The Hain Celestial Group, Inc.

Celestial Group, Inc. fiscal third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. 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 Don Deere, Chair of the Hain Board of Directors, Allison Lewis, our interim president and chief executive officer, and Lee Boyce, our chief financial officer. Slide two shows a forward looking statements disclaimer. As you are aware, during the course of this call, we may make forward looking statements within the meaning of financial security 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 risk. We have also prepared 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 gap or adjusted financial measures. Reconciliation of non gap financial measures to gap 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 Don. Thank you, Alexis. Good morning,

everyone. I'm Don Zier, chair of the Hain board of directors, and I'd like to thank everyone who filed 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 Reimagined, 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 CEO. 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 advance 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 CEO. In the meantime, one of our board directors, Allison Lewis, will step into the role of interim president and CEO. We are fortunate to be able to benefit from Allison's vast industry and leadership experience. Allison has a track record of driving superior in market execution, delivering disciplined and profitable revenue growth, and leveraging innovation to create value. She joined the Hain board in September 2024 and 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 Hines. Allison 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 is retained Goldman Sachs as its financial advisor, 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 Allison to say a few remarks and then to Lee to walk through the highlights from 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 eight months, I've had the opportunity to serve on Haynes 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 Haynes has many of the right ingredients to succeed, distinctive 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 fell 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 that 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. Well, those issues have since been resolved. It 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 all results in the quarter were below our expectations, we made progress in certain important areas, including international, which is 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 celestial tea, productivity and efficiency savings that continue to enable us to partially offset other headwinds in the business, 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 speed to shelf and the consolidation of our office footprint in both Canada and the UK. 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 are driving a step change in the renovation and innovation of our portfolio, including new news and snacks, category expansion in tea, and -to-end -to-backpack solutions for baby 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, improve 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 prior year, which was a record year of delivery for Haynes. 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 tailspans, consolidate our vendor population, and leverage scale contributing to the productivity I mentioned earlier. And 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 -over-year organic net sales decline of 5% I talked about earlier reflects a three-point decrease in volume mix and a two-point decrease in net pricing, mainly in the North America segment. Please note that we excluded from 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 .8% in the third quarter, and adjusted EBITDA fell 23% to $34 million in the third quarter, representing .6% of net sales, a 140 basis point decrease from the prior year. SG&A decreased 6% -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 .1% of net sales for the quarter as compared to .2% in the year-ago period. During the quarter, we took charges totaling $8 million associated with actions under 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 non-cash. 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% -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 .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 amongst other items, was $6 million in the quarter, or $0.07 per diluted share. As compared to $11 million of $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% -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 lack of skew 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, as compared to $28 million in the year-ago period. The -over-year decline resulted primarily from lower volume mix and higher trade spend, partially offset by productivity. Adjusted EBITDA margin was 7.8%, as compared to .4% in the prior year period. In our international business, organic net sales grew up .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 non-dairy 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, in cases 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. So 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 a skew simplification effort. However, excluding the lost customer, Ursprash Formula is showing double-digit consumption growth, and Ella's Kitchen gained from share in both value and volume, in its core wet baby food category. And we saw continued strong growth in Ursprash 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 non-dairy beverage and tea. Despite the category headwinds, our non-dairy 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 bag tea up low single digits. Our largest global category, Mill Prep, returned to growth in the quarter, up 1% year over year. We continued to see strong growth in branded soup in the UK, with Hain brands growing pound sales by over 20% and gaining 450 basis points of share. And Greek gods, Yoga, grew dollar sales high single digits in the quarter, supported by a brand new campaign that drove increased household penetration. Shifting to cash flow in 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, they pulled forward a certain skews to mitigate tariff exposure. We continue to see the benefit of our day's payable outstanding, as well as the improvement in our day's inventory outstanding in the third quarter. Day's payable outstanding improved to 61 days from 37 days in fiscal year 23, and from 46 days in Q3 fiscal year 24. Day's 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 targets of 70 plus days payable outstanding and 55 days inventory outstanding by fiscal year 2027. The capex of $7 million in the quarter was down from $12 million in the prior year period. We have ample capital spending planned to enable both our productivity delivery and capacity building 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, picked up slightly to 4.2 times. 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 4.75 times for the 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 three times 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 US. 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 pre-building 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 percent, adjusted EBITDA of approximately $125 million, gross margin to be approximately 21.5 percent, and free cash flow of approximately $40 million. With that, let me turn the call back to Allison

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 your 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.

At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Participants will be allowed one question and one follow-up question. Your first question comes from the line of David Palmer with Evricor ISI. Please go ahead.

Great, thank you. I wanted to ask about the two big categories, snacks, infant nutrition, obviously, earth's best, and garden veggie. I know those are probably key growth areas in the minds of the board. I'm wondering in some of the rhetoric from the management that Hain could be the best of both worlds. It could have the 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. It looks like we're having some surprising results here in the second half with garden veggie. I'm 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? Then maybe complementing that is in what ways has the category competitive environment or the consumer changed in ways that are impairing the growth of these two key growth areas of the company? Thank you.

Hi, David. Maybe I'll kick off here in terms of snacks. As you look at the underperformance overall, you're right. That was one of the key areas. From a top line perspective versus what we were anticipating, 80% of our top line shortfall came in North American, two-thirds of it being in snacks. I would say a couple of things. It ties into our execution. Our promotional events did underperform expectations across club and mass. Then we are seeing, you're probably seeing this, we are seeing category softness with only a few better few brands driving growth during the quarter. We still feel really good overall around the brand health, specifically with garden veggie. Just looking more recently, we've had resets happening across major customers. For those that we have executed, we did see improvement, but not to the level that we expect. I think we have a lot more work to do to rebuild velocities. Part of this is continuing to drive marketing. It's driving the things that we outlined, really accelerating brand renovation and innovation. From a garden veggie perspective, our marketing efforts should start to show benefits in Q4. We do have new flavor innovations. The second one you mentioned was around baby and kids. If we pill that back a little bit, market trends remain strong on snacks and cereal within baby and kids. I'd say formula is performing well, but we're lapping a large year ago volume that we had that muted the performance. We feel good about that overall. We did have some headwind from our exit from Earth's best jars. I'll tie back to the five key drivers that Allison talked about, which is really accelerating brand innovation and renovation.

I don't think we need to talk too specifically about what one retailer or another has done, where you are having issues with reshelving, does it really come down to as simple as velocities, maybe not keeping up with key competitors, or maybe give us a sense of the competitive environment on shelf for your key snack brands? I'll pass it on. Thank you.

I think part of it is we talked about placement when we did the reset. Again, I think some of that gets down to execution on our side. We have had some execution challenges. I think it's done. It's that. We've talked a little bit about we have rebuilt the North American commercial team. That will be a focus moving forward that we have to drive that execution. Thank you.

The next question comes from the line of Jim Solera with Stevens Inc. Please go ahead.

Good morning, Allison Lee. Thanks for taking our question. Maybe starting off with a high level question about visibility, just for both the remainder of this year and then as we go forward basis. It sounds like the underperformance in the quarter were all events that popped up as the quarter progressed, if I can characterize it, correct me if I'm wrong, but weren't really on radar at the end of the second quarter. Is there anything, whether it's investment in corporate assets or talent internally that you guys can invest in that you'll have maybe better forecasting or better visibility to address some of these headwinds as they pop up in real time?

I think it's a great question. I think we talked before we have made some investments, but we're far short in terms of some of our forecasting. I think the other thing and the thing I would just tie back to is our investment in our commercial team will drive much more. I think we said now eight of our top nine, we've got a top to top linkage with our key customers. That would drive much more visibility. The other thing is investing, continuing to invest in some of our digital capabilities, getting this information far more real time. I think those things will help us move forward, but we do have to make a step change there.

Okay. Then following up on David's questions 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. I believe you had some distribution gains in the quarter as well. If my numbers are right, I think sequentially, snacks were basically flat from two Q to three Q in terms of the rate of decline. Obviously, in three Q, you had a lot more support in market and I think distribution gains alongside that. Do you have any incremental color there about why those might have not had the same uplift as you anticipated earlier in the year?

Yes. A couple of things. You hit it on the head. We did have an underperformance in terms of the list that we thought we were getting with the promo. We were about 80% of expectations. I would say also, it was more challenging if we look at club. There was more competition from both Betafuel and conventional than in any prior year. There was a challenge of share of wallet amongst members. Mass was really the poor in-store execution by retail partners. I think we talked a little about that before, but we missed some key traffic in the first week there. Again, it really gets down to we have to strengthen our overall execution there. You've seen this. The overall snacks category itself is both better for you and in the broader snacks category, it has really softened. Again, we're driving and the key thing focusing in on driving continues to drive that kind of innovation.

Thank

you. I'll back into queue.

Your next question comes from the line of Komel Ghazrawala with Jeffries. Please go ahead.

Hey, everybody. Good morning. Can we maybe just talk a bit more about the strategic review? What specifically is the mandate? Is it portfolio related? Is it something bigger? Maybe if you could just dig into, provide us maybe some more details other than what we see obviously in the press release.

Hi. 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 this valuation.

Okay. Got it. And then as it relates to some of the decisions that we've made today, obviously we've gotten into a difficult macro environment and a particularly difficult macro environment for Max. To what degree is it company specific versus the fact that it's just a harder environment than it was before?

Yeah. 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 focus on the kind of the five key drivers to shift our performance. So it is a mix, but as I said, the biggest top line shortfall was in snacks. That's the category that seems to be most pressured right now.

Okay. Got it. Thank you. Your next question comes from the line of Ken Goldman with JP Morgan. Please go ahead.

Hi. Thanks. You talked about the key drivers to shift performance, simplification, innovation, productivity, and so forth. I think one of the questions we're getting this morning is sort of what's different this time, right? These are a lot of areas that we've heard from the past from a variety of Hain management teams that the company will lean into. So I guess, the question I would ask is what can you discuss today in terms of what actually is being done differently and what can be implemented in the next year in a way that really can make a difference in near term shareholder value? Because I think what we're hearing some feedback on is, yeah, this sounds great, but we've heard all of it before a few times.

Hi, it's Allison. 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 basis, what I would say is throughout my career, I've seen in consumer packaged goods that great marketing, today this 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 would say is that we need to 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 John. I just like to jump in again from the perspective. We believe that Allison has a track record of really driving superior in-market execution and delivering disciplined and profitable revenue growth and leveraging innovation to create value. There's more that we think we can do on that in all those areas. We heard Lee talk about simplifying the business and overhead, and we've taken actions over the last six months that will will the Hain reset actions that we've taken in terms of those overheads. We believe there's significant opportunity on RGM and pricing actions that we still can take and strengthening our digital capabilities and growing e-commerce. So there are things that can be done differently and will be done differently as we move forward.

Okay. Thank you for all of that. I'd like to ask a quick follow-up if I can. Are there actions you can take to clean up the balance sheet? 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?

Just one thing. Yeah, 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 kind of in the inventory area. We actually, inventory is higher a bit in Q3, and I think we'd mentioned that. 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 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.

The next question comes from the line of Michael Lavery with Piper Sandler. Please go ahead.

Thank you. Good morning. I would like to get your perspective on the brands, and I guess in the past, Haynes characterized some of the positioning as sort of a gateway premium or approachable premium, but it can suggest neither the best value or lowest price for the consumer and also neither maybe the pricing power of a real super premium or truly premium brand. In that middle ground, it's proven tough for a lot of companies the last few years. Is that the right place to be? How do you think about the brand attributes that are the most appealing as you go into this portfolio review?

Thank you. Let me jump in here. It's Allison. 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 contribute in. When you do create that value in the brand, you can actually charge an appropriate price that the consumer is willing to pay. When Lee talks about the five areas of focus and we talk about revenue growth management, a big part of revenue growth management is understanding where those value creation levers lie and then pricing for those value creation levers. 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. If you look today to I think the point that you raised, 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 the 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 similarly a little bit higher level. As you look across the portfolio, obviously a fair number of brands and categories and that'll 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?

Yeah, 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 tie us 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.

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 comes 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 space. 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 Don 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. And just so I just to build on

that a little bit, you know, we said snacks, we've talked about this before. We've got incredible awareness. We have an opportunity to elevate our messaging with consumers around the benefits and the claims. And we are focused. We do have a strong pipeline of new coming from the snacks portfolio in 2026 that will bring some of that renovation and innovation. So again, continue to focus but an execution of that.

Thank you. Thank you.

As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Anthony Ventetti with Maxim Group. Please go ahead.

Yes, thank

you.

So, you know, just getting back to the higher level question, you know, in terms of, you know, strategy, I guess we go back to when Engage Capital was involved and the transition from you know, founder or co-founder, Irwin Simon to Mark Schiller, it seemed like, you know, 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 Engage was on the board and Mark had culled a number of products and streamlined a lot of the business, you know, 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 Engage exited. But then Mark exited, Wendy came in, and again, there was this, you know, Hain reimagined, there was a new strategy, and it just, you know, imploded. And the stock has cratered now to chew and change. I guess what was Mark doing wrong that needed to be changed? And then what exactly did Wendy do that was, you know, 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 to 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 actions.

But one of the things just to follow up on the pricing, right, in this environment, consumers are probably price sensitive. Is taking pricing working in this environment? Is that also under review? Is everything under review? I'm just trying to figure out. And then how long do you think this review will take in terms of the business to get back on track? What's your best estimate?

Yeah, so just on the pricing, that is definitely under review. We have probably missed the ball a little bit on the pricing execution. And investing, and I think we mentioned this as one of the key focus areas, is strategic revenue growth management. We've really kind of turbocharged that and kind of standing up the capabilities on that. So yes, pricing is under review. I mean, we are taking pricing in both North America and international. And again, we're going to be really focused heavily 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 the isolated challenge areas and really make a difference against those. And that will make a difference on the business as well. Okay.

Thank you so much for the call. I appreciate it.

Your next question comes from the line of Andrew Wolf with CL King. Please go ahead. Thank you.

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 in the space also had a tough quarter on pricing, because I think commodities kind of zoom pretty rapidly. And talk about a dynamic market, there's a lot going on. But for 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 analytics of really stepping up that piece of it, but it's centralized more accountability. So within RGM, we've stood up revenue growth management accountability into both regions that's to cross and really being pushed then by the finance 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 really stood up. We had before, but we needed to put a lot more discipline around it.

Yeah. And I'll just build on pricing and revenue growth management, which is really one of the leavers with pricing, one of the leavers within revenue growth management. I was at Coca-Cola 20 years ago when we started rolling out revenue growth management in North America. And what I will tell you is it is a capability that is very, very important. But at the same time, it does take some time. We have clearly missed the opportunity there in totality, but we have put the capability in place and now we just need to double down with focus on some of the key leavers, pricing being one of the biggest ones and then mix probably the second biggest one. So again, you should be seeing more on that, but that is a key area of focus as Lee has highlighted a number of times in terms of the five areas that we are going to be putting our attention against.

Right. And the structural question is, you know, I don't know how much you can answer this given you're under a board review, but when I look at the categories that are, you know, meal prep turning up and, you know, snacks being at the other end, you know, the knock on Hayne as an entity was, you know, was too much stuff and, you know, and to manage. Yet meal prep probably is the most fragmented management conundrum and it's doing the best and maybe, and, you know, snacks is doing not as well, even though you seemingly are well positioned. So I kind of think maybe there's a competitive intensity issue within the brands and maybe that's, you know, where the company might want to, you know, you know, I know you got a review coming in, but it's just kind of an interesting thing where, you know, it does seem where in meal prep where perhaps things are a little less intense on the competitive side and yet the company is pretty fragmented, has a lot of different brands. It's interesting that that's where things are doing well. I don't know if you have any, the board has already thought about this or management internally that you might want to comment on.

Yeah, you get this is Don, 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. Please go ahead.

Good morning. Thanks for the question. I wanted to come back to the vision of the portfolio. You know, we've seen multiple teams speak to the perceived brand strengths and, you know, 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 in health and wellness, regulatory changes that might result in mainstream brands improving their health credentials. Is it possible that Hain could add more value through the supply chain, you know, producing for private label, becoming a co-manufacturer in some cases. I'm curious, you know, 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 speak to what I mean. I think everything will be kind of on the table for the review. So I can't speak to any specifics on what is and out at this point. You know, to be fair, Alison has just come on. So we kind of need to go through and look at all kind of the value levers out there.

Thank you. Your next question comes from the line of John Anderson with William Blair. Please go ahead.

Good morning. Thanks. You know, this may not be a fair question, Lee, at this point, but I'll ask it anyways. You know, as you look ahead and kind of given what you know now about the five, you know, focus areas that you're really looking to lean into to try and drive some improved performance and you've seen, you know, diagnosed where the majority of the current challenges are, how would you have us think about fiscal 2026 at this point since, you know, 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, you know, the possible performance of the business as you exit fiscal 25 here in a month, month and a half? Thanks.

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, you know, 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.

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 Alice and, you know, given your background, you know, a number of large kind of CPG businesses, whether it be, you know, KMB or Johnson and Johnson consumer Coca-Cola. I mean, this is a, you know, a different kind of situation I suspect than those larger, you know, more stable businesses. Are there experiences that you've had in the past that those companies or in other situations that you think, you know, bring, you know, will allow you to kind of add some value as you step in as interim here during this process? Thanks.

Absolutely. So you're right. My experience reads large company, but within those large companies, I've had many experiences working and leading much more smaller agile brands. You know, I was a general manager and president of Odwalla at Coca-Cola, which was the, you know, natural food and beverage brand at Coke. In my other companies like Johnson and Johnson, I was there and 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, you know, declining that we've needed to turn around that are more steady state that are also fast growing. And, you know, 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 of value in my role as interim president and CEO.

And the board has asked Allison to step in because she is a Roll Up Her Sleeves operator 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. Again, I don't know to what extent we'll be able to get to the fourth quarter or the fiscal 25 call. You know, at that point, would you expect to have a material update on the strategic portfolio review?

It's 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. Can't commit to any timeline at this point, but appreciate your question.

Okay. Thanks.

I will now turn the call back over to Allison Lewis for closing remarks. Please go ahead.

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.