Hain Celestial Group Inc Q3 FY2025 Earnings Call

Thank you for standing by. My name is Eric, and I will be your conference operator today. I would like to welcome everyone to the Hain Celestial Group, Inc. Fiscal Third Quarter 2025 Earnings Call. I would now like to turn the call over to Alexis Tessier, VP of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for a review of our third quarter results. I am joined this morning by Dawn Zier, Chair of the Hain Board of Directors; Alison Lewis, our Interim President and Chief Executive Officer; and Lee Boyce, our Chief Financial Officer. Slide 2 shows our forward-looking statements disclaimer. As you are aware, during the course of this call, we may make forward-looking statements within the meaning of federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports filed from time to time with the SEC, as well as the press release issued this morning for a detailed discussion of the risks. We have also prepared a presentation inclusive of additional supplemental financial information, which is posted on our website at haine.com under the Investors heading. As we discuss our results today, unless noted as reported, our remarks will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying the call. The call is being webcast, and an archive will be made available on the website. And now I'd like to turn it over to Dawn.

Thank you, Alexis. Good morning, everyone. I'm Dawn Zier. Chair of the Hain Board of Directors, and I'd like to thank everyone who dialed in this morning. Before we get into the results for the quarter, I wanted to share a couple of updates from the Board of Directors. The Board of Directors has been evaluating the company's performance and leadership to ensure that Hain is positioned to maximize long-term value. As part of this effort, as you may have seen in the press release we issued this morning, we've announced two important actions: one, a leadership transition; and two, the launch of a formal process to review the company's portfolio. Let me begin with the leadership transition. In September 2023, we launched our new strategy, Hain Reimagine aimed at streamlining our operations, simplifying our product portfolio, and reinvesting in our core better-for-you category initiatives. As a result of these efforts, the company has improved its financial health through disciplined cash management and strategic debt reduction. Today, we have a stronger balance sheet and significantly more financial flexibility. Notwithstanding these accomplishments, we are disappointed with the overall performance of our business. After much thought and discussion, the Board determined that it would be in the best interest of the company and its shareholders to transition to a new leadership. Accordingly, Wendy Davidson will no longer serve in that role effective this morning. On behalf of the company, I want to thank Wendy for her leadership and the contribution she has made to help Hain's transformation and position the company for long-term success. We wish her the best in her future endeavors. The Board has a leadership succession plan in place. We're executing that plan, which aims to seamlessly identify the company's next leader. In the meantime, one of our Board of Directors, Alison Lewis, will step into the role of Interim President and CEO. We are fortunate to be able to benefit from Alison's vast industry and leadership experience. Alison has a track record of driving superior in-market execution, delivering disciplined and profitable revenue growth, and merging innovation to create value. She joined the Hain Board in September 2024 and has spent the last 30 years working with some of the world's most respected consumer product companies, including Kimberly-Clark, Johnson & Johnson Consumer Health, Coca-Cola, and Kraft Heinz. Alison is committed to making further progress on our efforts to improve performance, and the Board has full confidence in her ability to lead the organization during this transition. In addition to the leadership transition, we also announced that the Board has formally initiated a strategic review of the company's portfolio aimed at maximizing shareholder value. The Board has retained Goldman Sachs as its financial adviser, and we will consider a broad range of potential options to enhance value. There is no set timetable for the completion of this evaluation. The company does not intend to provide further updates on this effort unless and until the Board has approved a specific course of action or determines that additional disclosure is appropriate or necessary. With that, I will turn the call over to Alison to say a few remarks and then to Lee to walk through the highlights in the quarter.

Good morning, everyone, and thank you for joining us today. I also want to thank our employees across the globe for their continued hard work and dedication during what has been a challenging period for the business. Over the past 8 months, I've had the opportunity to serve on Hain's Board and get to know the business well. When the Board asked me to step in as interim CEO, I didn't hesitate because I believe in this company, its purpose, its people, and its long-term potential. As Dawn mentioned, I've spent my career building and scaling consumer brands, and I believe Hain has many of the right ingredients to succeed: the products, a strong portfolio, and a passionate team. That said, we also need to be realistic about where we are today. Our third quarter results were disappointing and fell short of our expectations. We are not where we need to be, and we cannot afford to stand still. To that end, we are taking a hard look at our strategic plan to leverage what is working and address the areas in which we need to make changes. We must face our challenges directly, and we will. This is a moment that calls for clarity, focus, and action. And that's exactly how we intend to move forward. I look forward to discussing more with you on our next earnings call. Now I will turn the call over to Lee to walk through our performance for the quarter and outlook.

Thank you, Alison, and good morning, everyone. Our third quarter results are far short of expectations, and our full year results will not be where we expected to finish. As you saw in the morning's release, we reported a 5% decline in organic net sales and adjusted EBITDA of $34 million, over 20% below last year's performance. I'll cover the financials in more detail in a few minutes, but would first like to provide some color on the key drivers of the performance shortfall as well as aspects of the business we are working on to course correct. The shortfall in both third quarter sales and earnings was driven primarily by four factors, principally in our North American business. Underperformance in Snacks, delayed timing in the expected recovery in Earth's Best formula, a challenging start to the hot tea season for Celestial Seasonings, and trade investment and inflation impacts ahead of pricing. In Snacks, the promotional activity on Garden Veggie has shifted from the first half of the year into the back half, performed below expectations, and our trade investment was less efficient than anticipated. Velocities in Earth's Best formula were slower than we anticipated. However, we had double-digit velocity growth in many key retailers. In Celestial Seasonings, the temporary service issues we encountered at the start of the hot tea season in Q2 affected volume in the early weeks of the winter tea season. While those issues have since been resolved, they did impact the quarter. Finally, pricing actions did not keep pace with trade investment and cost inflation across the portfolio. We are addressing this as we move forward. While the results in the quarter were below our expectations, we made progress in certain important areas, including international, which has returned to year-over-year organic net sales growth, having resolved the first half service level challenges that affected that business. Sequential improvement in year-over-year organic net sales trends overall, a return to consumption growth in Select, productivity, and efficiency savings that continue to enable us to partially offset other headwinds in the business and an ongoing reduction of working capital to improve cash generation and reduce net debt. To shift our performance, we are focused on five key drivers: simplifying our business and reducing overhead spending, accelerating renovation and innovation in our brands, implementing strategic revenue growth management and pricing actions driving operational productivity and working capital reduction; and finally, strengthening our digital capabilities. Let me review each in greater detail. First, simplifying our business. We recently announced the shift of our distribution network to move closer to our customers for improved speed to shelf and the consolidation of our office footprint in both Canada and the U.K. Since fiscal year 2023, we've reduced our lease expense by over $5 million a year while also supporting our hub-and-spoke work model. We have reduced our number of co-manufacturers by 23% and our raw materials and packaging vendors by 13%, enabling us to have fewer, more strategic partners to support our growth. We are also unlocking savings by optimizing our cost structure with significant work around our organizational structure to balance our corporate overhead with our company needs. Actions taken in this fiscal year are expected to generate over $25 million in run rate cost savings by the second half of fiscal 2026. Second, we're authorizing a step change in the renovation and innovation of our portfolio, including new innovations in Snacks, category expansion in tea, and end-to-end buster backpack solutions for babies and kids, all while leveraging our Better-for-You credentials. Third, we have embedded revenue growth management initiatives across the company and are implementing early fiscal year 2026 pricing actions to mitigate inflation impacts. We will accelerate our work to drive pricing, improved mix, and trade effectiveness across multiple brands and are rolling out new packaging to support multi-format and margin expansion across our portfolio. Fourth, delivery of our supply chain productivity is expected to be in line with the prior year, which was a record year of delivery for Hain. We expect to have unlocked nearly two-thirds of the total working capital goal of $165 million by year-end, and we have a solid productivity pipeline for fiscal 2026. And fifth, we are enhancing our digital capabilities to save time and money while improving our business execution among the areas where we are having early success in customer and product-level analytics to support brand strategy and revenue growth management. We have also been able to unlock opportunities to eliminate procurement tail spend, consolidate our vendor population, and leverage scale contributing to the productivity I mentioned earlier. Improving our capabilities to drive our e-commerce performance will be a key focus moving forward. Now I will cover our financial results and outlook in greater detail before we wrap up the call. The third quarter year-over-year organic net sales declined 5%, which reflects a 3-point decrease in volume mix and a 2-point decrease in net pricing, mainly in the North America segment. Please note that we excluded organic net sales growth trends in our Personal Care business, as we are exploring strategic alternatives for this business, as previously announced; we only partially offset the impacts of the reduction in net sales and ongoing input cost inflation with productivity and SG&A savings. As a result, adjusted gross margin fell 50 basis points to 21.8% in the third quarter and adjusted EBITDA fell 23% to $34 million in the third quarter, representing 8.6% of net sales, a 140 basis point decrease from the prior year. SG&A decreased 6% year-over-year to $63 million, supported by the partial benefit from the overhead reduction actions I referenced earlier and a reduction in selling expenses. SG&A represented 16.1% of net sales for the quarter compared to 15.2% in the year-ago period. During the quarter, we took charges totaling $8 million associated with actions on the restructuring program, including employee-related costs, contract termination costs, asset write-downs, and other transformation-related expenses. To date, we have taken $83 million in charges associated with the transformation program, which is comprised of $80 million of restructuring charges and $3 million of expenses associated with inventory write-downs. Of these charges, $31 million were noncash. As previously discussed, the total transformation program charges are expected to be between $115 million and $125 million by fiscal 2027, inclusive of potential inventory write-downs of approximately $25 million related to brand and category exits. Restructuring charges, excluding inventory write-downs, are expected to be $90 million to $100 million by fiscal 2027 and are excluded from adjusted operating results. Interest costs fell 16% year-over-year to $12 million in the quarter, driven by lower outstanding borrowings and a reduction in interest rates. We have hedged our rate exposure on more than 50% of our loan facility with fixed rates at 6.1% based on the new credit agreement. We continue to prioritize reducing net debt over time. Adjusted net income, which excludes the effect of restructuring charges among other items, was $6 million in the quarter or $0.07 per diluted share, compared to $11 million or $0.13 per diluted share in the prior year period. Turning now to the individual reporting segments. In North America, organic net sales declined 10% year-over-year. The decrease was primarily driven by lower sales in Snacks and Baby and Kids. We expect North America organic net sales trends to improve sequentially in the fourth quarter, primarily driven by Baby and Kids on improvement in formula velocity and distribution, innovation, and the lapse of SKU rationalization initiatives. Third quarter adjusted gross margin in North America was 22.4%, a 20 basis point increase versus the prior year period, driven by productivity, partially offset by higher trade spend and inflation. Adjusted EBITDA in North America was $17 million, compared to $28 million in the year-ago period. The year-over-year decline resulted primarily from lower volume mix and higher trade spend, partially offset by productivity. Adjusted EBITDA margin was 7.8% compared to 10.4% in the prior year period. In our international business, organic net sales grew 0.5% in the quarter, led by growth in meal prep and Baby and Kids and supply chain recovery from the service issues we discussed last quarter. This was partially offset by declines in beverages and snacks. We expect the International segments to improve sequentially in the fourth quarter as we realize the benefits of pricing actions already taken, new innovation, and new contracts in nondairy beverage. International adjusted gross margin was 21.1%, approximately 130 basis points below the prior year period, driven by inflation, partially offset by productivity. International adjusted EBITDA was $22 million, a decrease of 10% compared to the prior year period, primarily driven by inflation and net pricing inclusive of our own label contracts, partially offset by favorable volume mix. Adjusted EBITDA margin was 13.2%, down approximately 120 basis points year-over-year. Now turning to category performance. Organic net sales growth in Snacks was down 13% year-over-year, driven primarily by Garden Veggie as well as continued category softness. We did see improvement in distribution in the quarter, up mid-single digits across snacks. In Baby and Kids, organic net sales growth was down 6% year-over-year, driven by lapping formula sales last year at a key retailer that was lost in the spring of 2024, softness in pouches, and our SKU simplification efforts. However, excluding the lost customer, Earth's Best formula is showing double-digit consumption growth, and Ella's Kitchen gained share in both value and volume in its core wet baby food category. We saw continued strong growth in Earth's Best snacks and cereal with high single-digit and high-teen dollar sales growth, respectively. In the beverage category, organic net sales growth was down 7% year-over-year, driven by nondairy beverage and tea. Despite the category headwinds, our nondairy beverage brand, Joya, is growing consumption high single digits and gaining share. Celestial Seasonings organic net sales growth in the quarter was impacted by a challenging start to the hot tea season. But consumption returned to growth in the quarter with bagged tea up low single digits. Our largest global category, Meal Prep, returned to growth in the quarter, up 1% year-over-year. We continue to see strong growth in branded soup in the U.K., with Hain brands growing pound sales by over 20% and gaining 450 basis points of share. Greek Gods yogurt grew dollar sales high single digits in the quarter, supported by a brand-new campaign that drove increased household penetration. Shifting to cash flow and the balance sheet. Free cash flow in the third quarter was an outflow of $2 million, compared to free cash flow of $30 million in the prior year-ago period. The decrease was primarily due to lower EBITDA and an increase in inventory to support service level recovery as well as, to some extent, the pull forward of certain SKUs to mitigate tariff exposure. We continue to see the benefit of our days payable outstanding as well as the improvement in our days inventory outstanding in the third quarter. Base payable outstanding improved to 61 days from 37 days in fiscal year '23 and from 46 days in Q3 fiscal year '24. Days inventory outstanding improved to 79 days from 82 in fiscal year '23 and up from 77 days in Q3 fiscal year '24. We continue to make progress towards our target of 70-plus days payable outstanding and 55 days inventory outstanding by fiscal year 2027. CapEx was $7 million in the quarter, down from $12 million in the prior year period. We have ample capital spending plan to enable both our productivity delivery and capacity ability projects and expect total spending to be less than $40 million for fiscal year 2025. Finally, we closed the quarter with cash on hand of $44 million and net debt of $665 million. Our net leverage ratio, as calculated under our credit agreement, ticked up slightly to 4.2x. We have proactively amended our credit agreement to afford ourselves more flexibility as we navigate the next several quarters. The amended agreement provides for a maximum net secured leverage ratio of 4.75x for the quarter ended June 30, 2025, through and including the quarter ending March 31, 2026. Paying down debt and strategically investing in the business continues to be our priorities for cash, and we reduced net debt by $8 million in the quarter. Our long-term goal remains to reduce balance sheet leverage to 3x adjusted EBITDA or less as calculated under our credit agreement. Looking ahead, I'd like to touch briefly upon the macro environment, specifically regulatory development. While there is material uncertainty related to timing, level, and potential impact of tariff proposals. What we do know is that most of our products are produced and sold in the same region, making us less subject to tariff impact on finished goods and cross-border shipping. We have some exposure in raw materials that cannot be grown or sourced in the U.S. However, based on what we know today, we do not expect any material cost impact in fiscal 2025, and we are actively working to mitigate any impact going forward. This includes prebuilding inventory ahead of tariffs and reallocating resources within supply chain and R&D to accelerate work to reformulate and shift manufacturing. We will continue to monitor these developments as well as the customer landscape and consumer behaviors as we refine our execution strategy for fiscal 2026 and beyond. Regarding near-term performance expectations, we are adjusting our financial outlook for the year based on slower than previously anticipated volume recovery. For the full year fiscal 2025, we now expect organic net sales growth to be down approximately 5% to 6%, adjusted EBITDA of approximately $125 million, gross margin to be approximately 21.5%, and free cash flow of approximately $40 million. With that, let me turn the call back to Alison to wrap up.

Thanks, Lee. Looking beyond this fiscal year, we remain optimistic about the future and potential for Hain Celestial. We are a pure play better-for-you company at a time when the marketplace desire for better-for-you products continues to grow. We have strong brands that play in attractive categories, and we have a material distribution white space opportunity as we work to make better-for-you options more available and accessible to all consumers. Our business foundations are solid with a culture of driving strong operational productivity, a positive free cash flow profile, and a proven ability to reduce debt. We are committed to evolving our strategy with an eye on continuous improvement in margins, innovation, and top-line growth. We believe the external environment presents a unique opportunity for Hain and that the challenges we face are largely within our control. We are prioritizing simplifying the business, step changing renovation and innovation in our brands, accelerating revenue growth management and pricing actions, generating productivity and overhead cost savings, and investing in digital capabilities. We believe this focus will enable us to drive improved financial performance and deliver value for our shareholders. We appreciate your time today and look forward to answering your questions.

Your first question comes from the line of David Palmer with Evercore ISI.

Great. I wanted to ask about the big category Snacks, Infant Nutrition, and obviously, Earth's Best and Garden Veggie. I know those are probably key growth areas in the minds of the Board. And I'm wondering in some of the rhetoric from the management that it could be the best of both worlds. It could have better functionality versus smaller brands, smaller companies out there, but be more nimble than large companies. You mentioned some things about pricing not keeping up with trade investments, and it looks like we're having some surprising results here in the second half with Garden Veggie. Just wondering what is it about the execution and the insides of Hain that you think need to be fixed to get to that ideal world that you want to be in? And then maybe complementing that is in what ways has the category competitive environment or the consumer kind of changed in ways they're impairing the growth of our key growth areas of the company.

David. I will start by discussing the Snacks segment. You're right that it has been a significant area of underperformance. From a revenue standpoint, 80% of our shortfall occurred in North America, with two-thirds of that attributed to Snacks. There are a few points to consider regarding our execution. Our promotional events did not meet expectations in both club and mass channels. Additionally, we are experiencing category softness, with only a few of our Betterview brands showing growth this quarter. However, we remain optimistic about our brand health, particularly with Garden Veggie. Recently, we underwent a reset with major customers, and while we saw some improvement in our executed areas, it did not reach our expectations. We recognize that we have more work to do to boost sales velocities. This involves continuing our marketing efforts and accelerating brand renovation and innovation. Regarding Garden Veggie, we anticipate that our marketing initiatives will yield benefits in the fourth quarter, supported by new flavor innovations. On Baby and Kids, the market trends in Snacks and Cereal remain strong. The formula segment is performing well, but we are comparing against a significant volume from last year, which has impacted performance. We are confident overall, despite facing some challenges following our exit from Earth's Best jobs. I want to reiterate the five key drivers Alison mentioned, which focus on enhancing brand innovation and renovation.

I don't think we need to discuss what each retailer has done in detail. However, could you elaborate on the challenges you're facing with reshelving? Is it primarily due to velocities not matching those of key competitors? Additionally, could you provide some insight into the competitive landscape on the shelf for your main snack brands? I'll pass it on.

Yes, I believe part of the issue relates to our placement strategy that we discussed during the reset. Some of it comes down to our execution, and we have faced some challenges in that area. We have also rebuilt the North American commercial team, which will be a key focus going forward as we work to improve our execution.

Next question comes from the line of Jim Salera with Stephens Inc.

Alison, Lee. Can you provide some insight into your visibility for the remainder of the year and moving forward? It seems that the underperformance this quarter was due to unforeseen events that arose as the quarter went on. If I'm correct, these were not really on your radar at the end of the second quarter. Are there any investments in corporate assets or internal talent that you can make to improve forecasting or visibility to better address these challenges as they occur?

Yes. That's a great question. We've made some investments, but our forecasting is still somewhat lacking. I want to emphasize that our investment in the commercial team will lead to better outcomes. Currently, we've established strong connections with eight of our top nine key customers, which will provide us with much better visibility. Additionally, we are continuing to enhance our digital capabilities to access information in real time. I believe these initiatives will help us progress, but we need to implement a significant change to improve.

Okay. And then following up on David's question on the Snack side of the business. If you could maybe just give us, if you have any detail on particularly the underperformance on the promo because I know it's something that you guys were excited about. And I believe you had some distribution gains in the quarter as well. So if my numbers are right, I think sequentially, Snacks were basically flat from 2Q to 3Q in terms of the rate of decline. But obviously, in 3Q, you had a lot more support in the market and I think distribution gains alongside that. So just any incremental color there about why those might have not had the same uplift as you anticipated earlier in the year.

We did experience some underperformance with the promotional expectations, achieving about 80% of what we had anticipated. It was also a tougher environment, particularly in the Club segment, where we faced increased competition from better conventional options compared to previous years, leading to a challenge in capturing members' spending. Additionally, we encountered poor in-store execution from our retail partners, which affected traffic in the initial week. Strengthening our overall execution is essential moving forward. It’s also worth noting that the entire snacks category, including both healthier options and the broader snacks segment, has softened. Our focus will continue to be on driving innovation.

Your next question comes from the line of Kaumil Gajrawala, Jefferies.

Can you elaborate on the strategic review? What is the specific mandate? Is it related to the portfolio or something more significant? It would be helpful to have additional details beyond what is mentioned in the press release.

Thank you for your question. This is Dawn. As we said in the press release, in light of the recent performance, the Board decided that a thorough evaluation of the strategy and portfolio was warranted to determine the best approach to maximize our shareholder value. We are early on in that process. The review will consider a broad range of strategic options to enhance value, but it really is too early to comment on any specifics as we're early in the evaluation.

Okay. Got it. When discussing some of the decisions made today, we've entered a challenging macro environment, particularly for Snacks. To what extent are the issues company-specific compared to the overall difficulty of the environment compared to before?

Yes. I think it's a mix. I mean, the categories I kind of sound a bit like a broken record, but the categories are definitely softer. There are challenges, but then the piece of this is kind of the execution and why we're focused on kind of the five key drivers to shift performance. So it is a mix. But as I said, our biggest top-line shortfall was in Snacks; that's the category that seems to be most pressured right now.

Your next question comes from the line of Ken Goldman with JPMorgan.

You mentioned the important factors for improving performance, such as simplification, innovation, and productivity. One of the questions we've received this morning is about what is different this time. These are all areas that we've heard about in the past from various Hain management teams. So my question is, what can you share today about what is actually being done differently? What actions can be taken in the coming year that will genuinely enhance shareholder value? We've received feedback indicating that while this all sounds promising, it's similar to what we've heard before multiple times.

It's Alison. Let me jump in here, and I'll give you a little bit more of a philosophical point of view given that I'm brand new in the role, and I need some time to assess exactly what's going on. But on a broad-based basis, what I would say is, throughout my career, I've seen in consumer packaged goods that great marketing, today, that's digital first, great innovation, superior execution, both in bricks and clicks, as well as strong revenue growth management, inclusive of pricing are really the levers that drive growth on the business. That combined with strength in terms of how you manage your P&L and all the activities against margin accretion both at the gross margin level and then obviously at the EBITDA level, are the things that make the machine tick, so to speak. That being said, what I would say with regard to Hain is that we haven't executed all of those things as well as we need to. I can't give any specifics today, but what I can tell you is my plan is to go in to quickly assess and to really create focus against the things that are going to drive the greatest return most quickly. And again, my experience would say when you do that, you can make a difference. And again, I look forward to talking to you in the next earnings call about some of the areas of focus and what we're doing there.

This is Dawn. I'd like to provide some insights from the Board's perspective. We believe that Alison has a proven ability to achieve exceptional market execution while driving disciplined and profitable revenue growth and utilizing innovation to create value. We see additional opportunities across these areas. We also heard Lee mention the need to simplify the business and reduce overhead, and we have taken steps in the past six months to reset our approach to overhead costs. We believe there are significant opportunities for revenue growth management and pricing strategies that we can still implement, as well as enhancing our digital capabilities and expanding e-commerce. Therefore, we recognize that there are different approaches we can take, and we will implement these changes as we progress.

Okay. I'd like to ask a quick follow-up, if I can. Are there actions you can take to clean up the balance sheet, right? The leverage ratio keeps rising and you just amended your credit agreement to remain compliant. But what can you do? Are there other creative ways that you're thinking about now to kind of make the stock a little more investable from that perspective as well?

Yes. So just one thing. Yes, we didn't amend it to be compliant. We were compliant as we closed the quarter. What we did amend it to do was just to give us flexibility moving forward. So I think what we have to continue to do, and we've had a really good track record of this. We have to continue to drive the working capital reduction. We still see some opportunity there, specifically in the inventory area. Actually inventories were higher a bit in Q3, and I think we've mentioned that, but so continuing to drive that, continuing just to look at our portfolio overall, and this is the whole thing with focus. So we are going to be kind of doing all of those things. At the end of the day, we have to then just drive overall business results. Obviously, deleveraging is us delivering on the EBITDA. So it's all of those factors. I guess just the last thing I would say is we talked a bit about it before, is we have some tail assets out there. We are continuing to clean up the portfolio on those as well.

Next question comes from the line of Michael Lavery with Piper Sandler.

I would appreciate your insights on the brands. In the past, Hain has described some of its positioning as a gateway premium or approachable premium. However, this may not indicate the best value or lowest price for the consumer and could also lack the pricing power typically associated with a true super premium or premium brand. Many companies have found it challenging to navigate this middle ground in recent years. Is this the right position to be in, and what do you believe are the most appealing brand attributes as you prepare for this portfolio review?

Thank you. Let me jump in here. It's Alison. I think that the way we have to think about brands is our role is to create value in the brand, value in the brands through the innovation, value in the brands through the marketing, value in the brands through the packaging mix in the channels that we distribute in. And when you do create that value in the brand, you can actually charge an appropriate price that the consumer is willing to pay. So when Lee talked about the five areas of focus and we talk about revenue growth management, a big part of revenue growth management is understanding where the value creation levers lie, and then pricing for those value creation levers. So I wouldn't put us in a place where we say this is the price space we live in; our role is going to be to continue to trade consumers up and really drive them against paying for our brands what our brands are worth. And if you look today, too, I think the point that you raise, some of our brands are not as premium as maybe they should be in the marketplace. That's some of the data that we're seeing. And so that's our opportunity to bring more value to those brands, so we can charge more and drive that margin accretion and that value overall for our business.

That's helpful color. Maybe a related follow-up, kind of similar to a little bit higher level. As you look across the portfolio, obviously, a fair number of brands and categories and that will evolve a bit further. But is there a right to win that you would say you have as a company? And how do you think about what that might be?

Yes. I mean, we obviously definitely have a right to win as a company. Again, I think for us, what we have to do. And again, I would say it's back to the five drivers that we said. I mean, we have to accelerate our brand renovation and innovation. I think that really supports kind of our right to win. We've talked about some things from a commercial execution standpoint that we've invested in right now that will also support our right to win. So I think both of those things, driving the productivity so that we can continue to invest back into our brands as well.

And I would just add that when you think about right to win, I mean, first of all, we are in very attractive categories. The better-for-you categories continue to outpace the mainstream categories, even in Snacks that has slowed. So we are in a very attractive place from that standpoint. In terms of our specific right to win, what's critical is ensuring that we're giving consumers reasons to buy. And that is where the marketing and the innovation come in, and that is an area that will continue to double down our focus on. As Lee has noted, we have some more work to do in specific categories. But there are some bright spots when you look at international returning to growth this quarter. When you look at our key business in North America returning to a positive consumption growth. Some of the baby segments, if you actually break down total Baby and Kids are growing double digits. That's extremely positive. So we've got to build on our strengths and where we have the bright spots. And then what we have to do is clearly double down our focus on snacks. And so that's part of, as Dawn spoke about the strategic review and how do we maximize the value overall for our business. But I do believe, given the categories that we participate in, that there is opportunity for us and my plan is to double down and focus on that opportunity.

To elaborate further, we've previously mentioned our snacks business. We have significant brand recognition, but there is room to enhance our messaging to consumers regarding the benefits and claims. We are committed to this improvement. Additionally, we have a robust pipeline of new innovations in our Snacks portfolio set for 2026 that are aimed at driving renovation and innovation. We will continue to focus on and execute this strategy.

Your next question comes from the line of Anthony Vendetti with Maxim Group.

Yes. So just getting back to the higher level question in terms of strategy. I guess if we go back to when engaged capital was involved and the transition from the founder or co-founder, Irwin Simon to Mark Schiller, it seemed like the business was being reviewed and the focus was being narrowed onto businesses and categories that made sense. And the feeling was, at least in time, the stock responded was that, that was happening. And engaged with on the Board and Mark had called a number of products and streamlined a lot of the business, got rid of a lot of excess capacity, businesses that were not profitable, so forth. And the stock went up into the 30s and then engaged exited, but then Mark exited, Wendy came in. And again, there was this pain that reimagined; there was a new strategy, and it just imploded, and the stock has traded down now to two and change. I guess what was Mark doing wrong that needed to be changed? And then what exactly did Wendy do that was clearly not working that got us to this point?

I'll take that question. I'm sure you can appreciate that the dynamics, the business is very dynamic. And certainly, as we look over the past five or six years, there's been a dramatic change in the macro situation and in the dynamics of the business. So the Board and the management team are constantly reassessing and looking at different options to move forward. I'm not going to go back and comment on what Mark did, what Wendy did. They both did a lot of things right. It's just we are in a very dynamic environment. We are responding to that environment, and we are moving forward in a way that makes the best sense for the company and our shareholders. And as we do our strategic review, we will report back at the appropriate time if and when we take any action.

So one of the things I want to follow up on is pricing. In this environment, consumers are likely price-sensitive. Is the strategy around pricing being evaluated? Is everything being examined? I'm trying to understand the situation better. Also, how long do you anticipate this review will take for the business to get back on track? What's your best estimate?

Yes, we are currently reviewing our pricing strategy. We recognize that we may have fallen short in pricing execution. One of our key focus areas for improvement is strategic revenue growth management, which we have enhanced significantly. We are assessing pricing in both North America and internationally, and we will be placing a strong emphasis on revenue growth management.

The other thing that I'll just add in here, I think it's very important that we focus in on where the challenges lie. If you look at the results for the third quarter, what you see is 80% of that shortfall is North America. And within North America, the majority of that shortfall is Snacks. So again, as I come in and look at where do we need to double down, it's actually some pretty clear areas. And in other parts of the business, we are seeing some bright spots. And I think that's important to keep elevating those bright spots and focus in on isolated challenge areas and really make a difference against those, and that will make a difference on the business as well.

Your next question comes from the line of Andrew Wolf with CL King.

I also wanted to ask about pricing. And I know you've answered it a couple of ways, but I just wanted to ask, one of it, I think Alison mentioned, is more structural, getting the value equation right for either premiumizing brands, if that's the case or what have you. I wanted to ask more of a process question. And I think you kind of touched on it, but is it a lack of a centralized approach or standardization? Other companies did in the space also had a tough quarter on pricing because I think commodities kind of zoom pretty rapidly and just talk about a dynamic market. There's a lot going on. But first, Hain specifically, is this a process thing or more structural to get the pricing to where it should be versus cost inflation?

No. I mean, a couple of things. I think we have centralized the approach a lot more. I mean, obviously, it's driven by kind of analytics of really stepping up that piece of it. But it centralized more accountability. So within RGM, we have stood up revenue growth management accountability into both regions that's linked across and really being pushed then by the financial organization to make sure that we're getting exactly out of it and it's reflected and coming through in the P&L. So that's something that we've really stood up. We had before, but we needed to put a lot more discipline around it.

Yes. I want to expand on pricing and revenue growth management, which are crucial aspects of our strategy. I was at Coca-Cola two decades ago when we began implementing revenue growth management in North America. I can assure you that it plays a vital role, but it requires time to develop fully. We recognize that we have missed some opportunities overall, but we have established the necessary framework. Now, we need to intensify our efforts on key components, with pricing being the most significant and product mix likely being the second most critical. You can expect to see more developments in this area, which is a primary focus, as Lee has mentioned several times regarding the five priorities we will concentrate on.

I'm not sure how much you can address this given the board review, but when I observe the categories, Meal Prep seems to be performing well while Snacks is not, despite being well positioned. Hain has faced criticism for having too many products to manage. Interestingly, Meal Prep, which is quite fragmented in its management, is thriving, whereas Snacks is lagging. This suggests there may be an issue with competitive intensity among the brands. It seems that Meal Prep may have a less competitive landscape, yet it's the area where the company is seeing success. I wonder if the Board or management has considered this and if there's anything you'd like to share.

Yes, this is Dawn. You can be assured that we're looking at a broad range of strategic options to enhance value. We're looking across the entire portfolio as we warranted; it's time to do a thorough evaluation of both the strategy and the portfolio, and we'll report back as appropriate when we have more information.

Your next question comes from the line of John Baumgartner with Mizuho.

I wanted to come back to the vision of the portfolio. We've seen multiple teams speak to the perceived brand strengths and growth through distribution has been the strategy for 25, 30 years. But the stickiness of distribution and the velocities have been recurring challenges. And I'm curious, as part of this review process, assessing the external variables, whether it's private label making larger inroads and health and wellness regulatory changes that might result in mainstream brands improving their health credentials. Is it possible that Hain can add more value through the supply chain, producing for private label, becoming a co-manufacturer in some cases? I'm curious what specific guardrails or actions are you sort of ruling out at this point in terms of the vision for the business going forward?

I can't provide details on what won't be considered at this stage. Everything will be reviewed, and since Alison has just joined, we need to evaluate all potential value options available.

Your next question comes from the line of Jon Andersen with William Blair.

This may not be a fair question, Lee, at this point, but I'll ask it anyways. As you look ahead and kind of given what you know now about the focus areas that you're really looking to lean into to try and drive some improved performance, and you've seen diagnosed where the majority of the current challenges are, how would you have us think about fiscal 2026 at this point since all of us asking questions here are going to have to establish a view on fiscal 2026. Are there some boundaries or guardrails you could put around how you're thinking about the possible performance of the business as you exit fiscal '25 in 1 month, 1.5 months?

So John, thanks for the question. I think right now, we're not giving guidance or perspective on 2026. We're kind of working through that, working through the kind of the five drivers, but also kind of as we've talked around kind of strategic portfolio review. So it's too early for us to have a perspective on 2026 at this point.

And that would be done during our normal cadence cycle, which, as you know, would not be on this call for 2026.

Okay. And I guess, a question for Alison, given your background a number of large kind of CPG businesses, whether it be KMB or Johnson & Johnson Consumer Coca-Cola. I mean this is a different kind of situation, I suspect those larger, more stable businesses. Are there experiences that you've had in the past that those companies or another situation that you think bring will allow you to kind of add some value as you step in as the interim here during this process?

Absolutely. So you're right. My experience reads a large company, but within those large companies, I've had many experiences working and leading much more smaller, agile brands. I was a General Manager and President of Odwalla at Coca-Cola, which was the natural food and beverage brand at Coke. In my other companies, like Johnson & Johnson, I was there when we acquired a number of different companies, which were small, agile, fast-moving organizations. So I read big, but I have equal experience on small. I've worked on businesses that are declining that we've needed to turn around that are more steady state, that are also fast-growing. There's not a lot of experiences I haven't had in my career, which I think brings a breadth and an insight that I believe will be a value in my role as Interim President and CEO.

And the Board has asked Alison to step in because she is a roll-up-her-sleeves type of leader with an extraordinary track record. And she will get into the details of the business as we go forward and make sure that we're executing against the five key levers that Lee and her have both talked about.

Okay. One more follow-up. And again, I don't know to what extent you'll be able to answer this. But when we roll around to the fourth quarter or the fiscal '25 call. At that point, would you expect to have a material update on the strategic portfolio review?

As I said earlier, this is Dawn. It's too early to comment on that. We will update at the appropriate time when we have information to share. I can't commit to any timeline at this point, but I appreciate your question.

Well, thank you, everyone, for joining today and your continued support. I think we'll look forward to speaking with you next quarter, where I'll have a little more insight on the business and be able to better answer some of your questions, but look forward to that next call. And most importantly, I very much look forward to digging in.

Ladies and gentlemen, this concludes the call. Thank you all for joining, and you may now disconnect.