Good day, and welcome to the Hain Celestial’s First Quarter Fiscal Year 2020 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to Ms. Katie Turner, ICR Investor Relations. Please go ahead..

Thank you. Good morning, and thank you for joining us on Hain Celestial’s first quarter fiscal year 2020 earnings conference call. On the call today are Mark Schiller, President and Chief Executive Officer; and James Langrock, Executive Vice President and Chief Financial Officer.

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 cause actual results differ materially 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 today 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.

Please note, management’s formal remarks today will focus on non-GAAP or adjusted financial measures. A reconciliation of GAAP results to non-GAAP financial measures is available in the earnings release.

The company has also prepared a few presentation outlining the fiscal 2020 outlook and additional supplemental information, which is available on its website under Investor Relations. This call is being webcast and an archive of it will also be available on the website as well. And now, I’d like to turn the call over to Mark Schiller..

one, simplifying the portfolio and organization; two, strengthening our core capabilities; three, expanding margins and cash flow; and four, reinvigorating profitable top line growth in a core set of high potential brands.

Since articulating that strategy, we’ve undertaken numerous and significant changes to our portfolio, our business model, our culture and our team. Examples of our progress, thus far, includes simplifying the company by divesting nonstrategic brands with sales of almost $750 million, consolidating from five sales forces in the U.S.

to one and from over 30 brokers to just a handful, consolidating from over 30 distribution points in North America to less than five and eliminating almost 10% of our SKUs worldwide. On building capability, we’ve hired a new senior team and brought on several new Board members.

We standardized key processes like forecasting, innovation and project management. We’ve reorganized into cross-functional business teams, and we’ve created clear accountabilities and tied rewards to it. On improving margins and cash flow, we’ve eliminated over $50 million of uneconomic investments since last January.

We built a new personal-care plant in California. We significantly improved customer service, thereby reducing fines, penalties and discards, and we’ve reduced inventory by over $60 million since our peak in August of 2018.

Lastly, on driving growth in a core set of high potential brands, we’re optimizing assortment through our max the mix program, creating a multiyear, margin accretive, consumer-validated innovation pipeline, creating annual customer business plans and strategic partnerships and reassessing our pricing model.

In short, we’re going through a going through a significant transformation and have accomplished a great deal with much more ahead as we build the operating model for continuous growth. Our progress is already showing in our results. We’ve started executing our strategy, gross margins and EBITDA margins have expanded several hundred basis points.

And in North America, where issues and opportunities were most evident, I’m very proud to report that EBITDA grew 55% this quarter, the first year-over-year growth in the last two years.

More on the results in a minute, but I wanted to pause and thank our team for their hard work and resilience, our customers for continuing to support us as we work to become not just better but their preferred business partners and our investors for their continued confidence and trust in Hain Celestial.

I’ll go back to Q4 earnings call and the subsequent presentation at Barclays, we gave some guidance and direction on our F 2020 plan, and I’m pleased to report that we delivered on all our key metrics in Q1.

With regard to first quarter financials, we told you to expect, one, net sales would be down in the first quarter and the first half of F 2020, similar to what we experienced in the second half of fiscal 2019, as we continue to pull out uneconomic spending rationalized SKUs.

In the first quarter, we’ve delivered top line down 7%, which was down 4% in constant currency, in line with our expectations and second half year ago. Second, despite the decline in top line, we also gave guidance that each quarter we would deliver expanded adjusted gross margin and adjusted gross margin dollars versus F 2019.

In Q1, we delivered an adjusted gross margin increase of 240 basis points versus year ago, finishing at 20.9%. Adjusted gross dollars were also up 5.1%, which was 7.2% in constant currency. Third, we gave guidance that adjusted EBITDA margin and adjusted EBITDA dollars would grow each quarter as compared to fiscal 2019.

In the first quarter, I’m pleased to report that adjusted EBITDA margin increased to 110 basis points versus Q1 last year to 6.7%, with solid improvements across global operations. EBITDA dollars were up 15.6% in constant currency.

This is only the second year-on-year quarterly increase in EBITDA margin in the last two years, reaffirming that our financial performance is improving, and our new strategy is yielding strong results. Fourth and lastly, we also told you that on the earnings call, the cash flow would improve materially versus fiscal 2019.

I’m pleased to report that we accomplished that objective as well. And James will provide more detail in a few minutes.

In summary, our first quarter results showed continuing progress against our strategy and commitment, and we remain on track to achieve our fiscal 2020 operational and financial objectives that we laid out during Investor Day back in February.

Now to provide a little more color on the individual reporting segments, let me start with our North America business. Our net sales declined 6.7%, in line with previous quarters and as we projected. This includes the conscious decision to not overlap a $10 million customer program from a year ago that was unprofitable.

Excluding that one program, net sales would have been down 3.2%, demonstrating some top line trend improvement in the ongoing business, even with the SKU rationalization and reduction in uneconomic spending. Adjusted gross margin improved 470 basis points to 23.6% and adjusted gross profit dollars improved16.6%.

Adjusted EBITDA margin for North America also had its second consecutive quarter of year-over-year improvement, ending Q1 at 8.8%, up 350 basis points than a year ago. EBITDA dollars were up an exceptional 55%. We continue to believe there are multiple opportunities to improve our margin structure and overall profitability in North America.

We have a strong team in place, delivering results against our stated objectives and working in the right areas with enhanced resources to drive our future growth. Our financial progress has improved significantly, and our confidence in our transformation is growing every day.

Breaking the North America portfolio down further, we delivered improved trends on the Get Bigger brands as the sales decline narrowed from down 5.6% in Q4 to down 2.6% in Q1. And that includes not overlapping an unprofitable $10 million customer program on personal care.

Excluding that one proactive decisions, sales on the Get Bigger brands would have been up for the quarter. Similar to what we reported last quarter, consumption on the Get Bigger brands was flat in measured channels, non-promoted dollars grew and incremental dollars declined double digits as we reduce uneconomic spending.

As we eliminated underperforming SKUs and improved assortment, velocities in ACV continued to grow this quarter. Importantly, the average item is carried, which was down almost 10% last quarter was down only 5% this quarter. So that’s a good indication that our distribution is stabilizing.

On the Get Better brands, which are being managed for profit, our gross margins improved 480 basis points from year ago and our EBITDA margin improved 540 basis points and EBITDA dollars were up 170%. So again, our strategy of segmenting the portfolio is working.

The Get Bigger brands are strengthening on the top line, while continuing to deliver strong margins and the Get Better brands are fueling profitable growth.

In summary, I’m very pleased with our progress in North America and our ability to deliver on an increase in adjusted gross margin and EBITDA expansion from Q1 last year, while creating a much stronger foundation for future growth. Now let me shift to our international business.

As we communicated last quarter, we knew currency fluctuations, primarily in the British pound would add a level of complexity to our Q1 results. We expected top line to be down due to planned elimination of unprofitable SKUs and an increased trade investment and EBITDA to be flat to up on a constant currency basis.

With that in mind, the international business results in the quarter were also very consistent with our expectations. Net sales were down 7.4% in the quarter, which equates to down 2.5% in constant currency. Forex represented an $11 million headwind.

Similar to the U.S., we have segmented the international brands and are aggressively reducing uneconomic spending. This is particularly evident in our UK fruit and soup businesses and will continue for a few more quarters.

Between that aggressive margin management and customer inventory reductions, top line was down in the quarter, but we saw a solid growth across a number of brands. We are encouraged by the strength of our portfolio, where we have more than 10, Number 1 and Number 2 share brands.

Many of them are exhibiting growth with both our plant-based protein, plant-based beverages showing very strong double-digit growth. Adjusted gross margin was 17.4% in the quarter, down 16 basis points from Q1 last year, driven primarily by increased trade investment and product mix.

Adjusted EBITDA dollars were down 1.3%, but grew 3.8% in constant currency. EBITDA margin was up 60 basis points. This was slightly ahead of our plan.

All in all, given the difficult business environment in Europe and the uncertainty in the UK surrounding Brexit, the team did an exceptional job navigating these challenges and delivering solid performance.

It’s a testament to the strength of our brands and our leaders, and I can assure you that regardless of what happens on December 12 in the UK, our team is prepared and ready to drive continued success. I also want to give you some details on the progress we are making against our first strategy, simplifying the organization.

We indicated on Investor Day that we had too many brands for a company our size and the complexity with impeding our ability to execute and deliver superior performance. To that end, in the quarter, we completed the previously communicated divestiture of Tilda as well as two other brands, SunSpire and Arrowhead Mills in October.

Given these two brands had declining revenue and negative EBITDA margins, we’re pleased that we sold these two for $15 million. That’s a great example of improving our P&L, while getting smaller and simplifying the organization at the same time.

In total, since we communicated our strategy in February to simplify the portfolio, we’ve completed seven divestitures. This includes Hain Pure Protein businesses consisting of Plainville, Empire Kosher and FreeBird brand along with WestSoy, Tilda, SunSpire and Arrowhead Mills. Our team’s done a tremendous job in this area.

We continue to pursue margin [indiscernible] opportunities, and you should expect to see more divestitures in the future on brands that are less profitable or otherwise, less of a strategic fit within our core portfolio. Now let me briefly turn to fiscal 2020 outlook, which James will provide more detail on.

As you’ll recall from Investor Day, we told you, North America would deliver further adjusted gross margin and EBITDA margin expansion as we continue to focus on economic growth and productivity. Along with that, we expected top line would continue to shrink in fiscal 2020 before growing again.

Today, we’re reiterating our expectations for these results.

Specifically, we expect to grow adjusted gross profit dollars and margin and adjusted EBITDA dollars and margin versus year ago in each of the remaining quarters of the fiscal year, reestablish a profitable and stable baseline from which to grow, decline on the top line throughout fiscal 2020 with second half trends better than first half and build momentum on the Get Bigger brands for top line acceleration next fiscal year and effectively and intentionally manage the net impact of volume, price mix and margins.

In summary, our results continue to demonstrate signs of our business transformation strategy, while still in the early stages, is on track and progressing nicely.

Our entire team is working together to achieve our long-term financial commitments with much greater discipline around a very clear strategy and a culture focused on productivity and profitable growth.

Before I turn the call over to James to add more color on our Q1 performance and balance of year outlook, I wanted to share that we will be making a CFO transition in the coming weeks. James will be leaving Hain after leading our finance team for the past several years.

After a long search process, including many qualified candidates, I’m excited to announce our new CFO, Javier Idrovo, will be joining us shortly from The Hershey Company. Javier has a long and successful history in consumer foods industry, at Hershey, Dole and with the Boston Consulting Group before that.

And his financial and strategic acumen will be key ingredients to further support our transformation. I want to thank James for his many contributions over the past several years. He’s been instrumental in my on-boarding and the building of the foundation for our successful turnaround in the United States.

I appreciate his hard work and tenacity, and I speak for all of Hain when I say he will be missed. With that, let me turn it over to James, who will provide more detail on our Q1 financials and fiscal 2020 guidance..

Thank you, Mark, and good morning, everyone. First, I want to stop by thanking the Board of Directors and everyone at Hain for making the past four years so rewarding. It has been a privilege to work alongside this talented and dedicated team, and I am proud of what we have accomplished. I know the business is on a great path.

We have the right strategy and are well on our way to delivering the transformation that we laid out at our Investor Day last winter. I look forward to continuing to work closely with Mark, Javier and the team during the transition through the end of the year, and will be rooting for their continued success.

Today, I will focus my discussion on our financial results from continuing operations, unless otherwise noted. First quarter consolidated net sales decreased 7% year-over-year to $482 million or a 5% decrease on a constant currency basis, which was in line with our expectations.

When adjusted for constant currency, divestitures and certain other items, net sales decreased 1% versus the prior year period. Adjusted gross profit was $101 million or $103 million at constant currency. Adjusted gross margin was 20.9%, a 240 basis point improvement year-over-year.

Improvements were driven by trade efficiencies and supply-chain cost reductions in the U.S. and productivity savings, partially offset by commodity inflation. SG&A as a percentage of net sales was 17.4%, up from 15.2% in the prior year period. Excluding marketing expenses, SG&A as a percentage of sales was 13.9%, up from 11.8% in the prior year period.

This was driven primarily by the reinstatement of bonuses and long-term incentive compensation plans. Adjusted EBITDA increased to $32.1 million or $33.2 million at constant currency compared to $28.7 million in the prior year period.

Adjusted EBITDA margin improved 110 basis points year-over-year, primarily due to profitability improvement in North America through our SKU rationalization, elimination of uneconomic investments and supply-chain efficiencies and productivity.

From a profit perspective, as expected, Q1 delivered year-over-year adjusted gross margin and adjusted EBITDA margin and dollar expansion. We reported adjusted EPS of $0.08, based on an effective tax rate of 27.4% compared to $0.09 in Q1 last year, with an effective tax rate of 27.6%.

As Mark covered much of our segment reporting highlights, let me transition to our cash flow and balance sheet. Operating cash flow for Q1 was negative $3.6 million, which was a significant improvement from a negative $19.6 million in the same period last year. Capital expenditures were $13 million compared to $22 million from the prior year period.

Free cash flow improved $25 million from the prior year period, and we continue to expect an improvement in our free – operating free cash flow generation as we further improve our cash-conversion cycle, reduce inventory and continue to improve profitability. As of September 30, our cash balance was $20.5 million and net debt was $305 million.

Our inventory is $60 million less on a constant currency basis than our peak inventory levels in August of 2018. Our bank leverage ratio was 2.75 times as of September 30 compared to 4.22 times at the end of fiscal 2019 as we used the majority of the proceeds from the sale of Tilda to pay down debt.

It should be noted that we have a revolving line of credit and can increase borrowings at any time to address business needs. In terms of productivity, we have made significant progress in the quarter as demonstrated by the significant improvement in gross margin.

As discussed on our Q4 earnings call, we are in the process of eliminating 350 low profit and velocity SKUs, primarily in North America. We are making good progress as we work through customer resets, and when completed, the SKU rationalization will improve North America gross margins by approximately 150 basis points.

We have also seen productivity improvement and cost savings in our supply chain. This caused D&W costs and customer fines and fees have decreased over $10 million versus the prior year period. Now focusing on our outlook for fiscal 2020.

As a reminder, our guidance excludes Tilda, which contributed approximately $200 million in net sales and $25 million in adjusted EBITDA for fiscal 2019. For fiscal 2020, in constant currency, we expect adjusted EBITDA of $173 million to $198 million, an increase of 5% to 20% as compared to adjusted EBITDA of $165 million in fiscal 2019.

On a reported basis, adjusted EBITDA of $168 million to $192 million compared to adjusted EBITDA of $165 million in fiscal 2019. Constant currency adjusted EPS is expected to be $0.62 to $0.75, an increase of 3% to 25%.

Adjusted earnings per diluted share on a reported basis are expected to be in the range of $0.59 to $072 compared to adjusted EPS of $0.60 for fiscal 2019, with an effective tax rate of 26% to 28%.

On an operating basis, we expect adjusted EBITDA will improve by $18 million to $42 million or 11% to 25%, a major improvement from last year and reflective of our continued momentum and confidence in our plan.

As previously noted, the reinstatement of bonuses at 100% compared to 50% in fiscal 2019 creates an approximate $9 million headwind for the year. In Q1, the bonus reinstatement was a $6 million headwind.

So while our adjusted EBITDA was up 12% in Q1, if we exclude this onetime bonus add-back adjusted EBITDA growth from continuing operations would have been 33%.

Due to the fluctuations in foreign exchange rates, particularly with the British pound and uncertainty around Brexit, our annual guidance assumes an exchange rate of $1.21 as compared to $1.30 in fiscal 2019, which reduces EBITDA by approximately $6 million compared to fiscal 2019.

The average exchange rate for the quarter was $1.23 which had de minimis impact on our results. If the exchange rate holds at the current $1.28 to $1.29, we expect a $4 million to $5 million favorable impact to reported adjusted EBITDA. Our guidance in constant currency reflects adjusted EBITDA growth of 5% to 20%.

Our adjusted earnings per diluted share on an operating basis would increase $0.13 to $0.26, an increase of 22% to 43%, which demonstrates significant progress from fiscal 2019. The reinstatement of bonuses creates a $0.06 per share headwind.

Adjusted EPS is also impacted by $0.05 per share headwind from our long-term incentive compensation program and a $0.04 per share headwind from foreign exchange. Fiscal 2020, we expect productivity savings of approximately $90 million, similar to what we've generated in fiscal 2019 with slightly lower inflation.

Interest and other expense are expected to be approximately $23 million, flat compared to last year. And depreciation, amortization and stock-based compensation expense of approximately $65 million compared to $55 million in fiscal 2019.

We anticipate cash flow from operations to be in the range of $110 million to $140 million compared to $39 million in fiscal 2019, a $70 million to $100 million improvement from the prior year. We expect a 15-day reduction in our cash-conversion cycle from 75 days to 60 days, driven by ongoing inventory reductions in the U.S.

The sale of Tilda, which was a cash-intensive business. As of the end of the first quarter, our cash-conversion cycle already decreased to 62 days. Our cash flow guidance includes $20 million to $25 million of associated charges related to the restructuring and SKU rationalization that started in Q4.

We expect capital expenditures of $70 million to $80 million as we are making investments in manufacturing so our higher growth businesses can meet demand and productivity investments will improve margins.

From a cadence perspective, we expect net sales, rate of decline in the first half of this year to be similar to the second half of 2019 due to the continued reduction on economic spending and SKU rationalization.

Then in the second half, the rate of decline should improve, driven by momentum in the Get Bigger brands from assortment optimization, innovation and marketing.

From a profit perspective, we expect each quarter to deliver adjusted gross margin and adjusted EBITDA margin expansion versus fiscal 2019, and adjusted EBITDA dollars will grow each quarter as compared to fiscal 2019.

In total, we expect profitability to improve as the fiscal year progresses with Q3 and Q4 representing the largest dollar contribution quarters of the year. Our operational and financial results demonstrate that our transformational strategy is working, and we are confident in our plan and ability to further progress throughout fiscal 2020.

With that, I will turn the call back to Mark.

Thank you, James. In summary, we have confidence in our strategy and we remain committed to delivering strong, consistent results for all our stakeholders. We are now happy to take your questions.

Operator?.

[Operator Instructions] The first question comes from David Palmer of Evercore ISI. Please go ahead..

Hi, good morning. I just missed that last point about the cadence in 2020, you said that EBITDA would be improving every quarter, I believe. What did you say about sales on that front? And I have a follow-up about SKU rationalization..

So, the earnings will follow what we gave in guidance, David. So, first half top line will be similar to what it was in the second half last year, so down mid-single digits and then improving in the second half of the year. But gross margin dollars, gross margin and EBITDA dollars and EBITDA margin will all improve every quarter year-over-year..

So, is your thinking that the SKU rationalization journey continues in 2021? Is that how you're thinking about it? Because that really is the question I have, it's been so difficult for us to disentangle SKU rationalization versus lost shelf out there for many companies, particularly in the measured channels. The – that seems to be a trend.

And beyond that, it does feel like a little bit of a treadmill right now where you're getting absolutely the margin expansion that you expect but the revenue loss from SKU rationalization is also not ending.

So, any thought about when that inflection point will happen where EBITDA gains might start to really accelerate because that SKU rationalization drag starts to taper off? Thanks..

Good question. So back when we did Investor Day, remember the guidance we gave was the top line would be down in fiscal 2020, more stable in 2021 and then growing in 2022. With regard to SKU rationalization, so the SKU rationalization that we started in Q4 of last year will end sometime in Q4 of this year.

My expectation is, however, that you're always pruning unperforming SKUs and replacing them with better SKUs. The difference going forward, David, should be that we have an innovation pipeline that allows us to replace our own underperforming SKUs with new SKUs.

The challenge we had when we laid out the guidance on Investor Day is we had a bare pipeline on innovation. So, we were taking things out without really having anything proactively to put in its place. So, I would expect that we will be more one in, one out going forward, once we get through the rationalization that we're in the process of executing..

Thank you. I’ll pass it on..

The next question comes from Alexia Howard of Bernstein. Please go ahead..

Good morning, everyone..

Good morning..

Hi. So, can I ask about where things are going on the marketing spending side of things. I think one of the comments that I often get from people is, an expectation that there is a lot of reinvestment and brand building, innovation that really needs to happen. Obviously, you're at year-end at this point.

Do you imagine that there is a lot more reinvestment that will need to be put into the business on the marketing and innovation side of things? And where does it fit at the moment? Thank you..

Yes. So, when we laid out the strategy, one of the things that we told you was that we were spreading the peanut butter very thin and supporting every brand insufficiently.

So, what we've done is we've moved a lot of the dollars from the Get Better brands to the Get Bigger brands, such that in the quarter, as an example, our marketing spend on the Get Bigger brands was up 159 basis points versus a year ago, which is a couple of million dollars, all funded by taking it out of the Get Better brands.

So, the first thing I would tell you is, there's an opportunity for us to increase investment on the high-growth potential brands just by reallocating dollars.

The second thing that we also expect is because we have so much money in the middle of the P&L that we are pulling out that we believe that we will be able to reinvest some of that back into the brands, while still delivering bottom line growth.

So long answer – or short answer to your question would be, we do expect continued investment, but we expect to self-fund it versus it being something that derails the algorithm that we've laid out on Investor Day..

Great. And as a follow-up, there have been a lot of discussion about the SKU rationalization. But could I ask about what your plans are at a brand level? You've obviously got your top brands that are getting the investment and doing relatively well, but you do have a long tail of brands that are much smaller and presumably much less profitable.

Is the plan to phase out some of those? Could you possibly sell them? What's the plan for that tail of the portfolio in North America? Thank you and I’ll pass it on..

Yes. So, the first thing we’ve said is, we're going to work aggressively to continue to improve the margins on those businesses. So I'm happy to report just in this quarter alone, our EBITDA margin on the Get Better brands improved 540 basis points.

So, we've done a tremendous job in terms of stripping those brands down to the things that make money and eliminating things that don't.

That said, we've also said publicly that if a brand is not strategic for us or it would take very significant investment to turn it around, investment that would come at the expense of the Get Bigger brands that we think have much more potential, we will explore selling it, if appropriate.

And if there's no logical buyer and it isn't worth more to somebody else in their portfolio, we will also consider shutting it down. So, all of those are options. The bottom line is we have to get these brands to either perform well or we should look for an alternative. And that's why you see SunSpire and Arrowhead leaving the business.

Both of those were money-losing brands that we were able to find somebody to buy. We got a $15 million check for it, and we immediately improved the P&L and simplified the organization by doing it. So, I would expect you'll see continuous efforts in that area. And yes, there will likely be more divestitures or shutdowns in the future.

But that said, while we own these businesses, we're going to work aggressively to continue to improve the margins, and we're doing that..

Great. Thank you very much, I’ll pass it on..

The next question comes from Bill Chappell of SunTrust. Please go ahead..

This is Zaki on for Bill. Just circling back to the SKU rationalization. As you move down that path, have you started to notice any competitive response? And secondly, as far as the tea business going into the peak season, what gives you confidence for this particular season in terms of any innovation or new placements? Thank you..

Yes. So, on SKU rationalization, look, we're in a competitive industry, and there's always competition for shelf space. As we eliminate SKUs from our portfolio, we certainly try and replace them with other better turning SKUs in our portfolio, but there's other people coming with innovation.

So, one of the reasons that the top line is down is, we are losing distribution on these underperforming SKUs, and we are net negative on distribution.

I would expect that will continue until we start lapping the elimination of the uneconomic investments and the elimination of SKU rationalization and come with innovation, as I said earlier, to replace our own underperforming SKUs.

So, a part of the reason we expect second half to be better than first half, is we will have spent 12 months eliminating the uneconomic spending, so that's now in our base, and we will be coming to the end of the SKU rationalization, and introducing some new innovation, all of which should help improve our distribution trends going forward.

So, I'm less worried about the competitive environment and more worried about us pruning the tail, getting our innovation to market, having the more strategic growth conversations with customers that we're having now, which is ultimately what's going to allow the growth businesses, the Get Bigger businesses to increase in sales as we've projected.

With regard to your tea question, we're looking forward to a very strong tea season for a couple of reasons. Number one, we have the TeaWell innovation that was in test market last year. Remember, that's more of a health and wellness tea. Very incremental to our brand, very incremental to the category.

And we have been out selling that more aggressively to other customers now that we have the test market, and we're getting some good traction on that. We also have made some good traction on assortment optimization on tea. And we also have a new ad campaign in the works that will be coming out to market as we get into the cold weather.

So, we are pretty well set up for a good tea season. We also have some very good merchandising wins that we're aware of. I expect that you'll see some very robust numbers as we start to get into the winter months..

Thank you..

The next question comes from Anthony Vendetti of Maxim Group. Please go ahead..

Thanks. Yes.

So, first on some of the new innovations, Mark, can you talk about sort of the strategy in plant-based products?.

Yes. So, as you know, we have a strong plant-based business, Linda McCartney in the U.K., we have a strong plant-based business Yves in Canada. We are in the process of working with those two groups to figure out how we best relaunch into the United States with a plant-based offering.

We are in the process of finalizing what that will look like, and we will get that into some kind of a test in the second half of this year rather than spend a year, doing all kinds of consumer research. We've got a good foundation from the two brands that we already have.

And so we're going to do more of the learning in market and get something into the market in the second half..

Okay, great. I’ll get back in the queue. Thanks..

The next question comes from Michael Lavery of Piper Jaffray. Please go ahead..

Good morning. Thank you..

Good morning..

Can you – sticking on innovation, can you give us a sense of some of the timing and magnitude we should expect? And when you talked about the pipeline being thin or vary, I think you said it at Investor Day, obviously, there's a bit of a time it takes to really get anything more compelling ready and out the door.

Is it really more around second half 4Q, even that we should expect to see some of those coming, are there any sooner? And are these bigger ideas or maybe just smaller type, sort of, flavor extensions? Some of that color would be helpful..

Yes. So, we had a Board meeting earlier this month, about a week or so ago and laid out a three-year innovation pipeline for the Board. You'll recall that when I got here, the pipeline was fairly bare. So, in the years, that I've been here, I'm very pleased to say we have a robust multiyear pipeline that has been developed.

And – so we're very excited about it. What we have to wait for now is the categories have to reset, right? So some of them only reset once a year. Some of them reset twice a year.

And so the nearer-in things that we're launching will be nearer in, in terms of complexity just because some of the bigger ideas and the platform ideas may take longer, given you may need a capital investment or you may have a more complex formulation challenge. But there is innovation coming in the second half of the year on yogurt.

There's innovation coming in the second half of the year on snacks. We certainly have TeaWell, which is new to most of the world on tea. And we've just launched a significant amount of innovation or in the process of launching a significant amount of innovation on personal care.

Because you'll remember last year when we had all of the supply challenges, we had a pipeline of innovation that we had to withdraw and not launch, because we couldn't service the business well. So we're really launching almost two years' worth of innovation at once on personal care.

And I think you will start to see much more robust trends on our personal care business as those products come to market. When you look at the Get Bigger brands performance, which are the brands that we've said have the long-term potential; really the drag on that group is personal care. So snacks, tea, yogurt are all doing pretty well.

But we're down high single digits on personal care because we lost so much distribution due to the service problems. Now that we're servicing that business well, and we have a robust pipeline of innovation and we're turning the marketing support back on that, again, we had to pull the marketing support when we couldn't service the business.

I'm very optimistic that you will see much better second half numbers on personal care than we've been experiencing for the last nine months..

That’s very helpful. Thank you.

One quick, I guess, follow-up, the color you gave on the headwinds from bonuses, did I hear it right that it's $9 million for the year, but that you already have $6 million of that in the first quarter?.

Yes. That’s correct. Yes. So, you remember last year, we laid out the initial plan. We were going to miss that considerably, so we reset guidance in the middle of the year. But what we did was we pulled all the bonus spending out of the first half of the year.

We had full spending in the second half of the year, because we allowed our employees a chance to earn half of a bonus, we earned that for the second half. So, the first half of the year is where that whole $9 million overlap is. $6 million of that was Q1. $3 million was in Q2..

Okay, great. Yes. Thank you very much..

Thank you..

[Operator Instructions] the next question comes from Eric Larson of Buckingham Research Group. Please go ahead..

Yes. Thanks, guys. So just a little more clarification.

So, what time of the year, do those resets take place for your retailers? And it probably varies by category; do they come across the timing on a calendar year – either in the spring or fall? Or is it more often than that?.

Yes, it’s a great question. Unfortunately, every retailer resets at a different time, which makes it a little bit challenging. The one thing that is constant, is everybody wants to set tea before the cold weather months come. So tea has been being reset since July, and it will end in October.

So, the tea stuff for the year will be done by the time we get through October and into November. So, it's pretty much done now. Yogurt tends to set all over the place. Snacks tends to set more for the summer. So when you think of picnicking and people off from school, it tends to be more in the spring, for the summer.

But it's a little bit all over the place. And these are – other than tea, these are not all that seasonal in terms of category dynamics. So, it really comes down to the retailer having to set dozens and dozens of categories and having finite labor and deciding when and how they want to do it.

In some cases, they want to lead the market, in some cases, they're fine lagging the market and waiting to see how things perform at other retailers before they make their decisions. It just depends on what the role of the category is for each individual retailer.

So it's a little bit challenging for us in terms of turning on marketing support because everybody is setting it at a different time. So, you end up doing more customer-specific marketing support initially to get things jump-started, but the only real constant is tea for the fall, the rest is a little bit all over the place..

Got it, okay. That's perfectly confusing. So remind me, and I – if my memory serves me correctly and properly now with all your divestitures, Tilda, et cetera, tea will be your single largest brand in the portfolio adjusted for all your divestitures, et cetera.

Is that correct?.

Once we get finished with all of the divesting that we want to do that will be probably correct, if the sensible portions are tea. But we have other brands that are bigger today, like the U.K. fruit business is bigger. Or Earth's Best is bigger.

But as we go through SKU rationalization on Earth's Best, and we manage it more for profit and we manage some of the others for growth that may change. We have a half a dozen brands that are in the $150 million – $120 million, $150 million, but tea is one of the biggest ones and certainly one of the better margin ones..

Yes. Thank you for the clarity..

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Schiller for any closing remarks..

I want to thank everybody for their support and for my organization for all of their hard work. I think this transformation that we laid out nine months ago, is well underway. I hope you all see the progress and feel that we are doing the things that we said we would do.

I think it shows up in the results, and we're very proud of what we've accomplished. There's plenty more work to be done. But as we've said, our goal here is to be credible and consistent and clear, and you can continue to expect that from us in the future.

So thanks very much, and I look forward to talking with everyone in smaller groups later as appropriate. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..