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The Hain Celestial Group, Inc. (NASDAQ:HAIN)

Analyst Day Conference

October 08, 2013 2:30 pm ET

Executives

Mary Celeste Anthes - Senior Vice President of Corporate Relations

Irwin David Simon - Founder, Chairman, Chief Executive Officer and President

Stephen J. Smith - Chief Financial Officer and Executive Vice President

Rob Burnett - Chief Executive Officer of Hain Daniels

John Carroll - Executive Vice President and Chief Executive Officer of Hain Celestial United States

James R. Meiers - Chief Supply Chain Officer of Grocery & Personal Care, President of Hain Celestial Personal Care and Chief Operating Officer of Hain Celestial Personal Care & Refrigerated

Maureen M. Putman - Chief Marketing Officer of Grocery & Snacks

Analysts

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Mary Celeste Anthes

[Audio Gap] Actual results may differ materially from those projected and some of the factors which may cause results to differ are listed in our publicly filed documents, including our 2013 Form 10-K filed with the SEC. This meeting is being webcast and an archive of the webcast will be available on our website at www.hain.com under Investor Relations, along with a copy of our presentation. Please contact Hunter Wells, hunter.wells@icrinc.com, if you are unable to access a copy of the presentation.

Our agenda is Slide #3. We have some product sampling here, and then Irwin Simon will give us an overview of the company's current business initiatives, followed by Rob Burnett, CEO of Hain Daniels; John Carroll, CEO of Hain Celestial U.S. Steve Smith, our new CFO, will give us financial update and Irwin Simon will provide concluding remarks. Irwin?

Irwin David Simon

Thank you, Mary, and good afternoon, and welcome and great to be in our new headquarters, great to be in our conference room and great to talk about our business. A lot of people said, "Why are you doing an Analyst Day? Why are you giving a week's notice?" First of all, we want to see our new headquarters. Secondly, I wanted to buy product in our stores. But more important is a couple of things. One is to tell you about the great things happening in Hain. We just finished a great first quarter, great sales. John is going to talk about consumption numbers today, great consumption numbers out there. And I want to introduce you to Steve. Steve wanted to sort of be in front of you guys before our first conference call and not get the hard questions and not knowing who's hitting him with the hard questions, so he wanted to do that. And I want to welcome Steve Smith, our new CFO, who joined us September 3. Hey, John, how are you? How did you sneak in here. They're going to go through security checks. Anyway, Steve prior here was with Elizabeth Arden and PWC. Looking for a CFO is looking for a wife or a partner, and we took a year to do a search on someone who understood consumer packaged goods, someone who understood growing company, somebody that lived in the area and apart of it, a CPA. So, Steve, welcome and there's Steve Smith and a great addition. He started September 3, stepped in. I guess when he first started he said he's adjusting, but this year, he's looking pretty good.

[indiscernible] like my wife, I always like, can I help you? What can I do? And what am I doing -- so what we want to talk about is how our business has changed with the U.K. today and including [indiscernible] over 650,000 -- $650 million, what's happening in the industry. A little note today from Ken Goldman about consumer packaged goods company and food companies slowing. When you see our Nielsen numbers, you will say, "hey, what's happening? It's not slowing." Whole Foods, Sprouts, Fairway, Fresh Market, more and more retailers that are selling more and more foods and who our customer faces. So we'll get rid of Mary slides. So Steve Smith is unbelievable. 20 years this November Hain's been around. And not only look the same when I started this company 20 years ago. What's consistent is it started in Long Island not too far from here. John McMillin is -- was one of my first analysts in here. I forgot [indiscernible] And it's amazing. There's times I thought I'd lose it all in one earnings call, right? But we are 20 years old. And it's remarkable what Hain has done in 20 years, the brands that we owned today, how we've changed the way the world eats, what's changing out there. And back in '93 and starting the company talking about healthy eating, a lot of people thought I was crazy. The only reason John covered us because he wanted low-sodium soup and he liked healthy salads. And that was the reason back then when consumers weren't interested in natural. John was interested in craft because they come up with SnackWells that was fat-free and the #1 ingredient was high fructose corn sweeteners that turn into, what, fat. So the industry has changed dramatically. If I mentioned the word GMOs, he thought it was a Pontiac [ph]. GMOs today and how many states are trying to ban them and U.S. and Canada are the only countries other than third-world countries that allow Whole Food today. So it's amazing what's changed in 20 years, whether it's cans, whether it's pouches, whether it's packaging, whether Gerber was the #1 baby food, Heinz/Beech-Nut baby food. You don't see Heinz baby food anymore out there in the U.S. So a lot has changed in products.

Come back and look at our brands. And one of the things is we never created brands from scratch. We bought these brands that were started by entrepreneurs and we integrated them into one company. Today, basically, everything in the U.S. is integrated into this operation, everything in the U.K. is integrated within the U.K. operation, everything in Europe, everything in Canada. The objective is one day our systems and everything are integrated worldwide. But look at the brand that we own today, well over 50 brands, and I'll take you through the acquisition history and where some of those brands were when we bought them. But back then, what was our mission? To be the leading marketing marketer, manufacturer and seller of organic and natural products. That was 20 years ago. Think about that 20 years ago when organic was not a definition. What natural Dryer's ice cream back then was natural. So to think today our mission statement today and how it's much more valid today than it was 20 years ago.

So this is our growth, this is our history. The company started '93, $3 billion market cap went public, 1 common share or 2 warrants for $3.25. So basically $1.12 a share was the stock back then. $7 million valuation. And then you come back and look in 1999, when we bought Earth's Best, Earth's Best Terra chips, Arrowhead Mills and DeBoles. Earth's Best back then was a $40 million brand owned by Heinz. Today, it's our largest brand, one of our fastest-growing brands out there, well over $200 million brand. And how we've changed that brand? Number one is the baby food and moms and dads here, as you know, you want to get your babies up, baby who is quick as possible. We were bringing new users in every 9 months. Look around at baby first step today as you see down the stores, some of the new product, how we've kept our consumers with diapers.

Formula. We introduced infants to some of their First Foods. Think about the responsibility that we accept in doing that. So Earth's Best how we grow that.

Celestial, 2000. Back then, it was a $100 million business. It was in a vitamin business, doing about $17 million, $18 million of EBITDA, still in Boulder. [indiscernible] that brand well over $150 million business worldwide today and EBITDA close to $50 million. Plus Peter and John and the rest of the team helped created jobs with some of the tea, some of the energy drinks, some of the Sleepytime Snooz, some of the herbal teas, green teas and we're going to have a cold winter again for a great tea season.

2002, we went into Europe. Along the way, Spectrum. It was a 20-year-old brand when we bought it doing $34 million, doing well over $100 million today. MaraNatha, SunSpire, same thing. It was about $34 million brand doing well over 100-plus-million dollars. 2004, as you heard Amy [ph] talked about out skin care business. Back then, why is Hain going in the personal care products? Great margins and you walk into a Whole Foods. One in every 13, 14 people that walk into Whole Foods today visit their whole body section and that will continue to improve.

MaraNatha, same thing. And along the way central portions, bigger entries into Europe. And as we looked at the U.K., in 2010, we acquired Daniels with some fresh soup, fresh juices, fresh desserts. In 2013, we acquired our Gale's, Hartley's, Sun-Pat, our Ella's which puts Earth's Best and Ella's together were close to a $300 million baby food business. Our BluePrint business which we acquired last December was approximately $20 million business when we acquired it. And today, that will run to a $50 million, $60 million business this year with its growth numbers on our BluePrint, ask Andrew Lazar what it's like to do climb [ph], and he'll tell you.

So we are confirming guidance this year, $2.025 billion, $2.050 billion is our estimate in 2014 and that comes back from 1993, 1994 and that is acquiring, integrating, growing and what did we do? We stuck to our roots of natural organic products. This year, we were named into Fortunes 100 Fastest Growing Companies. Our objective is to be 1 or 2. And we got some work to do but we're in today, we're in the first 100.

Who are we today? We're a leading organic and natural products company in the North America, Europe. We sold quite a new product in Asia and around the world. We buy products from around the world. In this room, back in July, we had a full procurement team that sat here, and Jim Meiers will talk about in a little while of our whole productivity, how we buy organic ingredients around the world. And that's one of the big things within Hain today is the barrier-to-entry in procuring organic, natural GMO ingredients and it's just not easy to take more -- I want to be in the business, I want to procure those ingredients, it's very difficult and some of our biggest issues today is supply on products.

Top 20 brands represent over 70% of our sales. There's different models for each retailer. If you walk in a Whole Foods, posted 2,200 products and you reach to see Walter [ph] say, hey, we're going to slow down on private label and look at brands. Not only is that what's the consumers want but the supply chain today is more and more difficult as there and that's some of the reasons that private label in organic and natural is much more difficult than private label conventional. Many number 1 and 2 and you'll hear John talk about his 1 and 2 and he'll take you through it. and you'll hear Rob talk about his #1 and 2.

Our market is just not concentrated on the U.S. anymore. It's 60-40, and there's lots of opportunities for growth and a lot of that. And if you look at the Middle East, Asia, India, lots of opportunity for us there to grow also. So in a proven level of strategic growth and profitability. So our world headquarters here, U.K. Leeds is our headquarters with 8 plants in the U.K. Brussels is our headquarters in Europe with 2 plants in Europe. We just built a new nondairy facility that Jim and the team has been working with in Germany, and we are going to focus on nondairy plant-based products in Europe in a big way, and there's a big opportunity for us in nut milk, coconut milk, on nondairy milk. So that business has changed dramatically from soy milk and rice milk. In Mississauga, Ontario, our Canadian headquarters; Hong Kong is our Asian headquarters. Around the world today, we have 26 plants plus our 2 protein plants. And in the past year, we've spent close to $50 million, $60 million on capital, building out plants, updating, upgrading clients to keep up with our supply and demand.

So key brands and I'll let John go through his in the United States in a little while. But as I said, if you walk into different retailers, we have different brands, it's a different retailers. And just 2 things here. So Canada is $160 million in size. If you take Earth's and Europe's Best, it's the only 2 acquisitions that we've done out there, and Terra, Celestial, Sensible Portions, Health Valley, Avalon, Avalon, Imagine, BluePrint, our brand, Ella's, that we brought up from the U.S. or acquisition and we've rolled them out in Canada. A lot of interesting things in Canada, which I'll talk about a little while, with the acquisition of Shoppers Drug Mart and Loblaws.

United Kingdom. You see the U.K. brand but Terra Chips, Celestial, Greek Gods, Alba, Avalon, are some of the brands that we'll roll out there and Rob will talk a little more about that on a Rice Dream and his nondairy product, and the same with Europe. So Terra, Celestial, Rice Dream. So our strategy is [indiscernible] market, acquire local brands, utilize a local headquarters but how do we bring our brands right behind them?

This is probably one of the most important charts today that I will talk about. Who our customers are? A lot of you guys covered supermarket. A lot of you see what's going on in the supermarket industry. Our #1 customer is Whole Foods. Whole Foods with 350, 360 stores, every new Whole Foods that opens up for us is about $500,000 in sales. It's not only $500,000 in sales in the Whole Foods, it's the stores around them that want to compete will bring in more products. And then as the growth among the other Whole Foods, and Whole Foods is looking to go through 1,000 stores. If you look at our top 10 customers in there is Walmart, Amazon, Sainsbury in the U.K., Loblaws, which looking to acquire Shoppers Drug Mart, Costco, Kroger, Target. So a lot of customers and a lot of customers in here with growth. And again, whether it's Fresh Market, whether it's Sprouts, not on this list but are going to add more and more stores, and so many more and more grocery customers today are selling so much more in natural organic products.

So recent achievements. 10-consecutive quarters of year-over-year double-digit adjusted earnings growth delivered high-single, low-double digit organic growth, product innovation. And that's a big thing with Hain. When you're green, you're growing. When you're right, your [indiscernible] innovation here. And last year, worldwide, we've introduced over $60 million of new profits. And that comes as we introduced $60 million of new products, whether we're just continuing and what are we coming out this year and you just saw a lot of this the new products that we just introduced. The big news show, there's big introduction comes in March at the Anaheim show, and there'll be a lot more products coming there. And that's -- so we want to show you through the natural foods show that just happened and we want to show you lots of new products that just came out. Productivity savings, Jim will take you through that. That's a big part of our business, and that will continue. As I said before, we have a team in here at the end of July, not only productivity, how are we procuring and buying? We're one of the biggest procurers of organic fruits and vegetables today for our Earth's Best and Ella's baby foods. We buy close to 150 million pouches a year, and Jim's objective is save $0.01 on every poach and somewhat quickly, you do the math on that. But the other big thing is at the stock avoidance. And whether [indiscernible] are keeping up the capacity. Chia seed, Flax Seed, for Formula, organic way and stuff things like that. So now we've got a worldwide global team that's out there sourcing to keep up with supply. You heard me say before about spending our facility $70 million of CapEx, the U.K., Europe, West Chester, Luton and we really spend money to really buildout the infrastructure to support our growth. We surpassed the $1 billion in stockholders' equity, reaching $1.2 billion at the end of June.

So 20 years, a lot has happened. And it's interesting where does it come from? It's not that consumption is growing. One point, what is it? What was consumption in most recent numbers for us on conventional food? 1?

Stephen J. Smith

1.9.

Irwin David Simon

1.9, and Hain this quarter was up 11.9. But John will talk about, so you'll see where it's all coming from. It's coming from the conventional category. It's not that consumers are eating more.

Now when you look at our business today with a 1.9 pro forma, 62% of our business is in the U.S. and 26% in the U.K. So you've heard what I said before. How our business has changed dramatically and how so much more has changed in the U.K., different margins, different structures, fresh business versus U.S. and the rest of the world, 12. Hain Pure Protein, we own 49%. The protein business, great business. I got to say it, we cannot keep up with our chicken and our Turkey business today with the growth in antibiotic free. And whether it's our big chicken Nuggets, whether it's our further process, whether it's a whole chicken, organic Turkey, if we have them and take 45 weeks to grow Turkey for Thanksgiving, if we had another 1,000 truckloads we can sell them for Thanksgiving. It's just supply growth [indiscernible] and have them ready. That category has changed dramatically as consumers look to reduce meat and say and really understand the value of antibiotic-free, free Hains [ph] burgers and no hormones, not cage-free. So that's our 2 joint venture Hain Pure Protein and Hutchison Organic.

It's very strong growth. Our EPS growth, on a CAGR of 10% to 13%, 25% -- I'm sorry, our net sales is 25%; our EPS growth, 52%; and adjusted, 31%. So over 3 years, we've had some good growth and you see this year guidance is up 17% on sales and up 21% on earnings. So it continues. So the 25 and our EBITDA of 32. So 12 months, last year, we completed our 3 acquisitions. One in the U.K. with Gale's, Sun-Pat, Hartley's, BluePrint and our Ella's business, which are pretty exciting, and we've got some full year of integrating those and pretty exciting stuff going on with BluePrint. You tried some of the new juices, the rollover Whole Foods, the rollout around the rest of the retailers, some of the new products that are coming out, keeping up with capacity and demand. Ella's, we've integrated the team under John's group. It is rolling out right now into Walmart in the 4,300 stores. It's rolled back. It wasn't Toys"R"Us as one of our First customer. It's rolling out now in the Toys"R"Us. And I got to tell you, what a great strategy putting the 2 teams together, Ella's team from the U.K. and the Earth's Best team creating one key across the pond, ideas, packaging, ideas, a lot of the yellow stuff that they have developed in new ideas, bring it to the Earth's Best and a lot of the Earth's Best stuff whether it's formulas, snacks, frozen foods, fresh food bring it to the U.K. and rolling Ella's out across Europe, which our European team will do opportunities in Russia, Asia, et cetera. So really exciting and they will create, in my opinion, $0.5 billion opportunities, as they put those teams together in the whole baby infant feeding area.

What drives Hain today and in the future? Listen. You saw a Blue sign standing outside. You are what you eat. Eating healthy, not a fad, not a trend. And I said that it is not going away, it's going to become bigger and bigger. And how we're driving profitable top line growth. First time we say, hey, we're going to get rid of those sales. It's not profitable. There's plenty of sales out there for us but how is it going to be profitable? How can we expand margins? And there's lots of discussions about margins. Hey, there's not every acquisition that we're going to do out there that's got 30%, 40%, 50% margins or where is it growing. It's going to be different businesses in the U.K., and it's different businesses in the U.S. At the end of the day, we take EBIT or EPS or cash on the bank and that's how we look at our business and where there's opportunity. The fresh business is different than the packaged goods business, the frozen business. And if we look at everything by margin, margin, margin, I mean, there's a lot of acquisitions we won't even touch. So as we look at our business today, it's a mix, it's a -- where's the ingredient, is it accretive to earnings and at the end of the day, how does it enhance our EBITDA or EBIT margins?

SG&A efficiency. I went through some numbers today. I think we're at 3,700 to 4,000 people around the world. And we were at that number last year, at sales that were a lot less. So we finished the year at $1.7 billion, we'll do over $2 billion this year, and we still got the same amount of people they would ask me what's wrong? I'd say, we're just working harder, that's it. But it's amazing on our SG&A integration and our SG&A efficiencies. And you come back to me and look at these headquarters. What we're going to integrate here, it will be cheaper for us as we integrate more and bring BluePrint in the back rooms of Celestial Seasonings here to operate this than it was in our facility out in Melville and just wanted to look at the difference completely night and day. And we have done -- the team has done an incredible job of leveraging accretive acquisition whether it was Spectrum, MaraNatha, Ella's, BluePrint, Rob and the team [indiscernible]. So we will continue to do that, [indiscernible] good acquisition, there's a lot of acquisitions out there we see. And they've got to be accretive, they've got to have growth, they've got to add value to the overall portfolio and there's lots of stuff we'll continue to look at. But you know what? You've heard what I said before. If we grow 8% to 10% a year, 8% to 11%, and we introduce $40 million, $50 million of new products, that's bigger than most acquisitions that are out there. That's $200 million [indiscernible] So we have to create, literally, a new acquisition or a new Hain ourselves every year just by organic growth. So we'll continue to do that.

So 2018, just what's going on with Hain? If we grow 10% annually and we do $100 million in acquisitions? And how we're going to do that? John and his team on distribution, white space, taking this Top 100 SKUs and taking it from 30% ACV up to 50% is worth $250 million of retail. Product innovation, which you heard me talk about, Whole Foods expansion from 350 to 1,000 stores, let me get to 500 stores we'll be okay with that, and how that helps grow the market. In the U.K., Sainsbury's is within Hain's top 5 customer base today and growing fast. We just opened up a new frozen facility for them in Fakenham and there's a lot more we're going to do with our nondairy business with some of the Hain products, product innovation, rollout of Hain's Celestial products which we think somewhere is around $25 million to $35 million. The Hartley's and Sun-Pat innovation, which Rob will talk you about, and we think Canada and Europe together can be about $0.5 billion. So 2000 -- end of 2017, 2000 -- beginning 2018, 57% of our sales coming from the U.S., 29% of our sales coming from the U.K. and 14% around the world. So about $250 million, $1 billion, $2 billion. A lot to do but we can do it. And again, it's about growth, it's about the consumer and it's about them wanting foods.

So let's come back with the look at trends. This is a number that I -- 70% of health care costs is spent on lifestyle-related diseases and only 30% from hereditary. So again, you are what you eat, and your biggest prevention on disease is watching what you eat. 90% of our health care dollars are spent on treatment rather than prevention or wellness. Our weight have increased. Obesity cost Americans $1 trillion a year. We hear about health care. Listen, what's the biggest stumbling block today with the government shutdown? Obamacare, Obamacare, Obamacare and everybody's concerned what the cost is. So higher incidence of Cancer, Diabetes, depression, 19 states and territories has small decrease in the rate of obesity, and obesity for the first time has slowed down because of the amount of whole foods that are matter out there. And again, consumers today are more mindful of healthy eating, healthy products than they ever have been. And here's just some [indiscernible] and here is just, again, healthy convenient what I want within Hain, everywhere there's a cash register, I want to sell food. If you walk in the airport, you see all the snacks and those area, I want Hain Snacks there. You walk into 7-Eleven, they're now selling organic products. I want to Hain product there. Food service, we're going to create a big food service platform. There's 30 million students out there today. They go to university. They are our future consumers. On every university campus, there's a bookstore that sells food. So our model is wherever they can sell food, we want to have some products there. And that's part of where we'll roll out that healthy convenience, on the go and that will be a big part of our growth number.

If you come back and what's driving the growth today, low-glycemic, GMO-free and this is -- we'll talk about GMO-free in a minute, plant sterols, and what I said before antibiotic-free, gluten-free, organic, a lot of people want to take lactose out of their diet. Vegetarian, nobody wants high-fructose corn sweetener anymore, health-conscious naturals, whole grains, sprouted grains big and [indiscernible] iron, cholesterol, no MSG, of course, high fiber and multigrain. And demand for healthier eating options is what's driving our growth. Megas, Chia, flax seeds, major. This is one that's going to get a lot of attention. It's the whole GMO. You heard me say before there's about 30 states today that want to ban GMOs. U.S. and Canada, the only countries that allow it. It wasn't about last year and you had some of the big companies in California spend a lot of money to get it squashed. It is on the ballot this year in Washington, New Mexico and 30 other states are trying to get it pass. And I think it's going to pass in Washington State. But 90% of Americans, as survey reported, on our justlabelit.org support mandatory GMO product labeling. 99% of Hain products have been GMO-free since 2004, which there's times when Ken Goldman said to me, why are your margins lower or John? Well, we always use for the longest time GMO-free ingredient which is going to be higher. I'm not taking on that yet. But again, the benefit is finally coming. And there's -- back to snack there, there's GMO verified, we put that GMO verified on it. You see sales growing double-digit and by 2018, and I think it's going to be sooner, if it's not GMO verified free, you will not be able to sell in Whole Foods. So that's what's going to drive a lot is the whole GMO, and I think that's going to change food tremendously.

So with that, let me turn you over to Rob Burnett, take you through the U.K. and then we'll turn it over to John and then will turn it over to Steve. So thank you. Rob, are you there?

Rob Burnett

Yes I'm here, Irwin. Thanks a lot.

Irwin David Simon

You want me to turn in your slide or everyone turn in your slide.

Rob Burnett

Thank you, Irwin. You see Slide 30, we head up by saying the 2013 or FY '13 was a year of transition, it certainly was. We've developed and implemented a strategic plan that's restructured the operation in the U.K. starting with the to 2 existing Hain sites in Daniels and then a lot with the acquisition of Histon, and we have created 1 team across 4 business units. We've cost-divested on non-core sandwich business and private label chilled ready meals operations, and we took the opportunity, as Irwin mentioned earlier, to eliminate certain unprofitable lines, which were primarily private label business.

We've recently secured a 5-year agreement to provide Sainsbury's an extensive range of chilled desserts, and we started shipping that late last month. And that's good news. And we are certainly improving the financial metrics in the business, making sure that we have been well positioned for accelerating sales and long-term growth.

I'd like to take the opportunity now just to talk through a few of our key autumn activities across our 4 operating units, being grocery, food-to-go and desserts, soup and meat-free and of course, not for to forget, Ireland. And then just touch on a few of the opportunities that we think are out there for Hain Celestial brands yet to come over to the U.K.

Now I'll start with the grocery business. This slide is a copy of an advert that will run in the U.K.'s leading trade magazine in 2 weeks. And it really does hit the sweet spot of what we're trying to do this autumn with a grocery portfolio, making the nations favorite brands healthier than ever. And that's a combination of NPD, brand refresh and support and business wins.

On the top right-hand corner, we've got Sun-Pat, which is the nations #1 peanut butter. We've reinvigorated that brand with new packaging, as you can see there, and we're introducing a new logo, with highlighting the fat that is 95% nuts. we're introducing new recipes with no added sugar. We've launched the U.K. first ever peanut -- chocolate peanut butter just this last week, and we'll be launching new premium lines later in the year with cashew and hazelnut, taking the learnings from MaraNatha. So really a lot of things happening with Sun-Pat, and Sun-Pat will go on a national press campaign next quarter, and as the first time it's been supported above the line for over 5 years. So lots of exciting things happening on nut butter.

Moving on to Hartley's, the nation's #1 jam and spread and #1 jelly product. Similarly to Sun-Pat, we've refreshed the packaging with a much more modern, striking design. And we're launching the range into more healthier options, less sugar, more fruit. We're launching a reduced sugar range, which has 25% less sugar, 10% more fruit. And later this season, we'll launch a honey jam that has no sugar at all and is sweetened with honey. Again, Hartley's jam will feature in a national poster and press campaign next quarter and the first time again for this brand in over 5 years.

Jelly really is a hard category in the U.K. or Jell-O in the U.S. We have a very strong leading position in jelly and high double-digit growth, yet we've introduced this season the very first jelly in the U.K. that qualifies as one of your 5-a-day. So more fruit, more health and getting that message in front, in part [ph], for consumer. We'll also be following this up with a press campaign alongside the Hartley's jam next quarter.

And Gale's. Gale's is the best-known honey brand in the U.K. It's currently #2 in sales, and we're going to revitalize that brand later this season with a fantastic new range of product offerings.

Not to forget our own label business in the grocery division, we've had a lot of success in the last few weeks in regaining and winning new business that the previous owners had lost. And just as a flavor, we've won the Morrisons jam and marmalade business worth over GBP 3 million a year, which will launch in store this month. We've launched -- we've won the Sainsbury's premium, organic and reduced sugar jams business that we've never had before, and that's worth approximately GBP 2 million annualized. That starts in October as well this month. We've recently been -- secured the Aldi jam business, which is worth about GBP 0.75 million but starts in January 2014. And in Q1, we've just learned in the last few days that we've won back the Tesco value jam business worth about GBP 3 million, expecting to start in January 2014. And that's the first part of 3 tenders that we hope to win back all of the Tesco jam, which was a key business that the Premier team lost last year.

Moving on to soup. And in Slide 33, you can see a picture of some of the activities that we've got on soup. And the most important thing to mention here is distribution gains. This season, our relisting in Tesco, the U.K.'s largest retailer, we've got a multiyear deal and have secured a much higher store distribution than we've had previously. The Tesco deal itself increases our stocking points in the U.K.'s top 5 retailers by over 40%, 17,000 new stocking points. Of course, Tesco have over 30% share of the market. We will also introduce to Tesco a significant new packaging enhancement, that we'll see a resealable screwtop closure on our cartons for the very first time. And there's a picture there on Slide 33 of an early prototype. We hope the screwtop carton will prove very successful with the consumers, and we will look to roll that out across all our customers next year.

On the top right there on soup, you can see a carton, a green carton called Skinny. New Covent Garden Skinny range is our version of the complete, balanced health solution in fresh soup. Each carton of Skinny soup will be low in fat, low sodium, no compromise on taste and 2 of your recommended 5 portions of fruit or veg a day. With a fantastic response from retailers on this new range, everyone has taken the full range, and that all starts to ship in the next week or 2.

But New Covent Garden, we can't stay still, we've also taken the opportunity this year to enhance all the core recipes. We've engaged an outside agency to benchmark our recipes, and so we've actually gone ahead and improved every single recipe in our 25-range portfolio. And we've also taken the opportunity to refresh the design. There'll be a 2-stage refresh to the design starting next month and then again in January as we roll out the screwtop. And we have taken the opportunity to put better tasting SKUs on the front or back, more nutritional information and dialogue with covenants about the food that we source in the U.K., which is quite important to U.K. consumers.

We've also won some own label business in soup. We only really supply Sainsbury's with private label soup in the U.K., and they've asked us to take on all their premium ranges. That's worth about GBP 2 million annualized, and we started that last week. So lots happening in the very important soup category. We're looking forward to a fantastic season.

We're going to meet 3 -- the pictorial, there is a 4 new products that we are launching into the chilled sector. Those of you who can remember some earlier webcasts, we took the opportunity this year to move the Linda McCartney meat-free frozen brand into the fresh and refrigerated aisle. And we launched 8 products earlier on this year, and this is our first refresh for winter. And each of these 4 products have been accepted by all the major retailers, and we are really excited about what this might do to continue to enhance our market share in meat-free.

We talked to you spreads and jellies on the previous slide. We should mention Project Castle. Project Castle, our new chilled desserts facility built exclusively for Sainsbury's, our largest customer, was officially opened by Irwin and Mike Coupe, the Commercial Director of Sainsbury's, on the 20th of September. Our 5-year agreement with Sainsbury's will see us transform the landscape of chilled desserts in the U.K. and give our customer the industry-leading quality and innovation that they seek in this category. We have 12 products launched already, and we have another 18 to launch before Christmas. This heavy launch activity will carry on for the remainder of fiscal '14 before we hit the full expected run rate at the end of this fiscal. We will be absorbing some heavy start, of course, throughout the year before we get to the agreed run rate of the steady-state business, but as I say, we should be up to the full run rate by the end of the fiscal.

Moving on to what we feel is a big opportunity, and that is to bring some of the excellent U.S. brands to the U.K. We started that process by introducing Greek Gods. We've got it a little bit wrong in November of last year. We introduced the wrong size into the market. We've learned from the customer response. They love the product. Quality is superb. But they've asked us to reintroduce it in a smaller pack size, which we've just done. We've rolled it out in September. And that will also move into Whole Foods in the U.K. in October and other retailers in 2014.

Irwin mentioned Dream. In Daniels in the U.K., we'll take over control and distribution of Dream brands next year when our arrangement with Kalo, a distributor, runs out. With our new plant in Germany, we have a great opportunity to widen distribution on our current range, build on this with exciting innovation seen in the U.S. but not yet available in the U.K. such as Almond Dream bites and we'll also evaluate own label opportunities for the German plant in the U.K., as we are a strong customer of Starbucks and Pret A Manger, for instance, in the U.K., who also have a big demand for soya and almond products.

We are also looking to introduce Celestial Seasonings tea. It's an interesting concept, selling tea to the Brits. But the quality of the herbal teas from Celestial Seasonings, far better than anything in the U.K., and we hope to bring that to market in early 2014.

Gluten-free is a real hard category in the U.K., just like in the U.S. And we are looking to utilize the group's skills and experience to launch our brand into this very high growth market. The market is categorized in the U.K. as free from, where they put gluten-free, dairy-free together, and it's been high double-digit growth now for 2 or 3 years and continues to grow strongly.

We're also going to look at the European brands, Lima, Danival and GG. We'll work closely with Bart and the European team to seek out opportunities that most exist for these 3 organic brands in the U.K.

And not to forget, snacking. U.K. is one of the largest snacking markets in the world, and we are looked to introduce unique concepts such as Sensible Portions because it doesn't really have a co-packer in the U.K. We're the local co-packer.

Irwin touched on M&A. We are evaluating a number of opportunities that are live, and there seems to be a good flow of deal activity underway and are being lined up. Private equity seems to be winning the majority of the deals in the U.K., but multiple seems to be a lot lower in the U.S. So we are well-positioned to take advantage of any opportunity that fits with our strategy.

Thank you. And I'll hand you on to John.

Irwin David Simon

Thank you, Rob. So John, you can go -- everybody got slides in front of them. John, why don't you start?

John Carroll

[indiscernible].

Irwin David Simon

Yes.

John Carroll

It's like the marketplace, right? You plan everything out perfectly, and all of a sudden, there are some bumps in the road. We're going to -- okay, good. All right. Here we go.

All right. So I'm going to talk to you about Hain Celestial U.S. and our key strategies, objectives and initiatives to drive our FY '14 performance, right?

Now here, just so everybody's on the same page. These are the key brands for Hain Celestial U.S. There are 17 brands, and they account for 85% of our sales. And they're brands you know, right? There's Terra, there's Earth's Best, there's Celestial. You know these brands. You know these brands because they are usually #1 or #2 in their respective natural categories.

Good. All right. Key strategic goals. Here's the first one. We drive acquisitions, but if you don't have organic growth, it doesn't matter. So it's about driving the core business. And what does that mean? It means driving profitable top line growth. And what we're looking for is mid to high single digits. Here's the thing. Anybody can drive growth in the natural organic category because there's -- Whole Foods will take anybody on who wants to lose money and sell their product for a great price. Making profitable top line growth is the key. Second thing is expanding margins. And we're going to talk about how we drive to expand our margins. And we're looking to drive at least 50 bps of margin growth year in, year out. And the third thing is what? Solid top line growth? Margin expansion? Well, we better be driven -- we better be driving double-digit operating income growth year in, year out, quarter in, quarter out, okay? Then, once you make sure your core business is secure, you're going to maximize your acquisitions. And what is that? We're going to maximize what we can do with BluePrint. We're going to maximize what we can do with Ella's. And we'll show you that in another slide. And then deliver what you promise. Look, we're reconfirming our guidance here. It's all about delivering what we promised.

Last year, we told you we drive double-digit top line growth. We did, 10.5%. We said to you that we drive double-digit operating income growth, plus 18%. Why? Because we found leverage in the middle of the P&L and the 110 bps in terms of margin improvement. That's what we're called on to do. That was on top of a strong '12 and a strong '11. So we focus on driving our core business, maximizing our acquisitions and delivering what we promised.

There's 3 areas of strategic levers that we focus on to get our results. First one is profitable top line growth, as we talked about before. What do we do? First one, driving -- filling the gaps in our distribution whitespace. Irwin talked about wanting to sell Hain products wherever there's cash registers. Well, there's a lot of cash registers in the category that you guys follow quite closely, which is the Nielsen all outlets combined numbers. And that's our primary focus, but we're also looking to drive distribution in other places.

Second piece is we're going to talk to you about the innovation that you guys sampled out there before the meeting, because the interesting thing is we had always assumed meeting innovation for the natural category. And you got to be their first in the natural category because that's the first adopter of audience [ph]. Well, that's part of it. It also plays a pretty big role in driving other channels.

And then the third one is we've got to meet our customers where they are. And here's the thing. Our customers are, in many instances, first, adopters, people making their first decision on what type of foods they're going to eat, things like that. Here's the thing. They're not sitting there reading Women's Wear Daily or things like that. Where are they finding their information? They're finding it in 2 primary places: one, online; and the other one, at the stores that they shop in. So we have to intersect in those 2 points to drive our business.

Next thing, we have to drive margin expansion. Now first thing I'm at is real simple. We are going to take strategic pricing, and strategic pricing I define as, if the commodity moves, we're going to move, which has not always been the way people do it in the natural industry. But here's the thing. We're better financed than most of our competitors. So if we're feeling pressure, we know they're feeling it, if not more than we are, because I know that Jim's guys can go by better than anybody else in our industry. So guess what? If there's pressure on us, we're going to move up our pricing because we know that everybody else is waiting for us to move and they're going to follow. The other thing is we've always been very disciplined about our SG&A and our G&A, our headcount, specifically. Irwin talked about that. Sales have grown and not a big headcount increase. Then Jim Meiers will talk to you about how we drive productivity savings, some of the transformative supply chain initiatives we're talking -- we're thinking about.

Last is we talked about maximizing our acquisition. So what does that mean? First thing there is, immediately, we look at your acquisitions and say, "What can we bolt on to our Lake Success headquarters and use it to drive better growth, as well as drive pretty significant synergies?" Then from there, it's go drive distribution. And then after that, it's drive productivity. That -- it's a pretty simple thing. Find where you can get synergies, drive distribution, drive productivity and expand margin, all right?

So I'm going to give you some examples of the initiatives we're undertaking to drive profitable top line growth. Also, I'm going to talk to you a bit about our acquisitions, and then Jim will come on and talk to you about productivity.

All right. I talked to you about the whole idea of driving distribution in the AOC or all outlets combined channel. So here's the thing. 55% of our business is measured in the AOC. What's that measured for? Natural, Costco, Trader Joe's and e-tailers. But 55% -- and that piece, we don't have rate distribution there. Our top 100 SKUs only average in the low 30% ACV numbers. So as Irwin said, "Look, you get into 50%, that's worth $250-plus million of retail." Here's what we've seen. Take our top 100 SKUs, they've increased their distribution in the last 2 years by 20%. It's almost a 2:1 giveback because the consumption has increased by 43%. So our focus is keep driving the top 100 SKUs.

Here's the next piece that talks about innovation and here's the aha here. We talked to you about our growth and innovation. We grew our sales over $42 million in innovation last year. That's up 36% from what we did a year ago. Not surprisingly, innovation plays a big role in driving growth in the natural channel. It's not surprising, right, because here's the thing, in the natural channel and Whole Foods, basically, it's a one out, one in rule. Because they've got -- all they've got is natural and organic products. The chances of driving more shelf space, more distribution, not easy, because there's 1 million guys making products out of their garage. We're trying to get on to that shelf. So you've got to always be innovating the tail end of your portfolio, and that's how you drive growth there. But here's the aha. The AOC universe, 26% of our growth is coming from innovation, and this is the first that we've seen it grow this much from innovation. And what it says to us is a lot of these retailers in the AOC. I'll take Kroger, for example. Kroger not only wants to know what's working for you in natural, they want to know what you can bring to them in terms of new innovation that nobody else has got, and they want to get ahead on it. So it's important as we're driving our business not only chasing distribution but also using the new products that normally would be going first to the natural channel and also leveraging them in the AOC in conventional markets.

And then you saw -- I know you saw all the great products we have. Here's the important thing you need to know. Our Q is filled with great new products to introduce in grocery, baby, snacks, tea, juice. Greek Gods, they're going to be introducing a salted caramel and personal care. So we entered this year with a full Q, and our objective is, look, we did $42 million last year. We've got to beat it. How do we get to $50 million, right?

All right. We talked about intersecting with our customers, intersecting both online and at the store. This is a great example. Ella's Kitchen. We bought it May 1. We -- immediately after we announced it, we called Walmart because we knew they were interested, because they didn't have -- Walmart said, "How quickly can you get down there?" We got down there within 2 weeks. When they can get us in, in an appointment, it was luckily a prime day, Friday before Memorial Day weekend. There's not a lot of traffic going into Bentonville then at 8 A.M. But what they did was they said, "We're going to make a big deal out of it." And what they did was they featured us, we were the lead item on their baby food web page and we're into -- we're getting a chain-wide expansion of 4,300 stores -- actually, a chain-wide launch. When you walk into Walmart, you're not -- if you've seen it on the web page, you come in, they put in dial displays [ph] in September. So you could triple [indiscernible], fine. So intersecting not only online but also at the shop.

Then last but not least, talking about maximizing our high growth acquisitions. Start with -- on BluePrint. Immediately after buying, we merged them into our backroom to our supply chain function, some of our sales function, put it right in there by March 1. Additionally, we continue to drive distribution where they haven't gotten distribution before. They were in 4 Whole Foods regions. We're in all 11 now. We're in Wegmans in a 40-store test. We're in Safeway in a 60-store test. We're about to do a test with Fred Meyer. And then Jim Meiers and his group are finding opportunities for us to save money on bottles, produce, as well as increasing the efficiency of their plants.

Same drill with Ella's, right? We got Ella's, got it May 1. August 1, we merged their U.S. operations into this building, okay? All the backroom, all the supply chain, all back here.

Distribution, I already talked to you about Walmart. Listen, we've never had an acquisition here before that Walmart said, "I'm going to take it everywhere." And usually, the drill is we go into Walmart and say, "That's really interesting. We'll go to 500 stores." We've never had it go up to 4,300 stores. It's a huge win for us, as well as -- as Irwin talked, we've got back into Toys"R"Us and Babies"R"Us, which Dave locked that distribution, but our relationship enabled us to do it.

And then last but not least, in terms of productivity. Look, we're buying pouches. We're buying purées. There's a great ability to leverage our purchases on our steps with their purchase to drive savings, and we already have seen some of that. Additionally, look, we've got a pouch production facility in West Chester. We're starting the process of moving these items in. So as you think about what I've talked to you about, we need to drive profitable top line growth, and we've shown you driving AOC distribution. There's been a big opportunity for us and continues to be. There's a long runway ahead of us there. We talked about maximizing our acquisition. You've seen what we've done on BluePrint, on Ella's in terms of productivity, in terms of distribution and in terms of synergies. All of that is for naught, if we don't expand margins.

So I talked to you a bit about SG&A discipline and strategic pricing. But the biggest part of this is the part that Jim Meiers is going to come talk to you about in terms of driving productivity. Jim?

James R. Meiers

Thanks, John. What I'm going to talk to you about today is productivity, and John and Irwin has mentioned what we're doing. There's 3 things. I'm going to talk to you about '13 and basically what we've delivered; '14, what we have in the plan and what we're going to delivery in '14; and then also globally, as Irwin mentioned, we have a process that we'd kick off from a global standpoint.

All right. So when -- as John mentioned with margin expansion, productivity is a key -- is the other key lever in terms of expanding our -- in terms of driving the middle of the P&L. And I can tell you, we have a lot of growth, and we can see it year-over-year. In FY '13, we delivered just under $25 million of savings, okay? Over a 3-year -- on a 3-year CAGR, we were 28%.

So let me take you through some of the key initiatives that we had that drove our programs in FY '13. John mentioned in terms of our West Chester, we installed a pouch line, okay, to support our Earth's Best pouch business. In FY '13, we produced 22% of our EB pouches in West Chester. The plan for FY '14 is to produce 50% to 60% of our pouches in West Chester. And I'll talk to you about the [indiscernible] acquisition and our strategy going forward.

At our Ashland facility, that's where we produce our MaraNatha products, we basically took that facility to 24/7 operation to support our increased demand and to reduce cost. On our Earth's Best cereals, we located a domestic supply that had higher efficiencies and lower cost, and we transitioned our cereals there. And on our jar and our pouch business, where we were distributing out of multiple locations, we're now -- we've now consolidated to 1 location to gain the efficiencies in terms of consolidating shipments to our customers. So as you can see, in FY '13, we had a solid group of initiatives that delivered just under $25 million of productivity savings.

So let's talk about '14. For the U.S., our productivity target is to deliver $30 million in savings, $30 million of savings. And I can tell you, we have a pipeline of projects to do that. The one thing, as I go through the various projects to keep in mind, some of these are back-weighted towards the second half of the year, given the timing of implementation. So in terms of the projects, first of all, we have 11 facilities in the U.S. And the key in terms of our own facilities is about driving yield improvement, efficiencies and getting more throughput through those facilities to lower our cost.

In terms of capital investments, our plan is to invest capital to reduce -- to automate and reduce labor. A couple of key areas we're focused on, in our snacks facilities and also at our Celestial facility. In the packaging area, it tends to be a higher labor area, and that's where we're going to infuse the capital and reduce our cost by taking labor out.

We talked about Ashland. In Ashland, our demand on MaraNatha continues to be very strong. We need to add more capacity. We're in the process. We're going to add another line to support our Ashland -- to support our MaraNatha business.

Irwin David Simon

That will be up right in June [ph].

James R. Meiers

Its' going to be up in March.

Irwin David Simon

That's just a lot of volume right now that we're keeping on the table. [indiscernible] 24/7.

James R. Meiers

Yes, we took them to 24/7, which, basically, we were able to catch up with demand. And then demand continues to be strong, and it's just -- it's outpaced our supply.

In terms of purchasing, I think you heard John talk about, in terms of our procurement group, as it relates to natural or organic, I think we have one of the best in the natural and organic segment. And the key is what we're constantly looking at is, one, supply certainty and cost certainty. And it's really about leveraging the volume in the spend that we have to drive lower cost. And we're not stopping there, okay? You heard John talk about we're evaluating transformative supply chain initiatives.

I can't go into too much detail here, but I'll share a couple with you. With our BluePrint business, we manufacture products in Long Island City, New York and Hawthorne, California. We're evaluating multiple options to consolidate manufacturing. As it relates to Ella's in terms of our pouch manufacturing, not only -- we've added additional co-packers in the U.S., as well as globally. So the key from a U.S. standpoint, the strategy is to [indiscernible] West Chester, which is our own asset, and then consolidate the co-packers to leverage the volume and attain better pricing.

So you've heard us talk before about the U.S. productivity process in terms of it's a structured process that we have in place. And we have a proven track record to deliver our productivity savings based on the initiatives we have. We've rolled this out globally, okay? And from a global standpoint, our target is to deliver $50 million of savings in FY '14. And when you look at it, 60% or $30 million, which I just talked about, is coming from the U.S., and $20 million from the rest of the world.

And look, as Irwin mentioned, we had a global procurement and productivity session in July to really dig deeper in terms of the process that works in the U.S. and how we can expand that globally. And it just comes down to the same basis, okay? So when you look at procurement, okay, now it's all about leveraging the spend and the volume that we buy on a global standpoint. We're buying purées for the U.K. We're buying purées for the U.S. We consolidated those volumes, and we're able to drive lower cost. We'll continue to invest capital in our facilities to manage the labor and lower our cost. And it's all about optimizing the co-pack network in terms of balancing our -- utilizing our assets versus co-packing.

John Carroll

We didn't want you to come out here and not get something special, so let's take a quick look. This is the AOC consumption that you'll be getting probably tomorrow morning. So here's -- we talked about profitable top line growth and all the things we're doing to drive growth. So our latest 4 weeks in the AOC, we're up 11.9%. Our latest 12 weeks, we're up 10.8%. And we're up 25% in our 2-year stacked. And look, none of these are coming off of easy base. So we continue to show good, strong growth, and it's driven by mostly our core business. Some contribution from Ella's and BluePrint but not as much as we expect to have later in the year. Take that, couple it with Jim's productivity initiatives, we're setting ourselves up for a very strong year.

Irwin David Simon

Hey John, just mention what the last 4 weeks [indiscernible].

John Carroll

The last 4 weeks, we're 12.6%.

Irwin David Simon

And the adjusted, I think it caught up.

John Carroll

Yes. The numbers seem -- they change a lot. But here's the thing. The last 2 -- 4-week period, we're driving double-digit growth. Our 12-week number is a 10.8%. Again, we have not seen the full benefit of what's going to happen at BluePrint, what's going to happen at Ella's, okay? Steve?

Irwin David Simon

Great number. The presentation is ready. Steve?

Stephen J. Smith

Yes, I'm ready.

Irwin David Simon

Okay.

Stephen J. Smith

So essentially, back in August, we've given guidance.

Irwin David Simon

I already gave the guidance.

Stephen J. Smith

Well, we've -- I already gave guidance, we as a company. In terms of net sales, gross margin, SG&A, taxes and earnings per share, sales of $2.025 billion to $2.050 billion; gross margin of 28% to 28.2%, an increase of 40 to 60 basis points; and then culminating in 16% to 20% EPS growth or $2.95 to $3.05 per share. We're reconfirming that guidance today. What I want to do is I want to take you through some of the details behind some of these numbers so you can understand them better over the course of the year.

So for the first quarter, we've listened to what everybody has said. Shipments have been strong. It's a culmination of the different programs that we're running in the U.K. and the U.S. We just talked to you about the Nielsen consumption numbers. So we've got a very good first quarter. Overall, we expect the net sales to be in the $472 million to $477 million range, which is a 31% to 33% increase over the prior year and is consistent with the plan.

John talked about we're seeing momentum across all the categories in the U.S., and we're getting good organic growth from the acquisitions we made last year.

On prior calls, I already discussed, different items that affect our gross margin, okay? Because the gross margin is not uniform across the business. It's not uniform across the quarters. Some of the more significant factors affecting gross margin are the fact that the acquisitions we've made last year in the U.K. operate at lower gross margin rate than in the U.S. Overall, they contribute similar operating margins than our existing businesses. But there's a lower gross margin and then there's a lower SG&A spend behind that. We are growing at a faster rate because we haven't yet fully anniversaried those acquisitions into our numbers when we compare this year to last year. And those -- and the U.K. business is growing from about 16% of sales last year, and this year it'll be in the mid-20 digit range as a percentage of our business. So our margins are going to naturally compress until we can start to anniversary those numbers. Secondly, the desserts business that we have with Sainsbury will expand our margins, but that is not fully up and running yet. That will fully ramp up by the fourth quarter of this year.

Next thing we talked about the soup business and Rob talked to you about the wins and losses that's going on in the U.K. Well, last year after the first quarter, we lost the Tesco business. Soup is a high-margin business for us in the U.K. We lost that volume. Our margins compressed slightly. We've gotten that business back. And starting in the second quarter, we'll be shipping back to Tesco and our margins will start to recover from there.

Next, we have some categories that are much higher margin businesses than the rest of the business, the personal care business and the tea business. So as those businesses grow, even though they're growing, they're not growing at the same rate as some of the faster-growing categories. As they become proportionately smaller, our margins will compress.

And then lastly, the seasonality of our business, our key business is typically strong in second and third quarter. The timing of when we run promotions based upon the holiday season or when we can get bookings with our accounts and also John talked about higher cost inputs. While we have higher cost inputs on commodities, and we're very aggressive in terms of pricing, just do some simple math, if all we ever do is just recover the gross profit loss from a commodity increase, the gross margin percentage will decline. Just a very simple math. If you have a $10 of sales, $5 of cost, $5 of gross profit, 50% margin, commodities increase by $1, you raise prices by $1, I still have $5 gross profit, but now my margin is less than 50%. So we're seeing some of that going on as well.

So when you put that altogether, what we're seeing in the business is that for the first half of the year, our margins will compress over the last year's margins, but they will expand in the second half of the year.

But the way that lays out is that the acquisitions impact on our margins is about a 60 to 80 basis impact in the first half of the year, okay. It's more weighted towards the first quarter than the second quarter. And then you're seeing, second half of the year, through the various initiatives that we've undertaken, we start to get margin expansion and leverage on those businesses.

In terms of the base business, the margin expansion that we're seeing in the U.S. is being offset by some mix that we have in the U.K. with some of the programs we just discussed.

And then finally, in the second half of the year, the productivity initiatives and some of the seasonality of the business will kick in, and that's when we'll get back those margin expansion, leading back to the 40% to 60% margin expansion we expect for the year. That's how the margin lays out.

This chart shows how the savings of our quarters in terms of on a percentage basis. How the net sales typically lays out and how the earnings typically lay out, quarter on quarter, over the prior 3-year actuals. We don't expect to see much change in those trends for this year other than the fact that, obviously, sales are going to be higher in the first quarter because of the acquisitions. And then as we get the margin expansion and the leverage in the back half of the year.

So ultimately what that means from an earnings perspective is that for the first quarter, we see earnings on an adjusted basis somewhere between $0.47 and $0.51 a share, okay. And for the first half, it was $1.32 to $1.41 a share. But again, we've delivered somewhere between $2.95 and $3.05 for the year.

Irwin David Simon

Thank you, Steve. So as you can see, sales are strong, we confirm the guidance and our first time to talk a little bit further on as how our business has changed. And new products, as they come in, when you introduced them and the U.K. business with the soup and soups to start ship in -- I think, right around October 15?

Rob Burnett

Yes, we start shipping them, Irwin.

Irwin David Simon

October 15 and somewhere between 10,000 to 15,000 distribution points of Tesco. Some exciting stuff there. [indiscernible] will not really start shipping until April. April, May for Sainsbury. A lot of these new products start to ship now in the U.K. that Rob talked about. So all in all, things are good, business, consumption, trends, category, we're pretty excited about. And once [indiscernible] talk about quarters and talk about our margins, our productivity and what we see out there.

What I'd like to do now is open it up to questions for myself, Steve, John, Jim, Maureen, Mary, anybody.

Question-and-Answer Session

Irwin David Simon

Ken, you get the first question. Ken, do we have to say Ken Goldman from JPMorgan or...

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Ken Goldman from JPMorgan. Steve, I'm just curious, first of all, it was a nice quarter. As you think about what you bring to the CFO role, where are you as you look at yourself and compare yourself with -- as well out there, what do you think your strengths are in this role? And as you look at the company, where do you think you're going to have the biggest impact over time? I know it's early. Just curious how you [indiscernible]

Stephen J. Smith

Well, as Irwin mentioned, there was an extensive search that took place and while, sure they looked at many candidates, fit was very important to them. And when you to take a look at my background and the things that I've done in my career, there's a lot of similarities between myself and [indiscernible] other than the fact that we're just 2 Jewish boys from Queens. Both had training at large publicly accounting firms, where client services are important, technical aspect was important, attracting and developing and retaining talent was important, building teams, collaboration, getting things right, working at RDEN over the last 12 years, accomplished a lot over there in terms of doubling the business, working on a global footprint, integrating businesses, building out infrastructure, put RDEN on a new system platform, going to shared shared services centers to reduce cost and leverage the business. Those are some the skill sets that I've acquired and can bring over here. There's lots of things that we did on the supply chain side, working with the supply-chain people over at RDEN. So those are the things that -- those are some of the things that, I guess, attracted me to Irwin and the management team, and that's what I hope to leverage over time here. Well, Irwin is giving me a great platform on which to build upon. There's not -- there's no burning fires here. But obviously, we've grown very fast. We need to make sure we continue to have the infrastructure to support the business as it goes and leverages up to the goals and objectives that Irwin had set out. So we're going to be taking a look and making sure that we have the processes and disciplines in place, making sure that from a systems perspective, he have the systems necessary to help us get the data and the information needed to drive the business decisions that need to be made, as well as to ensure we have accurate reporting, timely reporting. So those are the things we're going to be working with, making sure that we build up a finance team.

Irwin David Simon

And, Ken, listen, as you saw, by 2018, $3.5 billion companies sell in all around the world in multiple currencies. Ultimately, through our systems today, all the different countries are on similar platforms, but do we go to one platform and not that we're going to SAP, but in our regard, from a procurement, we're a complicated company, in the way we procure, the way we manufacture. So Steve, when I was looking for this, it's somebody that knew we had a close quarter, once a public company's CFO. And as Steve said, in meetings that he sat in, so there's the procurement side, the systems side, building the infrastructure. And that's the big thing today. We -- if you come back and look at 2018, we have the brands, we have the products. If you look at that customer -- they're growing customers, whether it's Costco, [indiscernible], Walmart, Whole Foods. Do we have the people and the infrastructure to support that? And that's what's all it's going to be about and finance was an area that need to be taken to the next level. Procurement, manufacturing, investing in plants needs to go to the next level. One of the big reason we move in here to Lake Success is attracting a whole new management team where there's competency and loyalty to the business whether it's from New York, Westchester, New Jersey, Manhattan, et cetera. So that's a whole thing that we need to do with Hain to get it in the next $3.5 billion, $4 billion in size.

Unknown Attendee

You didn't talk a lot about personal care, Steve? So, you're growing slower...

Irwin David Simon

That doesn't mean we don't like to try.

Unknown Attendee

Right. So it's growing slower [indiscernible], just today, as a percentage and what's the outlook? I mean, it has higher margins but slower growth? So is there just -- do you need to put more muscle behind it? Is the distribution gains the same as your food [ph] gains. [indiscernible] a little bit.

Stephen J. Smith

John, you want to do it?

John Carroll

Sure. I think and start with personal care, it is a really valuable part of our portfolio. It's a very high margin line. What we did, what we saw was that personal care got hurt more by recession and improved significantly. What we saw that it can contract. But now at this point, actually, Personal Care in the last year grew in line with the grocery business and its goal this year has been the same. And it's without, again, [indiscernible] distribution whitespace starting in a whole different way. The natural progression on food was starting in the natural channel, grow with the unified distributor into the groceries and then went out to mass and things like that. What happened with Natural Personal Care [indiscernible] other than natural channel but then jumped over the mass. Now it's starting -- not only are we seeing good wins in mass in terms of our distribution, but we're also starting to fill in the food side and did not get filled in like food in the grocery side. So if you look at -- when you look at the growth on the top line, as well as the margin line of business, it's a pretty valuable part of our portfolio.

Irwin David Simon

And, I think, Mitch [ph] , couple of things. Number one, yes, it is a small part of our business. I think there's a lot of confusion in personal care, because there was no labeling like organic and USDA. Now channel [indiscernible] category on it, so consumers, they are much more clear about the ingredients and what's in it. I think before, there was so much confusion out there. And we didn't know Johnson & Johnson put formaldehyde in their baby products. We didn't know about parabens and phthalates and some of the other ingredients that were in there. And you think about it, you heard what we said before, there's a different strategy out there for Whole Foods versus a Walmart versus a Kroger versus a Costco. But a Costco sells Personal Care. Target, a big customer of ours, we just had some major wins in Target today. Yes, we're not the supporters of all of this, but there's some big opportunities for us and we're excited and we would look at acquisitions. We think there's opportunity in color and makeup in areas for us there. So there is an opportunity, acquisition opportunities for us there. We're building a lab, we've got a great plant in California where we consolidate this up. So an exciting category. And what does everybody in this room want to do? Buy magic in a bottle to make us look younger and get rid of those wrinkles, make our hair look good. So -- and if you're concerned about what you eat, think about what you put onto your skin. So we see it as a big opportunity and a good category for growth for us. Any other questions?

Unknown Attendee

[indiscernible]

Irwin David Simon

John, Jim, you want to do that?

James R. Meiers

Sure. In terms of -- one is MaraNatha. We talked about we're taking a facility to 24/7. Consumption of MaraNatha, the brand has been very strong and has outpaced our capacity. and as I said, basically, one was taking it to 24/7. The second phase of that is we're installing another line and it starts up in March, okay. Another brand that we had some challenges on was our Arrowhead Mills brand, and basically we had a few brands where the peak demand outstrip the capacity. And so what we've done with Arrowhead Mills, for example, is we've gone ahead and started building inventory a lot earlier to make sure that we can meet that peak demand. DeBoles was one where -- so basically with the consumption, it just outstripped the demand.

Unknown Attendee

[indiscernible]

James R. Meiers

DeBoles. DeBoles pasta business. What we've done there is basically, there's 2 parts to the business. One is a wheat and the other is gluten-free and so the change overs in the facility caused a lot of down time and a lot of inefficiencies. So what we've done is we've taken the wheat products out and made our facility in Shreveport, Lousiana that is basically getting to be just a gluten-free facility. In this way, we were able to go to co-pack where they get the wheat products done and that helps us in terms [indiscernible] those were the key areas that we had and challenge us.

Irwin David Simon

And that's a big thing for us today. And so we invested $7 million and invest in supply or invest in our infrastructure to support our growth, and we're going to have to continue to do that. And supply, I mean, buying ingredients and where there's almonds. I mean, right now, I mean, whether it's our almond butter and chia, some of our rice cereals on our step [ph] , I mean, that's business we're walking away from where we can't have, we can't handle because of demand. Our rice cereal, Earth's Best will be back in business in November. By April, we'll be back in MaraNatha. Chia will probably be back in, but part of the number you saw, the 3.8 billion, that's us building out the infrastructure to support that growth, both, today, manufacturing in-house and the third-party contractors. Probably about 55%, 58% of our products today are manufactured in-house. The rest is sourced to third-party. The other big thing I come back I just want to mention is when you're dealing with the type of ingredients in products, our technical teams that are out there from a quality control in our plants and out there testing products and Ellen Deutsch and Dr. Gerry Amanthea, who is not here, what we have in place for trace recall, our trace, our testing organics, our third-party affidavits, it's tremendous what we have to go through and I would -- I come back and I joke some time that our group in-house, our group in-house is worse than the of FDA or it might be easy today because the FDA is probably closed down. But you really come back and look at this industry, you look at the food industry in general, about food recalls out there. Food recalls are very expensive proposition for the brand, hurts the consumers. And as group, we have an excellent technical team in place where we're getting testing, we're getting the results before we buy the ingredients, ensure it's GMO-free, ensure it's inorganic, where lab samples are coming from and [indiscernible] we spend a lot of money on just that.

Unknown Attendee

Steve, the Slide 52 on the gross margin impact, could we view that operating margin is [indiscernible] with last year would be similar to what we've seen for [indiscernible] or some of the initiated [indiscernible] that John talked about, being that operating margin [indiscernible]

Stephen J. Smith

It should be a little bit better. Because we'll get some leverage on SG&A.

Irwin David Simon

Yes, sure. You get leverage on SG&A, you get leverage on productivity. The other thing I want to talk to you about is, it just don't matter. I think, this is one of the first times that we really got you guys together to go through quarters, where you don't get quarterly guidance and if it gets and whatever and I think that was why this was important today, to sort of lay out the quarters, how our business. And last year in the first quarter, we didn't have the Premier spreads business. U.K. was not as big as part of our business today, which altered the margins. So that's I think what's the big important thing is the sales growth. 31% sales growth in our first quarter. And our quarters have changed now. Our second and our fourth quarters are our 2 biggest quarters. The way it is and that was not the case before. Celestial Seasonings still is a big brand but it was -- if it wasn't a cold winter and we always pray for cold winters. When we pray in bed at night, we pray for a cold winter. But it wasn't a cold winter, oh my God. Hain is in trouble. It was like -- almost like we're Campbell soup. Our business portfolio and the mix have changed dramatically.

Unknown Attendee

The other thing I wanted to focus on is on the [indiscernible] you recently talked about, streamline the portfolio better or sort of using the distractions that some of the portfolio that may not fit in the longer term. How are you thinking about that? And is there a change in pace?

Irwin David Simon

So we've talked about it. In Europe, right now, we have a fresh business. Last year, we sold our sandwich business. We got rid of our fresh meals business. We have a small fresh business in Brussels that probably doesn't make sense. We're going to look at that, whether divest it, sell it or do something there. We've talked about looking at our business frozen business, our Ethnic Gourmet and Rosetto, we're looking at some things there. Again, you've got to remember, here is my philosophy -- here, I think, very much the team philosophy. If we were to sell Health Valley tomorrow and not that we're selling it, it's in this soup business, Imagine's in the soup business, we have another soup business. We want to get out of the category all together not sell to someone else part of the category. And John, we can't sell it, I know it's your favorite soup. But as we look at the portfolio, what we're going to look to potentially do, if it's Nile Spice and Arrowhead Mills, put them together, Breadshop and Arrowhead Mills and consolidate brands, because one of the things that we've got to be careful of, a lot of our brands are unique to Whole Foods and support not only Whole Foods, there's 10,000 other small natural retailers out there that want unique brands. And there's times they get disappointed if they find some of our brands into other Mass Market or other supermarket. So very much like the Ralph Lauren strategy and some of the Armani strategy, certain is sold in department stores, certain is sold in specialty stores. They're very similar to us. But one thing I can tell you sincerely is it's not a branded business. We don't want to be in it. And the second thing is if we're losing money on it, we don't want to be in it. And if we're outsourcing it to a third party, and at the end of production runds, we're throwing the product out and spoil it, we don't want to be in it. And that's kind of what we're going through now. We just -- in Canada, this past quarter, we walked away Europe's Best, which is our frozen fruit business out there, we walked away from about $1.5 million, $2 million in sales. $2 million in sales, yes, with a big supermarket chain. Somebody's up there we could make any money on. Did we make money? I've got a lawsuits. Either we make money or we just don't want the business. So that's what we'll end up doing.

Unknown Attendee

Is it a continuous process or is there an end line and site there...

Irwin David Simon

It's a continuous process. Listen, as John said before, when we come up with new product, one in, one out, we continuously look at the portfolio. And we got to approach to sell things all the time, where we've sold some things but the last thing I want to do is sell Health Valley and put someone as a competitor in the soup business again. And again, you've got to look at some of our brands, whether you got Walnut Acres, some of it is organic, some of it is meat-free. And so you have vegetarian chilis, you got natural chilis, you got organic chilis. And each brand stands for certain things. There's a great brand here, Burritos, that we brought back. It was around an older brand and we've come out with a GMO-verified veggie puffs, cheese puffs and it's gone right after Pirate's Booty in a big way and the brand is up tremendously. Some of the Hain products, some of the Hain oils that we really have come back and brought back, CousCous, which was Casbah, which is a big brand up in Canada, we have CousCous here under Arrowhead Mills. And we have brands that are stronger in other regions. Nile Spice, strong brand up in Canada, not as strong here. So that's some of the things that we're doing on brands. But if it is not branded, we look to get rid of it. There no margin, we're going to look to it rid of it. If it's private label and that's how it goes, we're going to have to get rid of it.

Unknown Attendee

[indiscernible] channel like Walmart, how do you model the -- kind of like [indiscernible]

Irwin David Simon

We don't think there's any.

Unknown Executive

It's all coming like a nerve response.

John Carroll

If you think about it, Ella's is super premium product. [indiscernible] are different than anybody else's out there. There are certain [indiscernible]. As we looked at our -- as we were doing acquisition, we looked at our consumer base and [indiscernible] where we both had distribution, very little interaction. We feel pretty comfortable that putting Ella's into Walmart will not be usually cannibalistic to [indiscernible] the key is to make sure that we hold our [indiscernible] distribution [indiscernible] our customer, as well as get additional distribution on [indiscernible] that's why we made the acquisition. We [indiscernible] get go directly and takes away our substitute [indiscernible] and not so much on [indiscernible].

Irwin David Simon

And you know what? Listen. Why both Earth's Best and Ella's up double-digit numbers, but the A-B rate is down. It was down as much as 7%. Maureen, I think it's down, what, 3% rate at baby rate. Consumer's first entry into organics is baby food, whether it's Gerber, whether it's Beech Not, et cetera. That's where the consumer is moving over from. And that's where we're taking consumption away. Andrew?

Unknown Attendee

Some of the factors that are leading to gross margins to compress a little more [indiscernible] I think were still present in the [indiscernible] yet, gross margin [indiscernible] a lot in the fourth quarter there [indiscernible] what's the incremental [indiscernible] first quarter that's bringing gross margins even lower sequentials [indiscernible]

it's the value of the business, because the first quarter is typically the lowest quarter [indiscernible] next year and the fourth quarter was [indiscernible] productivity saving backend loaded each year?

Irwin David Simon

And yet, U.K., in the first quarter, Andrew, much bigger part, I know you had enough for fourth quarter but you had U.K. a bigger part in the first quarter than you did last year in the fourth quarter. Fourth quarter for U.K., second and fourth quarter, are big -- first quarter and fourth quarter are the biggest quarters. That's actually second quarter.

Unknown Attendee

[indiscernible] package may [indiscernible]

Irwin David Simon

Maureen, you want to do it?

Maureen M. Putman

Sure. [indiscernible] to be honest with you, Arrowhead Mills, which is a very strong brand in the natural channel, those can be termed as near gluten-free, 40% of the Arrowhead Mills brand is gluten-free, whereas when you're bringing it into mainstream, you have to be much more specific about it and we've launched it under our gluten-free [indiscernible] Gluten-Free Cafe in the Walmart channel where people see Arrowhead Mills in the natural channel [indiscernible] with some of their product offerings is gluten-free and some is not, but the entire brand is organic. Within baby, we just have found that it's become big [indiscernible] so where we can, we had introduced products that are gluten-free for the toddler. So if you take the gluten-free vegetable nuggets [indiscernible] chicken nuggets and provide these gluten-free products wherever we can offer them within our children's product line.

Irwin David Simon

And I think of all the gluten-free this year, we created our own Gluten-Free Cafe. But if you look at Garden of Eatin', there's a lot of products in there that are already gluten-free and go through our stringent gluten-free testing. Our rice milk is gluten-free. Our Arrowhead Mills is gluten-free. So what we've not done is go there and bought a brand that's just gluten-free. We've built gluten-free within our brands [indiscernible] introduced on your question before, just to make sure, in the fourth quarter, margins year-over-year going to the fourth, because we didn't own our Premier brands in the first quarter, that's why margins compared to last year are lower in this quarter, not compared to the fourth quarter. Did that answer -- okay, just want to make sure.

Maureen M. Putman

And Sensible Portions will be gluten-free come February. Jim's gone through a lot of work to make the planet gluten-free. And it was the #1 [indiscernible] consumers.

Irwin David Simon

And just -- Ellen, just the new rules, I mean, there's some pretty new stringent rules on gluten-free today that you had to go through in regards to, we have particles in the air and the testing and...

Unknown Executive

We're very stringent about it and up until just a few weeks ago, there was no [indiscernible] anywhere else. A number of [indiscernible] 10 parts per million. It's [indiscernible] at that level, we'll then go to the stringent levels. The FDA recently founded [indiscernible] it had to be less than 20 parts per million. So we have 100 [indiscernible] 20% is a North American portfolio. We have a very [indiscernible] percentage of our European portfolio in Europe that all qualified at that lower level, so we were extremely well prepared and our brands properly positioned and the questions are up. [indiscernible]

Unknown Analyst

[indiscernible] Can you just talk about -- you talked about productivity for the savings for next year. But can you talk about it kind of looking out a little bit further, 2018, $3.5 billion in net sales? Can you talk to kind of the expectation around margins at that point or how much productivity savings you can get over that time period?

Stephen J. Smith

Listen, I think, Anne [ph], if we're going $30 million to $50 million, where the company has gone from $1.7 billion to $2 billion, the more we're buying, the more productivity that we'll be able to get out of this business and that's the big thing is. I have a number on my head, where I want to be in 2018 per share. The group says you can't say it because [indiscernible] add up. But if you come back and look at Hain today, if you double the size of this business, you have to put some infrastructure. And one of the things this year, we're spending more money back on the consumer on the brands than we've ever had because we need to do that. But the infrastructure -- this infrastructure can handle doubling the business. It's bringing it in. So there's tremendous SG&A savings and bringing in another $1.5 billion after cost of goods. There's a lot of drop to the bottom line in regards to productivity, and there's a lot of SG&A. But again, it's investment back in the business. I come back and say we want to be a tech company. Just imagine that we weren't making $3 a share. How much we'd spend for the brand? If I walk in here today and said, "Hey, we're not gonna make anywhere [ph]. We'll spend everything back on the brands and what would happen?" But I think our continuously investing back in our business, investing back into natural organic and some of the great ads that we're doing, the money that Rob is spending in the U.K, the money John and Maureen and Jim are doing on our Personal Care business on our Packaged Good business. And we had to do that to get the brand awareness out there. Because we -- I would say this, I wish I could go to the tallest building every day and yell about the great things and the attributes within our products. Phenomenal products that we have and some of the phenomenal things that we're doing with our products.

Irwin David Simon

[indiscernible] Just to build on it a little bit.

John Carroll

Yes. [indiscernible] to a number?

Irwin David Simon

No.

John Carroll

Bring in $100 million.

Stephen J. Smith

I won't even know, John, what the number is.

John Carroll

Try to get $100 million.

Stephen J. Smith

So as I went through my piece, we talked about transforming of supply chain changes, right? And what I've been talking about the last few years, we have to change the way we do business, okay? And they have to be major step changes, not just the little things. We've gotten a lot of the low-hanging fruit, right? But there's a couple of key areas and we talked about BluePrint. We talked about the acquisitions. Look, we have the playbook on acquisitions, okay? When we go in, we -- there's synergy numbers that we have to sign up to, and it's not -- it's not only driving synergies on the company we're acquiring, but we also get benefit on that too, okay? So it's a couple of things. It's -- as we do the acquisitions, it really helps to drive overall productivity savings. And then making big changes. And I really can't talk about what they are right now. But I'll tell you, we have a few of them in Q and just stay tuned because we'll be talking about them at some point. Okay?

Unknown Analyst

[indiscernible] 2018 target, how should we be thinking about [indiscernible] $100 million [indiscernible]?

Irwin David Simon

[indiscernible] We want U.K. to get to $1 billion in size and it's just not by currency, of course. But we're expecting big growth this year going back into Tesco, with anywhere between 10,000 to 17,000 distribution points. We signed a 5-year commitment with Sainsbury's and looking at GBP 30 million to GBP 35 million minimum a year, which -- $50 million, that's worth $250 million right there with our growth of Sainsbury. So just with Tesco and Sainsbury, I'm looking for $25 million to $40 million, $35 million just on Hain products. And I think there's a tremendous amount that can be done with Hartley's nut butters. Peanut butter in the U.K. and some types the #1 peanut butter has less than $100 million business. And taking a lot of the nut butters and the opportunities there, we're looking at aseptic soups, the day we sold fresh soups. Terra Chips, Garden of Eatin', essential portion of our Snack business. And we'll look for nice bolt-on acquisitions [indiscernible] in the U.K. to add to that. So -- and U.K is coming back. I mean, if you come back and think about our [indiscernible] in the U.K, I think we're 39th to 40th large food company. We're one of the top 10 suppliers of Tesco. Hain market has come back nicely and you got 3 great retailers there: Tesco, Sainsbury and Asda, [indiscernible] 60% of the marketplace. And you see a lot of the big guys over there. They're struggling. Yes?

Unknown Analyst

Any early read from any of your customers on what the government shutdown might mean? [indiscernible] consumer confidence not being so great?

Irwin David Simon

Listen, I think the only early data that we have is the Nielsen numbers that came out that was last week, the government shutdown, so was close to -- Ken, when was -- that came...

Kenneth Goldman - JP Morgan Chase & Co, Research Division

9/28.

Irwin David Simon

9/28, so okay. So for so far in October, sales have been strong and we get -- we see sales every once a week from our retailers. We see Walmart reorders Monday, Tuesday. so October, so far, we're not being -- we think of anything. People staying home and eating not on a restaurant. It help us. So I wouldn't want to be in a restaurant business, and I think it's actually beneficial to us. So -- but we've not seen -- and you got to remember, listen, our average food product today, Hain is in the $3-plus range. Mary has given me the figures. It's $4 range, okay. Personal Care is around $8.50. Skin care maybe a little higher. now if you bring BluePrint in, it may take the average up a little. But -- so we've not seen anything. And if you look at protein [ph] numbers, which I look at from consumption middle of the plate, very, very, very strong. I think, psychologically, this government shutdown from luxury goods in that absolutely, it's kind of like what's going on here? It's going to hit the debt ceiling or not. Figure out what make a big purchase. I'm waiting. I think but food shop, and I've been into a lot of stores, just checking supermarkets that have been busy.

Stephen J. Smith

Talking about that $4 price point. We are not...

Irwin David Simon

$4 price point.

Unknown Analyst

$4 average [indiscernible]. We've not heard you talked aggressive you're taking price generally. That's the first time we're hearing that you'll be aggressive on pricing.

Irwin David Simon

[indiscernible] where the commodity moves, which is the practice [indiscernible] things that we do [indiscernible]. There's going to be pressure on everyone. Almond butter is an example of that. [indiscernible] to John this year from $2.40 to a little over $3. So we're not walking across our portfolio [indiscernible] which commodity allows to do it.

Stephen J. Smith

And in the U.S., it's likely you got a price increase. If you walk into Costco and tell them you want a price increase, they're the biggest procurer of almonds in the world today, okay? So you walk in there. They want to understand why you're taking a price increase and every component of that price increase. And they know, if you went in there and tell them almonds have gone up 8%, they know when almonds are going up because they're buying in bigger bulk than you are. So to walk in and get a price increase and be aggressive at price increase today, you can't be because retailers won't allow you to. But they understand where commodities are going up. And that's why productivity is so important to us. And productivities are built into our numbers, built into our plans. And every year, we've delivered them and there's not just the number. It's -- we know where we have to go get them, and how we're going to get them product by product, package by package, freight by freight, whether it's freight [ph], whether it's boat, whether -- how we're shipping it. But I wish we could walk in and say, "Hey, here's pricing. We're taking it across the border. We're not shipping [indiscernible]. We're [indiscernible] products.

Unknown Analyst

That said, the question was going from the point of view of [indiscernible] as conventional and as you think about it and talk about it, it's leading [ph] to distribution and penetration.

Stephen J. Smith

Look, they'll collide somewhere or there's a good balance of understanding of -- we're very conscious about keeping our spread between [indiscernible] and conventional [indiscernible] because to your point, [indiscernible] speak with. [indiscernible] If you look at our pricing [indiscernible] price so that [indiscernible] within that band.

Irwin David Simon

Any questions on the phone? [indiscernible] on the phone?

Unknown Executive

They can't answer.

Irwin David Simon

Oh, they can't answer. Okay.

Mary Celeste Anthes

They'll send you an email.

Irwin David Simon

Okay.

Mary Celeste Anthes

[indiscernible] I know.

Irwin David Simon

Okay. Any other questions? So just to wrap up, number one, thank you for coming out and seeing our headquarters. Number two is I'm glad everybody got a chance to meet Stephen. You'll know you can ask him a question or Andrew or me on our earnings call. Number three is, listen, I -- business is solid. Business is good, and we're feeling good. 11.9% consumption rates out there. And that, again, is not including whole foods and franchise from there and where conventional zone 1%, 1.5% feels good in the quarter. Our sales were up over 31%. And we have our new products hitting [ph]. We're moving into one of our busiest times right now, holiday season. So far, what we're seeing, we like. And I think what was important today is come in, see the rest of the team and for us to lay out what our business looks like on a yearly basis, what our margins look like instead of having our calls. Our organic growth in the quarter is definitely high-single digits. And you got that number right, Ken? So again, if you come back and look over the key pillars -- I mean, we really have and looked around here and a lot of you guys cover or follow, a lot of the other consumer packaged goods company. I mean, there's some really great products here. There's some really great products with a lot of attributes, a lot of value. There's really exciting brands here and 20 brands do make up 80% of our sales but there's other brands. As you walk through Whole Foods and see our 2,200 products, there's some great products. We really got a strong customer base, and that's what's the key within Hain, the global customer base. The U.S., U.K., Delhaize in Europe or Carrefour or our natural food customers, Loblaws, Shoppers, Sobeys, Metro [ph], Canada; our U.K. retailers, Watsons, PARKnSHOP. So we really got a strong retail base, Amazon, Costco. So coming from all classes of trade. If you come back and look at our team, we really built out this team. We'll continue to do that. And from the team, they get to a $3.8 billion. We'll really need to do that. The infrastructure here and to support that with our labs, with our R&D, with our technical group, with our finance group, with our systems, with our marketing group. And one of the big things that we're really spending -- we want to spend more and more time on is R&D and research. We spent a lot of time with Mount Sinai Hospital and where is -- from pesticides, where are all these chemicals? What's the effect in food today? There's 80,000 chemicals that were introduced since 1934 that were never tested. There was pesticides that were never ever tested, sprayed on food. And we sat with a group of doctors and researched on where is all these allergens coming from, where is autism coming from, where is all these learning issues come from and so many just redirect back to food and the research that we're doing with that. And it's pretty fascinating. And you know what? It's pretty scary, some of the ingredients that were in food for the longest time. And we just didn't even recognize this. So it's pretty exciting from that standpoint and pretty exciting that these things that we're doing to help eliminate a lot of those things. So with that, I thank you for coming to Long Island. Not so bad out here. Good times it's 25 minutes in the city. I do it every day. And feel free to -- we'll be around for any questions and please, shop in the store. We'll offer sales and you get better price here than you will in a lot of other places. So thank you. There's gift bags for every...

Mary Celeste Anthes

There's gift bags outside.

Rob Burnett

Thank you.

John Carroll

Thank you.

Mary Celeste Anthes

Thanks a lot.

Irwin David Simon

Thank you.

Stephen J. Smith

Thank you.

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