Q4 2024 Hain Celestial Group Inc Earnings Call

Participants

Alexis Tessier; Investor Relations; Hain Celestial Group Inc

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

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

Jim Salera; Analyst; Stephens Inc.

Ken Goldman; Analyst; JPMorgan

Matt Smith; Analyst; Stifel Nicolaus and Company, Incorporated

Alexia Howard; Analyst; Bernstein

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

David Palmer; Analyst; Evercore ISI

John Baumgartner; Analyst; Mizuho Securities USA Inc.

Presentation

Operator

Greetings, and welcome to Hain Celestial's fiscal fourth quarter 2024 earnings conference call. (Operator Instructions) Please note this conference is being recorded. At this time, I'll turn the conference over to Alexis Tessier with Investor Relations. Alexis, you may now begin.

Alexis Tessier

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

Wendy Davidson

Thank you, Alexis, and good morning, everyone. I'll start by reviewing today's key messages, the progress we've made on our Hain Reimagined strategy and reasons to believe in our pivot to growth in fiscal 2025. I'll then turn the call over to Lee, who will provide additional detail on our fourth quarter and full year results and our outlook for the coming year. We'll close out the call with time for Q&A.
Let me start by saying that I'm pleased that we delivered on our updated guidance with organic net sales growth ahead of our guidance and adjusted EBITDA at the upper end of our guidance and continued progress in adjusted gross margin expansion. And importantly, we exceeded our free cash flow expectations based on strong delivery from our fuel initiatives, especially in working capital, revenue, growth management and operational efficiency.
This enabled us to further pay down debt and improve our leverage position. Approximately 85% of our business grew in fiscal year '24 with organic net sales growth of 3%-plus, and we have initiatives in place to stabilize the remaining 15%. I believe we are well positioned as we head into fiscal year 2025 to pivot to growth.
Building upon the solid foundation and momentum, we are pivoting our focus to stronger commercial execution to deliver top and bottom line growth in fiscal '25. We remain committed to the Hain Reimagined algorithm we outlined last year. So we are now using fiscal '24 as the base for our organic net sales growth. We are confident in the strength of our diversified portfolio and geographic footprint, the benefits of scale in our operating model and our ability to deliver sustainable growth.
Let me now discuss the progress we've made on the four pillars of our Hain Reimagined strategy, starting with focus. In fiscal '24, we made tremendous progress under the focused pillar to drive our five core categories and five core geographies while transforming the company into an integrated enterprise.
We consolidated our global manufacturing footprint to reduce complexity within our supply chain and drive synergies and scale. We exited nonstrategic categories, geographies and brands, including the divestitures of Queen Helene and Thinsters. And we are creating a winning portfolio of brands with stronger velocities and gross margins.
Importantly, we integrated the business globally to operate at scale and established a clear Hain culture based on performance and values. Our supply chain team is a strong example of the strides we're making in building a performance-driven culture. Across our global Hain manufacturing operations, we've achieved world-class safety levels and the team continues to embed the processes, systems and recognition to ensure we are focused on the safety of our people, our plants and our equipment as we generate fuel and build our brands and our business.
Hain's today is markedly different from the company, we were just one year ago. We are leveraging insights and expertise across global categories, driving synergies across functions and capitalizing on areas of scale in our supply chain positioning us to pivot to growth in fiscal '25. In this first year, our team delivered strong progress in our fuel pillar with end to end operational efficiency, generating $65 million in savings for the year ahead of our $61 million target.
Our robust productivity pipeline for fiscal 2025 gives us confidence in our ability to deliver another strong year of fuel. We continue to drive better net price realization and promotional effectiveness through revenue growth management. In fiscal '24, we enhanced RGM capabilities across the organization with a key emphasis on trade spend efficiency contributing to a 50 basis points improvement year over year in trade rates.
These capabilities will enable continued progress and delivery in RGM for net price realization, freight efficiency and mix in fiscal year '25. Within working capital management investments in digital technology and improved processes enabled improved forecast accuracy to drive inventory levels down by three days. Additionally, we extended days payable outstanding by [15] as we drive towards our Hain Reimagined goals.
Our successful fuel initiatives in fiscal '24 facilitated material debt paydown reduction and leverage investments in the business, adjusted gross margin expansion, offsetting inflation and volume deleverage and delivery of our updated guidance. As we head into fiscal year '25, we believe that significant opportunities remain in working capital on our path to deliver the $165 million we outlined on Investor Day.
This year, we launched our [agile] and amped brand-building model and rolled out a number of campaigns to drive greater awareness reach, household penetration and share on key brands such as Celestial Seasonings, Ella's Kitchen and Earth's Best. We will continue to drive brand campaigns that leverage the scale of a larger company with the consumer focus of smaller challenger brands as we strive to out small to big and out big to small.
We continue to progress our channel expansion strategy with a particular focus on ensuring our products and brands are available where the shopper is shopping. In this first year, we leaned into away-from-home and e-commerce, where we have established focused teams to drive reach and growth in these margin accretive channels.
In fiscal 2024, away from home revenues grew low double digits in both North America and International. As we grow our C-store count by 42% in the US, expanded our route to market with distribution partners and expanded food service in both North America and International.
Garden Veggie and Terra in particular saw strong growth in C-stores with Garden Veggie dollar sales of 49% and Terra of 48% this year. Within e-commerce we saw growth in North America from key strategic brands, including Garden Veggie up low single digit for the year, and Celestial up mid-single digits as well as double digit growth in snacks and pouches for Earth's Best.
And the UK, our online branded business grew low single digits and is outperforming the overall market growth. We expect both e-commerce and away from home to be meaningful drivers of growth in fiscal year '25 and beyond. We enhanced our innovation processes and pipeline with strong performance from Celestial Seasonings Sleepytime with Melatonin and Throat Cooler. In fact, Sleepytime with Melatonin broke into the top 100 SKUs in the entire tea category in its first year.
We are particularly pleased with the launch of our Garden Veggie Flavor Burst which is the number one new product in the better-for-you snack category. And we are excited about the upcoming opening of our innovation experience center at our headquarters in Hoboken. Where, we will be collaborating to develop leading innovation that meets better-for-you consumer demands, and we look forward to sharing our new fiscal year '25 planned launches at the appropriate time.
The final pillar of our Hain Reimagined strategy is grow. Where we see the greatest opportunity for improvement as we head into fiscal year '25 and where we are laser focused on commercial execution. While the grow pillar did not progress as much as expected in fiscal year '24, the 85% of the business comprised of our grow and maintain brands did grow in fiscal year '24 with organic net sales of 3%.
Double-digit declines in the 15% of the business targeted for stabilization more than offset that growth. However, the foundational work we did this year, including portfolio-shaping, placing new leaders in key positions and customer and channel prioritization is already making a difference with new distribution and shelf assortments. These changes have positioned us well to deliver sustainable growth going forward as we shift our focus to accelerated commercial execution.
Let's now review each of our categories, the drivers of improved momentum and more reasons to believe in our pivot to growth in fiscal year 2025. In snacks, our momentum built throughout the year on the success of the Garden Veggie Flavor Burst innovation as well as improvement in Terra Chips. In fact, snacks organic net sales growth was positive in North America in the fourth quarter of low single digits.
As I mentioned, Flavor Burst, is the number one innovation launch in the better-for-you salty snack category this year and drove Garden Veggie consumption up mid-single digits in the quarter. The improvement in Terra has been driven by better mix and price pack architecture, improving service levels and marketing support.
On the last call, we mentioned we were launching our first ever national multi-brand snack promotion Savor Your Summer. Savor Your Summer is driving positive sales across brands with shipper and pallet sales up 28% over the last summer at key customers. The program received particularly strong merchandising support across natural and grocery channel customers and is on track to exceed all of our targets for consumer metrics with impressions, consideration, and engagement all coming in better than expected.
We expect momentum in snacks to accelerate into fiscal 2025. Building upon the Flavor Burst success, we'll have new flavors, pack sizes and have already secured expanded distribution in the coming year. Additionally, our new Garden Veggie Masterbrand campaign YUMbelievably Delicious, launched this month, and we have additional initiatives in flight to expand snacks distribution across food, drug, [mass] and away-from-home channels with key customer events occurring in fiscal 2025.
Finally, our channel strategy on Hartley in the UK positions us for a strong back-to-school season where we are looking to double our feature space with an additional 800 shippers, a big one for Hartley's, which is our key better-for-you snack brand in the market and the number one jelly brand in the UK.
In baby and kids, organic net sales growth was slightly positive for the year, excluding infant formula, which as we've mentioned previously, was impacted by persistent supply disruptions. For infant formula, we delivered on our expectations for the fourth quarter and expect formula to be a key driver of growth in fiscal 2025. We are back in supply, so not yet in full for all formulations and sizes.
We expect supply to be fully recovered by the end of the first half and should have significant formula growth in the back half of the fiscal year with healthy supply on all items. To support this, we have planned incremental marketing support to recruit new families into the brand while we have work to do in order to earn back distribution loss due to the supply challenges that Earth's Best brand remains strong, where we have full distribution velocities are back to where they were before the supply disruption.
In the balance of the category, we saw strength in Earth's Best snacks, driven in part by geographic expansion with the successful launch in Canada where Earth's Best puff snack was main winners of the Canadian Grand Prix New Product Awards in 2024. Distribution in Canada is continuing to build and later this year, we are rolling out our three top flavors of our specialties, which have received strong retailer acceptance.
Ella's Kitchen, which was again voted the most loved baby brand in the UK outperformed the market in volume this year. During the quarter, we continued the rollout of our mono material pouches, which are fully curbside recyclable in the UK. Our target is to have over 70% of our entire pouch range converted by the end of this calendar year.
This is a strong point of distinction in the category and a driver of brand preference. Recruitment into the Ella's Kitchen brand continues to accelerate with 53% of all first-time parents in the UK, signing up to join the Ella's Kitchen community who are Become a Friend program, our highest recruitment attainment ever, and we continue to look for opportunities to partner with our customers for brand activation.
Ella recently launched an in-store partnership with Tesco to encourage more little ones to eat their five portions of fruit and vegetable today, and the brand is well positioned for growth in fiscal 2025. The beverage category was our strongest category this year with mid-single digit organic net sales growth. This growth was primarily driven by strength in our European non-dairy beverage business.
European non-dairy beverage market continues to grow mid to high single digits, led by own label, where Hain has a leading role. Premium brand Natumi also saw strong growth this year. We expect to continue to drive growth in non-dairy beverage in fiscal year '25 with new secured contracts and innovation in the oat category, building upon the success of our Zero Sugar Oat launch. Celestial Seasonings also grew in fiscal 2024 with low single digit organic net sales growth, outpacing the category and gaining share.
We will be launching a new Masterbrand campaign ahead of hot tea season with a focus on taste and continuing to reinforce the sustainability benefits of the plastic over wrap removal from our packaging. We expect the campaign and the expansion into black and green tea to contribute to accelerating growth in Celestial Seasonings in fiscal 2025.
Meal prep delivered low single-digit organic net sales growth in fiscal 2024. We saw strong growth in branded soup in the UK where we outperformed the market and gain share. We expect to build upon our leading number one, number two and number three position in the UK with distribution gains coming ahead of the next soup season.
Within plant-based meat-free, the Hain's brand in Canada continues to outperform the category and gaining share despite significant category headwinds and some supply service challenges in the back half of the year during our plant consolidation.
While the Linda McCartney food brand in the UK saw double-digit declines, 60% of the portfolio is gaining or holding share. We have made portfolio changes exiting the refrigerated segment and rightsizing our operations capacity to address the softer market and improve our overall competitiveness as the category consolidates in the UK.
And finally, personal care. Our smallest category 20% organic net sales decline in fiscal 2024. As outlined last quarter, we are executing our plan to simplify, prioritize and focus our business around a core set of brands and personal care categories. We remain hyper-focused on the shrink to grow plan to stabilize personal care and enable a strategic review of the brand and business for optionality.
Looking ahead, fiscal 2025 will be a critical year as we pivot to growth, continue to drive further margin expansion and generate significant free cash flow to reduce net debt, improve leverage and invest in our brands. We will build upon the momentum in the grow and maintain businesses through commercial execution in channel expansion, distribution gains, innovation launch support and disruptive brand support.
15% of the business in the stabilized bucket was a significant headwind in fiscal 2024. We have line of sight to full recovery of formula supply, which we expect will drive growth in formula this fiscal year. And we are aggressively working to stabilize personal care and plant-based meat-free.
Fiscal 2025 will also see continued evolution of our global operating model centered on our commercial route to market and to end wiring across the organization. So improved speed to shelf and customer focus. And lastly, we'll continue to capitalize on the progress made in our fuel initiatives through revenue growth management, working capital management and productivity. We remain confident in the Hain Reimagined algorithm and our ability to pivot to growth in fiscal 2025.
With that, I'll turn it over to Lee to discuss our financial results and fiscal 2025 outlook in more detail.

Lee Boyce

Thank you, Wendy, and good morning, everyone. As Wendy discussed, strong progress in the focus and fuel pillars of Hain Reimagined enabled us to deliver upon our updated guidance for the year. In fact, top-line results were ahead of our guidance and adjusted EBITDA results were at the high end. Approximately 85% of the business grew in fiscal 2024 and we have made progress towards and are continuing to focus on stabilizing the balance.
Our free cash flow generation drove gross margin expansion, net debt reduction and improvement in leverage, all while enabling us to invest in developing competencies to pivot to growth. We are excited to build upon this strong foundation in fiscal 2025.
Let's look at the results in more detail. For the fourth quarter, we saw negative organic net sales growth of 4% year over year. The decrease was driven by lower sales in both North America and International segments. For the full year, organic net sales growth was ahead of our updated guidance at down 2%, driven by 4% growth in international, more than offset by 6% decline in North America.
Net sales growth also reflects a 1 percentage point benefit from foreign exchange. We delivered fourth quarter adjusted EBITDA of $40 million compared to $44 million a year ago. Adjusted EBITDA margin was 9.4%, representing a 30 basis points decrease versus the prior year. For the full year, adjusted EBITDA was at the high end of our updated guidance at $155 million compared to $167 million in the prior year.
Adjusted gross margin was 23.4% in the fourth quarter, increasing approximately 70 basis points year over year. The increase was driven by productivity and pricing on the success of fuel and revenue growth initiatives, partly offset by deleverage on lower sales volume and cost inflation. For the full year, adjusted gross margin increased 30 basis points year over year 22.4%.
SG&A increased 8% year over year to $72 million, representing 17.3% of net sales for the quarter as compared to 14.9% in the year ago period. The increase was primarily driven by legal expenses as well as personnel costs due to the timing of bonus accrual release versus the prior year.
For the full year, SG&A was flat year over year at $290 million, representing 16.7% of net sales as compared to 16.1% in the year ago period. During the quarter, we took charges totaling $10 million associated with actions under the restructuring program, including contract termination costs, asset write-downs, employee related costs and other transformation related expenses.
Of these charges, $3 million were non-cash. For the full year, we took $63 million in charges associated with the transformation program, which is comprised of $60 million of restructuring charges and $3 million of expenses associated with inventory write-downs. Of these charges, $27 million were non-cash. As previously discussed, the total transformation program charges are expected to be $115 million to $125 million, inclusive of potential inventory write-downs of approximately $25 million related to brand and category exits.
The balance of the restructuring charges is expected to be $90 million to $100 million. Restructuring charges are excluded from adjusted operating results. Interest costs fell 1% year over year to $14 million in the quarter, driven by lower outstanding borrowings partially offset by the higher variable interest on the unhedged portion of our debt.
As a reminder, we have hedged our rate exposure on more than 50% of our loan facility with fixed rates at 5.6%. We continue to prioritize reducing net debt over time. Adjusted net income, which excludes the effect of restructuring charges amongst other items, was $11 million in the quarter of $0.13 per diluted share versus $10 million or $0.11 per diluted share in the prior-year period. Full year adjusted net income was $13 million or $0.33 per diluted share compared to $45 million or $0.50 per diluted share in the prior year.
Now turning to our individual reporting segments. In North America, we delivered negative 5% organic net sales growth year over year. The decrease was primarily driven by lower sales in infant formula, which was a 260 basis points drag and a decline in the personal care business, which represented a 170 basis point drag on North America sales.
This was partially offset by growth in snacks. Fourth-quarter adjusted gross margin in North America was 22.6%, a 20 basis points decrease versus the prior year, driven by cost inflation and deleveraging on lower sales volume, partially offset by productivity and pricing on the success of fuel and revenue growth management initiatives.
Adjusted EBITDA in North America was $21 million as compared to $27 million in the year ago period. And adjusted EBITDA margin was 8%, a 150 basis points decrease year over year. The year-over-year decline resulted primarily from deleveraging on lower volume.
In our international business, organic net sales declined 4% in the quarter. As Wendy mentioned, beverages demonstrated strong growth in the quarter, so this was more than offset by continued softness in plant-based meat-free, a stabilized business in our meal prep category as well as snacks. International adjusted gross margin was 24.8%, up approximately 210 basis points year over year, driven by productivity, partially offset by inflation.
International adjusted EBITDA was $27 million, consistent with the prior year as productivity gains offset the impact of inflation. Adjusted EBITDA margin was 17%, up approximately 40 basis points year over year. Shifting to cash flow and the balance sheet, we generated $31 million in free cash flow in the quarter compared to $34 million in the year ago period.
For the full year, we generated [$83 million] in free cash flow compared to $39 million in the prior year. The increase was driven by working capital initiatives. Our days payable outstanding improved to 52 from 37 in fiscal year '23 and our days inventory outstanding improved to 79 from 82 in fiscal year '23. We are pleased with the progress we are making towards our Hain Reimagined targets of 70 plus days payable outstanding and 55 days inventory outstanding by fiscal year 2027.
CapEx was $9 million in the quarter and $33 million in fiscal 2024. Looking ahead to fiscal 2025, we expect expenditures to be approximately $50 million. Finally, we closed the quarter with cash on hand of $54 million and net debt of $690 million, translating into a net leverage ratio of 3.7 times as calculated under our credit agreement. We drove leverage lower than expected due to better cash flow on the momentum from our fuel initiatives.
We continue to expect our net leverage to tick up modestly in the fiscal first quarter, driven by seasonality. Before ending fiscal 2025 in the mid to [high-three]. We are comfortable that we have sufficient headroom under our existing covenants, paying down debt and strategically investing in the business continues to be our priorities for cash, and we have reduced net debt by $86 million since the beginning of the fiscal year.
Our long-term goal remains to reduce balance sheet leverage to 3 times adjusted EBITDA or less as calculated under our credit agreement.
Turning now to our outlook, we expect to pivot to growth in fiscal 2025. We expect organic net sales growth to be flat or better. Adjusted EBITDA to grow by mid-single digits, gross margin to expand by at least 125 basis points and free cash flow of at least $60 million. And while we don't intend to provide quarterly guidance, we want to share some commentary on the shape of the year.
From an organic net sales perspective, we anticipate that year-over-year growth will improve as the year progresses as follows. In the first quarter, we expect negative organic net sales growth at a similar rate of decline year over year as in the fourth quarter of fiscal 2024. We expect flattish year-over-year growth in the second quarter and accelerating growth in the back half of the year.
Factors contributing to the cadence of the year include promotional activity in snacks that has shifted into the fiscal third quarter from the fiscal first quarter, which will be a headwind in the first quarter, but not impact the full year. As we mentioned on our last call, our portfolio simplification initiatives will have a year on year impact predominantly in the first half. And as Wendy mentioned, our infant formula supply will be recovering over the first half of the year with full supply supporting our Earth's Best business growth in the back half.
Lastly, adjusted EBITDA growth for the full year will be driven by growth in the back half. Please note that we are updating our definition of organic net sales growth for the fiscal 2025 to exclude the impact of foreign exchange. We do not expect ForEx to be a key driver of variance in 2025.
And finally, as Wendy mentioned, we remain committed to the algorithm outlined in Hain Reimagined. Organic net sales CAGR of 3%-plus 400 basis points to 500 basis points of adjusted gross margin expansion to get us to 26%-plus and adjusted EBITDA margin of 12%-plus by fiscal 2027. However, the basis from which we are growing will be adjusted to fiscal 2024 organic net sales. And now I hand it back over to Wendy.

Wendy Davidson

Thank you, Lee. We are one year into Hain Reimagined and we're making strong progress in the four pillars of the strategy. Our progress in driving focus, resetting our global operating model, kicking off our fuel program and investing in key capabilities to enable growth position Hain stronger than we were a year ago. And while our pivot to growth in some areas has taken longer and resulted in a reset of our starting point, we are now positioned to deliver on our promise and remain committed to our Hain Reimagined algorithm.
Our work in this fuel pillar has exceeded expectations. Momentum is building across the business as evidenced by the 85% of the business that is in growth, and we are hyper-focused on the commercial execution to deliver top and bottom line growth in fiscal 2025 and beyond.
Our strong free cash flow generation has enabled accelerated reduction in net debt improvement in our leverage ratio, gross margin expansion and investment in our brands and in key commercial capabilities, all giving us confidence in our ability to deliver on our Hain Reimagined outlook. We are a markedly different company today than we were just one year ago as we began to capitalize on our diversified portfolio, our market reach and global scale, and we will be even stronger a year from now.
I am excited for the year ahead as we pivot to growth and begin to realize our full potential as One Hain. Before we open it up for questions, I want to thank all of our team members for their passion and commitment, which are critical drivers to all that we have accomplished together in this first year and will accelerate our delivery of Hain Reimagined.
Operator, please open the line for questions.

Question and Answer Session

Operator

Thank you. At this time we'll be conducting a question-and-answer session. (Operator Instructions)
Jim Salera, Stephens.

Jim Salera

Hi. Good morning, everybody. Thanks for taking our question. (multiple speakers) Wendy, I appreciate the color on kind of the shape of 2025. If we think about what will be an incremental driver from the flat guidance to the better than flat. Can you maybe just walk through what incremental outperformance come from sales in snacks in the back half from formula and the back half, if you could maybe just touch on each category if we were expected to be in the better part of the guidance where that incremental outperformance would come from?

Lee Boyce

So, it's a good questions. So I'll start and maybe Wendy can kind of weigh in. But just to kind of give some more color to that, the second half to the first half. So we've got three drivers in that. The one you just mentioned is formula. And then what we're lapping, we do then anticipate seeing formula build up as we go through the year.
The second piece of it. And we mentioned it actually in as we went through before, is the promotional shift. And it's in Garden Veggie snacks, we've got an event shifting from Q1 to Q3 and I'd say the other item is Greek Gods, where we have broader geographic distribution expansion that takes place during the year. So that's kind of what is weighing in the first quarters as we move to flat in the second. And then we're seeing significant growth as we go through into the balance of the year.

Wendy Davidson

And I'll just add to that, there's the known headwinds that we have in the front half, which is, as Lee said, promotional activity, that's just timing shift. And it's also as we build up our inventories around all formulations and sizes in infant formula. There's the unknown opportunities, but I think to your point become potential over drivers.
We're actually back in inventory in most of our formulations, not all sizes. But most of our formulations, our team is leaning very heavily into regaining our distribution in infant formula. Happy to say that where we do have distribution, our velocities are back to where they were two years ago. So we know that parents want the brand and we feel really good that that could be a potential over driver.
We also have some incremental distribution that the team have landed in our snacks portfolio in C-store alone. We have another [48] that are with we have a total store count now 48,000 that's an incremental 13,000 stores that were picked up in the last quarter. So as we begin to have those distribution points realize their velocity does become additional overdrive as we go into the year.

Jim Salera

Great. And I'm glad you finished on C-stores, because I can a follow-up question there. Are you able to see I know still maybe early days with some of the new stores, but are you able to see incremental purchases in traditional mass channels that are in areas where you're getting distribution in C-store. And maybe another way to tap that is for the consumers that shop at C-store, are those new households that are then buying your portfolio in other channels? Or are you just driving incremental purchases with existing households?

Wendy Davidson

Well, that's a great question. We -- one of the reasons why we believe in away from home as an opportunity for us in brand-building is as our team calls it first to find and first to mind. Having our brands available in more places where the shopper is on their journey, raises brand awareness beyond what you're spending in paid advertising.
So we know that that's an opportunity, absolutely, having our brands in multiple points of distribution. We know generates awareness that then drives trial in the other places where they're shopping. And I would say I'd hesitate to not point out that in the last quarter, actually Garden Veggie and Terra were the fastest moving better-for-you snack products in the C-store channel in the industry. So we feel really good that as we grow distribution, we have brands that the consumer wants, we're putting them in the places where the consumer wants to find them.

Jim Salera

Thanks for the color, guys. I'll hop back to you.

Operator

Ken Goldman, JPMorgan.

Ken Goldman

Hi, thank you. I wanted to poke around a little bit on the path to 2027. I appreciate that you're kind of reiterating that basic path today. Maybe moving. We're definitely moving the base year ahead to '24. When we look back at the Investor Day from a year ago, though there were some elements underneath and you talked about a 3% top line CAGR, there was 10% EBITDA growth.
You talked about a gross margin increasing up to maybe 500 basis points. I was just curious, do you think there's a point maybe this year we'll hear about those underlying drivers and whether they're being reiterated as well because the slide that sort of talked about that path didn't really have a lot of math behind it. So I just kind of wanted to get a sense of what we're looking at that we're looking at under the covers, so to speak.

Lee Boyce

Yes. So I maybe I'll kick off and Wendy can kind of add any more context. But Ken, to your point, I mean, I'd say the underlying algorithm, the shape of the P&L, we are we are committed to. So we committed is to your point to the 400 to 500 basis points of gross margin expansion. We obviously saw some good traction on that.
I think in Q4 we said 70 basis points. So we see a pathway there, EBITDA margin of 12%-plus, so committing it continued to commit to that. The other piece of it was on the net working capital was $165 million, some really good traction on that. We delivered over one-third of that in this in this first year. And then the final piece is the 3% CAGR on organic sales. So we continue to look to deliver that but it's off of the organic base of 2024 as the starting point.
I would just say that, you know, as we look at some of the areas where less development kind of initially anticipated, and I would say the very things we talked about through formula and then personal care. So we made some strategic decisions on personal care on the winning portfolio. But again, using '24 as the base year, still committed to the 3% plus algorithm.

Wendy Davidson

Yes. And I would just add to that. And to your point, Ken, the sub elements of Hain Reimagined we've made great progress against those. Where we talked about rebase is really taking into account the business exits that we did in fiscal '24. So our organic revenue starting point is different than what we had a year ago because of the portfolio simplification because of some of the divestitures. So it's just us committing to the [3%-plus]. It's just off of the new revenue base.

Ken Goldman

Okay. And then as we just to follow-up on that, as we think about kind of how to get to that '27 numbers is the idea then '23 is kind of just a last year in the sense that there were some unusual headwinds that really don't repeat. And as we get to kind of I guess the '20 back half of '24 to '25.
And therefore, it's okay to kind of rebase it to '24 because we really shouldn't think of those headwinds as ongoing because I guess number one question I'm getting this morning is how does Hain really see it's such a massive acceleration in top-line growth in gross margin growth in '26 and '27, which is a compressed time line now versus what you had previously. So not to beat a dead horse here. I just want to get a little bit of a better sense of where that acceleration really comes from into the next couple of years?

Wendy Davidson

Yeah. I think it's exactly to your point. There are some unique elements around our focus pillar, really the portfolio simplification in fiscal '24 that we fundamentally exited whole categories. Take, for example, what we said in the last quarter that we were reducing over 60% of the SKUs in the personal care portfolio that related to about 30% of the overall revenues. The fact of doing that actually rebases your overall revenue. We also had some divestitures with Queen Helene and Thinsters. So we've pulled that out as well. Just to get to an equal starting point, but we've not reset each one of the categories. We're essentially taking into account at the total, where we've exited whole categories.

Ken Goldman

Okay. Thank you.

Operator

Matt Smith, Stifel.

Matt Smith

Hi, good morning. Thank you for taking my question. I wanted to follow up on the impact of SKU rationalization and business exits. There's a portion of that that's flowing through as sales. That's not treated as organic sales as when you're completely exiting a business. Can you can you help me understand with the flat organic sales outlook in the upcoming year? Is there and does that include a headwind of just normal SKU rationalization, not necessarily where you're exiting businesses and but just trimming the SKU count within your current portfolio? Is all of that really flowing outside of organic sales.

Wendy Davidson

No. I'll start, and I'll let Lee fill in a little bit of the color around that, but you're exactly right. There's a portion of our portfolio simplification that actually comes out because those are whole category exits. So take, for example, we mentioned in the last quarter, we had personal care brands that were in categories we really we didn't need to be in. So exiting toothpaste, and existing deodorants, for example, those are category exits. But there is some regular portfolio maintenance that comes out that doesn't get organic treatment. We do still have some of that, that plays out in this year. And so some of that we're actually acknowledging in the front half of this year, which is why we've given fairly tempered guidance in the front half. And that history is lapped as we go into the back half, so that becomes less of a headwind.

Lee Boyce

Yeah. So I think you got it. I mean, we're obviously coming out in '24, we had Thinsters and Queen Helene, and then to Wendy's point, I mean, what's being treated is really transformational winning portfolio, part of our transformational winning portfolio strategy. So whole categories that we shouldn't be in. And that's why we actually gave the 2024 number. We want to kind of really make sure we provide clarity. So as you saw on one of the slides, we actually gave that adjusted baseline 2024 number.

Matt Smith

Thank you for that Lee. And as a follow-up, that the fiscal '24 organic sales base number that you gave suggests like a reported sales decline of around 3%, if we hold that organic sales flat year over year. Is it is that the evidence or is that directionally the impact of the business exits that flows through the divestiture line?

Wendy Davidson

Let us get back to you on that because I want to make sure that we give you an accurate number on that. But there are elements of business exit and divestiture that play into that. But I want to make sure that we give you the exact number.

Lee Boyce

Yeah, because there are I mean, obviously, kind of a number of pieces with what I said what came out from an organic perspective, Thinsters, Queen Helene and then the PC category exits. So yeah, we'll come back to you.

Matt Smith

Thank you, Lee. I'll leave it there.

Wendy Davidson

Thanks, Matt.

Operator

Alexia Howard, Bernstein.

Alexia Howard

Good morning, everyone.

Wendy Davidson

Morning.

Alexia Howard

Hi, there. So am I right in thinking that as we rotate into fiscal '25, you're going to start breaking out price and volume independently. And if that's still a case, is there any color you can give on how the organic sales growth breakdown for 2025 is going to shape up? I'm assuming pricing will be fairly flat and then volume will improve through the course of the year as you described with the organic sales growth, is that a reasonable way to think about it?

Lee Boyce

So you are correct. We will be breaking out. I know that's kind of long promised, but we have put the systems in place. So as we get into Q1, we will break out the price volume mix and you're also right. I mean, there is a piece of pricing, but it is primarily driven by volume mix as we go into 2025.

Alexia Howard

Perfect. Thank you very much.

Wendy Davidson

There's a little bit of wrap around pricing from fiscal '24, but not substantial incremental pricing. And then obviously, with the sales of formula and a few other categories, we will see the mix improve as we go into the year as well.

Alexia Howard

Got it. Okay, that's very clear. Thank you. Could you talk a little bit about the sourcing of the organic lactose that has been dragging on for some time? Are you moving to a dual sourcing strategy? How are you creating resilience in that area because I know it's been something that's been with us for a little while here? Thank you and I'll pass it on.

Wendy Davidson

Yeah absolutely. Infant formula, as you know, has been a pain point, certainly since I joined the company. I feel very good about where we are in supply. We do across our formula, we have multiple supply options and toddler formula and we've got some location redundancy in our infant formula. We're also, which you would see play out in a little bit of our days of inventory. We're actually holding a little bit more inventory of our core SKUs in infant formula as they become available so that we give ourselves a little bit of cushion as we go forward as well.
We know that as we rebuild our infant formula business with our retail partners, that assuring them that we can have supply on shelf consistently is paramount. And we also need to make sure that we are investing behind the brand to create awareness with parents. So both of those are things that we're taking very seriously as we go into the front half of this year, you'll see some incremental marketing in the back half, but you'll also see us have a step up a little bit of inventory to make sure that we're holding enough to sustain in the event that there's a hiccup.

Alexia Howard

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

Wendy Davidson

Yes.

Operator

Andrew Wolf, CL King.

Andrew Wolf

Thank you. I wanted to start with kind of a follow up on the outlook and the cadence for the year consolidated. Just ask if you can give any commentary by the two segments. I mean my takeaway just kind of thinking about it analytically, as it probably seems like between the things you're calling out, which are more in the North American market and just how the year went most of its the swing and the cadence is driven by the North America segment, but I would like to get your sort of commentary on that as well?

Wendy Davidson

Yeah. There is obviously some very large buckets that impact North America in the front half, and there are tailwinds as we go into the back half. International actually has a little bit of that as well. So you will see a little bit suppressed, especially in the Hartley's snack business, as we build up in the front half of the year and then some contracts in own label, both in the UK in spreads and drizzles, and in the European market in non-dairy beverage, those begin to play out as we go through the back half of the year.
Hartley's, for example, is a leading brand in snacking, single serve snacking, but it is a high impulse purchase. And we've changed our promotional strategy to really support feature and display, which is critical for that brand and we've also converted to a more recyclable packaging, which retail partners really want. The combination of those two things and a high low pricing strategy, we feel really good about.
And I think we even mentioned, then we've got about 800 shippers in Hartley's that goes out in the front half of this year, getting incremental feature display, and we have another plug of features that comes in the back half of the year as well with additional shippers. So we feel good that both regions have reasons that are driving some of the softness in the front half, which we've appropriately called into our guidance. But we have lots of bright spots as we go into the back half that are actually already known. It's simply a timing.

Andrew Wolf

And the front-end softness in International, is that more the meat-free declines or is it more some of this private label stuff?

Wendy Davidson

No. It's largely in meat-free. So you still see the meat-free softness in the category. I think we also mentioned that we exited the refrigerated segment in meat-free and focused on frozen. So you'll have a little bit of that portfolio simplification that impacts in the front half as well as we really rightsized to the fighting core of what we want to have in the meat-free category.

Andrew Wolf

Got it. Thank you. And just wanted to follow up with a strategic focused question on the salty snacks portfolio in North America. Can you just sort of give us a sense of you're feeling about how much scale that business has as you address the mass market with three brands, two of them pretty all the niche and different brand equities and brand power?
But is that enough to get slotted in the way to optimize your slots or when you I've seen evidence that you gained some shelf space, at least some regionals, but just wanted to get a sense of that's a pretty concentrated category on a national basis. How you think about its positioning as a portfolio?

Wendy Davidson

Yeah. We actually feel very good about our snacks portfolio and especially around the three primary brands that we're leaning into. All three have a very unique position in the space, but they're really leading in better-for-you. And for instance, in Garden Veggie, we know that where we have the right shelf assortment, our velocity is actually turn better than brands that have a higher ACV.
Our teams actually successfully use those data points with our retail partners, and you will see some fairly large incremental ACV with some very large retail partners that begins to ship in September, where we go from, I think, on Garden Veggie, Terra and Garden of Eatin from an ACV at a particular retailer somewhere in the mid-20s to somewhere in the mid-70s picking up about 6,600 new stores in the marketplace.
So what we're finding is the data tells us that the brands do resonate with consumers. They're looking for them to be available more often, so the brands are loved. We just make it kind of hard for you to find it. So we are driving incremental distribution. We're very focused on our promotional spending, supporting velocity because we know that's critical.
And then this year, you'll see I think we launched it about three weeks ago is the first ever Masterbrand campaign on Garden Veggie. That's the first time we've actually promoted the entire portfolio of Garden Veggie. So you'll see us really lean into brand support around the snack portfolio.

Andrew Wolf

Got it, thank you. That's it from me.

Wendy Davidson

You bet. Thanks.

Operator

(Operator Instructions) David Palmer, Evercore ISI.

David Palmer

Thank you and thanks for that commentary about some of that timing for the fiscal year, which certainly plays into some of the data that we're seeing right now on sensible portion of Garden Veggie. I'm wondering, just as we're looking at MULO plus data, do you see that more or less approximating what sort of North America organic sales we're going to see from you?
It was pretty close on the most recent quarter. I'm wondering, if you think that's going to be the case going forward, if there's maybe some non-visible portions, obviously, Canada is one, but other non-measured channels that you think might be causing a gap versus the data that we'll see?

Wendy Davidson

Yeah. It's a great question. And there's I know a lot of movement around the data sets that are available. So let me sort of break down the visibility of our business. So if you think of overall Hain, call it, 40% of our business is International, 60% is North America. So you can't see the International business in North America, approximately 10% of the business is in Canada, which you also can't see of the remaining piece, there's about 85% in the new Circana MULO+C that would be visible.
So in total Hain terms, you can see about 45% of the total business is in the Circana data. We will have some noise in the Circana data over the next couple of months for a couple of reasons. If you look at total Hain and it includes personal care and food and bev, the personal care because of portfolio exits will be a material drag in the end market data because those are just categories and SKUs that we've walked away from.
If you look in just food and bev to Lee's earlier point, we've got some promotion -- very large promotional activity that took place last year in quarter one, that is taking place in this year, but it's moving to quarter three. So it won't affect us on the full year basis, but it will be a visible view in quarter one.
But as I said, we've also picked up incremental ACV with some very large retail partners, and we've picked up C-store, which we'll now be able to see in some of the Circana data that should start to give the year on year comps improving on a weekly basis as we get farther into quarter one and certainly into quarter two.

David Palmer

Thank you for all that. That's very helpful. A question on baby formula. Right now, that is about only 2% of your sales or so. When capacity is where you want it to be and maybe you can let us know when that will be. where do you think that mix can go? How much higher do you think that business, how much bigger can that business get when it's unconstrained?

Wendy Davidson

Yeah. So we feel very good about the capacity and capability that we have, it's been running very strong since early June, where we started with a limited number of formulations and limited sizes just to get full run rate. We are beginning to add the full formulation mix, so gentle, sensitive, dairy, et cetera and we're beginning to add the full sizes.
We will be in all sizes and all formulations that we need as we get into, call it, late quarter two. So the back half, we feel good about. As we look at the size of that business, Earth's Best was the number one infant formula in better for you up until two years ago. And we now are number five or six.
Our goal is to get back to that number one position. We have ample supply to do so. We're investing behind the brands. We were sort of the original where we are the original organic baby formula, the OG in the space, and we intend to recapture our leadership position in that way and so we'll be leaning into that. So how big that can be? The category has actually grown in the last couple of years. So it should be bigger than it was for us a couple of years ago, but we're going to be leaning very heavily into that.

David Palmer

Got it. We'll take a look at that. Thank you.

Wendy Davidson

Thank you.

Operator

John Baumgartner, Mizuho Securities.

John Baumgartner

Good morning thanks for the question. Wendy, good morning. Maybe first-off, Wendy, you sound much more positive on snacks distribution for the coming fiscal year after the phasing, I think, disappointed a bit last year. How do you think about the risks and the visibility that the phasing could sort of underperform again? I mean, is there a larger promotion from larger brands that could be an issue?
Could there be some volatility in the shelf resets from new outlets that you're entering? Just maybe when you think about the ramp, what are the potential pressure points that would cause a deviation from plan?

Wendy Davidson

Yeah. I think, first, you have to look at sort of why our snacks portfolio under delivered to our expectations. And I would tell you that it was 100% our own execution. It wasn't that we didn't have brands that could compete. It isn't that we didn't have the right products or the right sizes available. We didn't have distribution of the core assortment in all the places it needed to be.
We had things all over the place, which doesn't allow you to promote as effectively or to create marketing campaigns that really help it punch above its weight. We are focused very much on right products in the right place in the right sizes because we know when we do that, the velocities are very strong. We're very focused on promoting at a level that we need to.
We are promoting at the same, so our sales on promo is about where it's been. It is below industry average. So we're not having to over promote, but what we also know is promoting our brands isn't about a price discount because that's not why people buy the products. It's about driving feature and display. So we are 100% focused on using our promotional activity to help our retail partners and putting our products within arm's reach of the consumer so that they see it, there is aware and it's available.
It's that whole first of mind, first to find. And then we know that there is a need for us to continue to promote the portfolio. This summer is the first time we've ever done a multi-brand program. We did Savor Your Summer, which is our all three of our brands in better-for-you. During the core snacking season, we know that a better-for-you consumer wants to buy things, they want the options.
And so we were helping our retail partners and having it available. Our sales of those shippers, I think we had 13,000 shippers that went out and the sales during the Savor Your Summer exceeded our expectations. So we feel very good that right products in the right place at the right price point that we invest and promote behind, but not over promote and that we partner with our retailers to create awareness, we've got the right brands to compete there. But our biggest issue was ourselves. It wasn't necessarily that competitors were creating challenges for us.

John Baumgartner

Okay. And then on the tea business, that's been an area of material innovation for you. And looking at the Nielsen data, at least, the baseline volumes have been softer there, both in Q4 and in Q1 through mid-August. I know it's sort of off season, but have there been any other factors in marketing or merchandising having an impact? Just curious, if you can elaborate on the retail takeaway there and any kind of merchandising for FY25, we should be thinking about?

Wendy Davidson

Yeah. We feel very good about Celestial Seasonings, but I would tell you there's a couple of things playing into it. we converted all of our packaging to remove the overwrap on the boxes. And so as we've been phasing in the non-overwrap packaging on shelf, it's caused some challenges in shelf assortment, but also some availability as we're driving that core assortment of all the non-overwrap.
We also pulled back promotion spend and marketing spend in quarter four in anticipation of two things. We have a first master big Masterbrand campaign around Celestial Seasonings that will launch in early October. We also had new innovation that's coming, and we wanted to spend those dollars going into hot tea season rather than over promoting or marketing off season.
So we think these are short term in nature. We feel good about the assortments that we have coming. We've got two new innovation coming. So we have a beauty wellness tea with Biotin and we've got a lemon tea as well. And both of those are new innovations as we go into fiscal '25. But Masterbrand campaign clear shelf assortment going into hot tea season, we feel good as we go into the back half of the year.

John Baumgartner

Thanks, Wendy.

Wendy Davidson

You bet.

Operator

At this time, we've reached the end of the question-and-answer session. Now I'll turn the call over to Wendy Davidson for closing remarks.

Wendy Davidson

Yeah. I want to reiterate what I said earlier and really thank our teams. I especially want to thank the group that we have in finance and supply chain for the incredible work that they did in delivering fuel in this first year, that has really positioned us to make the investments we want around the business, but also to be able to pay down debt. I want to really thank everybody as we're going through this first year and especially, for the time this morning and look forward to further conversations.

Operator

This will conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.