Good day, ladies and gentlemen, and welcome to the Hain Celestial First Quarter Fiscal Year 2016 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mary Anthes, Senior Vice President, Corporate Relations. Please go ahead.

Thank you Evadale, and good afternoon everyone. Thank you for joining us today. Welcome to Hain Celestial's first quarter fiscal year 2016 earnings call. Irwin Simon, our Founder, Chairman, President and Chief Executive Officer; John Carroll, Executive Vice President and Chief Executive Officer, Hain Celestial North America; and Pasquale Conte, Executive Vice President and Chief Financial Officer of the Hain Celestial Group are with us, as well as several members of our management team today, including James [indiscernible] who recently joined us as the Senior Vice President and Treasurer. Our discussion today will include forward-looking statements, which are current as of today's date. We do not undertake any obligation to update forward-looking statements either as a result of new information, future events or otherwise. Our actual results may differ materially from what is described in these forward-looking statements, and some of these factors which may cause results to differ are listed in our publicly-filed documents, including our 2015 Form 10-K filed with the SEC. A reconciliation of GAAP results to non-GAAP financial measures is available in our earnings release, which is posted on our website at www.hain.com under Investor Relations. This conference call is being webcast, and an archive of the webcast will be available on our website under Investor Relations. Our call will last approximately one hour, so please be brief and limit yourself to one question. If time allows, we will take additional questions and management will be available after the call for further discussion. Now, let me turn the call over to Irwin Simon. Irwin?

Thank you, Mary. And good morning, everyone. I hope everybody had the opportunity to review our press release for our first quarter earnings of 2016. Which is typically our lowest sales and profitably quarter. We're pleased to report record sales and earnings for the first quarter, which in recent years, as I said before, is our lowest quarter. What's going on with consumers and retailers today. The food landscape has changed dramatically. Fresh, organic and natural products continue to take share from conventional brands and products. Practically, every retailer and food service operator is expanding into this space in one way or another. There is an evolution and change in packaged foods and packaged consumer products. Our global teams have worked hard to build a strong, well diversified customer base worldwide. Hain is increasingly becoming more and more channel agnostic. Today our products may be found in many different channels and many different places around the world. Illustrating customers' heightened awareness of overall health, wellness and their desire for Farm to Table organic natural products wherever they shop today. Where there is a cash register, as I said many times, or e-commerce, I want a Hain product and I want to sell product. The consumer has also shifted their preference. Going more-and-more to the preliminary store or ecommerce, less in the center aisle and more and more, as I said before, online shopping. This is amazing. Our business with Amazon is up 39%. They are a number one baby online customer today. We also have fast growing e-commerce business with walmart.com, target.com, over.com, freshdirect.com and many, many others. As I said before, and I say continuously, eating healthy is not a fad, it's not a trend, it now is a part of everyday's life, I've never seen the opportunities for…

Thank you, Irwin. Good afternoon. Q1 did not fully meet our expectations for Hain Celestial U.S. particularly for Hain grocery. Hain Celestial U.S. Q1 net sales of $331.2 million were down 4.6% versus a year ago. The Q1 net sales shortfall was driven primarily by one, natural channel consumption softness; two, unprofitable a year ago baby and nut butter club programs that we chose not to repeat; three, lost sales and inventory from a distributor and account shifts, and finally, currency on Ella's Kitchen UK. These four factors cost us approximately $16 million in Q1 net sales. Our Q1 adjusted operating income of $46.6 million was down 11% versus a year ago. And our adjusted operating income margin of 14.1% was down a 100 bps versus a year ago. The Q1 income and margin declines resulted from our top line shortfall and higher year-on-year nut butter cost, which were partially offset by productivity savings of $7.6 million. Looking at consumption IRI, Q1 consumption for our top 13 brands, which account for over 80% of our MULO sales, was up 6% versus a year ago. This strong increase was led by double-digit gains and Sensible Portions, Greek Gods, Terra Chips and Alba Botanica. And remember, these results don't include Ella's Kitchen UK, which whereas Irwin said, continues to be the number one baby food brand with a double-digit consumption growth. Now as I mentioned earlier, Hain Grocery did not fully meet our expectations this quarter, but it's really, really important not to lose sight of our other Hain Celestial U.S. businesses. Personal care, yogurt, tea, snacks and Ellis UK which had a very, very strong Q1. In fact, these five businesses combined, delivered high single-digit sales growth and double-digit operating income growth for Q1. And we've achieved this terrific growth despite…

Thank you John, and good afternoon everyone. I'm happy to be presenting our quarterly results for the first time. Although I'm new in this role, I've been with the company for over five years and continue to be excited about its future and continuing success. I look forward to speaking with you in the quarters to come. Now, I'm going to take you through our first quarter financial highlights. Net sales for the first quarter this year were $687 million compared to prior year adjusted net sales of $642 million, a 7% increase or an 11% increase on a constant currency basis. Net sales were negatively affected by foreign currencies of $24.4 million and reduced nut butter sales. We're still lapping enough butter voluntary recall, as we continue to regain distribution in market share. The Mona Group, Empire, Kosher and Belvedere acquisitions represented $52 million of net sales in the quarter. Mona net income was $31.3 million compared to $18.9 million in last year's first quarter. We earned $0.30 per diluted share on a GAAP basis this quarter compared to $0.18 for diluted share last quarter. Adjusted net income was $38.2 million this year compared to $34.7 million last year, improving 10%. On an adjusted earnings from operation were $0.37 per diluted share compared to $0.34 per diluted share in last year's quarter. Earnings per share this year were negatively impacted by $0.01 due to FX and a dilutive effect of the Mona acquisition. And again, we're lapping the nut butter voluntary recall. As noted in our press release, our adjustments in the quarter of $10.2 million are primarily related to acquisition-related fees and expenses including integration and restructuring charges of $4.6 million and net unrealized foreign currency losses of approximately $4.5 million, principally on the re-measurement of intercompany financing…

Thank you, Beth and congratulations. With that, I'd like to open it up for questions, and I know we'll have the answers.

[Operator Instructions] Our first question comes from the line of Scott Mushkin with Wolfe Research. Your line is open.

Hey, guys. Thanks for taking my questions. I guess the first I want to get into obviously you pulled a lot of expenses out and that was quite helpful. Any color on how sustainable that is as we move forward. It sounds like you cut out of whole layer of management but seems sustainable, but what should we think of this level of SG&A on a go forward basis, is correct?

So Scott, number one is when we say a layer of management, I mean one of the big things we look at Hain today with over 6,700 employees around the world and efficiencies and integration. As we look to the layers of management, where we're getting the benefits out of them from a cost standpoint. Of course, you can always have hits and think you're going to get something but once they're gone, it's like, well, what were they doing. So number one, it was just from efficiencies, number two and I said this before, a big thing that James is going to be doing is looking at integration of backrooms. When you do lots of acquisitions, there is big opportunities from integrated, just sitting with him in his first week going through the P&L, he suggested areas. One of the big opportunities we have not integrated, with Europe today being over $1 billion of sales between UK and Europe, a lot of integration each one are running their backroom separately. Mona and our Hain Europe business has not been integrated. And last, but not least, we're, from a productivity standpoint, you heard what Pas said, yes, we didn't get everything we are looking for in the first quarter, but considering, we're looking for $60 million plus, we got quite a bit. So we think, there is a tremendous amount of productivity opportunity still out there for us, and then some. And not that, we're raising our productivity objective, but I think, it is much higher. So yes, we think, there is lots of cost out there to go after. And the other thing Scott, which we've gone through in this company, listen and we didn't mentioned it, we had a higher rate of stock rate in this past quarter, service levels. And that loss business, personal care, we were down $4 million to $5 million higher this quarter just because the demand with T.J. Maxx, so how do we take up our inventories and get more efficiencies. The other thing is, when you're dealing with natural organic products, you have a shorter shelf life. So, what happens is, the stress rate 00:40:56 and there is a big opportunity for us. So, we've identified a lot of areas, where we're going to just take out efficiencies in cost to invest back in our business.

That's my follow up, Irwin, and thanks for the answer. Going to kind the changing landscape that you described so well. I'm thinking about the U.S. business specifically, do you need to think about rationalizing SKUs, do you need to think about investing more behind some of these great brands that you have, telling the story, particularly the quality story that's there. So, kind of walk me through or maybe John can chime, kind of walk me through the investment process and how they get to the sales. I hear you that there were two kind of areas that were weak, but in my mind maybe even some of these great brands should grow a little faster?

So, number one is, good question and I come back and I say this here, as you look at whole foods or you at natural organic and everybody's says it's declining. The world and maybe we all should has not gone on a diet and stop eating, okay? We're still either eating food at home or eating out, and I think what's happening is, we're eating more at home today and that's what we're see in our protein business growing high double-digits, and we want Farms to Table. So, number one is, the consumer has changed dramatically eating less and less red meat. Number two, online. And if you come back and look at where our online businesses and no one ever tracks and it's a growing part. Amazon, up what I said 39% than where they've come from and walmart.com, target.com, instacart.com et cetera. So, how you market to those consumers and I gloat there and idolize the honest company, how they are able to go out there and communicate, email all other consumers and stuff like that we're going to be doing that. So, Scott, yes, there is absolutely more money than we need to be spending with our e-commerce consumers. There is more money if we need to spend on our great brands because we're not selling [indiscernible] I'm telling we got less nitrates in our products. We got great value in our products. So, there is a couple of things, how do we get more efficiencies out of this business? How do we see where top line growth drives it to the bottom line. And I come back and say this here. Look at Amazon, it's the largest from a market cap retailer in the world today and look where that's going. So, yes, we're going to put more money behind our brands, we're going to invest back in the brands. The other big thing that's changing is the center of the store. And not only the center of the store packaging, where cans are going, where jars of baby food are going, where other packaging and how you alert the consumer to that. So, there are three or four areas that we're going to continuously do. And what Hain is not going to do and it's easy to do, Crisco has come out with organic coconut oil and that's what John was talking about. And because their other oil nobody was using. Easy for us to take Spectrum down to that level and get that priced, but Spectrum does not stand for that quality and we won't to it. But how we buy better, how do we get more efficient are things that we're going to do on that. So, there is four or five points that we're going to focus on and we'll continuously look, find the money, get more efficiencies, spend on it.

Perfect. Thank you.

Thank you. Our next question...

Thank you.

Our next question comes from the line of Evan Morris with Bank of America. Your line is open.

Hi, good morning, everyone.

Hi, Evan.

Hi. Just my first question is regarding – John, this is for you. If you can – I guess I've got a little confused. Maybe if you can help on the issues that cause North America or the U.S. to fall short? You talked about four, five different things that accounted for $16 million, then you mentioned $8 million on the Sensible Portions in, but then talked about MaraNatha and Spectrum. Can you kind of help to build that back for us in terms of those numbers again. Really where the impacts were and how much was related to the distribution – disruption if you can again just help kind of put those numbers back and build that bridge back up for us?

Sure, sure. So Evan, if you look at our Q1 sales of $331.2 million, what we believe we were handicapped by was a loss of about $16 million tied to four things. One is the natural channel consumption weakness. The second piece is the, we had unprofitable programs with club stores on baby and nut butter that we didn't choose to repeat. We lost some sales and inventories from the distributor and account shifts primarily having to do with Albertsons Safeway. And we lost money on currency, we lost some sales on currency from Ella's Kitchen in UK. So that's – basically that totaled up to about 16%, which got us to about flat year-on-year.

Right.

Yeah. So then – then the next thing we talked about was, as we looked at our businesses that were growing really, really strongly which are the tea, the [indiscernible] the personal care, Ella's Kitchen UK and snacks. Those businesses were up high single-digit versus a year ago and actually double-digit in income and we did that – we climbed over and drove that despite the fact that we lost about $8 million in top line sales from Wal-Mart's clean floor policy.

Got you.

That's kind of the headwinds we had on top line. But then when you look at the top line business and you say, Evan, when you look at the grocery business which is the weakest performer in this quarter, you drill right now in the Spectrum and its MaraNatha. We get those two things fixed. The grocery business will start to grow as well.

And some of that, Evan, is our private label business. Last year, we had about $5 million of actually higher business that we just gave up when we had our product withdrawal. And now, as John said, we pick some of that up, which will start in the back half and there is two or three other retailers that are looking to come back to us, but we want to make sure we have that plant running right. So, that's also added in there.

Okay. No, that's helpful. And then I guess, John, if you can help kind of build the bridge I guess for rest of the year, like some of the issues that impacted you in the first quarter, what goes away, what stays with you, I mean you're starting off I guess kind of in a optically a pretty big hole to get to at least what your expectations were for the full year, sort of that mid to high-single digit organic. What are the expectations, how should we think about the second quarter, is it sequentially better, is it positive growth in the U.S. from an organic standpoint? And then how should we think about the back half and on how the full year shapes that? If you can just kind of help take us out of this whole and how do you get to strong growth or being optimistic about the remainder of the year.

Sure. So here what I would say is that real growth, real strength is going to come in the second half. And remember, we already have 50% plus of our business performing very well in the five different units I talked to you about. We're going, we're implementing programs now to address the issues on MaraNatha and Spectrum and those will be – we expect that those will start to really show up on shelf probably in December. So, as we – as those get in and we keep driving against them for the second half, that's when we will see our strongest growth and we expect the second half will rally us back to high mid single-digit growth or high single digits growth.

Okay.

Evan, one of the things again is, John's distribution points more and more of them will happen, which you talked about. There's a ton of stuff, but it's now going into place at Wal-Mart that we laughed that are coming back – new products. So, it's back ended. Bringing on new private label customers to make up some of those volumes. So that's why and we all feel good about the back half and going into our second quarter. The other thing is, there are biggest quarters and that's where is holiday seasons et cetera.

Okay. Now that's fair and I understood sort of the back half growth, but I want check as to confirm that you are not sort of changing your full year outlook despite some of the issues in the first quarter? Perfect. Thank you.

The other thing just to mention is that, here in the back half the transition between Albertsons and Safeway behind the SKUs, so that's another one.

Great. Okay. Perfect. Thank you.

Thank you.

Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Your line is open.

Good evening, everyone.

Good evening.

Can I just turn back to the slowdown in the natural channel, and can you just remind us how much that is now as a percentage of either your overall U.S. sales or you're talking company sales? And is the migration to the perimeter of the store a real problem in that channel and in the mainstream channel in your view? I should [indiscernible] some comments around that. Thank you.

So, if you step back and it's Irwin, it's about 25% of our sales, the whole natural channel. So, that's number one. Number two, our protein business, our yogurt business are BluePrints which we're doing some things with, we're seeing growth there, our Yves business. So, the perimeter of the store for us is growing in the natural channel. Natural growing for us in the natural channel. It's where we're getting hurt, and I think Whole Foods talked about it last night is the center of the store. So, we're seeing growth in perimeter of the Whole Foods and Natural, we're seeing good growth at Sprouts and with their numbers today and actually consumption for us is up high single-digits, low double-digits there. Part of our challenge also Alexia, which John talked about, was our transition to Vantage and just getting them up the speed, and I sat through a meeting with John and team the other day and as they took more people on the street, more people towards it, hopefully focused on center of the store, we should see some great things happening in independent naturals.

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

Thank you.

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Thanks for taking my question. Just going back to the prior question and your comments about BluePrint and some of fresh categories, how they're growing. So, as you look to your fresh categories, BluePrint and your yogurt products, we see a lot of competition out there from other players. So, just want to get a sense, as you look at your growth, how much is coming from distribution versus consumption growth and how would you characterize the competitive environment for some of those perimeter store categories?

Rupesh, this is John. Let's look at here. So, here – let's look at it here. So, at this point, very little out of Greek Gods Yogurt growth is coming from distribution. It's just coming, from the increased penetration on the business. So, it's not one that it's just rolling and rolling and rolling in terms of distribution. In terms of BluePrint, again, the distribution is fairly stable right now and quite frankly, we are looking at BluePrint and saying, right, where do we want to go – distribute the products and where do we not? Because, okay, if you are a group that is not ready to manage the short codes good, there is a lot of spoil. So, we don't want to follow up, we don't want to pursue that. So, look our – and look your, obviously the proteins business is growing, great guns on a comp store basis, not to mention some of the new distribution, the Ted Maguire and those guys are picking up. So, look, by and large, we're getting both comp store growth on our Greek and our – in our Eves business and on the protein business, you're getting both the new distribution and comp store growth.

And I come back say that the yogurt category and the reason our Greek yogurt and our non-dairy yogurts these are – as are taking share from other yogurt businesses, number one. Number two, in regards to protein and that continues to be, whether it's fresh, whether it's deli, whether it's further processed and that's – and that's – and we'll launch a major deli line come January and go after one of the major brands out there that, we think, we'll take share. The other one is BluePrint and we see a tremendous opportunity, not so much from a cleanse standpoint. And as we come back and evaluate price if we can get $7.99 in change for juice that's either a meal or juice and we'll have to be at wall and make a juice category, there is big opportunities out there, and I think Blueprint, and that category has become prouder. But I think, there is such a big opportunity, and there is some repositioning going on in that category too. Also potential expansion into soups and fresh organic raw salad addressing. So there is a bunch of other new products going on, and John has hired an incredible team to focus against that. So if you look at our Fresh business today, what we have going on, just tremendous growth. We're looking at is Fresh and the Whole Baby Food category, and that's something that, there is a big focus on, and there is a couple of retailers out there that are focusing on that with us. And then, if you look in the UK, our Cully & Sully and our New Covent Garden Soup, our refrigerated desserts, our meat-free business, so at perimeter stores an area that we're focused on in a big way, Rupesh.

Okay. Thank you for all the color. I'll pass it on.

Thank you.

Thank you. Your next question comes from the line of Amit Sharma with BMO Capital Markets. Your line is open.

Hi, good afternoon everyone.

Hi, how are you?

Good. Thanks, Irwin. A couple of modeling question, and then a bigger one. HPP massively of [indiscernible] expectation. Could you just laid for us like, is there a seasonality impacting in the quarter, what should be modeling for the full year? And then Pad, if you could, you gave $52 million from acquisition, could you please divide it among the Empire, Belvedere and the [indiscernible] acquisition please?

So the biggest, I mean, what's going on in Hain Pure Protein today, this year indiscernible] quarter will be our biggest quarter. But the demand and coming on stream and that's why, we're going to be careful here in modeling it, because we have a new plant coming on in the third quarter. We have our deli business, that will start shipping in the third quarter. So, I mean, this being the biggest quarter, the next two quarters we're expecting good size quarters too. The other big thing out there, is I mean, is just having that we're able to get supply of turkeys and chicken and growing them out. The demand is there, we can sell all we can get. So, not ready to and – if not, we can talk to you offline and give you some more there. But, this being the biggest quarter, but the next two quarters, we'll be much bigger than the first quarter also. And your next question was?

The acquisition breakdown between Empire, Mona and Belvedere acquisition I think, Live Clean also again through the quarter, right?

Right, the biggest part of the – the biggest part of the acquisition in there was Empire, which was about $30 million plus. The other two were somewhere between $8 million for Live Clean and $8 million or $9 million...

$10 million to $12 million.

For Mona.

$12 million for Mona.

Mona, we – Mona, we closed in the last week of July.

Got it. And then, the bigger one for, perhaps for John and Irwin you too. John, you talked about the retail mixed optimization and how you are changing the incentive comp for your sales force as well? I mean, what's the intended impact I mean? I mean you carry about 2,000 SKUs, if you're going to focus on only the top 500 SKUs which admittedly 90% of sales. But what does it do to the rest of those SKUs, do they die a natural death or should we expect you to read day sales as well at some times?

So, Amit. We're clearly focusing on the top 500 primarily for conventional because, as we've talked in the past, basically [indiscernible] and in the average grocery store, you'll find 300 to 500 Hain SKUs, and in the average mass merge, you'll find 100 to 175 SKUs. So that's where the greatest impact will be. The natural channel prides itself on having more variety, and so we have to figure out what's the right number there, just like we found 500 for conventional. And the key there is just, always turnaround, get the right mix on shelf, show the retailer what your research shows the best mix to drive sales and profit on their shelves for them. From there, then we'll watch the progress as we go long here and then make a decision on what we do on the balance of the SKUs. But at this point, what we're firmly focused on is getting the right mix on shelf, getting the right 500 SKUs on shelf in conventional, and then doing a comparable exercise for natural.

And I mean, I think the big opportunity on talking about natural food retailers that we talk to, still 25% of our business. Some of these brands that will just be exclusively sold in natural food stores and they want brands and products that are not going into grocery, where they don't have to compete with certain prices et cetera. So there is an opportunity for us. It's just where we spend our money and support it. And honestly, there's time [indiscernible] instead doing acquisitions, they still spend their money against some of these brands or return on invested capital will be good because we already own them. So there is things we're looking at there and where there's Health Valley team, [indiscernible], Arrowhead Mills to make sure we invest against those, because they are good with quality brands in the natural organic industry.

And just a little clarification on [indiscernible] could this be margin accretive, John or, does this have any margin impact or not?

Sure. I mean if we do a good job of getting our core SKUs on self, you think about it right. You're going to have the benefit of longer production run. If they become a bigger part of your orders, then you're going to have better service. And ultimately we're going to have better margin because we're going to be turning these products quicker, lower discard, with the – as the function of the larger runs, we should be able to get better conversion rate. So there is clearly it works through the whole system if we get the right SKUs on self. And just to note as we talked about what the way you get here is you had multiple distributors bringing natural and organic products to the grocery shelf and there really wasn't – you can't find a consistent set of products from chain to chain anywhere because different distributors brought in different products. It's a good time now to clean that up and as Irwin showed you the growth on the top 500 SKUs is double-digit.

And that again just to back and – go back to what John said part of the problem was distributors brought into supermarkets some of these SKUs that didn't have a chance to selling in grocery stores and belong in natural food stores. So either there was spoils and that's why you see some of the consumption numbers with SKUs out there that just never had a chance. They were priced wrong, it was a wrong product and that's kind of some of the things going on with Safeway right now and Albertsons as we look at the SKUs and then clean up the SKUs are the right SKUs in there. So this is something we'll continue to work on. We'll continue to discontinue, we'll continue to run out their inventory and focus on both the natural and the grocery channel on where the SKUs make sense.

Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Andrew P. Wolf with BB&T Capital Markets. Your line is open.

Hi, good afternoon.

Hey Andy.

Hey. I thought, I think it was, John, did you say that distribution was up 4% in grocery, and if so, could you elaborate a little bit on that, is that where you are talking about some of these or maybe what Irwin was just talking about, some of these SKUs that are moving in mass, or just give us a sense of what that was?

Right, Andy, what I said was, the non-grocery businesses, personal care, tea, yogurt, snacks and Ella's kitchen UK were showing distribution growth of 6%. Grocery, you are right, and you get the number exact, is down 4%, and what's hurting grocery, remember grocery is the first category other than team that went from natural into conventional. So you've got a lot of legacy SKUs there that quite frankly aren't turning, and so grocery – and they're mostly non top 500 SKUs. So grocery will benefit disproportionately from our top 500 initiative.

Okay, and that's more or less separate from the two brands you said that where you have some pricing gap issues, right.

Right, right Andy.

Okay. And just, on getting the bridge you are talking about to get into flat sales and three of those go away, just because they do, and then the natural one is when you got to work on. So I guess just looking at it, currencies are still not good, but the other two are, it would seem like the second quarter sales should be a little better for the U.S. given that, the club deal – you don't repeat the club deal I suppose and I assume Safeways were and 01:05:02 K you are working hard on ameliorating their situation?

Well, I think, clearly you hit the nail on the head, national channel consumption weakness is the big focus for us amongst these four. Look, I wouldn't say that, we're all the way to bright in terms of sales and inventory from the distributorship. So I think, there'll be some of that bleeding over. The one that should not bleed over and it won't is the unprofitable a year ago baby and nut butter club program that we didn't repeat.

Okay. And the last U.S question is on the deleveraging and the profitability. Could you just give us a little sense of why the business delivered more than sales?

Yeah, it had to do primarily with loss margin on MaraNataha as a function of both increase in almond prices as well as on the lower volume conversion cost were much higher because of unabsorbed overhead.

Higher comps for your plan.

Yeah.

Yeah.

And so, the plan for that brand, and I guess Spectrum as well sounds like get the price points right and if the velocities come through for both the retailer and for you guys, the profit dollars start to rise again?

That's correct. That's I mean, here. We have some – we're redeploying resources from other parts of the business, to go against these price deltas on these two brands, because they're so crucial for the grocery business. And if we do that, look – these are great brands and these are – this business is a really nice business model. But we – if we get volume flowing through, I know that we'll get more a greater increase on the bottom line than we do on the top.

And before the recall, MaraNatha was growing 14%, 15%. And we did get the distribution backed throughout the retailers, that's just not the velocity that we're going to get back. Same thing with Spectrum, there's just competition from a lot more coconut oils that has come out there and other products. And again, the easiest thing for us to do from a price standpoint is to change our quality which we wouldn't do. But I think there is some price parity that we've got to work on. And the other things as John said before, it's also from a social media standpoint, it's spending some money, telling our consumers making sure they know what's Spectrum organic coconut oil stands for versus [indiscernible] organic coconut oil.

All right. Can I just go with the question on the profitability to the two segments that really did well. So Pure Protein and UK. I think UK you touched on, but as Pure Protein that – is that driven by bringing in the Kosher business with better margins or is that a mix issue beyond that? I'm trying to figure out how control – how sustainable [indiscernible] profit margin can be in that business?

Andy, it's four things. Number one is top line growth, which gives you better efficiency in the plant. Number two, the margins improved there and we'll continue to improve and that's a opportunity for us, as we move not only into Fresh, it's further process, it's into Deli. Margins higher on Empire and we'll continue to grow that business and get more efficiencies. And last but not least is, there is good pricing there right now in regards to Turkey prices and for organic and antibiotic [indiscernible], and I continuously see that continuing.

We shouldn't think of an 8% margin, which is a pretty nice margin for protein business as of the this size particularly as something that, that's like a peak margin.

Just again, it's just not a protein business, it's also further – a further processed branded products, and we think the consumer will continue to go after our deli products, go after whether it's our chicken nuggets burgers, turkey breast, et cetera. So, it's – we're turning that into a big branded business and that today over 65% of that business is branded and we look to get it even higher.

Great. Is that – is the further process to growing at a faster rate on an organic basis than the...

Yes. Yes, yes, yes.

Great. Great. All right. Thank you.

Thank you.

Thank you. Our next question comes from the line of Joshua Levine with JPMorgan. Your line is open.

Hey, guys. How are you.

Hey, Josh. How are you?

Good. First, I apologies if I missed this, but did you guys give U.S. organic growth in the quarter? And maybe off this $52 million from acquisitions, how much of that was Hain generated? I know you guys have laid that out in the past, so just was wondering?

$52 million was from acquisitions.

[indiscernible] acquisitions in the – right. Basically, what ended up with these acquisitions, there's only a few million dollars generated in growth in these. Because in regards to the Belvedere Live Clean, we cleaned up a lot of products discontinued. In regards to Empire, same thing, and we have an overlap last year of when the Jewish holidays were, it was a couple million dollars on Mona, because we closed it I guess, that will be end of July. So, there is not much Hain generated in this quarter.

Got it. Thanks. And just on the U.S. organic growth, if I could?

Well, U.S. organic growth from the U.S. businesses were down.

Okay. And then just on gross margin, I guess, over the last year, you gave, how much of the gross margin lag had come from, just the sales mix from the protein business? Is there a – I guess, you guys could give that figure, I mean, as we think about the full year number, obviously with first quarter down 110 basis points, I mean, I guess do you guys still think that the flat up 100 basis point gross margin guidance still holds? Thanks.

Right, the two things there, Josh. The mix is placarded, the mix of the business in the quarter, the mix of the sales, as we moved away from our, as we had higher protein business, as we had higher international business. Those margins are improving, they're good but they're not as high as the U.S. So, we had a little bit of that going on, the mix of the sales. With regard to the full year is, we expect it to improve to get back to our guidance range that we gave, so we should see through productivity through better sales velocities, the mix, we should get to the guided percentages, we put out there, and then John's business, he got here about 60 bps, in regards to the MaraNatha nut butters because of deficiencies in the plant and some higher cost to operate that plant, until we get to the production and the volumes that we need and that's bringing in additional sales in private label. And we think ultimately, that should subside as we get into the back half.

That's very helpful. Thank you.

Thank you.

Thank you. Our next question comes from the line of David Palmer with RBC Capital Markets. Your line is open.

Hi everybody. Kevin Mullen here in for Dave, couple as well. A good question on the U.S snacking business. It's been a huge growth driver for Hain in the past, I think in the past it was – at least in the U.S./Canada are seeing 20% plus growth lately. Is your category getting more competitive and you guys are getting back to that 20% growth with snacking in the U.S.? Or is the recent slowdown mostly from the promotion timing matching with the Wal-Mart and [indiscernible]? Thanks.

Yeah. The primary driver in that is the loss of the Wal-Mart's [indiscernible] pallet display that we had throughout much of last year. The categories doesn't – snacks is always competitive in front with activity. I don't see an increase, on the same side I don't see a decrease either in terms of that. And we actually – look, sensible we'll get some of it – sensible, we'll have to climb over these displays in the loss then. But on the other side though, Terra was up very strongly in double digits and our Garden of Eatin' business is just picking up some very nice destruction at Kroger, obviously a huge customer on both our 8.1 outsize of driven back in the store, as well as our bowl that are going in the store for January. So look, I think we're going to see acceleration in the Terra and Garden of Eatin' trends. And I think we'll still be strong double-digit and – sensible as something we get all the way back to 20% to 30% that we're running a year ago.

Right. And John, you picked up a lot of distribution on essential [indiscernible] where it was exclusive at Wal-Mart and now we're able to roll them out in the back half. So, that's going to help your growth.

Sure. That probably is a double-digit growth.

Next question?

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

Thanks. I was just wondering with all the issues at Whole Foods and we've talked a little bit about or maybe a lot about the weakness in the Natural Chain. Are you seeing the weakness sort of stabilizing here at this level or should we expect what we saw at Whole Foods to continue into 2016, calendar 2016?

So, number one, I – you know, you saw some good numbers coming out of Sprouts today and we've seen that, and we'll – we continue to see that. Listen, Whole Foods growth next year is 3%, with over a 100 new stores opening, so we'll enjoy some of that growth. You heard what Whole Foods said on their call is they look to work with major vendors on purchasing procurement and we plan to be at the table as one of the first ones to do that as we realize we got to get the preliminary store or the center of store growing. So from our standpoint, Anthony, it's four categories or five categories, it's MaraNatha, Spectrum, it's baby and that's – you know, and that said, I mean snacks is already growing, we want to grow it more and so do they. And we've got a customer that wants growth and being one of their biggest vendors, I think that we'll definitely be working with them to make that happen.

And just follow up on the pricing, as they're going through their struggles, I guess and coming up with a newer strategy, is there pressure on your margins from them or is it more they're working out their own issues?

No, listen, I don't, I think there is – listen, there is pressure on margin, when you don't get volume, okay. So I think as a good partner, and we're just going through something like that right now on BluePrint with them. How do we get the right price to BluePrint to drive volume. Because you can sit there 1099 and move one per store per day or bring it down to a reasonable price whether it's 699, 799 and you see numbers grow 30%, 40%. So hopefully you're going to get more efficiencies, they're going to contribute, you're going to contribute and you're going to get volume. So that the plan here is basically how we drive volume together, not, let them sit back and take it, and ultimately will both benefit from it.

Okay. Great. Thanks.

[Operator Instructions] Our next question comes from the line of Jerry Gray with Cowen. Your line is open.

Hey, thanks for taking my question. Just to follow-up a little bit on that with the gross margin question. Some of your large customers are kind of taking a step function change in terms of investments in their employees and cost there. As they do so, I imagine they're going to be looking for anyway to save elsewhere, are you seeing any change in how your customers are speaking to you on pricing or promotion? Thank you.

This is John. The interesting thing is, you hear rumors about they're going to come back to you with a big ask in terms of putting more, and so, they can pay for labor and things like that. But more and more, we're being asked for is packaging our program that can be executed – and allow them to take labor out. There displayable cases, we're getting asked for that in every category now. They literally want to rip the top off it, put it write-off on the shelf, and I'm telling you from mass merchandisers to club to grocery, we're getting asked for that a lot. So they are looking for more and more ways, if labor is going to cost more, they are looking for more and more ways to take labor out of the stores.

And I think, again, every customer that we are working with and we're visiting every major customer today, because more and more natural organic products, I mean, what we are looking at, how we get efficiencies out of this business shipping direct from our manufacturing facilities. How we're able to get cost out? How we're able to get do backhauls? So absolutely, everybody wants efficiencies and costs that we can pass on or invest back to the consumer.

Great. Thanks. And then also just kind of follow up on the same line here. I believe Target recently announced supply chain initiative, where they would like to increase the amount of direct shipping that they are getting from their partners, and they are looking to ramp up, I guess on the supply side with vendors you have, the distribution capabilities to ship to their stores. Is that something that Hain is able to take part in, and I guess how would an initiative like that, what kind of potential would that create to drive upwards of that 30% direct business you're currently doing.

Clearly, it's capable of shipping directly to the target and customers of their size and scale. It's – it's just – it's something that they're talking a lot about. We're not seeing a lot of request to do it yet, but we sell both through pickup as well as shipping ourselves. Now, the funny thing is, we get more questions about pickup than we are having a direct delivery. So, as Irwin talks about being customer agnostic, we're also agnostic in terms of how they get product to their warehouse.

And I think, just going back to your question, what our scale and depth of the products today hold goes with a fresh and the dry and the frozen, we absolutely can do it. It's not like we're going there with one product.

Right. Great. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Bill Chappell with SunTrust. Your line is open.

Hey, Thank you very much.

Hey, Bill.

Good afternoon. Two questions.

Hi.

One on tea. John I think you said something to the in terms of Tea is doing well, we're just not seeing it in the Nielsen. So, can you kind of help clarify and maybe give us a better outlook on both for K-Cups and non-K-Cups is kind of what you're expecting over the coming months.

Sure. Sure. Look, I'm expecting our bagged tea consumption trends to improve to mid-single-digits. It's interesting. We're doing some work since we last spoke and what we found is our consumption trends on bagged tea are really not falling off, it has to do with what channels it's happening in. As we have been liquidating some of our old packaging, we've watched that places like Big Lots and others like that, are now actually doing enough business just for this short period of time, think about it right, perfect time to do a liquidation they're right now our consumption on bag tea is basically is flat as opposed to down when you include the liquidator channel. I – we're going to be out of liquidator in a short period of time and once our shelves are fully set and our programming is set, I think we will see a pretty strong growth rate on our bag tea.

And Bill we kind of planned this out in regards to timing when we dropped FSIs versus last year to get rid of whole packaging that was on the shelves. It is confusing when you walk in there is and it's the old packaging and the new packaging and when you see the new packaging full on the shelf I mean it looks great. There is going to be some time for consumers to get used to it. We're going to spend some money on it. It was a big change for us, but we had to do it there, clean up our packaging and there is, we watched this just like a new born baby.

Okay. And then I assume getting out of liquidators will also have a meaningful impact on gross margin once it is done?

Right. But again, you either keep old tea forever or you get rid of it, basically that's normally what you do when you go to a new packaging, and regards to K-Cup as of November 1, we've taken over the selling, the marketing of the product in [indiscernible] accounts and we saw some pretty steep declines over the last couple of years and our objective is to stop that and see some good growth and we're going to focus to sell that into the key section where we believe it belongs and have some of the type of flavors in that, that we sell today within our bag tea business. So we just – we just took it over, don't expect too much yet, as we're already in tea season, but we're going to put a lot of effort against bags as we see some big opportunities.

Well, there are some channels that they didn't go to and we think we should go to as well.

Like Whole Foods.

Yeah. That's great to hear. And then final from me. Just outlook on the UK retail landscape, it seems like your business is fine. Are you seeing any further changes or if that was actually starting to improve in terms of both pushback from the retailers and competitive issues?

So Bill, I just spent a week in the UK and met with a group of retailers, the top ones. And listen, they're looking for good partners and Hain offers that. And I have over the next couple of weeks, a bunch of UK retailers coming here to look at what some of the new stuff we're doing. Not focused on organic there, but I got to tell you focused on wellness, focused on taking sugar out of products, clean ingredients free from. Our Tilda rice business is strong and not so much bag rice, it's the ready-to-eat as consumers – millennials today want to be able to heat it up and heat it up at home. And actually, as you look at the consumer – the younger consumer within the Indian community, they're looking – they're not home cooking rice all day, they're at home heating it up within a minute. We sell close to 60 million packs of Tilda ready-to-eat. So, big brand in the UK and continuing to evolve and growing. Our soup business, great stuff happening with New Covent Garden Soup, Cully & Sully. I won't name the retailer yet, just going into a major retailer. Our dessert business, finally getting out of the red and seeing some good things for the holiday. We've picked up some good fruit business. So I like what I see in the UK, because we have uniqueness. Certain retailers want own label. One of the other big retailers is looking to work with brands today and we have unique things. Ella's being the number one baby food in the UK. New Covent Garden being the number one fresh soup, Linda McCartney growing nicely on meat-free. Hartley's, Sun-Pat, Gale's growing nicely. So we've really got a nice business in the UK and we're looking at some interesting acquisitions there looking at some interesting stuff.

Great. Thank you.

Thank You.

Thank you. Ladies and gentlemen, we have time for just one more question. And our last question will come from the line of Greg Badishkanian with Citigroup. Your line is open.

Hey, guys. This is actually Fred on for Greg. Just one quick question. If we look at the e-commerce business which is growing pretty nicely, is there anything notable about the sales mix that you guys are seeing? Is that different from sort of your more traditional brick and mortar stores?

And John jump in here. I mean baby, personal care major in those, okay? I mean, Amazon's our biggest baby customer today. But what we continuously see is where they can buy a case or pack. And I hope it's amazing as you look at millenials and where they're going, I was recently on a plane sitting next to someone and that person was ordering her day's orders before she landed. So we see that as a big part of our business and – whether it's Wal-Mart yogurt target or foods, they're all jumping into it in a big way and we expect it to be a big part of our business and we have the products that those that are on are ordering e-commerce one. That's the big thing too.

I have the point to add is, a good percentage of our sales come from subscribing day program which their customers says, I'm going to need these items, I wanted on this date and it keeps coming every time, whereas you don't – you obviously don't have that option in brick and mortar retail.

And Fred, the other thing is [indiscernible]. We're getting a lot of good data. If you go back, we have a [indiscernible] who's ordering Baby as we work with these e-commerce and baby we'll get some information about our brands and products and we're coming up with new products. So, it's an exciting and a big area for us and it's a big focus for us. Thank you everybody. This will end our conference call. In summary, why do I feel good about HAIN, we've delivered our guidance for the rest of the year. Why we're confident, we have a vision, we're focused, we're laser sharp, we have the products, we have the categories, and we have the customers around the world, we're diversified. And again, we are in so many different channels and we have the products that consumers want today. With that, I want everybody to enjoy their Thanksgiving holiday coming up. I hope everybody is buying an antibiotic free or organic turkey. Some advise that there is a shortage of turkey out there, so you better order it soon. I was talking to our guys today, the 1.8 million turkeys that we will sell are all spoken for us with regards to the retailers. Look forward to talk to you in February. Have a safe holiday season. Thank you.