal 2018.

Q1 FY ‘18 adjusted EBITDA was $54 million and adjusted EPS was $0.20. In addition, Project Terra cost savings and productivity benefits will accelerate as the fiscal year progresses. We expect adjusted earnings per share in the range of $1.21 to $1.38 which compares to $1.16 in fiscal year 2018.

We expect our effective tax rate for fiscal 2019 to be 27% to 28%. We acknowledge that our stockholders would like to see year-over-year improvement in Q1. However, we are confident we will see continued top line and profitability improvement throughout the year and we have a very good plan in place to achieve our guidance for fiscal 2019.

On the top line as Gary mentioned, we have already won the distribution and the benefit of those distribution gains will be reflected in sales in 2019 based on the timing of when they occur. And on the bottom line we have a detailed cost reduction plan that the organization along with Alix Partners is working intently on every day.

Now turning to our outlook for fiscal 2019 cash flow, based on fiscal 2019 EBITDA and working capital expectations, we anticipate cash flow from operations of $100 million to $150 million and we expect capital expenditures of $80 million to $100 million.

We are making investments in manufacturing facilities and our higher growth businesses to meet demand. Our cash flow guidance includes $35 million of charges associated with the CEO succession agreement and $40 million of costs we expect to incur to implement certain Project Terra initiatives and other related items.

As a reminder, our guidance is provided on a non-GAAP or adjusted basis from continuing operations. Excluding the impact of any future acquisitions, divestitures or other non-recurring items which we will continue identify with our future financial results.

In summary, our team remains focused on the execution of our strategic initiatives and we are very excited about our prospects for fiscal 2019 and beyond. With that Irwin, Gary and I are now available for your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Rupesh Parikh with Oppenheimer. Your line is open..

Good morning and thanks for taking my questions. So I had two questions related to your U.S. operating margins, clearly are rebates this year, do you feel that U.S.

operating margins have now bottomed and then where do you see the potential for the operating margins going over time?.

So this is James, so we believe that the Q1 will be down, Q1 of ‘19 will be down year-over-year as we just went through and that’s continued for the investments that we are making. But starting in Q2 we will see the improved profitability throughout the year, so the operating margins will improve starting in Q2 of FY ‘19.

So I would say Q1 is the bottom for the U.S. business..

Okay. Then as you look forward do you see a path back to double digits for your U.S.

business?.

Yes..

Yes, that’s for sure..

Okay, great.

And then with all the distribution wins that you expect to have this year, what are you doing differently to actually sustain those distribution gains?.

Yes. So, it’s a great question, it’s Gary. I think the fundamental thing we have been working on in the last 12 months diligently beyond the things with our retailers is sharing our insights at demonstration of the way our brands matter to the categories. Now, we can help grow the categories.

And a lot of the investment you have seen starting in quarter four and some additional will happen in quarter one is really in direct support of those distribution gains and to rebuild momentum in this business.

And I would just point out that in quarter four already in the latest 12 weeks, we saw in our unmeasured channels mid single-digit growth and for our top 500 SKUs double-digit growth. And of course we have seen 390 basis points of improvement already in our latest 52-week versus 12-week read for MULO.

So momentum is building and we anticipate that we will continue to see that build as we support our brands as we expand this distribution..

Great.

And then a quick housekeeping question, does your guidance at all assume the deployment of HPP proceeds to the share buybacks or debt pay-downs?.

No, it does not assume any proceeds in our guidance..

Okay, great. Thank you..

Thank you. Our next question comes from Rob Dickerson with Deutsche Bank. Your line is open..

Hi, good morning. It’s Matt on for Rob. Thanks for the question. Just on that topic, previous texting conversations around cash allocation particularly as it relates to the sale of Hain Pure Protein, a special dividend has been listed as an option between the share buyback option and the reinvestment option.

Today, it’s not included in the presentation, is the special dividend option now off the table, just want to understand if anything with the thought process there changed? Thanks..

No, I don’t think anything is out the table. I think as we said, share buyback invest back in our businesses and if it does make sense for shareholder dividend, we will definitely look at that..

Okay, perfect. And then just one quick one, of the 1,100 SKUs identified for rationalization, how many or what percentage would you say of those SKUs are currently out of production and reflected in Q4’s results? Thanks..

So, of course, this is a process of removing them from the trade as and when we go through line reviews and replace them with more productive SKUs. So, I would say approximately half of those SKUs are already out of production.

The balance we are tailing through them as we go through these line reviews with the anticipation of obviously fully out of them by end of fiscal ‘19 or earlier, but we are doing it very much as a surgical process of ensuring that wherever we can we are protecting our short position with all productive SKUs at the time we exit..

Great. That’s helpful. Thank you..

Thank you. Our next question comes from Scott Mushkin with Wolfe Research. Your line is open..

Hey, thanks for taking my questions. I wanted to talk SKU rat and just strategically a little bit on kind of the thought process, I mean, the natural and organic industry has always been a little bit like food fashion and of course Hain has been always much more batch manufactured and maybe a big branded like General Mills or something.

So just trying to understand how you guys view the business going forward and as you do these SKU rats, when does it stop and then could you talk about the flipside the SKUs maybe you are adding, obviously the company was acquisitive in the past so the growth side of the equation?.

Yes, good question. So, obviously we have our call around the core SKUs that we want to keep and the core brands that we want to focus on which is the top 11 brands. For now, this is where we sit in terms of the rationalization process. We are totally focused on growth right now.

And if we just look at what has happened in this business and the momentum that started to build over the last 12 months, if you think back to where Celestial Seasonings was is a business just two seasons ago going through the repackaging and reformatting process. This year, Celestial had a near record year in terms of its performance.

So a dramatic turnaround and on a tight shelf set and a tighter SKU set, so we are getting more productive with less SKUs and with better innovation.

The same can be said for Earth’s Best, which went through a challenging couple of years in a very competitive category, lot of players coming in and a lot of competition for shelf space and we definitely were heard over the last couple of years in different places where we lost distribution and we are seeing a dramatic turnaround in performance.

So we just look even in the last 2 weeks, we were announced as category captains with a very important retailer to us in the baby category.

And if you look at the results for Earth’s Best, the turnaround is quite stark we are up 8.4% on the latest 12-week read of 8.12% in MULO and also performing very strongly in the non-measured and natural channels as well.

So, this is a complete flip of the performance of this business and these are the types of the impetus and the energy they were putting into rebuilding momentum in the business, because we believe we have got great brands we know consumers love our brands, we have got to do a better job and we are doing a better job I believe of supporting them on-shelf and supporting them out in the digital community as well.

That’s our core focus now. The SKU rat process is very much one of a mechanical process of just exiting cleanly and ensuring that we protect our shelf space wherever we can..

Do I get a follow-up or for or no and I can’t remember this was….

Go ahead Scott. Scott, go ahead..

Thanks very much.

So the sale of Pure Protein I know you guys made some comments about the asset itself, how should we think about the sale as the industry conditions have actually been quite difficult, was your expectation there the price being realized and this will be lower, just maybe some more color around the comments you have made regarding that asset and then our yield? Thank you..

Scott, we continue to believe that HPP is an attractive business, an attractive asset. But at this time we expect to complete the sale of HPP in the first half of 2019. However, that this is an ongoing process it would not be appropriate for us to comment on where we are in any value as we are in the middle of the process.

So we will – at this point we would not comment further because we are in the middle of the process..

Thank you. Our next question comes from Ken Goldman with JPMorgan. Your line is open..

Hi. Thank you.

Irwin, is this your last call as far as we can tell as CEO?.

I will keep you in suspense, Ken. I figure the only reason you get on today and didn’t go to your other events was because it could have been my last call, so I will keep you in suspense and make you pay the admission to listen to a few more..

Well, either way it’s been wild and fun ride and thank you for all the help you provided the street over the years..

Thank you, Ken..

Hopefully, we will stay in communication.

But a couple of questions for me, maybe you mentioned this, if you did forgive me, but originally Project Terra was supposed to drive $100 million in savings in fiscal ‘18, I think it came up $14 million short of the goal, can you give us a bit of color as to where that gap was?.

Ken, this is James, it was really more around timing, a lot of it is that you are going through this and you are looking at reformulations of strategic sourcing and you get RFPs out. There really is more of a timing issue than anything real specific that we missed on. So it’s just really was more of a timing issue than anything else..

Okay, is that the case and shouldn’t we expect and I know you have guided to somewhat of the wider range in 2019, but should we expect some of that to benefit 2019 a little bit more than what we otherwise might have?.

Yes and so that would be in the $90 million to $115 million, but just to be clear is when we are guiding to the $100 million that also included HPP. So we are actually when you are backing out HPP the $90 million to $115 million is actually better than what we would have been forecasting earlier with HPP included..

Got it, okay, that makes sense.

And then I just wanted to understand a little bit on the tax rate guidance, it’s a little bit higher than I would have had for ‘19, can you just help us understand what’s the best way to think about for beyond ‘19 is in terms of an ongoing tax rate for the company?.

Right now, I would say we have been working through, so we are guiding right now 27% to 28% and that’s actually a little higher than where we wound up in FY ‘18, Ken. So right now I would say future guiding I would say 27% to 28% is safe.

And the one thing that we have included in the tax reform is a tax on foreign earnings, I don’t want to get to into the weeds that was not previously taxed in the U.S., it’s the global intangible low tax income better known as GILTI.

So the issue that we have is the GILTI tax is a tax on foreign earnings is you can reduce that tax through the use of foreign tax credits. However, we don’t have the significant foreign tax credit balance to offset the tax, so that’s what’s negatively impacting our rate on a go forward basis.

So I would use 27% to 28% for any modeling you are doing Ken..

Understood. Thanks so much and I appreciate it..

Thank you. Our next question comes from Akshay Jagdale with Jefferies. Your line is open..

Good morning and Irwin thank for your help over the years. Hopefully, we will have a couple more calls to chat..

Thank you..

But my question – the first question is on the distribution numbers and we really appreciate all the additional disclosure, it’s helpful.

Does the net include or exclude Sensible Portions?.

This is net new distribution, Akshay, for fiscal ‘19. I mean, we have already feel like accounted for the loss of Sensible Portions that’s happened to us already in fiscal ‘18. So this is our net distribution looking forward in all of the reviews that we are cycling for fiscal ‘19..

Yes.

And now my question was that’s helpful, you mentioned it’s for 7 brands, I was just wondering which 4 brands weren’t included in that?.

Well, just bear in mind, Akshay, we are concluded in fiscal ‘19. So I don’t want to discount that the others won’t get distribution gains. I purely want to confirm the ones that I can say today concretely, we do have gains.

So, if we look across the brands whether it’s Sensible Portions, we do have some distribution gains excluding what’s already happened in fiscal ‘18 have gains for Imagine Soup, some broad-based gains across a couple of key retailers for fiscal ‘19 which is very exciting. So it will dramatically broaden our MULO footprint for Imagine.

We will also see strong gains for MaraNatha. Our core innovation has been well accepted and is already going into one of the large mass retailers. We have expanded distribution for Earth’s Best as well, as well as Celestial Seasonings. For Alba, we have expanded distribution.

So if you look across our range of our core SKU set, we have very broad distribution gains. And as I said across the broad retail set, I don’t want to say that the remaining 4 will not get distribution gains that will be unfair, because at this point we are still going through some of the review of the sets.

So, I think the key message here is its broad distribution gains across a broad set of the SKUs and most importantly, its high-quality distribution and it’s distribution we absolutely intend to support and protect..

Got it. That’s super helpful. And just on Sensible Portions, obviously, you have had some issues there with particular retailer, you made some significant changes I think in your go-to-market team and there has been some issues with the supply chain that seemed to be behind us.

Can you give us an update on that? I know you were – there was some incremental positive at the pallet program etcetera, but where are we with Sensible Portions with that retailer?.

Well, let’s talk holistically first, Sensible Portions as a brand is in excellent shape. Outside that one mass retailer, our core MULO growth is plus 14% in the latest 12 weeks. So, the brand itself is performing very well. In the unmeasured channel, it’s also performing well.

We now have organic stores in Whole Foods for the first time and it’s also performing very strongly and is performing well in club as well. So as a brand it’s doing extremely well. We have one retailer, yes, where we have had some challenges. We have conducted the pallet program with good success there.

I mean, ultimately there is a review process and a review cycle we have to go through. I indicated in my notes that it’s March 2019 is when we were due for that review process to take place.

And obviously, we will put our best foot forward with all the data we can show that we have a great brand and a good reason I believe to argue for distribution gains back, but that’s something that we have to address with that retailer through the review process. But in the meantime, elsewhere the brand is doing very well.

And on the supply question, no supply issues and that’s been completely reconciled, I think we mentioned back in quarter three that we are completely past all of that and we have high quality of supply and no issues..

Got it.

One last one on profitability, again I appreciate the extra disclosure here on the cost savings etcetera, but what your guidance implies is your cost savings are actually going to have a positive impact on EBIT right amongst other things, because this year you had $40 million or so incremental cost savings, but your EBITDA was actually down $20 million.

So, there is going to be a pretty big reversal that will happen sometime after 1Q. Can you point to one or two things that are going to allow that to happen relative to what happened this year? Thanks..

Yes. So, this year we obviously had some headwinds that we weren’t foreseeing going into the year. So, we had some commodity headwinds. We had the freight issue that most manufacturers are dealing with. So, that was a significant headwind. With those headwinds, we continued to invest – we thought it was important to continue to invest in the brands.

We even made a big investment as Gary mentioned in Q4 going into Q1 we are still going to be investing in the brands and in the U.S.

to accelerate growth and we have a very detailed plan laid out right now with Alix Partners to going into ‘19 so obviously it’s more back half weighted, Akshay, but we have identified the savings $90 million to $115 million which obviously is more than was $63 million that we got in FY ‘18, so we have clear line of sight to the reduction plan.

And obviously we have the distribution gains that we are seeing and the growth is more back half weighted. So that’s what gives us a lot of comfort and we have clear line of sight to the savings in FY ‘19..

Perfect. I will pass it on. Thank you..

Thank you..

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

Great. Thanks. Just a question on your core U.S. brands, in your fiscal ‘19 guidance what do you assume for your core U.S. brands in terms of top line growth with or without the SKU rationalization drag and in longer term what do you expect from your core U.S.

brands in terms of long-term growth?.

Yes. So thanks for the question. So our anticipation for fiscal ‘19 is low to mid single-digit growth top line and that’s net of the SKU rationalization, so we should expect that we had good strong growth.

As being mentioned several times here, the anticipation is that we would really start to see that accelerate in quarter two as the new distribution comes on-stream.

Of course quarter two is a very important quarter for us in terms of just how seasonality is a business between tea and our soups business and then of course coming into the holiday season. So we expected low to mid single-digit growth should be the longer term expectation of this business as well..

And in your slide you showed the U.S. gross margin decline of 550 basis points and trade and promotional spending was mentioned even before some of the trucking costs, what would you say the concerns that and this isn’t a Hain question, it’s something that’s facing U.S.

food companies in general, but with Hain here we have this big margin decline, trade and promotion spending is in there, what would you just take into concerns that Hain lacks pricing power to return to a balanced top and bottom line growth algorithm?.

Yes. Well, I think it’s important to understand that we are building momentum in the business. I know we can’t fix the business in one quarter, but we are absolutely making targeted investment behind building momentum. And the proof points are we are seeing it. We are seeing it live in the business today.

I think the medium-term suggests that we are back to a position where we have a sustainable line of sight to how we build our trade plans. James mentioned earlier we have a number of tools we are using with AlixPartners to help us additionally with how we manage that trade spend and that investment more effectively.

But of course the momentum is important and you had to invest ahead of your investment the momentum that’s coming in the business. We have the distribution coming through the end the quarter one and ultimately a lot of this investment is in support of that distribution gain.

And I believe that then we get back to a steady state over the medium-term that suggests that this is totally sustainable at the normal run rate of spend. This really is very much targeted around momentum building in the short-term..

Okay. Thank you..

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

Thanks. Good morning..

Good morning..

Just wanted to follow-up on David’s question a little bit more and I guess I am sure I understand the goal of low to mid single-digit growth both – especially even near-term, if you look at some your categories like baby or tea or oils, I mean those categories aren’t growing that fast and so I am trying to understand how you are going to grow that much faster than kind of standard packaged food, even just not – that you are not getting distribution gains or doing that but I mean like what gives you confidence you can get back to that type of level versus more kind of in line with into the low single-digits that you are seeing from some of those categories?.

One is – it’s James, one is – and I will let Gary follow-up as one is that obviously it’s a easier comp as well as the one thing I think we touched upon is we are seeing very strong demand in personal care. So personal care we are seeing very strong growth, so that’s what’s helping drive the low to mid single-digit growth in the U.S..

Yes. That’s the key part of it. And of course if you look inside our businesses we have tremendous opportunity to take share and grow at our categories. It’s not as if we have high ACVs in these categories and there is no growth white space for us.

Absolutely if you look in our snacks business and even in soups business where we expect to have strong growth this year, it’s coming on the back of us expanding distribution and availability with key retailers and in these categories where they saw tremendous opportunity for us to grow.

And even to your point on Earth’s Best for example in the baby category as I mentioned before, it’s growing over 8% in the last 12 weeks, so here we are clearly gaining share in the category and this is obviously where we are investing where we believe we had the opportunity with great brands to take share and grow..

Okay. I guess switching to your bridge on EBITDA for 2018, just trying to understand on the SKU rat FX breakout, I think it’s about $20 million, $26 million hit.

Can you split that out how much you are expecting headwinds from FX versus SKU rationalization?.

So, FX is roughly transactional and translational, it’s about $10 million, $10 million to $12 million. The SKU rat is probably $5 million to $7 million and then there is just some other inflationary other costs out there that inflationary cost that’s in that number as well to make up the difference..

Thanks.

The last one for me, just on Hain Pure Protein, I mean, it has been difficult market conditions and everything going on, is there any thought to pulling that and postponing it, so market conditions are better?.

No. Our plan is to continue as we said look to have this divested by the end of our fiscal year or by the end of the calendar year, sorry..

Got it. Thanks so much..

Thank you..

Our next question comes from Steve Strycula with UBS. Your line is open..

Hi, good morning..

Good morning..

First question would be on the EBITDA outlook for up 7 to 17 for the full year, especially as it’s a little softer in Q1.

Can you speak to Irwin maybe what the world looks like if we are at the low end of that range at the end of this fiscal year and what it looks like maybe at the high-end just to kind of walk us through what are the key variables that you are seeing in the – over the next 12 months?.

I am going to let James do that, Steve..

So from a – I will start with the – the low end for us would be two things that potentially get us to the low end, one would be if we are on the low end of our Project Terra savings is $90 million instead of the $115 million. Like I have said as we have – we are very comfortable and confident in getting to the hopefully the higher end of that.

But like I said earlier, there is always timing issues with some of those projects, but that would potentially, if we are at the lower end, we will probably be at the lower end of our guidance on the Project Terra savings. And then obviously the sales in the U.S.

if it’s – we believe with the distribution gains we are going to see strong growth more weighted towards the back half. So, obviously we would be at the lower end if the U.S. sales came in at the lower end of our range instead of the higher end, but we are seeing the distribution gains. And so hopefully we will be at the high-end.

So that’s what it really comes down to would be the U.S. sales and where we will land up with Project Terra savings..

Steve, the big thing as we come back is execution here. As we have shown throughout the year, we have executed around the world we executed in Europe, we executed in the UK, we are executing in Canada. Project Terra is a big, big part of it and you see the amount of Project Terra savings that we are expecting in ‘19.

We have spent tremendous amount of additional dollars on marketing and trade. We have picked up tremendous amount of distribution, new distribution that were 49,000 new distribution points. So at the end of the day, it all comes back to execution here. So, it’s all lined up to hit the sales, execute on distribution, get the Project Terra savings.

And I think one of the biggest thing we got a price increase that we have been able to get and getting in front of some of these headwinds on freight and warehousing and working with Alix Partners on these things and that’s why we are feeling good about the EBITDA numbers that are out there..

Okay, that’s helpful.

And then did I hear right that the COGS inflation for the full year is 2% it’s going to decrease a little bit lower than what a lot of the other packaged food companies are doing right now, so that’s very good cost management, can you speak to maybe what if that’s the right number what’s enabling that relative to maybe some of the broader industry trends we are seeing right now?.

So part of it is, is that we have – we have worked with Alix Partners in the second half of 2018. We went out and we did a lot of strategic sourcing and looking at the comments. We are now with RFP. So part of that when you look at the cost base we have got that benefit in there. So we are comfortable, we have identified all of the headwinds.

We have kind of went line by line, so we are comfortable when we look at our cost base and cost of goods sold that the 2% is a reasonable number for us..

I think the other thing is about 55% of our products we produced in-house. The other 45% is in Coleman. So it’s a fixed cost plus tolling arrangement. So that’s and as they are procuring from a bigger pool I think that helps us tremendously with the Coleman..

Okay.

And my final question I will pass it along, what is the feedback you are getting right now from a lot of the retailers that enabled you to get the price increase and some on the new distribution, I mean where are they being more responsive to present day relative to maybe how they have been in the past?.

So I think and I come back and that’s a good question Steve I come back. I think we are one of the first ones that went out with a price increase back in March, April. And we are thrown at many retailers offices when we went there with it. But number one, retailers today are also in the private label business.

They are in the procurement agreement and they know COGS that are going up. So I think they can push back and fight at the end of the day it’s either, they are going to take a price increase or we got to stop spending on the brands and stop spending on the products. If we stop spending on the brands and products, consumers aren’t going to buy them.

And it’s helpful to them too on their margins, it’s helpful to them on sales. So with that I think the most important part of it is, is taking a price increase showing them why we are taking a price increase.

And in our fourth quarter we spent an additional $13 million to $14 million on trade and marketing and that was very helpful to go in there and sort of say wait now, this is just not a money grab and this is not just a drop in our pockets, we are here to support our brands, grow our brands and we are investing money back in the business.

We need to offset this entire commodity costs and higher costs. And I think that has helped us tremendously to get our price increase through with most of our retailers..

Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Your line is open..

Thanks. Good morning. Yes. First, I would like to echo some of the prior settlements. Irwin I want to thank you for your help and candidness over the years, it was greatly – has been greatly appreciated..

Thank you, Anthony. I appreciate it..

On the online sales, I know you talked about the natural channel, but specifically Amazon, can we talk about what the sales growth has been specifically on the online side of the business this quarter that’s been and just one follow-up?.

So this quarter our – while our full year performance first of all online is being double digit growth, it was slightly slower in the last quarter predominantly because of a couple of specific issues with one e-com partner, I won’t go into the detail because of commercial interest.

But ultimately we had some specific issues with one e-com partner that we had to work through for the quarter, which we have done and ultimately we are still set-up for long-term growth and as I mentioned in the call and I expect us to have again double digit growth in fiscal ‘19.

I think the key thing for e-commerce for us is we are trying to build a broad based approach to growth. It’s not just about Amazon or one particular e-com partner.

We are seeing great growth in Walmart.com for the click and collect, wide across, we have a broad range of retail e-com partners that we are working with and all of them are taking distribution gains from us.

So I see us as setting up a nice broad based growth platform for ‘19 and expanding beyond what was let’s say our strong traditional hub where we started in baby and expanding that more strongly into personal care and snacks going forward..

And then just lastly on margins, this is more of a high level, you are expecting that to sort of bottom in the first – fiscal first quarter here in ‘19, once Project Terra works its way through where could operating margins go to in the next couple of years, what’s the goal?.

We have – obviously, Anthony we have provided ‘19 guidance and we believe with the Project Terra cost savings in ‘19 and in 2020 that will have significant margin expansion, but we are not going to give out a specific number right now on the future outlook 2020 and beyond. But we believe it’s….

Understood. Alright, thank you..

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to management for closing remarks..

Thank you everybody. I want to thank everybody for joining today’s call. I want to thank you all for your nice comments.

And whether this is my last Hain earnings call or not, it was great to work with everybody on the call from the analysts, from shareholders, you have all been true professionals and we have always had a great two-way relationships and good back and forth.

Secondly, I really got to tell you guys, the management team at Hain that has worked endlessly, worked weekends, if you come in here in the Saturday and Sunday, you are going to see a full finance group and lots of other here working.

And again it’s been a hard 2 years, it’s great to get this SEC inquiry behind us and no individual wrongdoing I tell you, it’s taken a lot of wind out of our sales, it’s taken a lot out, but I got to tell you full stretch forward and that is big to have behind us.

So, again I got just the team that’s here is tremendous and the efforts they have put in here to be able to get all this work done to get our filings and we are a lot further than we were in fiscal 2016 and than we were in 2017. So, guys, Mike, James, Gary, the team here, thank you very much.

To our board who is very supportive and who has worked endlessly, I want to thank our Board as you heard me say in my remarks, there are 6 new board members that have added a lot of value to Hain and our shareholders should really appreciate that.

To all of you out there, thank you for all your support of Hain throughout the years and there is a lot more to come. I have never seen an industry change so much. It’s amazing how fast 25 years have gone. One thing I can rest assure, eating healthy is not a fact, not a trend and it’s going to be around a long, long time.

And I am not sure I’d want to be starting Hain today from scratch and now they are trying to pull together some of the brands or products that we own. I have met over the last year with almost every major retailer, every major e-commerce.

The change that will happen in the next 3 to 5 years, where e-commerce will become over 20% of sales, pick and click will become a big part of sales and where brick-and-mortar will go and just where the whole health and wellness will. So with that, everybody enjoy this last week of summer.

Be careful out there, be safe and eat healthy, there is a lot of great Hain Snacks. As Gary said, there is a lot of supply of Sensible Portion, there is a lot of Terra Chips out there, there is a lot of blueprint, there is a lot of our great products are Celestial Seasonings iced tea.

So, thank you everybody and look forward to speaking to you again soon. Have a good day..

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