Participants

Alexis Tessier; Vice President, Investor Relations; Hain Celestial Group Inc

Wendy Davidson; President, Chief Executive Officer, Director; Hain Celestial Group Inc

Lee Boyce; Chief Financial Officer, Executive Vice President; Hain Celestial Group Inc

James Salera; Analyst; Stephens

Andrew Lazar; Analyst; Barclays plc

Kaumil Gajrawala; Analyst; Jefferies Group LLC

Matthew Smith; Analyst; Stifel Financial Corp

Michael Lavery; Analyst; Piper Sandler Companies

Alexia Howard; Analyst; Bernstein Research

Andrew Wolf; Analyst; C.L. King & Associates

Jon Andersen; Analyst; William Blair & Company

John Baumgartner; Analyst; Mizuho Securities Co Ltd

Anthony Vendetti; Analyst; Maxim Group LLC

Presentation

Operator

Good day, everyone, and welcome to the Hain Celestial Group Inc fiscal second quarter 2025 earnings call. Today's call is being recorded. (Operator Instructions) At this time, I will now turn the call over to Alexis Tessier. Please proceed.

Alexis Tessier

Good morning and thank you for joining us for a review of our second quarter results. I am joined this morning by Wendy Davidson, our 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 declared a presentation inclusive of additional supplemental financial information, which is posted on our website at hain.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 this call. This call is being webcast, and an archive will be made available on the website.
And now I'd like to turn the call over to Wendy.

Wendy Davidson

Thank you, Alexis, and good morning, everyone. I'll start the call by walking through today's key messages. I'll then review our second quarter results, category performance, progress on our Hain Reimagine strategy and the building blocks to support our pivot to growth in the back half of fiscal 2025. Lee will then provide more detail on our financial results along with our updated outlook. Despite a disappointing revenue quarter, we generated strong operating cash flow and continued our progress to further reduce net debt.
We drove sequential improvement in Baby & Kids, driven by the recovery in infant formula supply and in Meal Prep led by the continued momentum in our soup brands across both regions and growth in Greek Gods Yogurt. However, sales growth in the quarter was hindered by poor in-store performance in snacks driven by marketing and promotion effectiveness as well as short-term supply challenges, particularly in our International segment, where demand outpaced our supply in several of our core categories and brands.
To address these issues, we have improved in-store marketing activation, added production capacity to rebuild inventory and support growth and reorganize our customer service supply chain. We are confident that these actions, combined with the previously communicated promotional shifts, fully recovered infant formula supply in North America, brand campaign momentum and confirmed distribution gains in both regions will drive organic net sales growth in the second half.
Organic net sales declined 7% in the second quarter. While not satisfied with this result, we did generate free cash flow of $25 million and continued to make progress on net debt reducing it by $12 million in the quarter. Adjusted EBITDA in the quarter was $38 million, and adjusted EBITDA margin increased 350 basis points from the first quarter. We remain confident in the building blocks we have in place to deliver top line growth in the back half. However, due to the softer-than-expected front half and a more volatile macro environment, we feel it is prudent to approach our guidance with a more cautious outlook for the full year.
Lee will provide details shortly. Before I get into the detailed category performance, I want to touch on our positioning, which is particularly relevant in today's environment. better-for-you trends continue to outpace traditional categories with consumers increasingly looking for healthier options without sacrificing taste, convenience or affordability. We also acknowledge the evolving trend of individuals opting for better-for-you products to align with their diverse dietary goals. Our purpose is to inspire healthier living through better-for-you brands.
It's part of our ethos and something we've been focused on for more than 30 years. We view the consumer demand shift in evolving regulatory space as a tailwind for Hain. Our positioning and free from artificial portfolio is a true differentiator, particularly in the US. Today, 100% of Hain's global portfolio is free from artificial colors.
Historically, we've not used red dye number three in our portfolio. And in the US, we only use colors for natural sources such as fruits and vegetables, and we do not use artificial flavors. Internationally, more than 95% of our portfolio is free from artificial flavors, and we don't use any artificial colors. We have partnered with experts to understand the unique nutritional needs of consumers on GLP-1 treatments and assess our portfolio against those needs.
We are currently developing our criteria to define what is GLP-1 friendly based on available science, and we have already identified a number of products in the US that are a good fit for these consumers across our beverage, soups and yogurt brands. We plan to begin marketing certain items within our portfolio to GLP-1 users in the near future. These authentic better-for-you credentials position us well to meet increasing consumer demand for better-for-you products.
Let's now review each of our categories and early signals in our pivot to growth in the back half of fiscal 2025. Sales growth in snacks was hindered by in-store marketing activation and promotion effectiveness. As we mentioned at the start of this fiscal year, snacks were affected by a shift in our promotional activity on the Garden Veggie brand and by key retailer shelving changes for Garden Veggie and Terra as we discussed last quarter.
Garden Veggie remains a strong brand with high brand awareness and one of the highest levels of household penetration among better-for-you snacks. The shift of our promotional activity from the first half of the year to the second half impacted absolute sales volumes in both time periods and had a carry-on effect in overall velocity. As a result, we have adjusted our in-store activation and shopper marketing for the second half of the year based on these learnings.
Despite these impacts, Garden Veggie delivered mid-single-digit distribution growth in the quarter and continues to be a top velocity snack brand in convenience stores. We continue to expand in this important channel and have confirmed distribution expansion up 17% year-on-year in the back half of the year. Terra saw strong base unit velocities up 9%. And in the UK, our leading snack brand, Hartley's, also delivered mid-single-digit distribution growth in the quarter.
We expect to see accelerated snacks performance in the second half of the year, driven by expanded distribution of our brands, including a 5% increase in distribution for snacks at our largest retail partner. We will also have new innovation, including exciting flavors in Garden Veggie Flavor Burst, which was recently named the top new product in the tortilla category by Newsweek.
Beginning in this quarter, we have better placement in aisle with key customer resets as well as increased merchandising and promotional activity across top customers. To support consumers sticking to their healthier living resolutions, we have robust new year, new you campaigns in place for this quarter, and we have actively shifted our marketing spend to social. This shift enables us to expand reach across a broader set of usage occasions and audiences and leverage influencers with user-generated content to drive engagement.
In Baby & Kids, we continue to see sequential improvement in year-over-year organic net sales trends. First Best infant formula supply has fully recovered with a return of all formulations and sizes at the end of December as planned. As expected, consumption of infant formula pivoted to growth in the quarter, increasing 29% year-on-year, further demonstrating the strength of the Earth's Best brand.
Outside of formula, consumption of Earth's Best snacks and cereal were each up double digits in the quarter, and household penetration for Earth's Best has increased. We believe in the return to leadership in infant formula led by the strong brand awareness and loyalty and Earth's Best. In fact, 83% of Earth's Best Dairy formula shoppers won't substitute for another brand but will instead seek their preferred formula at another retailer if what they're looking for isn't on shelf.
We expect Baby & Kids trends to continue to improve in the second half of the year, driven by the full recovery of infant formula supply, additional distribution gains increased marketing, especially in e-commerce and exciting new innovation with our Earth's Best self-feeding platform, which reinforces our leadership from birth to backpack.
We are excited to continue our progress towards regaining leadership in organic infant formula. Our Earth's Best brand has been a pioneer in organic formula and a trusted leader in the growing powdered formula market for more than 35 years and Earth's Best was recently recognized by Baby Center as best organic baby formula of 2024.
In Ella's Kitchen, the leading baby food brand in the UK, we grew distribution by low single digits and outpaced the category on volumes in the quarter. Fiscal year-to-date, Ella's has gained share in its core wet baby food category, and we are strengthening our storytelling and partnership with a large retailer with branded in-aisle activation in more than 200 top stores. Early results are promising, with sales up high single digits in the quarter.
In the beverage category, nondairy beverage sales moderated in the quarter with industry shift to discount channels where we are underindexed. Despite these category headwinds, Natumi continued to grow share in the natural channel.
Celestial seasoning sales in the quarter were impacted by short-term service issues driven by a shortage of a long lead time raw material used in our blends, which resulted in fill rate issues at the beginning of the hot tea season. This issue has since been resolved and consumption improved throughout the quarter as we moved past these service challenges and our Taste Our World brand campaign gained momentum.
Celestial Seasonings has high brand awareness and our recently launched innovation, Celestial Seasonings Lemon Honey Drop, and the Sleepytime Biotin Beauty Rest are both performing well. We've seen continued strength in Sleepy time with melatonin launched last year, which remains a top 100 item in the category.
Our efforts to reduce plastic waste led to recognition by beverage industry, and we were named best beverage packages of 2024. We are leaning into our marketing on taste and wellness through our new master brand campaign, Taste our World, building strong PCs and programs and expanding our away-from-home presence to drive greater trial and awareness. Additionally, we will be expanding offerings in the second half with innovation focusing on all-day wellness, women's health and GLP-1 support.
In Meal Prep, our largest global category, we saw sequential improvement in year-over-year organic net sales growth trends. Greek Gods Yogurt is showing healthy velocities at key mass customers, and has lapped the impact faced last year from customer shifts. The Greek Gods brand remains strong with increased household penetration fiscal year-to-date. We continue to see strong growth in branded soup in the UK with double-digit dollar sales growth and share gains in each of our three leading brands.
We grew distribution by 25%, outpacing the overall category and our recent launch of Destination lunch has delivered strong early results in market up 22% in the quarter compared to 9% in the category at the same retailer. Demand was so strong, in fact, that we had to pull back on certain promotions in the quarter to ensure we could service our customers. As we look to the balance of the year, we expect trends to improve in the back half as we fully lap the private label contract loss in our UK spreads and drizzles business.
We have increased soup capacity and are expanding our rollout of destination lunch merchandising based on the early success in quarter two. And Greek Gods growth in the back half will be supported by a new brand campaign in the third quarter to support gains in incremental distribution in key channels.
And finally, Personal Care, our smallest category, the progress we have made towards stabilizing our Personal Care business is driving improvement in gross margin sequentially and in sales trends in our core channels of natural and e-commerce. With the goal of further advancing the focused pillar of our Hain Reimagined strategy and simplifying our portfolio to concentrate on better-for-you food and beverage, we are exploring strategic options for this business. We believe this is the best path to focus the organization, simplify our business and create long-term value for shareholders.
We continue to make progress in the transformation we outlined in our Henry Reimagined strategy to position the company for growth. While our shift to growth has taken longer than initially anticipated, we remain confident in the pivot to growth in the back half and in our ability to execute on our transformation strategy.
The progress made to date under our focus pillar has simplified our operations and our portfolio. This includes today's announcement on Personal Care and last year's portfolio divestitures, footprint consolidations and SKU simplification initiatives, some of which impacted year-on-year organic net sales in the first half of 2025 as expected. We estimate these actions account for an approximately 1% impact on organic net sales growth year-to-date.
In addition, our new North America commercial structure designed to better align our go-to-market model for improved customer focus and consumer engagement was implemented in the first half of this fiscal year. We are seeing notable improvement in our customer engagement with increased distribution at major customers on our largest brands in the second half of the year.
Quantitative and qualitative feedback from customers has been positive, and we have innovation and collaboration sessions with top retailers scheduled over the next few months, including in our Innovation Experience Center recently opened in our Hoboken, New Jersey headquarters. We expect this new commercial structure to be a key enabler of our future growth. Underpinning our fuel pillar, we started fiscal 2025 strong, delivering above target savings in the first half. And for the full year, we expect to outpace the record delivery and savings we achieved in fiscal 2024.
We expect to continue to enhance our revenue growth management capabilities, including trade optimization for improved price, volume and mix as well as gross margin expansion. Within working capital management, you'll recall we unlocked approximately one-third of the total Hain Reimagined target of $165 million from working capital improvement in our first year, and we continue to make progress in fiscal 2025.
From our starting point in fiscal 2023, we have extended payables by 19 days and reduced inventory levels by 5 days. In fiscal 2025, we continue to expect fuel to deliver gross margin expansion with further reduction in debt, improvement in leverage and investments in our brands and our capabilities.
We are seeing continued progress under the build pillar in our channel expansion strategy, especially Away-From-Home. We have recent distribution wins with strategic convenience to our customers, and we'll have at least 2 snack items in 11 of the top 15 C-store retail chains by year-end, up from 5 in fiscal 2024.
In the fiscal second quarter, away-from-home net sales grew 38% in North America and 52% in international. Garden Veggie remains strong in convenience stores with dollar volume up over 40% in the quarter gaining over 200 basis points of better-for-use salty snack share.
We have a clear line of sight to growth in the back half of fiscal 2025. We have a number of second half initiatives in place, including the previously communicated promotional activity shifts, adjustment of our marketing actions, increased promotional activity on brand campaigns known distribution gains and a return to full supply of our infant formula business.
We remain focused on execution to deliver growth and drive operational improvements across the business, in particular, through our enhanced commercial go-to-market model in North America. Our supply chain team overdelivered on our fuel pillar in fiscal 2024, and we are confident in the work being done to address the short-term supply challenges in international.
And now I'll turn it over to Lee to discuss our second quarter financial results and updated fiscal 2025 outlook in more detail.

Lee Boyce

Thank you, Wendy, and good morning, everyone. For the second quarter, we saw organic net sales declined 7% year-over-year. The decline was driven primarily by lower sales in the North American segment. The decline in organic net sales growth reflects a 5-point decrease in volume/mix and a 2-point decrease in price. We delivered adjusted EBITDA of $38 million in the second quarter compared with $47 million a year ago.
Adjusted EBITDA margin was 9.2%, a 350 basis point increase from the first quarter. Adjusted gross margin was 22.9% in the second quarter, a decrease of approximately 60 basis points year-over-year. The decrease was driven by cost inflation and pricing due to higher trade spend on promotional activities and efforts to execute winning portfolio actions, partially offset by productivity. SG&A decreased 5% year-over-year to $70 million, representing 17% of net sales for the quarter as compared to 16.3% in the year ago period.
The decrease was primarily driven by lower employee-related expenses on efficiencies from our integrated operating model. During the quarter, we took charges totaling $7 million associated with actions under the restructuring program, including contract termination costs, asset write-downs, employee-related costs and other transformation-related expenses.
To date, we have taken $75 million in charges associated with the transformation program, which is comprised of $72 million of restructuring charges and $3 million of expenses associated with inventory write-downs. Of these charges, $29 million were noncash. As previously discussed, the total transformation program charges are expected to be $115 million to $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 21% and year-over-year to $13 million in the quarter, driven by lower outstanding borrowings and a reduction in interest rates. As a reminder, we have hedged our rate exposure on more than 50% of our loan facilities with fixed rates at 5.6%. We continue to prioritize reducing net debt over time.
Adjusted net income, which excludes the effect of restructuring charges, amongst other items, was $8 million in the quarter or $0.08 per diluted share as compared to $11 million or $0.12 per diluted share in the prior year period.
Turning now to our individual reporting segments. In North America, organic net sales declined 9% year-over-year. The decrease was primarily driven by lower sales in snacks due to in-store activation and promotional timing shifts as well as by lower sales in Personal Care in part due to SKU simplification initiatives.
We expect North America to return to growth in the back half of the year, driven by snacks on the promotion timing shift improved shelf placement and distribution and execution of marketing. Infant formula on recovered supply and key on recovery from supply chain issues, innovation and the new brand building campaign.
Second quarter adjusted gross margin in North America was 25.2%, a 40 basis point increase versus the prior year, driven by productivity, partially offset by pricing due to trade spend as discussed. Adjusted EBITDA in North America was $25 million as compared to $31 million in the year ago period.
The year-over-year decline resulted primarily from pricing and deleverage on lower volume, partially offset by productivity. Adjusted EBITDA margin was 11%, a 60 basis point increase year-over-year. In our international business, organic net sales declined 4% in the quarter, driven primarily by lower sales in mill prep and short-term service challenges.
We expect the International segment to return to growth in the back half of the year as we lap the loss of the private label spreads contract, accelerate growth in Hartley Snacks. Ella's Kitchen accelerates on increased TDPs and brand building, and we realized the benefits of innovation and new contracts in nondairy beverage.
International adjusted gross margin was 20%, approximately 160 basis points below the prior year period, driven by inflation and deleverage on lower volume and mix, partially offset by productivity. International adjusted EBITDA was $23 million, a decrease of 13% compared to the prior year period as deleverage on lower volume and product mix more than offset productivity.
Adjusted EBITDA margin was 12.4%, down approximately 160 basis points year-over-year. Shifting to cash flow and the balance sheet. Free cash flow in the second quarter was $25 million compared to $15 million in the year ago period and an outflow of $17 million in the first quarter. The increase was primarily due to improved cash flow from accounts receivable and accounts payable, partially offset by a reduced benefit from the inventory related to short-term supply challenges.
We continue to see the benefit of our days payable outstanding as well as an improvement in our days inventory outstanding in the second quarter. Days payable outstanding improved to 56 days from 37 days in fiscal 2023. Days inventory outstanding improved to 77 days from 82 days in fiscal 2023.
We continue to make progress against our Hain Reimagined targets of 70 days-plus payable outstanding and 55 days inventory outstanding by fiscal year 2027. CapEx of $6 million in the quarter was in line with the prior year period. We now expect expenditures to be less than $40 million for fiscal 2025.
Finally, we closed the quarter with cash on hand of $56 million and net debt of $672 million. Our net leverage ratio, as calculated under our credit agreement ticked up modestly to 4.1 times. We expect our net leverage to end the year in the high 3s. We remain comfortable that we have sufficient headroom under our existing covenants.
Paying down debt and strategically investing in the business continue to be our priorities for cash and we reduced net debt by $12 million in the quarter. Our long-term goal remains to reduce balance sheet leverage to 3 times adjusted EBITDA or less as calculated under our credit agreement.
Turning now to our outlook. While we continue to expect to pivot to growth in the back half of the year, given performance year-to-date and the challenging macroeconomic backdrop, we are adjusting our full year outlook.
For fiscal 2025, we now expect organic net sales to be down 2% to 4%. And adjusted EBITDA to be flat year-over-year, gross margin to expand by at least 90 basis points year-over-year and free cash flow of at least $60 million. Please note that while changes in exchange rates do not impact organic net sales growth, it does impact adjusted EBITDA.
The impact on adjusted EBITDA of exchange rate movements since we gave our initial guidance is approximately $2 million unfavorable. In terms of cadence for the balance of the fiscal year, we expect gross margin and adjusted EBITDA to improve sequentially with a material step-up in Q4.
While we have made significant progress in executing our Hain Reimagined strategy, growth has taken longer to realize as we have discussed. As such, we want to provide an update to our Hain Reimagined growth algorithm. We expect that organic net sales growth will improve throughout the Hain Reimagined time horizon with a sustainable exit rate of 3%-plus by fiscal 2027.
We continue to expect gross margin of at least 26% by fiscal 2027. We continue to expect 12%-plus adjusted EBITDA margins by fiscal 2027 and we also continue to expect to unlock $165 million in working capital improvement by fiscal 2027. And we continue to expect to achieve leverage between 2 and 3 times by 2027.
And now, I'll hand it back over to Wendy for closing remarks.

Wendy Davidson

Thank you, Lee. With leading brands and better-for-you, Hain is well positioned to meet increasing consumer demand for better-for-you products. We have made progress against our Hina Hain Reimagined strategy, particularly in the focus and fuel pillars of our transformation.
We have simplified our portfolio of brands and SKUs, our geographic footprint and our operating model. We launched our fuel program, delivering strong cash flow, which we have used to reduce net debt while investing in our brands and capabilities to drive future growth.
We are confident in our portfolio of brands in categories that are positioned for growth with ample white space to drive distribution. We have strengthened our relationships with top customers and are partnering to enable them to support consumer trends and better-for-you.
We are focused on driving improved commercial execution and supply chain reliability to enable our pivot to growth in the back half of fiscal 2025. Before I close, I want to acknowledge our team members, our supply partners and our customers. We believe that better-for-you doesn't have to mean sacrificing taste, convenience and availability. Together, we can deliver on the promise to inspire healthier living.
Operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Jim Salera, Stephens.

James Salera

Hey. Good morning. Thanks for taking my question. Wendy, you had mentioned on the stack side, just some in-store performance driven by marketing and promotion effectiveness. Can you just give us a little more detail on what you saw specifically and then maybe what gives you confidence that some of the promo you have shifted into the back half of the year will be more effective as we progress through the year?

Wendy Davidson

Absolutely. Good morning, Jim. When we look at the three brands in the portfolio, you would have heard us talking about the strength of those brands in their awareness and that our biggest challenge was actually driving distribution while they were beloved brands, we made it very hard for you to find them.
The shift in promotional activity from quarter one into the back half of the year didn't just have an absolute dollar impact of just those activities from front half to back half, but it also impacted the awareness just broadly with consumers because those feature and display actually had a disproportionate impact on overall velocities in our brands. And that was learning that we got in quarter one. I would also say that we identified that we had strong awareness and what we needed was to actually have conversion-driven marketing activation in store rather than awareness building.
So what does that look like? It looks like in quarter one, we did a master brand campaign on Garden Veggie. What we really needed to be doing was driving specific conversion and reaching consumers where they were in driving occasion-based marketing. So we've done a pretty dramatic shift in the overall snack portfolio. We have the known distribution gains and the known promotional activity that moved from front half into back half.
We have incremental distribution that comes in the back half. In C-stores alone, we will go from five chain C-stores with two of our SKUs to 11 of the 15 largest chain C stores. We also picked up 5% distribution in our largest retail partner, and we've added the value channel with 20,000 stores beginning in March. So we have some really good incremental distribution and incremental availability.
What we've done to shift our marketing is to actually drive it in lower funnel activity so much more on social, which you should start seeing actually be seen in the last couple of weeks to really drive awareness and reach to a broader consumer cohort in driving conversion.

James Salera

Okay. Great. And then maybe a follow-up on that. I know in December, in particular, there was a little bit of softness in salty snacks. Is that something that also impacted this? Or is it really just what you guys saw from the in-store effectiveness. I'm just trying to parse out category impact relative to kind of pain-specific impact.

Wendy Davidson

Yeah. The -- there is overall in the snacking category, there was softness in the December time period. What's interesting though is better for us snacking continues to perform and we think actually, those are tailwinds overall for better-for-you, but also for Hain.
So we don't see a lot of transfer between conventional snacking and our brands. So for us, it really was about availability in all the right places, promotion display and promotional effectiveness. I think I've told you before, our brands don't respond to deeper discounts. They do respond to feature and display. So more frequency available more often, and that's what you'll see us driving in the back half.

James Salera

Great. Appreciate the color. I'll get back in the queue.

Operator

Andrew Lazar, Barclays.

Andrew Lazar

Great. Thanks so much. Wendy, in the last several quarters, you've talked a lot about the executional issues in various segments. And certainly, I can appreciate some of the wins you have in distribution coming up and having put some of the supply issues in the rear view. I guess I'm curious if you're building in some flexibility in your back half guidance for any other potential unforeseen challenges that may arise. -- particularly in light of what -- as you've noted, a still very dynamic sort of packaged food environment.

Wendy Davidson

Yeah. To be quite honest, and as we said in the prepared remarks, we've built in some caution in the back half, both given the history we have on some of the execution challenges but also in the broader marketplace. And I think we've appropriately guided for that in the back half. What I would also say, though, is that each one of the challenges we faced really since we launched Hain Reimagined, the team have addressed those with pace. And we were ahead in our commercial execution turnaround in international.
You saw that reflected in the international numbers up until this last quarter. The impact in international in quarter two were all about service challenges, and those have since been addressed. North America was about a year later in some of the commercial go-to-market shifts but given the results that we've seen in international go-to-market changes, gives me a lot of confidence that the (inaudible) a very different commercial execution.

Andrew Lazar

Got it. And then, Lee, you talked about the cadence in the back half of the year on gross margin and adjusted EBITDA. I was hoping you could put some perspective around the cadence when it comes to organic sales growth. Thanks so much.

Lee Boyce

Yeah. So I mean, as we look through the second half versus the first half, I mean, we did say we'd actually pivot to growth. From an EBITDA perspective, I think that was the first part of the question, EBITDA perspective, I mean, we expect to see that sequentially improve as we go through the balance of the year. We'll see that also just from a margin perspective, I think is consistent with prior calls, we said that we'd have a step up our productivity steps up as we go through the balance of the year. So -- what you'll see is sequential improvement step-up and particularly as we get into the fourth quarter.

Andrew Lazar

Got it. So it sounds like organic though, should pivot to growth -- it sounds like your expectation there would be even starting in the third quarter, if I'm hearing you right.

Lee Boyce

Yeah, we should be pivoting to growth.

Andrew Lazar

Thanks so much.

Operator

Kamal Gajrawala, Jefferies.

Kaumil Gajrawala

Hey, guys. Good morning. I guess a couple of things on snacks, and I guess, this pivot to more on the conversion side. How much flexibility do you have in managing the P&L and the margins with the shift in promo activity. It looks like when you go top of funnel funnel, we can certainly understand how you would get an increase in volume. But at the same time, you're managing a balance sheet and margins. So can you maybe just talk about the calculus there?

Wendy Davidson

Yeah. We've said before that we felt good about the amount of money that we have allocated for marketing spend that we needed to shift to more effectiveness. So working versus nonworking and to spend it better with better effectiveness before we simply increase that spend. So what you're seeing us do is actually shift from what I would say were more awareness driving activities to more conversion type activities, but inside the envelope of our normal spend within marketing. So just driving effectiveness first and foremost.

Kaumil Gajrawala

Okay. Understood. And is this -- when we think about some of the, I guess, some of that slowdown or some of that is it Sort of what was maybe the logic on having sort of the pendulum more on the awareness side and now moving it to the conversion side, maybe the logic for the awareness piece initially?

Wendy Davidson

Yeah. I would say that a year ago, the belief was that we needed to drive greater brand awareness around our three primary snack brands. And that was the biggest challenge that we had driving both distribution and awareness. We've had a really good run on picking up distribution. In quarter two, we picked up distribution mid-single digits.
And as I mentioned earlier, we have substantial distribution gains coming in the back half that were either known distribution gains, shifts in promotional activity, known innovation launches or incremental distribution gains, especially in the value channel and in convenience stores.
What we learned, though, last summer when we did -- remember, that was the first multi-brand promotion that we did the Sabre summer promotion. What we found from that was that we were driving awareness where we already had high brand awareness. And in Garden Veggie, we actually have the top household penetration of better-for-you snack brands.
So our issue isn't that consumers know the brand. It isn't that consumers are regularly buying the brand. It's the frequency they're buying it, and are they buying it for whole family? Or are they buying it just for their kids.
So we needed to drive more occasion-based marketing and more conversion marketing and really lean into social, especially in better-for-you brands and in more nimble social activation is much more effective than traditional media, and we really needed to pivot more quickly. So what you're seeing is, I think, the team leaning into that kind of strategic agility.

Kaumil Gajrawala

Got it. Thank you.

Operator

Matt Smith, Stifel.

Matthew Smith

Hi. Good morning, Wendy and Lee. Thanks for taking the question. When it comes to the second half organic sales pivot, you called out initiatives across the major product categories. If we look at just the US business, would you expect growth, organic top line growth in the second half to be broad-based as you benefit from formula distribution, snacks distribution and the promotion shift and you have the recovery in the beverage supply chain. Are there categories or some of those categories where you call out more confidence in that pivot to growth or more risk around them?

Wendy Davidson

I think there is -- I'll start, and I'll let Lee add a little bit of color behind it. But we've talked before about full recovery in infant formula as (inaudible) December. And we've actually had a really nice pickup in distribution, and we've said before that our velocities are back where they were prior to the supply disruption. So a very meaningful pivot in Earth’s Best in the back half from the front half.
In snacks, we've talked before about the promotional activity that shifted from quarter one into quarter three and quarter four. So that is also a very meaningful shift in just the objects of the year. I think with beverage in both international and in the US business, there's incremental activity, promotional activity, innovation and then the branding work that you'll see drive some growth. And then we have the continued success in our soup category across all three brands in international and then our US brands that continue to grow. So I would say those are probably the biggest drivers.
And then the last I would say is Greek Gods Yogurt, we had a shift in customer distribution earlier last year, and we've lapped that now. So now the increased distribution we've seen in other customers, you now start to see that play out and the velocities are very strong in that brand.

Lee Boyce

Yeah. And I guess just supporting that. So despite the challenges in Garden Veggie and Terra brands, we did see mid-single-digit distribution growth, so as we look forward, we've got accelerated performance driven by the expanded distribution, innovation launches and then increased promotional activity. in Baby & Kids, and we talked about Baby & Kids repeatedly on prior calls, though, we have seen the supply fully recovered and we expect to see the second half continued distribution gains and an increased marketing environment.
On beverages, we did actually have some short-term challenges there. We resolved them. Companies leaning into the marketing on taste and wellness through the new master brand campaign and then as Wendy mentioned on Meal Prep, I mean, we're seeing really good trends, increased household penetration on Greek Gods, good momentum on the international side as well.

Matthew Smith

Thank you. And as a follow-up, the initiatives you've taken on the Personal Care business have gotten that to -- that business to a place where you're now able to undergo a strategic review there. I'm curious if the learnings through that process, if you're at a point where you can look across your portfolio and see opportunities for similar actions across other product categories or geographies and if that's part of the shift in the Hain Reimagined organic sales target where you're now moving to more of an exit rate rather than a sales growth rate across the period.

Wendy Davidson

I would say from day one of Hain Reimagined, we and the focus pillar, had identified that we needed to appropriately drive an intense focus on stabilization of particular parts of the portfolio. And once those businesses were stabilized, we would then determine where in the portfolio they fit or if they fit somewhere else outside of the company would be a better place for that.
And you've seen us do that. Over the last 1.5 years, we moved nondairy beverage from stabilization into our maintained categories, infant formula up until this quarter, we had in stabilized because we needed to get the supply and the overall recovery of that. We've moved that back into grow in Earth's Best.
We have some of our snack brands and some of our personal care brands that we divested. They were in stabilized and then we divested of those -- and now the Personal Care portfolio, margin expansion is actually ahead of where we expected to be and significant work, as you would see in the earnings slides, that the team have done to tighten up the footprint, tighten up the SKU mix and portfolio and really improve the overall shape of that business.
The divestiture of that will allow us to be a pure play food and beverage company in better-for-you. And so I think we will always evaluate parts of the portfolio that are below our algorithm either in top line or in margin and decide what is the best way for us to improve the overall shape of those businesses whether that's in our portfolio or somewhere else.

Lee Boyce

And I guess just as a tiny piece, I mean -- and we've said this before, I mean, we believe we're in the right geographies and the right category platform. So I guess, to Wendy's point, we will continue just to look just to continue to optimize. And then in terms of stabilized right now, I mean, it's about 10% of our portfolio is still sitting and stabilize. So we continue to assess it.

Matthew Smith

Thank you. I'll pass it on.

Operator

Michael Lavery, Piper Sandler.

Michael Lavery

Thank you. Good morning. You've touched a lot on distribution gains and how important that is. But then in Snacks in the second quarter, you already had mid-single-digit gains. And so maybe can you just help us understand a little more clearly what's different about the expected gains versus what you already had in hand because obviously, the sales declines accelerated despite that in the quarter.

Wendy Davidson

Yeah. The issues we had in snacks in quarter two we're less about distribution, absolute points of distribution because we continue to grow those. It was the velocity on shelf where the real driver was -- and that's where marketing activation and effectiveness and promotional activity plays such a key role. So that's why in the back half, the continued growth in distribution is a good thing. But even more important is the promotion, display, shift in marketing activation and driving purchase activity will be that much more important in driving the turnaround in snacks.

Michael Lavery

And then just to maybe unpack that a tiny bit further. Obviously, the promotional activity usually has a pretty quick consumer response where some of the marketing execution can build more over time. How should we think about, as you mentioned some of the ways you want to kind of pivot the marketing approach, how quickly do you expect to get to see results there? Does social media have a quicker response time than kind of historically other marketing approaches or -- is that really kind of a little bit of a longer-term build too so that we shouldn't expect anything too quickly.

Wendy Davidson

You will see some improvement in absolute growth of snacks in quarter three. The distribution gains will be a benefit, and the promotional activity will be a benefit. To your point around social, we will see that continue to build, especially as we have an always-on social activation rather than always on traditional media, but you'll see that build over time. But I think the absolute distribution gains and the absolute promotional activity will be a bigger driver for us in quarter three and quarter four.

Michael Lavery

And maybe just lastly, a quick follow-up on the distribution center. You had the press release on, I think, a week or so ago. Any sense of the magnitude of savings that might generate for you?

Wendy Davidson

I don't think we've quantified it. I would say it falls within the overall margin expansion goals that we outlined in Hain Reimagined. Remember, we said we had about an 800-basis point disadvantage to industry peer benchmark. We established a 400 to 500 basis points around cost reductions through the Hain Reimagined plan. And that's part of what will be included in that sort of overall.
I would tell you, I think the bigger benefit is the fact that it allows us to be a better partner to our customers by putting our products closer to the market. so we can have speed to shelf. So as volumes peak, as we have peak promotional period, we were, in some cases, three or four days from resupply to some of our or key markets. So now having distribution nodes in all the various parts of the country allows us to be a better partner to our customers.

Michael Lavery

Okay. Thank you so much.

Operator

Alexia Howard, Bernstein.

Alexia Howard

Good morning, everyone. So the first question is really about what indications you're perhaps already seeing in the marketplace to show that this pivot in promotional and marketing spending in snacks is working. We're already about five or six weeks into the third quarter. Are you seeing evidence that the new pivot is actually working on the top line?

Wendy Davidson

We are seeing improved consumption trends in market.

Alexia Howard

Okay. And then secondly, on the distribution announcement that you put out a few days ago, that sounds like a fairly significant reduction in delivery route mileage of 66%. And it seems as though it's opening fairly quickly. Is that going to have a material impact on productivity improvement, cost savings in the back half? And are there other benefits in terms of service levels and so on that new distribution center could bring. Thank you and I'll pass it on.

Wendy Davidson

Thanks. It absolutely has a twofold impact. It is a part of our productivity outlook. And as we've said before, the back half margin expansion is largely driven by both the pivot to growth, but also by our productivity pipeline. The team have a very good track record in delivering the productivity pipeline, and we're in a good place as we go into the back half of this year.
This distribution expansion is a key part of that as well. So it ties into that pipeline. More importantly, it will improve our speed to shelf and our fill rate on shelf with our customers. And as we lean into really trying to be our customers' preferred partner in better-for-you brands, this is a great opportunity for us to be better positioned by having product resupply within one or two days of our customers rather than three or four days.

Alexia Howard

Great. Thank you. I'll pass it on.

Operator

(Operator Instructions)
Andrew Wolf, CLK.

Andrew Wolf

Thanks. Good morning. Continue on the North American snacks' weakness in the quarter. Could you discuss like to what extent if any, the category captain issues that you discussed that occurred last quarter, I'm not sure if they're resolved yet impacted the sales there. I think that was at your largest customer, has the category been reset? And -- or when would that be reset?

Wendy Davidson

It absolutely had a material impact on that particular -- at that particular account because of shelf placement but also assortment, it impacted the velocities in that large retail partner. Those will be resolved in the resets that happen inside this quarter, but we did have some incremental promotional activity with them for New Year, New You as a potential ramp-up into those store resets. But you should see those resets as we hit the latter part of this quarter that give us confidence as we go into quarter four.

Andrew Wolf

Okay. Now the vendor who ran the camp who was responsible for the category [capancy]. Has that vendor or anyone else kind of done a copycat type of product to the Flavor Burst? Just out of curiosity.

Wendy Davidson

We have not actually seen anyone try to replicate Flavor Burst. We actually have new flavors. One is an exclusive with one customer that launches this quarter. We have another variant that actually launches in this quarter as well. So stay tuned for now four flavor varieties of Flavor Burst. And I think I mentioned in the prepared remarks, that it was named the top new product in the tortilla category by Newsweek.

Andrew Wolf

Okay. And just last thing is on Celestial ingredient shortage. Could you give a little more background on that? And why it's fixing, -- was that in the market? Or did you maybe go to single source there? And you -- just sort of what occurred and why that's -- is there any prophylactic issue with it? Do you have to go to double source or something? Or is it more just something happened in the market with a certain ingredient?

Wendy Davidson

It actually wasn't in market. I would tell you that it was actually an internal execution mistake. It's a long lead time ingredient that enough wasn't purchased to have on hand. And as demand picked up at the start of a season, we were unable to source the ingredients fast enough to be able to resupply. I would say that as of the end of December, we were back in supply of that ingredient, and we're able to then re-pipe into the marketplace on celestial seasoning tea. So it was a short-term lift, it impacted quarter two, but it is an ongoing concern.

Lee Boyce

Yeah, we have put additional steps in to mitigate the risk in the future.

Andrew Wolf

Got it. Thank you. Appreciate it.

Operator

Jon Andersen, William Blair.

Jon Andersen

Good morning, everybody. Wendy, when you talked during your -- at the top of your prepared comments about better-for-you as a tailwind overall in food and referenced the kind of ingredient profile of your products. And I think for the first time, really called out also GLP-1. I'm just wondering if you could tell us a little bit more how you view -- how you're defining kind of better-for-you within the context of your portfolio? And what that's doing or not doing perhaps to shape your perspectives on innovation and messaging importantly to the consumer, also throwing the GLP-1 angle in there as well. Thanks.

Wendy Davidson

Yeah, absolutely. This is one that I think we've mentioned before that we started a piece of work about a year ago with consumer research to really understand what consumers are looking for in better-for-you. Because we continue to say that we're a leader in better-for-you, we believe in healthier living, but we wanted to make sure that we had real science and real consumer insight to back that up. We learned from that very clear attributes the consumer was looking for. They don't want to sacrifice taste.
They don't want to sacrifice convenience. They don't want to sacrifice availability and affordability. They don't want pure health, but they do want healthy nudges. So it is a presence of positive and a little bit of a nudge down of the negatives.
And so we will be really relooking at our portfolio through that lens to ensure that our products are providing a better than what option to items that consumers would want in their pantry and regular part of their diet routine. So we think that we have products that actually taste as good, they are as convenient. They are available for consumers without having them have to sacrifice good health and good ingredient profile.
We -- 100% of our North American portfolio has an absence of any artificial flavors or colors and our international portfolio is 95%. We have a few artificial sweeteners in some products, which will actually be removed over a period of time. So we really are going to lean in to better-for-you and positive for the consumer without sacrifice.
As it relates to GLP-1, it's almost like every other diet. Kito, high protein, gluten-free, dairy-free, et cetera, consumers have particular needs, and we want to make sure that it is easier to shop our portfolio to make it easier for them to eat without sacrifice for whatever diet they're on.
As we've worked with our experts to look at our portfolio through the lens of a GLP-1 diet, what products do we have that are ideal for that first three months of GLP-1, what are products we have that are really good for in the middle and then what are those products that are ideal for maintaining and we will message openly to the marketplace to make it, again, easier for consumers to be able to be on whatever diet they're on, and Hain will be there to help support their healthier living.

Jon Andersen

Great. Thanks. I guess, I think you've done a good job of explaining a lot of the execution-related matters, both external and internal that are leading you to kind of revise your outlook on the top line for the current fiscal. But what are we to make of the revision to kind of the long-term algo on the top line. What are you maybe trying baking in there? And what are you trying to kind of maybe communicate from an expectation standpoint that we may not get that kind of 3%-plus run rate until we're exiting fiscal '27.

Wendy Davidson

Yes. I would say -- and you've been really good as well as investors and asking me the question of, so as you go along in Hain Reimagined, what have you learned? What's working, what's not working, how is that adapting as you go?
And as we've looked at both the changes we've made in the portfolio, but also execution challenges, and then importantly, the macro environment, we have tweaked some expectations around parts of the portfolio based on that. We still believe very strongly in our fuel delivery, we feel very strongly in the focus initiatives we've announced to date and the focus initiatives that we are exploring. We also feel very good about the margin expansion in the future. I would say we are ahead in productivity pipeline in supply chain, particularly in procurement and in our operations.
We are behind where I would have expected us to be in revenue growth management, and you'll see us aggressively leaning into that around price pack architecture, pricing, trade effectiveness and trade promotion. We're doing well in overall marketing awareness of our -- what we call our hero brands, I would say we're doing improvements based on learnings to drive real execution of marketing into conversion and purchase -- and we are doing a fantastic job on the commercial side and building an improved relationship with our top customers that I feel confident will lead to better outcomes as we go forward.
But I think we've tried to then build an outlook that is acknowledging the areas that are taking longer-term, while at the same time, the areas that are continuing to deliver while, as Lee said, our exit rate at 3%-plus doesn't mean that we won't get there before then. It's just us trying to set an expectation at a rate basis on an annualized number rather than a CAGR over the life of Hain Reimagined. So I would view it through that lens.

Jon Andersen

Okay. That's helpful. I know you asked for two questions. I'm going to try and squeeze in a third, if I could. I'm just back of the envelope math, it looks like, again, we may be off on this, but the guidance for fiscal '25 on the top line almost calls for flattish kind of organic in the second half of the fiscal, I guess, depending on where you come out in the range.
So I guess my just question is on the pivot to growth in the second half, what that really means, does that mean on a full second half basis, does it mean you pivot somewhere in the quarter or in the second half, meaning maybe the third quarter is flat or down and the fourth quarter is up. Just some more help with the cadence of this, I think, from a modeling perspective is really important at this point? .

Wendy Davidson

Yeah. I'll let Lee answer the specifics, but I would say we're looking at it -- and the range is pretty wide, as you can tell, because we're acknowledging the challenges in the front half and the macro environment, we're not assuming that we will cover all of the challenges in the front half, but we will pivot to growth in the back half on a full back half basis, and I'll let Lee talk to --

Lee Boyce

Yeah. And I mean we're looking to pivot, as I said earlier, in Q3. So you can kind of -- we wanted to give guidance again on the overall back half, but we are looking to pivot to the growth in the Q3 time frame.

Jon Andersen

Great. Okay. Thanks, everyone.

Operator

John Baumgartner, Mizuho Securities.

John Baumgartner

Good morning. Thanks for the question. I wanted to come back Wendy to the macro environment and some clarification there. It sounds as though better-for-you continues to outperform. And one of Hain's merits is to skew towards high income households. So are you seeing some incremental headwinds for this higher income group at the shopper level? Or is the macro commentary directed more at sort of like the retail category competition at the shelf?

Wendy Davidson

I think it's more acknowledging that in general, there's a lot of volatility right now in consumer sentiment in general and in the marketplace. And so we're trying to be fairly cautious related to that. What we are seeing and probably the same thing you are, is this real bifurcation at the consumer that at the high end, we're seeing premium and super premium continue to grow.
And then we're seeing on the low-end value and value channels and discounters as well as value products continue to grow. It's that middle that's really gotten squeezed in general, and that's more of a general comment, not just specific to the Hain portfolio.
And so as we look at our portfolio, we tend to play at that entry price point to premium, which we think is an ideal position. We think the consumer tailwinds as it relates to better-for-you and health concerns are a real tailwind for Hain. And as we've leaned into making our products more accessible and available to more people, you'll see our distribution gains in the discount channel and in the value channel as well as driving distribution and growth online will continue to help us meet the needs of both consumers at Ella value price points.

John Baumgartner

Okay. And for my follow-up, I wanted to come back to the comments on ingredients. And I understand Hain point of differentiation for clean ingredients, the Red No. 3 and so on. But in an environment where the regulatory backdrop, let's say, [titans], and you have larger companies you acquired to eliminate more of these artificials, either by government directly or by consumers indirectly, I think that would sort of narrow the playing field a bit and dilute Hain differentiation on the shelf for quality. How do you think about the playing field potentially changing on the ingredient side? And how would it maybe require Hain to pivot or adjust in terms of how to differentiate in the future?

Wendy Davidson

Well, I would hope that more companies are leaning into those ingredient claims. So I'm not viewing free from as a moat that we want to maintain. I'd like everybody to move in that direction, especially as a company that believes in inspiring healthier living. But we are ahead and we think that we have brands that deliver on great taste and convenience. And our goal is to drive greater availability of those as the consumers are leaning in. But I think a focus against an improved ingredient profile for all makes it easier for all.

John Baumgartner

Okay. Thanks, Wendy.

Operator

Anthony Vendetti, Maxim Group.

Anthony Vendetti

Thank you. I know it's been like a little over an hour. So just a very high-level question. I guess related to an earlier question, Wendy, I just -- as you move into the second half, and I know we've talked about that a little bit, but if you had to talk about, and there's lots of variables, your level of confidence, are you highly confident that with these reduced expectations, you can hit sort of the guidance you have out there for the second half?
And if you are highly confident what are the, I guess, if you could foresee or sort of look at the second half challenges. What would be the one thing or a couple of things that could make the second half not as strong as you think it could be?

Wendy Davidson

I believe that we have set the right guidance for the things that could go well and the things that could be a risk in the back half. So I think we've given the appropriate range. I feel very confident about our Earth's Best and Ella's Kitchen.
So the baby category, I feel very confident in the beverage category as we go in the back half and I feel good about the momentum that we have in Greek Gods yogurt and the meal prep category, in particular, soups in the international business.
I would say where I am cautious is in snacks. We have very good distribution gains and assortment gains in the back half, but we definitely need to see the improvement in the productivity of our margin actions play out. And I think we've built that into our outlook for the back half to appropriately account for that.

Anthony Vendetti

And then just a quick question on Personal Care. Obviously, that was very weak this quarter. When did you decide or make decisions looking for strategic alternatives? And how far along is that process just starting? And do you think that will take six months, a year? Or are you aggressively trying to figure out what to do with that segment. Thank you.

Wendy Davidson

Yeah. The -- well, first, I would want to say, remember in quarter two, some of the impacts in Personal Care relate to the SKU simplification, but for SKUs that don't get organic treatment. So there is a disproportionate impact on the personal care portfolio optics because of some of that SKU cleanup that doesn't get reversed out for organic treatment.
That said, we feel really good that we've stabilized the top line that we've done a nice job in expanding the margins in that business is in a better shape for us to be able to explore optionality -- we began the process actually in quarter two. We have engaged the bank to begin moving forward with that we would hope to be able to execute that inside this fiscal year, but you know how those things go. So we'll see how that plays out. In the meantime, we are 100% focused on continuing to run that business well. to execute well with our customers and take care of those brands.

Anthony Vendetti

Okay. Thanks so much. I appreciate it.

Operator

We have no further questions at this time. I will now turn the conference back over to Wendy Davidson^ , CEO, for closing remarks.

Wendy Davidson

Yeah. I really want to reiterate my thanks and appreciation to our Hain team, to our supply partners and to our customers. As we've said, we don't believe that better-for-you means you have to sacrifice flavor, convenience, availability or affordability, and we look forward to working together to inspire healthier living. Thanks for this morning.

Operator

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.