Hain Celestial Group, Inc. Aktie

Thank you for standing by. My name is Carlene, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hain Celestial Fiscal Fourth Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to Alexis Tessier, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for a review of our fiscal third quarter 2026 results. I am joined this morning by Alison Lewis, 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 that 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 as reported, our remarks will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying this call. This call is being webcast, and an archive will be made available on the website.

And now I'd like to turn the call over to Alison.

Thank you, Alexis. Good morning, everyone, and thank you all for joining the call. Our third quarter performance reflects improved execution and financial discipline as we continue to strengthen our foundation and advance our turnaround strategy. We remain focused on our near-term priorities, optimizing cash strengthening the balance sheet, improving profitability and stabilizing sales. As a reminder, our goal is to position Hain for sustainable growth. The road map to achieving that growth is guided by our 5 actions to win portfolio streamlining, accelerating brand renovation and innovation, revenue growth management and pricing, productivity and working capital management and enhanced digital capabilities. .

During the quarter, strong cash generation and total debt reduction of $155 million materially improved our financial position with a major contribution coming from the completion of the North America Snacks business divestiture. From an operating perspective, we delivered Q3 adjusted EBITDA of $26 million, reflecting disciplined execution. Overall profitability improved sequentially with both gross margin and adjusted EBITDA margin improving versus Q2. While our organic net sales performance was not as strong as we expected, the resilience we are seeing across much of the portfolio based on the actions we have put in place is encouraging, and we understand and are actively addressing several isolated challenges.

Importantly, the work we have accelerated in innovation as a clear differentiator in our turnaround. We have significantly stronger renovation and innovation pipelines, meaningful new news to reenergize core categories. Recent launches delivering early share gains and a clear focus on continuing to scale these wins to drive sustainable growth.

I'll now drill down into the net sales drivers, including the progress on innovation as we review each of our regions. Q3 was a pivotal quarter for North America. We completed the divestiture of the Snacks business and made good progress in eliminating associated stranded costs, which Lee will expand on. The remaining core North American business is more focused, stable and profitable portfolio capable of generating gross margins exceeding 30% and low double-digit adjusted EBITDA margin.

In the third quarter, North America organic net sales declined 3%, which was consistent with Q2 trends, excluding the impact of that divestiture. Importantly, our core business is stable with organic net sales growth across yogurt, tea, baby and kids, finger foods and cereal. And we delivered expansion in both gross margin and adjusted EBITDA margin year-over-year. Sales pressure in the quarter was largely confined to select smaller brands and included the impact of portfolio simplification as we will discuss.

Notably, we continue to see improving innovation, driving momentum and share gains. Let me give you more color on how our innovation success is contributing to core category performance. In tea, wellness tea remains a bright spot with dollar sales up high single digits and segment share gains in the quarter, supported by strong distribution increases and elevated consumer demand in functional benefit areas. Building upon this momentum, Celestial Seasonings is expanding its wellness platform with innovation launching beginning this month in gut health and through support, further broadening its presence in these high-growth segments.

This builds upon the successful wellness launches this year in emerging benefit areas, detox, energy and women's wellness. In baby and kids, finger foods remains the primary growth driver with Earth's Best holding the #2 position in this segment. Momentum continues behind our self-feeding platform, particularly our crunchy stick heating snacks. We are energized about the upcoming launch of Earth's Best Big Kids finger food. This multi-SKU expansion with protein and fiber for high-density nutrition is designed to extend the brand into new consumption occasions beyond baby and toddler into its backpack territory, and will be supported by a full funnel marketing campaign.

In yogurt, Greek Gods continues to exhibit strong momentum with high-teen dollar sales growth and share gain. Multi-serve remains the foundation of the business continuing to drive performance, and we have the power to expand distribution supported by strong underlying demand. Innovation remains a key focus, and we are moving with pace against the biggest growth opportunities. Our new single-serve packaging format is beginning to scale, helping to drive trial and introduce new customers to the brand. we are seeing promising incrementality both to the Greek Gods brand and to the single-serve category as a whole.

In April, at select grocery retailers, Greek Gods launched a new high-protein offering, delivering 20 grams of protein per serving while maintaining the brand's differentiated indulgent taste profile. As we move through the balance of fiscal 2026, we remain focused on advancing our turnaround strategy and positioning Hain for sustainable growth at or above category growth rates. Across our portfolio, key performance indicators point to improving brand health and stronger execution. We are increasingly effective at reaching and engaging core consumers through a more disciplined digitally led approach with measurable returns and the momentum is evident across our core.

Supported by an accelerated innovation and renovation pipeline, we are executing with greater consistency and impact, reinforcing our path towards a more focused, resilient and built to win Hain in North America.

Turning now to our international business. We have a portfolio of well-recognized and loved brands with decades of quality and category leadership and a track record of resilient financial performance. The categories we operate in have struggled with volume as heightened geopolitical uncertainty and elevated inflation, including rising fuel prices are contributing to a decline U.K. and European consumer confidence.

In the quarter, we saw an organic net sales decline of 8% due to continued industry-wide volume softness in wet baby food ongoing challenges in spreads and drizzles as well as a decline in branded soup from a challenging year-ago comparison and strong private label competition. As a result, gross margin and adjusted EBITDA margin contracted in the quarter. The industry-wide decline we have seen in purees in the Baby and Kids category has stabilized, and we expect it to begin to recover as this month, we anniversary the beginning of the slowdown.

As a reminder, the industry decline began last May, following a BDC documentary on nutritional content in baby food. Encouragingly, we have seen early signs of consumption improvement in Ella's Kitchen in the last 2 months. Ella's Kitchen remains the #1 baby and kids food brand in the U.K. and Ireland. We have a strong pipeline of finger foods and new frozen meals innovation coming to the market, all supported by exceptionally strong nutritional credentials when compared to the competitive set. All of our innovation will be completely in line with Office for health improvement and disparities guidelines.

The launches are backed by fully integrated end-to-end marketing activation. We believe this innovation will fuel the category and brand recovery by bringing new news at shelf while advancing our better for little ones positioning. The spreads and drizzles category continues to be challenged as increased consumer focus on health and wellness is impacting consumption patterns. We are leaning in and making bold moves with a robust end-to-end transformation of the Hartley's brand, anchored by a full relaunch hitting shelves in June. This includes comprehensive product reformulation across the core portfolio with meaningful upgrades to improve fruit content and flavor and a step change in better-for-you innovation.

As part of this relaunch, we are also rolling out Hartley's first ever 100% fruit spread along with new fruit flavor combination products designed to energize the category. The brand will debut with a new visual look and feel and will be supported by premium pricing and an in-store promotion strategy for consumption acceleration. Along with consumer communication designed to drive trial, reappraisal and category engagement. This innovation has been very well received by retail partners with expanded distribution and support confirmed for Q1.

Additionally, we continue to address near-term margin pressures by optimizing our manufacturing operations. In soup, we are the market leader with the top 3 brands in the U.K. New Covent Garden, Yorkshire Provender, and Cully & Sully, which span distinct propositions and good, better, best price tiers. Our most premium offering, Cully & Sully, again grew value double digits and share. And our private label soup grew organic net sales by high single digits. However, our remaining brands face aggressive private label competition and a tough distribution gain comparison in the year ago period.

We have a full brand relaunch plan for Yorkshire Provender this fall, representing a meaningful upgrade to the franchise. We are updating every single recipe with high-quality ingredients redesigning the packaging to visually demonstrate our naturally abundant and honestly delicious food and introducing premium innovation through our special collection and adding too to our successful destination launch program. In spite of the pressure points in Baby & Kids, spreads and drizzles and soup, 50% of our brands are holding or gaining share, demonstrating brand and competitive strength in a tougher operating environment.

We see renovation and innovation-led growth critical to energizing the categories with innovation rates that are accelerating across the portfolio. Our innovation renewal rate or percent of net sales coming from SKUs launched or relaunched the last 3 years was more than 12% in the quarter, up over 2.5 points from a year ago. And we have significant renovation and innovation plan for Q4 and beyond as we have discussed. This innovation, along with the lack of the start of the industry-wide baby food softness is expected to drive improved organic net sales trends in Q4.

Before I turn the call over to Lee for a closer look at the financials, I want to touch briefly on our ongoing strategic review. We are in the execution phase and our first action against North America snacks has been completed. We are actively executing additional actions with a clear priority on further deleveraging and driving long-term shareholder value. As we've indicated previously, while this work is ongoing, we will provide updates only when there are definitive actions or outcomes to share.

With that, I'll turn the call over to Lee for a more detailed discussion of Q3 results.

Thank you, Alison, and good morning, everyone. Before I go through our Q3 performance, I want to remind everyone that we completed the sale of our North American snacks business on February 27, 2026. Accordingly, our reported and adjusted financial results contain the results of North American snacks in January and February, but not in March. When we speak about organic net sales, by definition, we exclude the results of North American snacks from the calculation, both in the current quarter as well as in the comparable period.

When we talk about certain items, excluding snacks, we exclude the impact of North American snacks and TSA proceeds and assume removal of associated stranded costs. For the third quarter, we saw an organic net sales decline of 6% year-over-year, driven primarily by lower sales in the International segment. The decline in organic net sales reflects an 11-point decrease in volume mix and a 5-point increase in price. Adjusted gross margin was 21% in the third quarter. This represents an approximately 90 basis point decrease year-over-year, while improving by approximately 150 basis points sequentially. The year-over-year decrease was driven primarily by inflation and lower volume mix, partially offset by productivity savings and pricing.

The sequential increase reflects the North American snacks divestiture as well as actions taken, including SKU simplification, more effective trade management, targeted pricing and productivity initiatives. SG&A decreased 6% year-over-year to $59 million in the third quarter, primarily driven by a reduction in employee-related expenses. SG&A represented 17.5% of net sales for the quarter as compared to 16.1% in the year ago period. SG&A stranded costs less the impact of mitigation actions and TSA proceeds were negligible in the quarter.

As Alison mentioned, we are making good progress in the elimination of stranded costs, which are now expected to be in the high end of the $20 million to $25 million range. We've already initiated actions to remove nearly 70%, primarily people-related costs, which we were able to implement quickly. The remaining costs will be reduced through fiscal 2027, with roughly half coming out by the end of Q2 and the remainder by the end of Q4. In the near term, our transition services agreement, or TSA, is generating proceeds from providing ongoing support to the recently divested snacks business. Together with actions taken to date, this has essentially eliminated any near-term stranded cost impact. We are nearly finished with our restructuring program to date, having taken $108 million in charges associated with the transformation program, excluding inventory write-downs, out of unexpected charges of $115 million to $125 million.

We remain on track to deliver the targeted $130 million to $150 million in benefits through fiscal 2027. Interest expense rose 17% year-over-year to $14 million in the quarter, primarily driven by higher spreads over variable rates due to last year's refinancing as well as increased amortization of deferred financing fees related to the credit agreement amendment and repayment of term loans using proceeds from the snacks divestiture. We have hedged our rate exposure of more than 70% of our loan facility with fixed rate of 7.1%. We continue to prioritize reducing net debt over time.

Adjusted net loss, which excludes the effect of restructuring charges amongst other items, was $1 million in the quarter, or $0.01 per diluted share as compared to adjusted net income of $6 million or $0.07 per diluted share in the prior year period. We delivered adjusted EBITDA of $26 million in the third quarter compared to $34 million a year ago. The decrease was driven primarily by lower gross margins partially offset by a reduction in SG&A. Adjusted EBITDA margin was 7.8%, demonstrating sequential improvement from 6.3% in the second quarter.

Turning now to our individual reporting segments. In North America, organic net sales declined 3% year-over-year, primarily driven by lower sales in Baby & Kids, partially offset by growth in beverages. As Alison mentioned, the core is relatively healthy with growth in tea, yoga and Earth's Best finger food and cereal. Excluding country brands, which consist of oil, nut butter and soup brands, organic net sales in North America would have grown 3%.

Third quarter adjusted gross margin in North America was 23.4%, an increase of 100 basis points versus the prior year period. The increase was driven primarily by productivity savings and pricing, partially offset by lower volume mix and cost inflation. Excluding snacks, gross margin would have been 30% in the quarter. Adjusted EBITDA in North America was $17 million or 10% of net sales, reflecting a decrease of 1% from the year ago period. The decrease resulted primarily from lower volume mix and cost inflation, nearly offset by SG&A reduction, pricing and productivity savings. Excluding snacks, adjusted EBITDA margin would have been 16.4% in the quarter, demonstrating the strength of the go-forward margin profile in North America.

In our International business, organic net sales declined 8% in the quarter, primarily driven by lower sales in meal prep and Baby & Kids. International adjusted gross margin was 18.5% and a 270 basis point decrease versus the prior year period. The decrease was driven primarily by cost inflation, partially offset by productivity savings and pricing. Adjusted EBITDA was $20 million or 11.7% of net sales, reflecting a decrease of 12% compared to the prior year period. The decrease resulted primarily from cost inflation and lower volume mix, partially offset by productivity savings and pricing.

Now turning to category performance. In Baby & Kids, organic net sales were down 14% year-over-year, driven primarily by continued industry-wide volume softness in purees in the U.K. as well as by purees and formula in North America, partially offset by growth in finger foods in both regions and cereal in North America. In terms of consumption, we have continued to see strength in Earth's Best finger foods and cereal in North America, with each showing dollar sales growth of mid- to high single digits year-over-year.

Ella's Kitchen finger food also saw value sales growth of low single digits year-over-year. And while still in decline, we are seeing signs of stabilization in the wet baby food category in the U.K. and expect to see improvement as we begin to lap the industry-wide declines in May. In the beverages category, organic net sales were flat year-over-year as growth in tea in North America and private label nondairy beverages in international was offset by a decline in branded nondairy beverage. We expect branded nondairy beverage trends to improve in Q4 as we roll out significant innovation, including clean label and protein offerings.

In meal prep, organic net sales were down 5% year-over-year. The decline was driven primarily by pantry brands in North America, spreads and drizzles in the U.K., partially offset by strength in Yoga in North America. [indiscernible] continue to outpace the category, growing dollar and unit sales by high teens and low 20s percent, respectively, and gaining share. Our SKU simplification efforts in our pantry brands had approximately a negative 1 point impact on meal prep organic net sales in the quarter, though these efforts are driving a more productive assortment that positions the business for stronger margin performance over time.

Following the sale of the North American snacks business, the snacks category is comprised of [indiscernible] in the International segment. Organic net sales in snacks were down 7% year-over-year. Hartleys remains the #1 brand in Jelly pops, and we expect the category to recover as consumers continue to prioritize healthy snacking, and we bring meaningful new innovation. Further, we are launching upgraded or jelly SKUs in Q1 with the cleaner ingredient list and the new look and category-leading innovation with our new protein collagen jelly, offering 10 grams of protein.

Shifting to cash flow and the balance sheet. As Alison mentioned, we had a strong cash delivery in the quarter. Free cash flow in the third quarter was $35 million, an increase compared to the outflow of $2 million in the year ago period. The improvement was primarily driven by inventory delivery, improved accounts receivable collections and insurance proceeds, partially offset by lower benefits from accounts payable and accrued expenses. We are pleased with the progress we made on inventory, driven by improved operating discipline. Inventory continues to be an area of focus for fiscal 2026.

Days inventory outstanding improved to 73 days in the quarter to our lowest level in 2 years. This compared to 75 days in Q2 2026 and 79 days in the prior year period. As a reminder, every day of inventory is worth approximately $3.5 million. We also made progress in our days payable outstanding with days payable outstanding of 59 days in the quarter, an improvement from 57 days in Q2 2026, but down from 61 days in the year ago period. CapEx of $4 million in the quarter was down from $7 million in the prior year period. We expect capital expenditures to be approximately $20 million for fiscal 2026.

The completion of the North American snack sale and cash generation this quarter brought cash on hand to $44 million and net debt to $505 million, a reduction of $145 million since the beginning of the fiscal year. We also have $196 million of available liquidity under our revolver and remain in compliance with all credit agreement covenants. With leverage of 4.3x in the quarter, we have plenty of headroom under the covenant of 5.5x. We have a disciplined approach to capital management and continue to prioritize debt reduction. We have reduced net debt by $272 million over the last 11 quarters. We are proactively addressing our December maturity.

Our strategic review yielded a multistage plan aimed at materially improving liquidity and leverage, while creating value for shareholders. The sale of the North American Snacks business was an important first step. As we continue to execute the next phases of this plan, we are advancing additional actions, including further asset sales and operational improvements. We remain actively engaged with our lenders while we evaluate potential strategic transactions. We continue to believe that aligning the maturity solution timing with the execution of the strategic plan will enable us to achieve the strongest long-term outcome for the company and for shareholders. We are confident that we will be able to refinance, extend or repay our debt prior to maturity.

Turning now to our outlook. As previously communicated, we are not providing numeric guidance on fiscal 2026 operating results given the uncertainty around the outcome and timing of the completion of our strategic review. Looking ahead, we expect the divestiture of North American snacks to be gross margin and EBITDA accretive, and the profile of the go-forward North American portfolio to have gross margin above 30% and EBITDA margin in the low double digits. For fiscal 2026, we continue to expect positive free cash flow for the full year. While it's too early to provide guidance on fiscal 2027, I did want to provide a little bit of context.

In fiscal 2027, our fundamental priorities will be continuing to stabilize as through our 5 actions to win, thereby setting the foundation for future growth. driving gross and EBITDA margin improvement versus fiscal 2026, generating cash and eliminating stranded costs. Upon completion of our strategic review, we plan to provide guidance for fiscal 2027.

Now I'll turn the call back to Alison for some closing remarks.

Thanks, Lee. We are making tangible progress on our turnaround, strengthening our foundation through improved operating discipline, strong cash generation and ongoing net debt reduction. We simplified the portfolio with the completion of the North America Snacks divestiture, positioning North America for a stronger margin profile and focused reinvestment in growth and we are actively executing the next phase of our strategic review. We delivered gross margin and adjusted EBITDA margin expansion in North America while advancing brand renovation and innovation across tea, Baby & Kids and yogurt.

Internationally, we're growing or holding share in half of our brands supported by innovation pipeline while navigating category softness and a few isolated challenges that we are quickly and aggressively actioning. We are actively addressing the December debt maturity and remain confident that we will be able to refinance, extend or repay prior to maturity. Q3 reinforce view that while stabilizing the top line remains a priority, the underlying operating trajectory is improving. As we close out fiscal 2026, we remain focused on executing our 5 action to win to drive sustainable, profitable growth. That concludes our prepared remarks, and we are now happy to take your questions. Operator, please open the line.

[Operator Instructions] Your first question comes from Jim Salera with Stevens Inc.

I appreciate the update on some of the new innovations. Are you able to give us some details about how you're thinking about supporting kind of the continued innovation and the success once the products launched and are on shelf amidst all the other activity. I mean should we think about some of the flow-through benefit on the improved gross margin is going to support either trade spend or marketing or in kind of the remainder of the calendar year is all the incremental savings just going to drop down to the upcoming maturity that you mentioned?

Yes. Happy to jump in. So innovation, overall, we believe it's a really important part of our growth story, as you heard. I think many of these categories rely on new news to not only create interest in the category and drive the category but also expand distribution, expand presence, drive new occasions, et cetera. In terms of that innovation, we do believe that, that innovation does need to be supported with marketing. It's really important to create that awareness, to create that trial, to create that repeat. And we believe that innovation isn't 1 and done, meaning launch innovation, but then you have to leverage it and leverage it over a 3-year time horizon to make sure that it sticks and is sustainable. .

So we have been able to increase our marketing investment in North America, and we're putting that investment against the innovation. We've worked out ways where we can get a halo on the basin brand, but also drive the innovation. And the same with international, while international has remained relatively flat year-over-year. We are looking to, as we go forward, continue to accelerate that innovation behind -- marketing investment behind that innovation. So I think we're talking about from a P&L standpoint, balance. We're looking to stabilize and grow, particularly our core businesses, as we talked about. We are seeing improvement in gross margin and you saw a sequential improvement. We are looking to take some of the benefit of the simplification actions that we've taken in North America not only from the sale of snacks, but also the SKU rationalization and use that more productive portfolio and gross margin while to invest a little bit back into the business. We're going to be balanced in doing that. But we believe that investment is an important part of our growth story to support that innovation.

I would just say we're also prioritizing our spend. We talked about this before on the marketing to make it more effective as well. So we do want to drive awareness and trial in the innovation and renovation. And I think as we talked about previously, we are accelerating the shift to digital and social led as well. So it's not just about kind of the investment. It's also just the effectiveness of that investment as well.

Great. And then a follow-up question on the core business you guys called out, you've seen some stability on the organic sales line across yogurt tea and the baby segments. Anything we should think about in the back half of the year just as a lot of uncertainty on kind of the overall economic backdrop. I don't know if you've seen competitors maybe engaging in more trade spend, the same way that we've seen in more kind of mainstream categories? And do you have any flexibility if you see more competition or more discounting to be able to kind of address that while also working through some of the other parts of the strategic plan.

Yes. So I'll comment on North America, if you asked about North America. I mean, we have not seen a significant uptick in competitive activity. Just if you look at the published data out there, Serafuld on promotion. It's remained relatively stable, a little bit of puts and takes by some segments, but relatively stable. In terms of what we expect, we can expect that the business those core businesses in North America. So yogurt tea and our baby business will remain relatively stable and retain that growth. We have seen that consistently quarter-on-quarter as we continue to launch innovation, as we continue to keep the marketing investment on the business, we do expect that we'll continue to see the results that we've seen as we go forward.

In terms of flexibility, if competition becomes more aggressive. We will always be surgical and smart about how we think about that investment. But obviously, we do need to remain competitive in the marketplace. And so we'll appropriately focus dollars as we need to based on where competition is moving.

And then maybe just on the international side. We do continue to see the major brands leaning heavily on promotions. So there is some increase in media investment there, but the same strategy with North America, we continue -- we will be surgical as we look at our spend.

[Operator Instructions] Your next question comes from Anthony Vendetti with Maxim Group.

Yes. I was just -- in terms of private label, it seems like in this economic environment, probably consumers are moving towards that a little bit more. Maybe just talk a little bit about your private label strategy, how you're addressing that? And then certainly, I like the fact that you're moving towards these higher protein offerings with Greek cost that seems to be resonating. And in terms of branded Don dairy, it sounds like you have a new offering coming out that's high protein. When is that scheduled to hit the shelves, and are you going to be putting marketing dollars behind that?

Great. So on private label, I mean, I'll break it down by North America versus international, because I think actually there's quite a difference in terms of those 2 regions. So from a North America perspective, with the exception of yogurt and our pantry brands, private labels are relatively low share and we have not seen significant growth in private label. So tea and baby, 2 categories where quite low private label, 5 or below. When it comes to the yogurt brands, I mean, yogurt definitely has more private label in the category. However, it is also a category that really relies on innovation and relies on sort of benefits such as protein, which you mentioned.

And so the branded players by default, I think, have a leg up because they innovate faster in those areas. So not overly concerned about private label in yogurt as long as we continue to innovate and follow where the consumer is going and what the consumer needs. In our Pantry brands, we do have more competition from private label. As you can imagine, those can be -- those are used for baking ingredients, those sorts of things. So they're more substitutable brands, and so you do see more competition there. And so again, continuing to make sure that we're managing versus and driving stability versus private label is important.

When it comes to international, we have quite a different story. We actually have seen private label increase in international. I mean overall, while inflation in international versus North America is sort of the same from a rate basis. Consumer sentiment is very different in North America versus international. And so you do see a lot more shifting to private label. You see a lot more premiumization in private label in international. The piece of good news, I will say, as we've talked about with you in the past, is we actually have quite a balanced portfolio in international. So while we have brands and play well in the branded space. We also have significant private label business. And so we're able to sort of compete on both fronts depending on where the market is shifting.

Okay. And then just lastly, on meal prep, that segment seems to be a good segment in the U.S. Is there a plan to return that to growth? How do you see your strategy there playing out?

In the U.S. specifically, you're asking?

Yes.

Okay. So yes, in the U.S., I mean meal prep consists of our yogurt business, which is growing very well, gaining share. You mentioned, and I actually forgot to answer that part of your question. You mentioned the innovation. We've moved into single-serve, we've moved into protein that has launched with -- started with 1 large retailer and obviously, we'll continue to roll that. So moving into sort of new occasion space, and we are absolutely supporting that with marketing. So that's a very important and valuable part and the largest part of our meal prep segment. When you look at the remainder of meal prep, it really is what we call the Pantry brands. The Pantry brands consist of our nut butters, our oils and our broth business. That is under 20% of our total portfolio. And that business, as I mentioned, is a little more it's been a little more challenging for us because they're busy categories. They have higher private label, higher substitutability.

We're relatively small share in those categories. So our focus in those categories is really stabilizing. We're doing a lot of work sort of by retailer on how do we stabilize those businesses with trade investment and a little bit of marketing investment to keep those businesses healthy as we move forward.

At this time, there are no further questions. I'll now turn the call back over to Alison Lewis, CEO, for closing remarks.

Well, thanks for joining today. We appreciate the questions, and we appreciate the time. I guess what I'll close with is really what I opened with, which is -- you saw that this quarter represented a quarter of strong cash generation, total debt reduction of $155 million, with materially improved our financial position, and we closed the divestiture of the snack business. We're also seeing our turnaround take hold with a meaningful EBITDA and margin in as we look at the business quarter-on-quarter.

And while revenue was slightly below expectations, we see growth in many of our core categories, and we're very focused and actively addressing the isolated challenges. So we believe that as we closed the quarter, the underlying operating trajectory is improving, and we're going to continue to move that forward as we move into the fourth quarter and beyond. So thanks for joining.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to Hain Celestial Fiscal Second Quarter Earnings Call.

[Operator Instructions] Thank you.

I would now like to turn the call over to Alex Tessier, Head of Investor Relations. You may begin.

Good morning, and thank you for joining us for a review of our fiscal second quarter 2026 results. I am joined this morning by Alison Lewis, 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 rents. 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 as reported, our remarks will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying this call. This call is being webcast, and an archive will be made available on the website.

And now I'd like to turn the call over to Alison.

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Good morning, everyone, and thank you for joining the call and for your continued support of Hain. Today, we will discuss the actions we are taking to advance our turnaround strategy and the results for our second quarter. First, let me start with an update on our strategic review. As previously communicated, we have been conducting a comprehensive strategic review with the goal of simplifying our portfolio, enhancing our financial flexibility, reducing our leverage profile and maximizing shareowner value. The assessment phase involved a thorough review of our assets, operations and market opportunities. As a result, we are executing our first decisive steps to sharpen our focus on categories and brands in key markets where we can leverage our organizational strength.

On February 2, we announced that we reached a definitive agreement to sell our North American Saks business to Sac Ruptures a family-owned manufacturer of food and baked goods in Canada for $115 million in cash, proceeds from the transaction will be used to reduce debt, thereby strengthening our company's financial position and leverage profile. I am confident that in snack actors, we have found the right home for our beloved snack brands and the employees who support them. I want to rest my gratitude to the many talented employees who have built our North American snack brands over the years. Their commitment has been instrumental to reaching this milestone.

This divestiture marks a pivotal moment for Hain as we focus to grow. The simplified portfolio that emerges in North America following the divestiture is stronger financially with a more robust margin and cash flow profile to drive growth. Hain Celestial's North America snacks represented 22% of the company's net sales in fiscal 2025 and 38% of the North America segment net sales with negligible EBITDA contribution over the last 12 months.

The financial profile of the remaining portfolio in North America is meaningfully stronger and expected to deliver EBITDA margin in the low double digits, underpinned by gross margin above 30%. Our North America business will be healthier financially and more focused as we concentrate on 3 flagship categories, tea, yogurt and baby and kids, while we continue to develop our meal prep platform. This portfolio remains diverse across life stages is aligned with better-for-you trends and is quite GLP-1 resistant, meeting evolving consumer needs.

This recently announced divestiture is the first visible step in the execution phase of the strategic review we initiated with Goldman Sachs. This transaction is a clear example of how we intend to use the value embedded in our portfolio to meaningfully reduce debt, strengthen our balance sheet and sharpen our strategic focus. In parallel, we are actively advancing the next phase of this review to further simplify our portfolio with a clear priority on continued deleveraging. We expect the resulting financial flexibility will allow increasing investment over time, enabling us to drive sustainable, profitable growth and create long-term shareholder value.

I'd like to discuss the concrete operational progress we've made to advance our turnaround strategy and the positive changes we're driving across the organization. We are beginning to see measurable results from the steps we've taken to reshape our cost structure, enhance our operating model and execute our 5 actions to win. As a reminder, our turnaround strategy is centered on 5 key actions to win, streamlining our portfolio, accelerating brand renovation and innovation, implementing strategic revenue growth management and pricing, driving productivity and working capital efficiency and strengthening our digital capabilities. Underpinning our turnaround strategy is enhanced operating discipline, early signals across forecast accuracy, inventory management, service levels and productivity reinforce our confidence that we are enhancing operating discipline tightening production processes, improving cash efficiency and establishing a strong foundation for long-term growth.

For example, forecast accuracy in the U.S. rose by 4 points quarter-over-quarter and in December, reached the highest level in the last several years. This contributed to a 4-day improvement in days inventory outstanding in North America while international improved by 9 days, driving improved cash flow. In terms of service level increases, North America was over 96% in the quarter, our best service level in recent history, enhancing our ability to meet demand and support sustainable growth. Further, we drove 13% improvement in SG&A year-over-year or 120 basis points as a percent of sales and productivity remains on track to hit our target for the fiscal year, supporting our ability to reinvest in the business.

On this improved operational foundation, we are driving Hain forward with a focused portfolio more brand renovation and innovation, rigorous pricing and promotion execution and enhanced digital marketing and e-commerce capabilities that position us to accelerate growth and improve profitability.

Turning now to quarterly results. Our second quarter results reflect both the meaningful progress we are driving and the near-term pressure, we continue to navigate particularly from volume-driven deleverage in select parts of the portfolio. Even with these headwinds, we delivered important wins, strong cash flow, a reduction in net debt, and a clear sequential improvement in both top and bottom line trends in our international business.

The core of our business is stable with continued growth in North America, tea, yogurt and in baby kids finger foods across both regions. Organic net sales in Q2 were flat year-over-year when excluding the known hotspots of North America Snacks and Elf Kitchen wet baby food as well as earth Best baby formula, which is impacted by lapping supply recovery last year.

SG&A performance; was a standout with disciplined execution driving meaningful improvement. Adjusted EBITDA of $24 million reflected volume mix impact and cost inflation. Importantly, the actions we are taking across innovation, pricing and brand investment should position us for a stronger second half. We remain fully committed to delivering improved top and bottom line performance in the back half of the year as these initiatives take hold, executing with discipline to strengthen our cost structure and position the business for growth.

We are advancing our turnaround strategy with urgency and this quarter demonstrated meaningful strategic and operational progress. We are sharpening our portfolio and strengthening our balance sheet through the divestiture, giving us greater financial flexibility alongside an improved margin and cash flow profile. Our core categories are stable. Our operational execution is improving, and the actions underway across simplifications, pricing, innovation, productivity, and digital provide a clear path to sequential improvement in the back half of the year.

I'll now turn the call over to Lee to review our second quarter results in more detail, along with our outlook.

Thank you, Allison, and good morning, everyone. For the second quarter, we saw an organic net sales decline of 7% year-over-year, driven by lower sales in both the North America and International segments. The decline in organic net sales growth reflects a 9-point decrease in volume mix and a 2-point increase in price. As Alison mentioned, organic net sales trends in the second quarter were flat year-over-year and in line with Q1, when excluding North American snacks and Ella's Kitchen wet baby food, along with Earth's Best baby formula, which was cycling a significant return to market pipeline.

Adjusted gross margin was 19.5% in the second quarter a decrease of approximately 340 basis points year-over-year. The decrease was driven by cost inflation, lower volume/mix and unfavorable fixed cost absorption, partially offset by productivity and pricing. Actions already underway, including SKU simplification, revenue growth management, targeted pricing and productivity initiatives along with efforts across key manufacturing sites to improve plant absorption and reduce discards position us well for margin improvement in the back half.

SG&A decreased 13% year-over-year to $61 million in the second quarter, driven by a reduction in employee-related expenses and nonpeople cost discipline, as we implemented overhead reduction actions. SG&A represented 15.9% of net sales for the quarter as compared to 17% in the year ago period.

We are nearly finished with our restructuring program to date, having taken $103 million in charges associated with the transformation program, excluding inventory write-downs. The total charges are now expected to be between $115 million to $125 million, reflecting a $15 million increase related to actions anticipated in connection with the sale of the North American snacks business. We remain on track to deliver the targeted $130 million to $150 million in benefits through fiscal 2020.

Interest rose 22% year-over-year to $16 million in the quarter, primarily driven by higher spread as well as increased amortization of deferred financing fees as a result of the amendment of our credit rep. We have hedged our rate exposure on more than 50% of that loan facility with fixed rates at 7.1%. We continue to prioritize reducing debt over time. Adjusted net loss, which excludes the effects of restructuring charges amongst other items, was $3 million in the quarter or $0.03 per diluted share as compared to an adjusted net income of $8 million or $0.08 per diluted share in the prior year period. We delivered adjusted EBITDA of $24 million in the second quarter compared to $38 million a year ago. The decrease was driven primarily by lower gross margins partially offset by a reduction in SG&A. Adjusted EBITDA margin was 6.3%.

Turning now to our individual segments. In North America, organic net sales declined 10% year-over-year. The decrease was primarily driven by lower volume in snacks and by baby formula, partially offset by growth in beverages. Excluding Snacks, organic net sales in the quarter would have declined by 3%. The core is relatively healthy with growth in tea, yogurt and Earth best finger food and cereal.

Second quarter adjusted gross margin in North America was 20.8%, a 440 basis point decrease versus the prior year period. The decrease was driven primarily by lower volume mix, cost inflation and unfavorable fixed cost absorption, partially offset by productivity savings and pricing. Excluding snacks and heads, which we previously announced we were exiting, gross margin would have been 28.6% in the quarter. Adjusted EBITDA in North America was $11 million or 5.5% of net sales, reflecting a decrease of 57% from the year-ago period. The decrease resulted primarily from lower gross margins, partially offset by a reduction in SG&A expenses. Excluding Snacks and Eve, EBITDA margin on a comparable basis would have been 12.8% in the quarter. In our international business, organic net sales declined 3% in the quarter, primarily driven by lower sales in Baby and Kids. This represents an improvement from the 4% decline in organic net sales in the first quarter, driven primarily by a moderation in declines in Baby and Kids. International adjusted gross margin was 18.1%, a 200 basis point decrease versus the prior year period. The decrease was driven primarily by cost inflation unfavorable fixed cost absorption and lower volume mix, partially offset by productivity savings and pricing.

Adjusted EBITDA was $19 million, or 10.2% of net sales, reflecting a decrease of 16% compared to the prior year period. The decrease resulted primarily from lower gross margins. Now turning to cash flow performance. Organic net sales in snacks was down 20% year-over-year driven by club distribution losses and velocity challenges in North America. Importantly, we are seeing velocity improvements with our recent Avocado innovation and multipack optimization, and our seasonal innovation performed particularly well, with Gosen Bats for Halloween and more recently, holiday trees. In Baby and Kids, organic net sales growth was down 14% year-over-year, driven primarily by industry-wide softness in wet baby food in the U.K. as well as formula in North America, driven by lapping the return to market pipeline.

We have continued to see strength in Earth's Best finger foods and cereal in North America, each showing dollar sales growth of low double digits percent year-over-year. Anders kitchen finger food also saw organic net sales growth, up high teens year-over-year. And while still in decline, we are seeing signs of stabilization in the wet baby food category in the U.K. In the beverages category, organic net sales growth was 3% year-over-year, driven by tea in North America and demonstrating an acceleration from the 2% growth year-over-year in Q2 was partially offset by strength in Yoga in North America. Greek Gods grew dollar and unit sales in the quarter by high teens percent and gained share. Shifting to cash flow and the balance sheet.

As Alison mentioned, we had strong cash delivery in the quarter. Free cash flow in the second quarter was $30 million. an increase of 22% compared to $25 million in the year ago period. The improvement was primarily driven by inventory delivery, higher cash earnings and improved payables and partially offset by lower recovery of accounts receivable. We are pleased with the progress we're making on inventory driven by improved operating discipline. Inventory continues to be an area of focus for fiscal 2026.

Days inventory outstanding improved to 75 days in the quarter compared to 83 days in Q1 2026, and 77 days in the prior year period. Each day of inventory is worth approximately $3.5 million. We also made progress in our days payable outstanding with detailed outstanding of 57 days in the quarter, in line with Q1 and an improvement from 56 days in the year ago period of $7 million in the quarter was up slightly from $6 million in the prior year period. We now expect capital expenditures to be in the low $20 million for fiscal 2026.

Strong cash flow generation in the quarter brought cash on hand to $68 million and net debt to $637 million a reduction of $32 million. We also have $144 million of available liquidity under our revolver and remain in compliance with all credit agreement covenants. Our credit facility matures in December of 2026. Accordingly, we have classified all of the associated borrowings as a current liability in our 10-Q. We have a disciplined approach to capital management and continue to prioritize debt reduction as the primary use of cash as we continue to act proactively to manage the upcoming purity.

Over the last 10 quarters, we have reduced net debt by $140 million. We expect to generate additional operating cash flow during the balance of fiscal 2026, including the collection in January of $26 million of insurance proceeds and ongoing working capital improvement, meaningfully reducing debt obligations in the ordinary course of business. Our strategic review is yielded a multistage plan aimed at materially improving liquidity and leverage. The sale of the North American snacks business is an important first step with net proceeds dedicated to debt repayment.

Pro forma of the transaction, leverage would fall from 4.9x at quarter end to approximately 4x. As we execute the next phase of this spend, we are advancing additional actions to enhance financial flexibility, improve performance and address the upcoming credit agreement maturity, including further asset sales and operational improvements. We believe that aligning the maturity solution timing with the execution in the multistage plan will enable us to achieve the strongest long-term outcome for the company and shareholders.

We remain actively engaged with our lenders and are assessing opportunities to refinance our debt or extend maturities while evaluating potential capital raising or strategic transactions. We believe that the successful execution of these plans will enable us to refinance, extend or repay our debt prior to maturity from a position of strength.

Turning now to our outlook. As previously communicated, we are not providing the Embarc guidance from fiscal 2026 operating results at this time given the uncertainty around the outcome and timing of the completion of our strategic review. We intend to provide pro forma financials upon closure of the North American snacks divestiture expected in February. Looking ahead, we expect the divestiture of North American snacks to be gross margin and EBITDA accretive and the profile of the go-forward North American portfolio to have gross margin above 30% and EBITDA margin in the low double digits.

As for fiscal 2026, we continue to expect strong cost management and productivity along with execution against our 5 actions to win in the marketplace to drive stronger top and bottom line performance in the second half of the year as compared to the first half. And for the full year, we continue to expect positive free cash flow.

Before I turn back to Alison, I want to underscore the actions we are taking to strengthen our financial position. We are enhancing our flexibility and improving performance through initiatives to stabilize sales, improve profitability, optimize cash and reduce debt. The strategic review and agreement to sell our North American snacks business are important steps, and we continue to advance additional actions with solid liquidity, strong cash delivery in the quarter and positive free cash flow expected in fiscal 2026, we remain confident in our ability to drive improved performance in the second half and beyond.

Now I'll turn the call back to Alison for some closing remarks.

Thanks, Lee. In summary, I want to reaffirm our confidence in the direction we have set for the company. This quarter marks a pivotal moment in our journey. We have taken a significant first step to sharpen our focus and strengthen our financial position. We are engaging in ruthless focus, fewer categories, fewer grams and fewer SKUs, enabling concentration on areas that better align with our strengths and core capabilities. We are making tangible progress in improving our operational health and enhancing cash delivery. The actions we have taken will drive a structural reset of our margins, and we continue to identify and remove costs from the business, freeing up fuel to invest. Q2 results demonstrate strong cash delivery, reduction in net debt and a stable core business.

We are attacking our challenges head on and nurturing growth through our 5 actions to win. We are encouraged by the progress we are making as we focus on executing our strategy and building momentum quarter-by-quarter. While we continue to navigate pockets of pressure, we are executing with resolve and we remain confident that the steps we are taking today position Hain to deliver sustainable profitable growth and long-term value for our shareholders. That concludes our prepared remarks, and we are now happy to take your questions. Operator, please open the line.

[Operator Instructions] And your first question comes from the line of Jim Salera with Stephens Inc.

I wanted to start maybe -- to start off with maybe some more details around the decision to divest the tax portfolio. If we go back to the Investor Day in 2023, you guys called out a couple of different categories to focus on and grow staff with on the Baby and Kids and then beverages, I think there are 6 brands, 3 of which were stacks. And then over the preceding years, there's been a lot of focus on innovation in the Sac portfolio, getting better placement and away from home, things like that. RECONNECT So clearly, something's changed. Do you guys think that there's more value in focusing on other areas of the portfolio.

So I would just love if you could kind of help us bridge what changed in your thinking or what you've seen in the market from that to result in divestments.

Sure. I'll jump in first. So Look, you know that our first action to win is all about simplifying our portfolio. We needed to take some action in North America that would allow us to really focus to grow. As we assess the various businesses stepping back and looking at sort of rights to win and what it takes to win in a category like snacks, the reality is that there are a lot of capabilities, given that this is an impulse -- you need to have really heavy and intense innovation -- you need to have strong marketing investment consistently.

You need to have DSD like merchandising, drive again, kind of that impulse purchase. If you look at sort of the rest of our portfolio, it tends to be more center of store in North America and center store categories are fundamentally demand fulfillment. So the demand is already there. And it's not quite as competitively intense that is one of the key reasons when we looked at our portfolio, where was sort of the biggest opportunity for simplification.

I'll also add, and you saw that snacks over the years had become somewhat financially challenged for us the business. We had become overreliant on the club channel. We firmly believe that as we divest the snacks business, having a portfolio in North America, that has gross margin. the remainder of the North American business, we anticipate being greater than 30%. And again, we don't like to do kind of X, but if you take out a couple of things, specifically around snacks and then some category softness that we've had in kids, we were actually flat. So that speaks to kind of the rest of the portfolio. So we think we are better positioned as we move forward with a higher profitability portfolio.

I ask about reallocating some of the innovations. I imagine if you're not having the next portfolio anymore than frees up some internal capabilities to then pivot to innovation in the remaining categories.

Can you just talk through maybe some of the stranded overhead what those costs are? And if we do expect to see more innovation in the remining categories, whether it's in the back half of this year or maybe that's a 2027 event?

Yes. We did call out the stranded costs. I don't think -- we probably didn't burly speak to it, but it was on 1 of the slides. So the stranded cost impact is about $20 million to $25 million. So those are costs that are allocated to snacks right now. We have really concrete plans to execute to mitigate the majority of those costs within the 6- to 12-month time frame. And again, will free up resources. Some of that obviously will drop through but also just real. We will be able to put more investment and more time and energy against the innovation for the balance of portfolio. And we really are seeing.

I think I've talked to you before about how we're doubling down on innovation, both in our North America and our International segment we're seeing that those innovations that we're putting in the market, whether it's single serve yogurt and with the Greek Gods, or wellness tea or Earth's Best snacks. We're seeing that those innovations are driving incrementality they're driving share growth. So innovation is absolutely critical in this segment are in these categoter-for-you categories to bring new consumers in and ultimately get to growth and driving volume-based growth. So yes, absolutely, we will continue to double down our focus on innovation.

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

I guess a question on the divestiture in the context of cash. Obviously, you have some cash coming in, but were those businesses, cash burn businesses where just from a sort of run rate perspective or whatever capital that was required? Like how does that sort of bend the curve on your ability to generate cash?

Yes. I mean the snacks is not a significant cash-generating business. I mean we talked about the lower margin profile within it. So it's I'd say from an ongoing kind of cash generation perspective, we're in a very, very good position. One thing we did emphasize is, as you look at Q2, we did have a really strong cash delivery, $26 million that we got on January Second, on insurance proceeds as well from a previous M&A activity. So I think we're in a good position moving forward. But to your question, I mean, the Saks business was not a significant cash generation business for us.

Okay. Got it. And you provided some, I guess, thoughts on the upcoming maturity. How much flexibility do you have? Is it leaning 1 direction versus the other refinance versus equity or strategic. So it feels like there's many moving parts. Just curious how should we be thinking about what your options are and how much flexibility there is as the date gets closer.

Yes. So I'd say a few different things. I mean we have a thought. We're mindful of the upcoming maturities, and we're in frequent and constructive dialogue with our bank group. So what we did feel was that aligning the maturity solution with execution and the strategic review will put us in a stronger long-term position. the key thing, obviously, with the execution of this divestiture, you did see on a pro forma basis, our leverage decreased significantly, so going from 4.9 to. So again, we are also continuing with -- under that strategic review to look at other options. So again, we're mindful of. We're working through good discussion with our bank group and we're continuing to just do a thorough evaluation of our strategy in our portfolio.

So again, the 4x is versus the covenant we have that takes us all the way through to the 22nd December, which is 5.5x. So we have significant headroom under the current. But again, we're in ongoing dialogue to make sure that we come up with the right optimal long-term capital.

For the question I'd like to also, I'd like to ask a follow-up to Jim's question and the characteristics for categories that you like and you want to pursue. The profit movement from the snack sale is clear. But as you progress in the second phase of review and presumably you divest more assets, how do you envision Hain as a true growth business in the end? I get the resource allocation. You have some bright spots at the finger foods and kids. But there's pockets in meals that haven't really grown over time engagement crusher market. So how do you think about driving sustainable volume in that backdrop? Does it require larger price cuts to bring your products more than reach of sort of mainstream mill income households and expand penetration that way?

So as I look at -- again, I'll sort of focus it, I guess, on North America, given that we're focused there with the divestiture -- as you look at the remaining portfolio in North America, as I mentioned, first of all, the demand fulfillment aspect of it is an area where I think we've had strength and we've demonstrated consistent delivery over time. As you think about growth in the remaining portfolio, we talk about sort of our flagship categories being our tea business, our yogurt business and our snacks, kids and baby and kid business. What you see is in those businesses, we had strength. So if you look at tea, we're a top 3 player in tea. We've shown that we can drive growth when we innovate.

So our wellness innovations that we launched in June of last year, are a great example of that. They're driving share growth for us and share growth in the overall wellness category. When you look at our yogurt business, I mean that's a standout business for us with double-digit growth, again, in a very specific area where we have. So whole milk, which is a growing area of interest in the overall dairy category where whole fats are something that consumers are moving more and more towards.

So again, a niche area within a broader player but an area where we can build from a place of strength fact. So again, the idea is play to your strength, find those sort of spots within those categories where you already are in a top 3 position and keep driving that. When it comes to meal prep, there's also areas that are underpenetrated. A great example, we're #1 in coconut oil and spectrum oils, right, an area where less competition. We're #1. We're launching into liquid coconut for the first time in the second half of the year. 25% of households only use coconut oil. So it's an untapped opportunity for continued growth.

So when you talk about sort of where does that growth it, it's really finding those growth pockets and being close to the consumer and unlocking that with innovation and renovation. When it comes to price cuts, here's what I'd say. I mean, price is relative to the value that you deliver. And what we've consistently seen and I think you see this broadly across all categories is that price relative to value. So when we're bringing innovation or we're bringing renovation and we're seeing that added value come into the products we're seeing an ability to sustain price or even price up.

So again, the key is not so much about decreasing prices, increasing prices. It's really about what's the value that we're bringing and what's the consumer willing to pay for that value.

Okay. And then for Lee, in terms of the potential or I guess, likelihood of additional asset sales from here, are there cost basis or tax considerations or any other factors that might limit your degree of flexibility in divesting certain businesses?

There are no concerning tax considerations at this point.

Your next question comes from the line of [indiscernible]

In the fiscal second half, sort of on a pro forma basis. And then any thoughts or help on how we should think about the potential magnitude of such improvement, improvement SP1 Yes. So I think we talked in the first part of the call a little bit about sequential improvement in our International segment.

We saw that from first quarter to second quarter, and we expect that to continue in the International segment. that sequential improvement as we look to from first half back the second half. We saw that actually in our tea business. If you look at Q1 to Q2, we see that pick up with the rest of our businesses as we launch innovation. So when you think about our yogurt business is doing very well. We continue to expand our single-serve Gods Yogurt, which is driving a lot of incrementality, about 60% incremental to the business and almost 100% of the category and almost 100% incremental to our business. When you look at our earth business. We are launching 7 SKUs in the big kids snacks area. That's an area we have not been in the past.

So we're launching BiTEs. We're launching was. We're launching sticks -- all of those things have added protein, have added fiber and so they really play into where the market is moving. So again, the sequential improvement comes from that innovation. We also see the full realization of the pricing actions we've taken. As you know, pricing actions have been rolling in across baby, across tea, across meal prep as we executed the first half in the second half, we see the full benefit of that, along with we'll continue to tighten up sort of our promo efficiency and effectiveness.

So definitely, we are looking to drive sequential improvement first half to second half overall, and we have a lot of activities. I guess, there are 5 actions to win, to help drive that.

Yes. And just building on that a little bit. We expect our margins in the second half to improve. And the reasons Alison mentioned, I mean, we did have some impact, and we talked about it in the second quarter on manufacturing on absorption. We expect to get improvements in our manufacturing footprint, continue to drive productivity, reducing some of our waste as well. So we expect to see that as we move through. So we expect to see an improving margin profile as well.

Great. And then just regarding stranded costs, you called out the $20 million to $25 million on an annual basis. And obviously, you're going to do what you can to mitigate that as soon as you can. But I guess in the near term, I mean, should we think about EBITDA being impacted for a period of time when the deal closes because of the stranded cost? And just the pro forma leverage include or exclude the stranded costs.

Yes. So we do -- I mean, the pro forma leverage did include some of the stranded costs and then some of the other benefits as we've taken out moving forward, I mean, there will be some short-term pressure with the stranded cost but we do have a a very detailed plan to get those out in a short period of time. We said the 6- to 12-month period -- so it is something, again, a number of elements is primarily in the SG&A side, a little bit in our distribution and warehousing network. But we have action plans to get those out. So I'd say you would see some pressure in the first quarter but that would dissipate as we execute those actions very, very quickly.

[Operator Instructions] And your telephone your next question comes from the line of Anthony Vendetti with Maxim Group.

So just to -- I know you gave us the percentages of the PAC business relative to overall into North America. If we had to look at the last -- either the last 12 months or fiscal year '25, what was the actual revenue contribution from the snack business.

We gave it -- was it 38% 38% of the total North America number. Okay. Did the -- is that -- was that business -- I know you said that there was -- I think you said the gross margin on that business was $28.6 million.

Not that far on what you're looking.

No, no, no. So Sorry, just 1 correction there. That gross margin is ex the snacks business. So the stacks business was extremely dilutive to that. So that's why we wanted to give you ex the snacks business.

Got it. Okay. That's helpful. And then if -- in terms of -- I know the first question was what drove you to this. Was this sale pressured by the -- by our bank group, did the bank group sign off on it. And if there -- if the bank group wasn't involved, do you think you would have spent more time trying to turn it around? Or maybe just give us a little bit of color on what drove the sale right now?

Yes. It definitely wasn't pressured by the bank group. It was done. I mean, we talked about -- I think it was made, we kicked it off. We had a strategic review process and where we're strategically in a position with the right to win within that category and how did it fit within the rest of our portfolio. So that's really what drove the decision. It felt like with the acquirer, they've got a better position to drive that moving forward. So not pressured by the bank group, no.

Yes. And I would say, Anthony, I mean, look, obviously, this is public now with the team. We couldn't talk to the team in North America much about what we were doing as the team looks at sort of the potential of the business with the 3 flagship categories I noted plus selective opportunities in Malta, they're excited. -- they're excited because the financial profile is such that they can put a lot more focus against these businesses. They know there's growth in these businesses. They're going to be given an opportunity to unlock that growth. So again, simplification is our first action to win. We have to engage in ruthless complexity reduction across our business, and Snacks was a very smart way to do that given the capabilities that are required to win in Sacs. -- which I would argue are not capabilities that are at the heart of Hanselestial strength given it's an impulse category and fundamentally a dynamic creation category.

Okay. Great. And then 1 last follow-up on the meal prep business that is 1 of the fastest-growing categories within grocery stores. Maybe give us a little bit more color on the plan there? Is it going to be more frozen refrigerated -- of how you're going to build that out.

Yes, you're right. Milpro is actually an exciting area. And as we -- we're looking at how do we put some additional focus against that business without the snacks business in North America we're looking at sort of doubling down on innovation. So we're already talking about and building out our pipeline related to Marina. You heard me talk about liquid coconut oil on spectrum, 25% of households only using coconut oil, and we're #1 right now, but we don't have a liquid product. That's another great example. So we will absolutely look at ways we can unleash the opportunity within meal prep as we go forward because we know it's a growth category and when 38% of your business is in snacks and it's requires impulse category like capabilities, you find that a disproportionate amount of human resources are spent there. We now have time to spend it against some of the other great opportunities that exist in our portfolio.

Okay. And I would just like to conclude with congratulations on the permanent appointment as CEO.

Thank you very much. Continue to be energized by it.

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

I was wondering if you could help us just with kind of the cadence in the baby and kids business, there are, I guess, a couple of the transitory events that are affecting the organic growth in that business. You've cited the first 1 as being pipeline associated with the ERP balance we launched last year. And then just kind of industry-wide challenges in wet baby in the U.K. Can you remind us the timing of those, when will those be cycled or kind of out in the base, if you will, and do you kind of expect post that, that the bad and Kid business is in a position in aggregate to grow.

Yes. So I'll talk about the U.K. first and Ella's. So the BBC panorama documentary came out in early May of last year. And so we do start to cycle that drag that has hit the category come Q4 of this year. So you will see that business return to a much better position and return to growth. We are, as you know, on that business, we've been doubling down on marketing. I think I talked in our last about sort of a new marketing campaign that's getting very good response, that we are also doubling down on our innovation. So in the back half in ES, we have 10 new snacks SKUs going in. We have new meal Stage 4, so older kid meals going in.

And then we have the nutty blend, which is a combination of nuts and fruits and vegetables. So again, lots of innovation to continue to drive that category. And Elan remain the #1 in the category overall, and is the pioneer and sets the standard for organic baby in the category.

So again, once we cycle that, we have confidence that, again, that business, you'll see a return to growth. As it relates to the North America business, I think we've talked quite a bit that we're in a tale of 2 cities where we've got good growth -- double-digit growth -- strong double-digit growth in our STACK business, and we'll continue to drive that with the innovation we have coming in, in the back half of the year, on our cereal business, the same thing, mid-single-digit growth, strong business, again, looking at innovation to continue to drive that.

When it comes to our formula business, this is the last big cycle this quarter was the last big cycle that we see. So we should get to a more normalized place, although I will tell you that formula is competitive category. You have a lot of new players in and Earth Beth has been working hard to really rebuild sort of the trust credentials that it always had as well as engage in very targeted recruitment-based marketing through things like Earth bees as well as some of the registry programs with our retailers.

So again, we have more work to do on our formula business, but the cycles we get over. As it relates to our pouch business, sort of our other challenged area. I mean that's another example where competitive in the pouch business, a lot of the touch business moving to refrigerated. And so you're seeing sort of a sea change and a shift in that category overall. We will still be cycling some exits of that business. As we look to -- we talked to you, I think, in our last earnings call about the 30% SKU reduction in North America we continue to drive that. A chunk of that SKU reduction does actually hit our pouch business as we look to really, again, build a focused power core of sort of hero SKUs in our wet baby food business. We've got great strength in a couple of segments, and we'll continue to drive those hard, and we're working to stabilize in 2 segments with some cycles that we get through as we move through the remainder of the year.

That's helpful. Makes sense to focus on focus in that area where we have the strongest differentiation. One follow-up to Andrew's question just on stranded overhead. I just want to make sure, when you talk about North America gross margins being in the 30s post on a pro forma basis and EBITDA margin double digit or double digit? Is that after the work down of the stranded overhead costs? Or is it?

Just moving very aggressively but it is after that work down -- that's right. .

So just again, for modeling purposes, it would be, I guess, prudent might be the word to assume there's going to be kind of a $5 million to $6 million overhead stranded overhead headwind per quarter until those are.

[indiscernible] Alison Lewis, CEO, for closing remarks.

Great. Well, thank you, everyone, for joining today. I'll just reaffirm our confidence in the direction that we're taking file as we go forward and also strengthening our operational health while they continue to drive out costs and enhance our overall cash delivery. And I would say we're attacking the challenges head on. Certainly, where this business is in transformation and turnaround, but we see right and we'll continue to drive those bright spots as we action or 5 actions to win.

So thanks for joining us today.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now discount.

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome you to the Hain Celestial Group First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alexis Tessier, Head of Investor Relations. Alexis, you may begin.

Good morning, and thank you for joining us for a review of our fiscal first quarter 2026 results. I am joined this morning by Alison Lewis, our Interim President and Chief Executive Officer; and Lee Boyce, our Chief Financial Officer. Slide 2 shows our forward-looking statements disclaimer. As you are aware, during the course of this call, we may make forward-looking statements within the meaning of federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance.

These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed from time to time with the SEC as well as the press release issued this morning for a detailed discussion of the risk. We have also prepared a presentation inclusive of additional supplemental financial information, which is posted on our website at hain.com under the Investor setting. As we discuss our results today, unless noted as reported, our remarks will focus on non-GAAP or adjusted financial measures.

Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying this call. This call is being webcast, and an archive will be made available on the website. And now I'd like to turn the call over to Alison.

Good morning, everyone, and thank you for joining today's call. I will start by providing commentary on Q1 results, and we'll then discuss the progress we are making on our turnaround journey. Then Lee will provide a more detailed review of our quarterly results, along with our outlook. First quarter results were in line with our expectations on the top and bottom line, and we have building blocks in place to drive improved trends in the back half. In the quarter, we demonstrated sequential improvement in organic net sales trends in both of our segments. In North America, Beverages, Baby and Kids and Meal prep all turned to growth partially offsetting the continued year-over-year decline in Snacks.

The Snacks relaunch entered its execution phase in the quarter. which included the first launch of our revamped Garden Veggie platform with upgrades to oil, ingredients and taste profiles, which I'll discuss more in a minute. And an international growth in the Meal prep category partially offset the impact from continued industry-wide softness in wet baby food following recent media coverage, which created temporary noise across the category. Ella's Kitchen remains the #1 baby food brand in the U.K. market, reinforcing the importance of our continued leadership in transparency, trust and nutritional quality through accelerated marketing and innovation.

Throughout the quarter, we made tangible progress laying the operational and financial foundations necessary to drive improved performance. Our near-term priorities remain clear. Stabilizing sales, improving profitability, optimizing cash and deleveraging our balance sheet. Cost discipline and the decisive actions we have taken to streamline our cost structure drove our reduction in SG&A in the quarter and we are seeing early results from the execution against our 5 actions to win, including benefits from pricing initiatives beginning to build. As we discussed last quarter, we are committed to improving our financial flexibility through resetting our cost structure to better align with our current business.

We have unwound much of our global infrastructure and have implemented an operating model designed to empower the regions and prioritize speed, simplicity and impact across the organization. We are already beginning to see results with an improvement in forecast accuracy, a reduction in inventory in North America and an acceleration in the innovation pipeline across the business. The changes to work design have been actioned and should benefit SG&A going forward, particularly in the back half.

As previously mentioned, we expect these cost initiatives to drive over 12% cost reduction in people-related SG&A expenses. We expect to have additional opportunities to refine the operating model based on the outcome of the previously announced strategic review work. Further, every dollar spend across the P&L is being scrutinized to eliminate waste and ensure greater return on investment. In the quarter, we drove improvement in rated trade by eliminating poor ROI events and inefficient spend, and we continue to see positive return on ad spend as we shift to a digital-first marketing model.

Our turnaround strategy is focused on 5 key actions to win in the marketplace, streamlining our portfolio, accelerating brand renovation and innovation, implementing strategic revenue growth management and pricing, driving productivity and working capital efficiency and strengthening our digital capabilities. Complexity has hampered our ability to move with speed and efficiency. We remain committed to building a winning simpler portfolio by exiting unprofitable or low-margin tail SKUs, refocusing resources on brands and categories with the highest growth and margin potential and managing product life cycles for improved long-term value.

During the quarter, we executed the previously announced exit of the new free category in North America. Looking ahead, we are targeting the elimination of approximately 30% of our SKUs in North America through fiscal 2027 representing low value in our portfolio and enabling us to improve supply chain efficiency and shelf productivity. This includes the SKU reduction in Tea, we discussed last quarter. We have implemented a disciplined portfolio management review process designed to continuously assess ad or retire SKUs, maintaining an optimized winning portfolio and eliminating reliance on large episodic rationalization efforts.

These actions enable us to sharpen our focus and resources to accelerate growth in our highest potential brands and categories. This year, we have accelerated our innovation pipeline and have new products launching in every category in our portfolio. Let me give you several examples. We recently relaunched Garden Veggie snacks with the boldest renovation in its history, elevating attributes of high importance to consumers. Our new straws and pops are made with avocado oil. We introduced a fourth straw made from sweet potato, which was the most requested new vegetable and our cheddar recipes are now crafted with real cheese. In consumer testing, our new Garden Veggie Straws were significantly preferred compared to a leading competitor. We debuted the new items in breakthrough new packaging in late September at a key national retail partner and will expand to additional national retailers this winter and into the new year.

In Greek Gods, momentum is accelerating, and the brand pivoted to share growth in the quarter contributing to the acceleration was expanded regional availability of a larger 48-ounce format in a key club partner in the quarter. More recently, we started shipping our new single-serve offering to a key retailer and are supporting the launch with expanded digital advertising. Single-serve represents nearly 30% of the category, so the potential opportunity is large. In Earth Best, we are continuing to build upon our strength in snacks with the launch of Big Kid snacks platform in the second half.

We are expanding into new backpack territory with snacks designed to bridge the gap between toddlerhood and Big Kid independence. With organic power bite, organic veggie wave, organic crispy sticks, we deliver protein and fiber for high-density nutrition while balancing portability, pace and fun. In formula, we will be sponsoring a leading retailer's baby registry the #1 registry destination in the second quarter, and we are leaning into the brand's commitment to quality. Earth Best recently received a discerning clean label project purity award across this full line, underscoring trust with parents and caregivers. Additionally, the brand was highlighted by consumer reports in August as one of the most transparent baby food brand.

These accolades are important claims for our marketing to parents and characters. In international, Hartley's Juicy jelly on the go pouches launched in the first quarter, with strong retailer support, helping to drive share growth in the first full 4 weeks of launch. In addition, we launched new Covent Garden 1 kilogram value pack designed to recruit larger families and rolled out flavor refreshes across the soup brand. We've extended our successful soup and risotto innovation into more retailers, delivering sales growth over 25% per Cully & Sully along with share gain.

Innovation planned for the back half in international include Ella's Kitchen Muddy Blend, a range of 3 fruit and vegetable blends with a touch of nuts perfect to stretch taste or provide a more filling snack for 6 months and up. In addition, we're launching Ella's Kitchen kits aimed at older kids from 18 months up, the range extends the brand into new occasions with strong nutritional standards for better-for-you alternatives.

A 10 SKU range of OD bars, wild crackers and Christy sticks will hit the shelf in the back half of the year. We also have 2 exciting nondairy beverage launches for Joya protein. We are upgrading our existing protein rate to include even more protein per serving, and we are launching ready-to-drink protein in 2 delicious flavors. With accelerated pipelines and launches, innovation will be a much larger part of our story going forward. We will support these launches with marketing funded by margin improvements from our revenue growth management and productivity cost savings initiatives.

We are encouraged that we have 1 of the strongest innovation pipeline in our recent history as we aim to significantly increase our contribution from innovation to growth. As discussed, this year, we have pricing actions planned across every category in our portfolio following a long period where our pricing did not keep pace with inflation, particularly in North America. Our international price increases implemented in late Q4 are overall delivering on plan. While there are some puts and takes by subcategory and SKU, elasticities are generally in line with expectations.

In North America, as noted in our last earnings call, we are actively accelerating pricing and revenue growth management as critical levers to cover inflation, a meaningful shift from prior years. We are beginning to see the benefit, contributing to tea and baby and kids turning to growth in the quarter. While we executed our Tea and Baby & Kids pricing in Q1, we have accelerated revenue growth management activities for meal prep and snacks through a combination of pricing, price pack architecture and premiumization. We expect the benefit from pricing to ramp up throughout the fiscal year. Further, we are making headway in optimizing trade spending. In the quarter, we reduced trade spend as a percentage of gross revenue by 40 basis points year-over-year.

We expect to deliver improvement in our trade for the rest of the year as we actively analyze gross to net opportunities to maximize the efficiency and effectiveness of our trade investments. Generating operational productivity and improving working capital management have been bright spots for Hain. Last year, we delivered operational productivity savings of approximately $67 million. We have a strong productivity pipeline and are targeting more than $60 million in fiscal 2026. In addition to that operational productivity, we expect to realize substantial future cost savings from our realignment of our overhead structure that we began to implement during the quarter.

From a working capital perspective, we have been deliberate in our focus on inventory reduction for the fiscal year, resetting weeks of coverage for both raw and pack and finished goods. In North America, we reduced net inventory by nearly 10% from Q4 as a result of our improved internal forecast accuracy. Further, we continue to make progress on extending terms with strategic suppliers. As I mentioned earlier, our shift to a digital-first marketing model is delivering positive return on advertising spend overall. We are engaging in new digital partnerships to drive community relationships and household penetration. New this quarter are programs like Earth's Best, a digital CRM community marketing program. leveraging best practices from the successful Ella's Kitchen program and providing advice, support and resources to parents.

And we are piloting and I bought a partnership, utilizing performance marketing and incentives with promising early results in driving new users and incremental sales across key snack brands and soon formula. We are heightening our e-commerce focus and continue to expect sales growth at or above category rates in fiscal 2026. In the International segment, we are growing Hartley's Jelly pots and Sun Pot with overall performance and momentum accelerating in September behind back-to-school execution. And in North America, tea and yogurt are growing double digit at key online retailers. We are encouraged by the early progress we are making. We have taken decisive action to strengthen our financial health, streamline operations and energize our brands balancing near-term financial flexibility with future growth.

We are focused on consistent delivery and building momentum. Our near-term priorities remain clear: stabilizing sales, improving profitability, optimizing cash and deleveraging the balance sheet. We will achieve this by creating greater financial flexibility, enabling us to invest in our brands and by executing our turnaround strategy anchored in the 5 actions to win in the marketplace.

In parallel, we continue to make good progress on our previously announced strategic review work with Goldman Sachs. We have completed our analysis and evaluation of the portfolio. We have a large number of brands with strong value where we have a right to win. And we have other areas that we are actively addressing that could further streamline our portfolio. We look forward to updating you when we are in a position to provide further details. Now I'll hand the call over to Lee to discuss our first quarter financial results and outlook in more detail.

Thank you, Alison, and good morning, everyone. As Alison mentioned earlier, our first quarter's net sales of $368 million and adjusted EBITDA of $20 million were consistent with our expectations of a quarter that would be similar in absolute dollars to Q4 2025, as discussed on our last earnings call. For the first quarter, we saw an organic net sales decline of 6% year-over-year, driven by lower sales in both the North America and International segments. While not yet where we want to be, results were in line with our expectations and represented a sequential improvement from the 11% decline in Q4. The decline in organic net sales growth reflects a 7-point decrease in volume mix and a 1 point increase in price.

Adjusted gross margin was 19.5% in the first quarter, a decrease of approximately 120 basis points year-over-year. The decrease was driven by lower volume mix and cost inflation partially offset by productivity and pricing and trade efficiencies. SG&A decreased 8% year-over-year to $66 million in the first quarter driven by a reduction in employee-related and non-people cost discipline as we began to implement overhead reduction actions. SG&A represented 17.8% of net sales for the quarter as compared to 18.1% in the year-ago period. During the quarter, we took charges totaling $14 million associated with actions under the restructuring program, including employee-related costs, contract termination costs, asset write-downs and other transformation-related expenses.

To date, we have taken $103 million in charges associated with the transformation program, which is comprised of $100 million of restructuring charges and $3 million of expenses associated with inventory write-downs. Of these charges, $35 million were noncash. Restructuring charges, excluding inventory write-downs are expected to be $100 million to $110 million by fiscal 2027. These charges are excluded from adjusted operating results. Interest expense rose 13% year-over-year to $15 million in the quarter, primarily due to higher financing fees related to the amendment of our credit agreement.

We have hedged our rate exposure on more than 50% of our loan facility with fixed rates of 7.1%. We continue to prioritize reducing net debt over time. Adjusted net loss, which excludes the effect of restructuring charges amongst other items, was $7 million in the quarter or $0.08 per diluted share as compared to adjusted net loss of $4 million or $0.04 per diluted share in the prior year period. We delivered adjusted EBITDA of $20 million in the first quarter compared to $22 million a year ago. The decline was driven by a decline in volume mix and cost inflation, partially offset by productivity, a reduction in SG&A and pricing and trade efficiencies.

Adjusted EBITDA margin was 5.4%. Turning now to our individual reporting segments. In North America, organic net sales declined 7% year-over-year. The decrease was primarily driven by lower volume in snacks, partially offset by growth in beverages, Baby and Kids and Meal prep. First quarter adjusted gross margin in North America was 22.7%, a 200 basis point increase versus the prior year period. This improvement was driven primarily by productivity savings and pricing and trade efficiencies, partially offset by lower volume mix and cost inflation. Adjusted EBITDA in North America was $17 million, an increase of 37% from the year ago period. The increase resulted primarily from productivity savings, a reduction in SG&A expenses and pricing and trade efficiencies, partially offset by the impact of lower volume mix and cost inflation.

Adjusted EBITDA margin was 8.3%. In our international business, organic net sales declined 4% in the quarter, primarily driven by lower sales in Baby and Kids, partially offset by growth in meal prep. International adjusted gross margin was 15.7%, approximately 530 basis points below the prior year period, and adjusted EBITDA was $13 million or 7.7% of net sales, reflecting a decrease of 38% compared to the prior year period. These decreases were primarily driven by lower volume mix and cost inflation, partially offset by productivity savings and pricing and trade efficiencies. We expect our margin in international to improve particularly in the second half behind 3 key drivers: one, improved performance of our higher-margin Ella's business with accelerated marketing and innovation to drive improvement in the category, behind our trusted, high-quality and nutritious products; two, operational efficiency initiatives in our manufacturing network; and three, the full realization of benefits from our focus on revenue growth management.

Now turning to category performance. Organic net sales growth in Snacks was down 17% year-over-year, driven by velocity challenges and distribution losses in North America. As Alison mentioned, we have entered the execution phase of our snacks turnaround plan with the relaunch of Garden Veggie, which will be rolling out to additional retailers throughout the fiscal year. Additionally, our price pack architecture work on Garden Veggie multipacks is driving early velocity improvements at key retailers. And we've seen strong performance from our Garden Veggie seasonal offering particularly go -- lastly, Garden Veggie is seeing encouraging momentum in the convenience channel, where sales are up 24% as distribution expense.

In Baby and Kids, organic net sales growth was down 10% year-over-year, driven primarily by industry-wide softness in purees in the U.K. that Alison mentioned, in North America, we have continued to see strength in snacks and cereal with dollar sales growth of high single-digit and low double-digit percent, respectively. In the beverages category, organic net sales growth was 2% year-over-year driven by key in North America. Celestial Seasonings bag tea gained distribution in the quarter in part due to the recent launch of wellness innovation. In Meal Prep, organic net sales growth was flat year-over-year. as strength in yoga in North America was offset by softness in meat-free products in the U.K. and soup in North America. Greek Gods grew dollar sales in the quarter by mid-teens percent.

Shifting to cash flow and the balance sheet. Free cash flow for the quarter was an outflow of $14 million compared to an outflow of $17 million in the year ago period. The improvement was primarily driven by improved inventory delivery, partially offset by lower recovery of accounts receivable and a decline in cash earnings. We continue to be pleased with the progress we have made improving our days payable outstanding. Days payable outstanding was 57 days in the quarter, down from 65 days in Q4 2025, but an improvement from 55 days in the year ago period. We have made significant progress towards our goal of 70-plus days payable outstanding by fiscal year 2027.

Inventory is an opportunity for improvement and an area of focus for fiscal 2026. Days inventory outstanding improved to 83 days in the quarter from 88 days in Q4 2025. So it is up from 80 days in the year ago period. CapEx was $5 million in the quarter was down from $6 million in the prior year period. We continue to expect capital expenditures to be approximately $30 million for fiscal 2026. Finally, we closed the quarter with cash on hand of [ $48 million ] and net debt of $668 million as compared to $650 million in the beginning of the fiscal year. The increase in net debt was driven by seasonal funding of working capital and capital expenditures.

Paying down debt and strategically investing in the business continue to be our priorities for cash. Our net leverage ratio, as calculated under our credit agreement, increased slightly to 4.8x, comfortably below the 5.5x maximum. Our long-term goal is to reduce balance sheet leverage to 3x adjusted EBITDA or less, as calculated under our credit agreement. Turning now to the outlook. As stated last quarter, we are not providing numeric guidance on fiscal 2026 operating results at this time, given the uncertainty around the outcome and timing of the completion of our strategic review, other than to say we expect free cash flow to be positive. With respect to the shape of the year, we continue to expect aggressive cost cutting and execution against our 5 actions to win in the marketplace to drive stronger top and bottom line performance in the second half of the year as compared to the first half.

To put a finer point on it. I want to call out some of the dynamics that are driving the shape of the year. First, we are stepping up our marketing investment in the second quarter of 2026 compared to the first quarter of this fiscal year and by approximately $2 million from the year ago period. This will support the accelerated innovation across the portfolio throughout the year that Alison discussed. Investment in our brands is a critical element for improved performance as we move into the second half. Second, we have an approximately $3 million headwind in the second quarter from our bonus accrual this year that was zeroed out last year. Third, the benefits from both the SG&A work we have actioned and pricing we have taken should build throughout the year.

And lastly, Ella's Kitchen, one of our highest margin businesses, has been under pressure, driven by industry-wide category softness. We expect our accelerated marketing efforts and innovation to drive improvement in Ella's in the second half. Now I'll turn it back to Alison for some closing remarks.

Thanks, Lee. Our first quarter results were consistent with our prior indication that Q1 performance would be broadly comparable to Q4 in absolute dollars. In North America, we delivered margin and profit growth despite top line headwinds in our largest category in the region, Snacks, which we are relaunching to restore both growth and profitability over time. Internationally, the Baby Food category remained soft industry-wide. However, as category leader, we have accelerated marketing and innovation to drive category momentum over the balance of the year. Across the portfolio, we are seeing encouraging contribution to revenue and margins as we take disciplined RGM and pricing actions.

And we continue to execute strongly on productivity, delivering consistent savings that were built as the year progresses. In addition, we have implemented a step change in our overhead cost reduction ensuring our organization is rightsized for the current business. We are moving with speed and determination to strengthen our financial flexibility and lay the groundwork for improved performance as we move from the first half of the fiscal year to the second half. We remain focused on executing our 5 actions to win, streamlining our portfolio, accelerating brand renovation and innovation, implementing strategic revenue growth management and pricing, driving productivity and working capital efficiency and strengthening our digital capabilities.

We are executing with focus and discipline, placing Hain firmly on the path towards sustainable growth. Before I close, I want to thank the entire Hain team for their commitment to our mission, our brands, our consumers and our customers and for driving meaningful progress against our 5 actions to win. That concludes our prepared remarks, and we are now happy to take your questions. Operator, please open the line.

[Operator Instructions] And your first question comes from the line of Andrew Lazar with Barclays.

I think -- Lee, you laid out some discrete dynamics to keep in mind that impact EBITDA for the most part in 2Q. As you think about organic sales in 2Q, would you anticipate, just given the incremental investment and such that there at the year-over-year rate of decline in organic sales can continue to moderate sequentially in 2Q versus what you saw in the first quarter, even though I realize there are some discrete issues around EBITDA.

Yes. I mean I think you can see some moderation. I would say the biggest focus is on the second half versus the first half. And we kind of outlined that. But you would see, especially as you go into the second half an improvement in areas such as in snacks or a moderation of declines there. The other thing we kind of outlined in the call is in Baby and Kids, particularly in Ella's so we would -- based on the programming we put in, we would expect to see an improvement in Baby and Kids, moderation in Earth's Best. And then also looking at beverages, we would expect an improvement in Tea and in private label nondairy beverage. I'd say Meal pre has always been stable. So our big focus is really on the second half versus the first half. That's where you'll see that improvement.

Okay. And then, Alison, you talked about elasticity so far with the pricing you've taken in international being again, broadly, on average, sort of in line with your expectations. I know it's still early around some of the pricing actions you're taking in North America. But where you've gotten some of the pricing in, what are you seeing around elasticity at the starting point? I think you mentioned last quarter, you would anticipate elasticities in North America being around 1 and around, I think, 0.5 in international. So I guess, what are you seeing in North America so far? And maybe half of those announced price increases gone over with respect to your key retail partners? .

Yes. I mean the pricing on Tea and Baby flowed through in North America in the quarter. And on Tea, we're pretty much flowed through with all retailers and the price points that are on the shelf are in line with what we expected. Baby has been a little bit slower to roll through only because we have multiple categories. But again, pricing that we've seen so far flow through on Baby is in line with the category. You're right, it's early days on elasticity, but we are able to get an early read. On Tea, we're seeing that it's generally in line with the 1% elasticity expectation that we set.

I mean, obviously, you know that elasticity is a dynamic thing because it depends a lot on sort of the overall competitive dynamic, the marketing and innovation that you do, et cetera. So we'll continue to monitor, but so far in line with what we expected. On baby, it's a little harder to read right now, again, because it hasn't flowed through quite as quickly. But what we are seeing, again, early data is it looks like it is in line. We are seeing more competitive dynamics in the Baby category. So again, we're going to be monitoring both closely. And as you know, you need to sort of be dynamic in the marketplace, and we'll be dynamic as we need to in order to protect what we have in terms of our expectations on the growth of those businesses.

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

Everybody, good morning. If we could just talk a little bit about the consumer seems to be getting increasingly challenged during the period to period. And because so many of -- because the bulk of your portfolio is in health and wellness that often can also have a price premium to maybe the nonhealth and wellness items. So how do you think through that calculus in today's consumer environment, especially in the context of what you just talked about related to taking additional pricing.

So I would say, overall, you're right, the consumer dynamic is one where have more value-seeking behavior as consumer pocket books are a little tighter than usual. I think what we're seeing in the market is broadly what we've always seen when we hit these kind of speed bumps where we see a movement in terms of shopping patterns. So fewer -- more trips, less dollars per trip, we see a shift to some of the more value channels, whether that is club, mass, dollar, we see a shift in terms of the packages that they're buying, again, looking at kind of lower overall price point, but the thing that I would say about our portfolio is that it brings value to the consumer in terms of those better-for-you credentials.

So the other thing that we're seeing in terms of the behavior is that when a consumer is putting $1 down, they want to make sure that they're getting something that has value to them and because our better-for-you brands have value to them because they taste great, they've got better nutritional profile. They're willing to stay in those brands. And so that's probably why we see sort of relatively low private label development across our categories. And then as you look at the private label where there is private label, there is some growth in private label, but it's not -- you're not seeing substantial shifts in private label.

It's small increases or in some categories, actually, you're seeing decreases. So again, I think the most important thing that we can do is continue to deliver value to the consumer value that consumers are willing to pay for and then ensure that our price pack architecture has price points across various sizing that allows for everyone to participate no matter what the disposable income level is.

[Operator Instructions] We have no further questions in our queue at this time. I will now turn the conference back over to Alison Lewis for closing comments.

So thank you for joining us today. I'll just reiterate a few things we said in our overall messages. But overall, as an organization and company, we're moving with speed and determination to strengthen our financial flexibility and lay the groundwork for improved performance as we move from the first half to the second half, we remain focused on our 5 actions to win, and we're executing with focus and discipline to put Hain firmly on the path to sustainable growth. So thank you, everyone, for joining today.

And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time I would like to welcome everyone to Hain Celestial's Fiscal Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Alexis Tessier, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for a review of our fourth quarter and fiscal 2025 results. I am joined this morning by Alison Lewis, our Interim President and Chief Executive Officer; and Lee Boyce, our Chief Financial Officer.

Slide 2 shows our forward-looking statements disclaimer. As you are aware, during the course of this call, we may make forward-looking statements within the meaning of federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on our current expectations and involve risks and uncertainties that could cause actual results to differ materially from our expectations. Please refer to our annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed from time to time with the SEC as well as the press release issued this morning for a detailed discussion of the risks.

We have also prepared a presentation inclusive of additional supplemental financial information, which is posted on our website at hain.com under the Investors heading. As we discuss our results today, unless noted as reported, our remarks will focus on non-GAAP or adjusted financial measures. Reconciliations of non-GAAP financial measures to GAAP results are available in the earnings release and the slide presentation accompanying 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 Alison.

Good morning, everyone, and thank you for joining the call today. I will start today's call by providing a brief commentary on the quarterly results and then share my observations since taking on the CEO role at the beginning of the last quarter. I'll then walk through the decisive actions we're taking to reshape our business and the turnaround strategy designed to strengthen our foundation and win in the marketplace. Then Lee will provide a review of our fourth quarter results in more detail along with our outlook.

We are disappointed with Q4 performance, which came in well below expectations on the top and bottom line driven by shortfalls in both the North America and international segments. In North America, velocity challenges and distribution losses in snacks weighed on performance. And in International, there were external factors affecting results in the quarter, including category-wide softness in wet baby food and unusually warm weather, which negatively impacted soup. Despite these short-term challenges, International remains a bright spot, and we gained market share across our total U.K. business last year.

This business has clearly not been performing. At a high level, previous leadership focus had leaned heavily towards building structure, strategy and process, but we now need to dial up execution and delivery. Hain built a global operating model designed to support a much larger business which had the side effects of both inflating our cost structure and slowing down decision-making rendering us less nimble and less profitable. Compounding the issue, the company did not implement significant pricing actions in the most recent years when industry inflation was still running at a high pace, relying solely on productivity improvements to offset higher costs. As a result, many of the levers to drive growth such as innovation and e-commerce were shortchanged and have not delivered at the rates required to win in our categories. We now must reshape the business in order to improve our trajectory and unlock Hain advantages in the better-for-use space. Our immediate priorities are clear: optimizing cash, deleveraging our balance sheet, stabilizing sales and improving profitability. We have already begun to drive changes and have recently hired an interim Chief Business Transformation Officer, [ Thera Treshwel ], who brings to our business a track record of success from private equity. Thera will steer our cost reduction, streamlining and restructuring efforts.

We are implementing what we refer to internally as our no regrets moves and taking decisive steps across our cost structure and operating model. We are taking aggressive cost actions and are committing to an incremental 12% cost reduction in our people-related SG&A. Fundamental to achieving these cost improvements is the unwind of much of our global infrastructure, reducing complexity in our operations and moving to a leaner and more nimble regional operating model. This model has a smaller center to prioritize speed, simplicity and impact across the organization and will result in a cost structure that is better aligned with the current realities of our business. We have restored regional ownership and powering teams that are closest to the consumer to make decisions while placing governance, compliance, people and process efficiencies at the As part of this effort, we have moved to two innovation hubs, one in North America and one in International, and we are already seeing the benefits in terms of speed and output, which I'll speak to in a moment. Additionally, supply chain management, along with other functions that are inherently local will move to the regions.

We are removing layers and increasing spams across the top of the organization and will drive a more effective operating model in the process. Amidst the challenges in the North America business, we took decisive action to ensure greater accountability and faster execution by eliminating the President of North America role at this time. Given that brand strategy and commercial activation are squarely in my wheelhouse, I am managing the North American region as we fully address the areas of underperformance and expedite change. Our goal with these operating model changes is to reduce duplication, drive faster decision-making and align execution closer to consumers and customers.

Beyond the benefits from reshaping our operating cost structure, we are scrutinizing every dollar of spend for strategic benefit and ROI across our P&L levers, while maintaining our consumer-focused investments. We anticipate implementing additional cost savings initiatives following the conclusion of our previously announced strategic review. We are confronting our challenges with urgency and determination, laying the groundwork for a leaner, faster and more execution and delivery focused company by sharpening our priorities and taking immediate actions to strengthen financial health, streamline operations and energize our brands, we are positioning Hain to compete and win in the marketplace. Our recovery is guided by a clear set of choices and actions that balance near-term financial health with long-term growth.

Our turnaround strategy is focused on five key actions to win in the marketplace, realigning our portfolio, accelerating brand renovation and innovation, implementing strategic revenue growth management and pricing, driving productivity and working capital efficiency and strengthening our digital capabilities. Complexity in our business across our operating model and our portfolio has hampered our ability to move with speed. We are committed to reducing complexity in the operating model, as I just discussed, as well as in our portfolio. We are exiting unprofitable or low-margin SKUs, enabling us to focus resources on brands and categories with the highest growth and margin potential.

In tea, for example, we closed fiscal 2025 with 91 different blends of tea across all of our SKUs. Over the next 2 years, we will reduce the number of blends to less than 55, simplifying our internal processes, capturing efficiencies across the value chain and driving margin expansion. To ensure this discipline is sustained, we are embedding portfolio management reviews to assess, add or retire SKUs continuously to maximize portfolio simplicity and value versus relying on large episodic rationalization efforts. In addition, we are exiting or selling businesses where we are structurally disadvantaged or do not have a right to win. Alongside the previously announced decision on Personal Care, we made the strategic decision to exit the meat-free category in North America. Following several years of declines in the category and a comprehensive internal assessment, we are discontinuing the Yves product line and will be permanently closing its manufacturing facility. Not only is this action accretive to the business, but it will enable us to sharpen our focus and resources on growing our highest potential brands and categories. As a reminder, we have significant strategic review work underway with Goldman Sachs with the goal of maximizing shareholder value. We continue to evaluate the exit or sale of businesses where we are structurally disadvantaged and are exploring other alternatives that will simplify our portfolio. We also expect to have further opportunity to refine our operating model based on the outcome of this work. While we are not yet in a position to share definitive news here, we are making strong progress, and we'll provide an update when we have news to share.

Across the business, we have not innovated with the speed or at the level necessary in categories where new news is important. This has been particularly evident in our North American snacks category, where we have fallen behind the competitive set. Going forward, innovation will be a much larger part of our story as we aim to significantly increase our contribution from innovation to growth.

In fiscal 2026, we have new products launching across our portfolio. In Garden Veggie, we're revamping our Better-For-You credentials and dialing up the flavors with the product renovation of our core straws and puffs, expect elevated taste with new and improved salt profiles along with real cheese, real veggies, no artificial colors or flavors and amplify better-for-you attributes like Avocado Oil. Further, we have new breakthrough packaging to boost findability, build momentum and win with consumers.

Also in snacks is an exciting new format for Hartley's with Juicy Jelly pouches in the U.K. This new format opens on-the-go occasions, including lunchboxes. juicy Jelly pouches are not only delicious, but made with real fruit juice, no refined sugar or artificial sweeteners and no artificial colors or flavors. Juicy Jelly pouches launched in several key retailers earlier this month, supported by a high reach consumer marketing campaign, featuring out-of-home, sampling events, social and influencers. While it's too soon to comment on in-market results, retailer orders have been stronger than expected.

In beverages, Celestial Seasonings recently launched the first phase of our Anytime Wellness platform, marking Celestial's entry into the sizable nonsleep wellness segment. The launch included four added benefits for all day enjoyment, well, good vibes, detox blend and a variety pack. In the meal top category, Greek Gods Yogurt will be building upon strong momentum and expanding into the fastest-growing single-serve segment in the second quarter, introducing a product with more live and active cultures than leading competitors across flavors.

New Covent Garden, the U.K. #1 chilled soup brand launched a 1 kilogram value pack in three flavors. Designed to recruit larger families, the innovation is proving to be nearly 50% incremental to the category and over 70% incremental to Hain, and is being supported by a comprehensive media campaign with a reach of over 10 million consumers.

We are encouraged that we now have one of the strongest innovation pipelines in our recent history, due in part to the operating model changes to empower our regions. We believe that innovation, combined with the shift in our marketing strategy to focus on digital and social should drive excitement and meet consumer needs in the market. As discussed, Hain's limited pricing actions in the last few years did not keep pace with inflation, meaning our productivity was absorbed by inflation rather than being invested in the business or used to expand margins. This year, we have revenue growth management initiatives actioned or planned across nearly the whole portfolio. In the international business, we successfully implemented pricing late in the fourth quarter to offset inflation. We are in the process of doing the same in our North America portfolio. And we have seen strong retailer acceptance of our August pricing actions across our tea, baby and kids categories.

We recently rolled out pricing across our Meal Prep portfolio effective later in Q2. We are currently working on revenue growth management actions for snacks with premiumization and price pack architecture initiatives to be implemented throughout this fiscal year. In addition, we have made significant headway in reducing ineffective trade spend. We now have a more robust process to ensure that the investment produces the expected return, and we expect to deliver a reduction in our trade spend as a percent of sales of more than 50 basis points in the coming year.

Generating operational productivity and improving working capital has generally been a bright spot for Hain, and both will continue to be contributors to our cash flow going forward. In fiscal 2025, we again delivered strong productivity at $67 million or 5.5% of COGS. We have a robust pipeline for fiscal 2026, and we expect to deliver more than $60 million in gross savings before inflation. Further, in North America, we are reshaping our DC network to drive greater efficiency.

From a working capital perspective, we overdelivered our accounts payable improvement target in fiscal 2025 and expect to achieve further improvement this year. For fiscal 2026, we also have building blocks in place to achieve a material reduction in inventory levels this year, including resetting weeks of coverage for both raw and pack and finished goods that should generate meaningful cash benefits. E-commerce continues to be one of the fastest-growing channels in our categories, yet our capabilities have not kept up. We are accelerating our investment in e-commerce and expect to grow at or above category rates in fiscal 2026. We have strong green shoots that we need to scale. In North America, we grew 10% in fiscal 2025 behind assortment and content improvements at some key retailers. And in the U.K., soup is the fastest-growing category online in our portfolio where we grew online share from 31% to 34% in fiscal 2025.

Our shift into digital and social first marketing is continuing to accelerate, driving improved ROIs and reach. In North America, we are seeing return on ad sales meeting or exceeding industry benchmark. And in the International segment, our social reach is 3x that of 3 years ago, reaching 80 million impressions per month.

In summary, we are taking decisive actions to optimize cash, deleverage our balance sheet, stabilize sales and improve profitability. We are creating greater financial flexibility by rapidly resetting our cost structure to better align with the current business. We are implementing a leaner and more nimble regional operating model that prioritizes speed, simplicity and impact over global infrastructure. Our focused turnaround strategy is anchored on five actions to win in the marketplace and drive growth; aggressively streamlining our portfolio by exiting or selling businesses where we are structurally disadvantaged or simplifying our portfolio; accelerating brand renovation and innovation, meaningfully increasing our innovation renewal rate; implementing strategic revenue growth management and pricing with initiatives actioned or planned across nearly the whole portfolio; driving continued productivity and working capital efficiency; and enhancing our digital capabilities to grow our e-commerce business ahead of category growth rates.

Some people have asked if I will manage the business with a light touch given my interim role? This is not the case, which is clear to all who know me. I have rolled up my sleeves and I am fully immersed in the operations. I am identifying opportunities, challenging assumptions and making bold moves where they count. I am here to put Hain on a path to unlock its full potential through the turnaround plan I have outlined, along with our strategic review so that the business is well positioned to be led by whoever the Board appoints as permanent CEO. I want to thank the entire Hain team for their continued hard work and energy as we reshape the business for success. Though the path to sustainable growth will take time, we are swiftly taking action that is stabilizing our business performance while delivering cash and paying down debt, strengthening our financial health. I'll now hand the call over to Lee to discuss our fourth quarter financial results and outlook in more detail.

Thank you, Alison, and good morning, everyone. For the fourth quarter, we saw an organic net sales decline of 11% year-over-year. Decline was driven by lower sales in both the North America and International segments. The decline in organic net sales reflects 11-point decrease in volume mix and flat pricing. Adjusted gross margin was 20.5% in the fourth quarter, a decrease of approximately 290 basis points year-over-year. The decrease was driven by lower volume mix, cost inflation and higher trade spend, partially offset by productivity.

SG&A decreased 7% year-over-year to $67 million in the fourth quarter, driven by a reduction in employee-related expenses. SG&A represented 18.6% of net sales in the quarter as compared to 17.3% in the year ago period. During the quarter, we took charges totaling $5 million associated with actions under the restructuring program, including employee-related costs, contract termination costs, asset write-downs and other transformation-related expenses. To date, we have taken $88 million in charges associated with the transformation program, which is comprised of $85 million of restructuring charges and $3 million of expenses associated with inventory write-downs. Of these charges, $31 million were noncash. In order to accelerate the initiatives to streamline our operating model that Alison discussed, we are increasing the scope of the previously announced restructuring program. Restructuring charges, excluding inventory write-downs are now expected to be $100 million to $110 million by fiscal 2027, up from our previous expectation of $90 million to $100 million. These charges are excluded from adjusted operating results. Interest costs fell 6% year-over-year to $13 million in the quarter, driven by lower outstanding borrowings and a reduction in interest rates. We have hedged our rate exposure on more than 50% of our loan facility with fixed rates of 7.1% based on our newly amended credit agreement. We continue to prioritize reducing net debt over time. Adjusted net loss which excludes the effect of restructuring charges amongst other items, was $2 million in the quarter or $0.02 per diluted share as compared to adjusted net income of $11 million or $0.13 per diluted share in the prior year period.

We delivered adjusted EBITDA of $20 million in the fourth quarter compared to $40 million a year ago. The decline was driven by lower volume mix as well as high trade spend, partially offset by productivity and a reduction in SG&A expenses. Adjusted EBITDA margin was 5.5%.

Turning now to our individual segments. In North America, organic net sales declined 14% year-over-year. The decrease was primarily driven by lower sales in snacks, and, to a lesser extent, Meal Prep. Fourth quarter adjusted gross margin in North America was 19.2%, a 340 basis point decrease versus the prior year period, driven by lower volume mix, primarily in snacks, along with high trade spend, partially offset by productivity. Adjusted EBITDA in North America was $10 million as compared to $21 million in the year ago period. The year-over-year decline resulted primarily from lower volume mix and higher trade spends, partially offset by productivity and a reduction in SG&A expenses, mainly due to lower employee-related costs. Adjusted EBITDA margin was 5.1%.

In our International business, organic net sales declined 6% in the quarter, primarily driven by lower sales in meal prep and beverages. International adjusted gross margin was 22.1%,, approximately 270 basis points below the prior year period, primarily driven by cost inflation and lower volume mix, partially offset by productivity. International adjusted EBITDA was $21 million as compared to $27 million in the prior year period. The decrease was primarily driven by lower volume mix partially offset by productivity and net pricing. Adjusted EBITDA margin was 13.3%.

Now turning to category performance. Organic net sales growth in snacks was down 19% year-over-year, driven by velocity challenges and distribution losses. While still declining, we did see improvement in velocities in the fourth quarter as compared to the third quarter. In Baby and Kids, organic net sales growth was down 9% year-over-year, driven by softness in purees in both North America segment, in part due to SKU reductions as well as in the International segment. On the other hand, we have continued to see strength in Earth's Best snacks and cereal, with dollar sales growth of high single digits and low 20%, respectively.

In the beverages category, organic net sales growth was down 3% year-over-year driven by softness in tea in North America and private label nondairy beverage in Europe. Despite the category headwinds, our nondairy beverage brand, Joya again gained share in the quarter. And Celestial Seasonings bag tea gained distribution in the quarter, in part due to the launch of Wellness Innovation.

In Meal Prep, organic net sales growth was down 8% year-over-year, primarily driven by softness in oils and nut butters in North America and meat-free products in the U.K. These impacts were partially offset by continued growth in Greek Gods in North America, which demonstrated high single-digit dollar sales growth in the quarter.

Shifting to cash flow and the balance sheet. Free cash flow in the fourth quarter was an outflow of $9 million compared to free cash flow of $31 million in the year ago period. The decrease was primarily due to a decline in cash earnings. We continue to see improvement in our days payable outstanding. Days payable outstanding improved to 65 days from 37 days in fiscal year 2023 and 52 days in Q4 fiscal year 2024. We have made significant progress towards our goal of 70-plus days payable outstanding by fiscal year 2027. Days inventory outstanding remains an opportunity for improvement and is an area of focus for fiscal 2026. Days inventory outstanding were 88 days, up from 82 days in fiscal year 2023 and 79 days in Q4 fiscal year 2024.

CapEx was $6 million in the quarter and $25 million for the year. As we look ahead to fiscal 2026, we expect capital expenditures to be approximately $30 million. Finally, we closed the quarter with cash on hand of $54 million and net debt of $650 million after we reduced net debt by $14 million in the quarter. Paying down debt and strategically investing in the business continue to be our priorities for cash. Our leverage ratio, as calculated under our credit agreement increased to 4.7x. Subsequent to the end of the quarter, we amended our credit agreement to provide increased financial flexibility. The amended agreement provides for a maximum net secured leverage ratio of 5.5x in the quarter ended September 30, 2025, and thereafter. Our long-term goal is to reduce balance sheet leverage to 3x adjusted EBITDA or less, as calculated under our credit agreement.

Turning now to our outlook. Given the uncertainty in our business around the outcome and timing of the completion of our strategic review, we are not providing numeric guidance on fiscal year 2026 operating results at this time. That said, we do want to provide a little bit of color on our outlook. We expect aggressive cost cutting and execution against our five actions to win in the marketplace to drive stronger top and bottom line performance in the second half of the year as compared to the first half.

For Q1, we expect net sales and adjusted EBITDA on an absolute basis to look similar to that of Q4 2025. Additionally, due to seasonality and consistent with prior years, we expect free cash flow in Q1 to be a net outflow. For the full year, we expect to deliver positive free cash flow on disciplined inventory management and continued progress on payables. We are committed to decisive and bold actions to improve our trajectory by streamlining our portfolio, accelerating brand renovation and innovation, implementing strategic revenue growth management and pricing, driving productivity and working capital efficiency and strengthening our digital capabilities. We are moving swiftly to strengthen our foundation and position Hain for sustainable growth. That concludes our prepared remarks, and we are now happy to take your questions. Operator, please open the line.

[Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. .

Alison, I think Hain talks in the release -- and you talked a lot about resetting the cost structure to create more financial flexibility. I seem to remember a real challenge under previous management was really that they had to use sort of a pay-as-you-go strategy when it came to brand reinvestment because sort of a onetime reset to reinvest, it really not doable given the leverage. And it would seem Hain has maybe a similar issue now. So how do you manage this and the reinvestment needed in the context of a balance sheet that's really only become more strained over the last couple of quarters?

Andrew, thanks for the question. Here's what I would say. I mean this is why we talk about driving financial flexibility aggressively against each lever of the P&L. There is money in the P&L that is there for reinvestment. We just have to make tough decisions, and we have to focus that investment against the things that drive the highest return in order to really get the flywheel going. So that is really why we're talking about that cost structure focus across each aspect of the P&L. And all of that gets focused against our five actions to win, which are the things that ultimately get that flywheel going in the right direction.

So, I would just say, just building on that. Part of this is -- and that's why we kind of announced this unlocking the operating model. So there are significant incremental savings coming out of that. And I think we kind of touched upon that as well. The other thing is it is the focus areas. The strategic revenue growth management, I mean we have not taken pricing historically. That is something we have really enacted with a lot more discipline. So we had taken pricing in Q4 in international, we've been taking pricing in North America. So it is a focus on all of those. And then secondarily, as we've announced with the credit agreement, we wanted to give ourselves more headroom within that agreement as well. So it's kind of all of that. That gives us more flexibility as we move forward as well.

And then basically at least on how the portfolio is constructed currently, what's sort of the floor on EBITDA for fiscal '26 to sort of remain within your new credit agreement?

So without giving a specific number, I think what you can look at is we -- as we closed out Q4, we had a 4.7x. And I'd just remind you, this is based on the bank defined EBITDA. We've got now a headroom of 5.5. So you can kind of back into the 4.5 the bank adjusted number, and then you can see, I mean, we've got we've got a comfortable cushion as we move forward during the year.

Our next question comes from the line of John Solero with Stephens.

I appreciate all the details around some of the optimization efforts you guys have underway, but I would say some of the themes are similar to roughly what we heard 2 years ago at the Hain Reimagined at the Investor Day, the focus on kind of innovation and operational simplification. So I was hoping maybe you could just give us some insights where the Hain Reimagined program fell short and what do you think will be different this time? And maybe if you guys are looking at things in a different way or have kind of a different angle or focus that you think will how to jump start the business?

Sure. Thank you for the question. I would start by saying, and I think I said this in the script that overall, there was a lot of work put against people, process and structure versus sort of unleashing that people, process and structure through decisions and actions. And so I think what you see differently now is some of the examples that we provided in the script where we have pricing against almost every category in our portfolio, both at the international and North America level that has a significant value to our P&L, our ability to generate cash. The second area I would say is in innovation. We have innovation against almost every single one of our categories, and I referenced some of those massive renovation in our snacks business which is getting a clean oils, getting at better salt flavor profiles, real cheese, more bold flavors, things that actually drive growth in the category. You see that in some of the convenience areas and yogurts getting into single-serve yogurt. So innovation is definitely something that has ramped up. And if you look at our pipeline, it's larger than it's ever been and you look at the level of launches that we're doing, it's larger than it's been in quite some time. These are categories that require new news, and that new news is going to make a difference on our business. The next area I would say that is different is if you look at how we are looking at our operating model and unleashing the local empowerment. At the end of the day, the business happens in our markets. And we are putting in place the resources to ensure that, that business can be unlocked in the market. I gave an example in the script of we've moved to two innovation hubs versus innovation being managed centrally, and we're already seeing the benefit from that. So making sure that we get cost out where cost doesn't matter and putting cost where cost does matter to drive that return. Another area I would speak to is just the continued driving supply chain productivity and working capital reduction. We've done very well on that but we're continuing to put pressure there. And we're into our multiyear journey on that and the fact that we're able to continue to drive productivity in the multiyear journey says that we're doing a lot of things right, and we will continue to pressure on that. So I think the biggest difference of what you see is sort of decisiveness and action and focus. The five actions to win really provide focus for the organization. These are the five things we're doubling down, and we know that they are all different makers on our business.

Got it. And then, Lee, if I could ask one just on kind of the cadence of leverage throughout the year. You had mentioned in 1Q, you guys expect free cash flow to be an outflow. I would assume that we would see leverage tick up maybe a little bit in 1Q and 2Q and then come back down in the back half of the year. Can you offer any thoughts on kind of the cadence? And maybe if you guys in mind a quarter that you anticipate to be the high watermark for leverage in '26.

Yes. So we're not -- again, we're not giving specific guidance. But you're right, there is an outflow in the first quarter. I guess the other thing I would just tie to is what we've said as we went through before, if you look at the action plans that we have in place, especially around the cost focus, you will see the benefits of that coming through in the second half more than in the first half. So I think you can think about it that way as you think around cash generation. The other thing is -- and again, I'm focused on the cash generation piece of this is really focusing on inventory as well. So we do see some big potential there, really through kind of more disciplined management of the inventory for a number of different levers. So as you go through the balance of the year, again, second half driven better performance by the initiatives that Alison went through, specifically and then driving the cost. And then from a kind of cash flow perspective, you'll learn a lot more of that as we get into the second half of the year.

Our next question comes from the line of Matt Smith with Stifel Financial Corp.

Alison, I realize it's still early days of the strategic review, but we have seen some incremental decisions in focus areas like exiting eaves and revenue growth management focus. The conclusions are likely still in process here. But from a process perspective, can you talk about what you're seeing out of the strategic review in terms of areas where you're incrementally more confident there is value-accretive potential?

Yes. I can share certainly that we continue to make progress against our strategic review. As we've indicated previously, we're not providing any updates until we have updates to give. At the same time, you've noted that we are doing significant work to streamline our portfolio and back to decisive actions. We are taking decisive actions. The exit of ease is a great example of that, where we were structurally disadvantaged in North America in that business. The continued work we do against our SKU reduction is another area where we're taking decisive actions to simplify our portfolio. And the third area, I would say, and something that -- we haven't talked about previously is what we're implementing, which is called portfolio management review, which is really looking very carefully on how we build long-term capability around adding SKUs, investing in SKUs or retiring SKUs, so that this doesn't become an episodic event in terms of SKU reduction, but becomes an ongoing thing to manage the most efficiency and effectiveness based on the number of SKUs in our portfolio. So that's really what we can talk about today. But again, the strategic review, we continue to make progress, and we will absolutely update you when we have an update to provide.

And as a follow-up, Lee, realizing you're not giving specific fiscal 2016 guidance. Does the improvement you expect in the second half require a change or an improvement in the trends within your categories? Or is it more reflective of Hain's initiatives? And how should we be thinking about the level of SKU rationalization this year? Like any quantification on the drag on sales from the business exits?

Yes. So I'd say two pieces to that. I think for the second half performance, it's all of the pieces. So it's a streamlining portfolio. It is driving. And we've talked about the brand renovation and innovation. So driving better top line performance through our focus on that. We do have probably the most robust innovation pipeline that we've had. Where we've done well is continuing to drive the productivity. So over the last few years, we've driven over $60 million a year, continuing to drive that. I think that kind of one of the biggest step changes is the revenue growth management and the pricing where we haven't taken that historically. So driving that as well. And around the SKU work, we're not providing specific impacts on that. But I would say we are cutting a long tail on the SKU. So we've historically been prioritizing a bit more customer-focused innovation rather than consumer focused. So it's very consumer-focused. We have cut the tail in the past, but then we've allowed it to continue to grow as we've had income in SKU. So a lot more disciplined around that. That will drive a significant margin improvement for us as well, the enabler for a margin improvement. So that's the way you should think around the SKU work in the portfolio optimization.

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

I wanted to come back to snacks and the distribution losses you're seeing there. That's been a source of distribution growth for some time. What's, I guess, causing the shift now to declines? And how much of that has sort of initiated by Hain, whether it's reduction of SKUs or some of those tough decisions for reinvestment that you mentioned Alison?

Yes. So I'm going to back up a little and talk a little more broadly about snacks. I think that's an important context for all of you to have. So clearly, the snacks performance has not been where we want it to be, let's put that up on the table. That is a fact. At the same time, what I would say is these are businesses where we actually have very good equity. We have 74% awareness versus a category average of about 45%. When you look at the category entry point, so all the attributes that bring people into the category, things like taste, things like variety, things like makes me happy, make me feel good. We're in the top 2 or 3 in terms of rankings there. So these are businesses that actually have equity and have value. At the same time, these are businesses that require news. This is an impulse category. Impulse categories require continuous news. And so that is why we're hyper-focused on the product renovation work we're doing, getting us into new oils, getting us into bolder flavors, putting real cheese in our straws product. We're adding a 4-straws potato, which is the highest requested new vegetable flavor out there, getting us into the right packages. So we've been shy on multipacks and we've moved aggressively into multipack ensuring that we have the right marketing. So if I look back at January '25, we had 0 of our marketing in digital and social, we're now at 60% of our marketing and digital and social, which is critical for all businesses today, but particularly snacks business, where, again, there's so much competition. And then lastly, as you noted, on the distribution losses really doubling down our focus on ensuring that we can gain distribution, but the way that we gain distribution is by having the news and the things that consumers and shoppers want. What we've seen is our retailers are responsive when we bring the new. And while very early days, we are seeing some very preliminary green shoots as we get the right product in the right package at the right retailer. And we're seeing that, that velocity does start to improve, if I look on a period-to-period basis. Clearly, we have a lot of turnaround to do to get to overall growth in snacks, but that's where we're doubling down our focus. So I believe that answers your question on what it takes to actually not have distribution losses and to actually drive distribution and drive velocity against our snacks business overall.

And a follow-up, looking at the private label, the nondairy beverages in Europe. That performance seems pretty well below where private label is performing at least in the retail takeaway data. Is that just a function of customer mix for Hain? Or is the business encountering some headwinds against sort of retaining customers? .

Yes. So our nondairy business, I mean we did see some softness in the beginning of the fourth quarter, but we did exit the fourth quarter with growth in our nondairy business in Europe. As you know, the European business overall is heavily private label, and that also includes nondairy. At the same time, we are focused, and you'll see as we head into 2026, driving value and driving innovation in that area with new sort of plant-based cream new innovations in the Barista area. So again, what drives that growth is not different than what drives growth in other categories, which is bringing value to the consumer in form, in flavor, and we're focused on that as we go forward and believe that the growth on nondairy will continue, and that's an important part of our business, as you know, in our International segment.

And we haven't been in a position of losing customers. I mean, I guess, overall, we feel good. We're continuing to kind of win in that space. And as Alison mentioned, it's both branded and private label. I mean the overall category is still in growth. We expect our business to continue to improve further in '26. So with new contracts and innovations and then continuing high productivity. So we feel very, very good about that business.

[Operator Instructions] Our next question comes from the line of Anthony Vendetti with Maxim Group.

Just on the people side. So you have a new regional operating model. How many regions do you have? How many people do you need to recruit or promote from it within to run those models? And then just on the time line for the divesting and restructuring. Do you have sort of a time line? Or is that ongoing? And then just an update, I know the executive search is ongoing for a permanent CEO. But is there an expected time line to make a decision there as well?

All right. So let me talk a little bit about the operating model changes that we're talking about. So I think the first thing to say is we have two regions North American and International, and the majority of business in North America, it's in the United States, and the majority of business in International sits in the United Kingdom, okay? So that's the first thing to set. The second thing to say is the model that we're employing and that we're talking about is ensuring that we have a lean center. So we had had more of a global operating model. We're moving to what sits at the center is compliance, governance and anywhere we can drive people and process efficiency. But where the real work needs to happen is in the regions. And so when we think about supply chain, that will no longer sit globally that sits in the region. And when we think about innovation, that doesn't fit globally that sits in the region. So that is where we really unleash for the people that are closest to the consumer and the customer. We unleashed the power of that. And as I mentioned, in innovation, moving to these two innovation centers, we're already seeing the benefits of that in the changes that we've driven. In terms of the actual change itself, it's much more about and layers along with what I mentioned moving some of the resources to the regions. So it's not as much about hiring new people, it's much more about expanding the spans of individual leaders, decreasing the layers in the organization to drive speed and then at the same time, ensuring the center is very lean. Part of this operating model is obviously recognizing that our business has not grown at the level that we had anticipated. And so while we built structure for a much larger organization, anticipating a larger business, we have to have an operating model and a structure that's in line with the size of the business that we have. So I think that's the first on sort of the operating model question. I think your second question was around restructuring. And I just want clarity on that.

Yes. No, I was just trying to figure out the timing, yes, exactly.

Now.

So we're -- we are moving forward with that restructuring process.

Right now as we speak. Yes, so it's now. So most of the change will be effective between October 1 and November 1. That's the timing that we're talking about, but we're moving through the change now. And then the last question, I will answer this because it's probably most appropriate for me to answer on the CEO question. So I mean, first of all, I think you know that I don't make the decision on the CEO, Lee doesn't make the decision on the CEO that the Board level decision. At the same time, what I can tell you is that the Board is moving in parallel with the strategic review for the CEO replacement. In terms of the timing of that, that obviously will coincide with as we, again, continue to move our strategic review forward. The reason for that, as you can likely imagine, is that we need to ensure that we bring in a CEO with the right capability, with the right experiences for what this business is going to be in the future. At the same time, as you've heard from me, I am 100% engaged. I am energized by the work that we're doing. I am fully committed, and I, along with the Board, are here to put Hain on a path to growth, to put Hain on a path where we can drive that flywheel and that sustainability of performance. So that is sort of what I can share with you at this time.

Our next question comes from the line of Kaumil Gajrawala with Jefferies.

I guess a question a lot of times with restructurings for the balance sheet like this is there's a desire to put a restructuring in place that doesn't necessarily rely on top line recovering. And so to what degree if all of these things that you talked about don't really come through in the way that you need -- you would prefer that it does? How much flexibility is it for the rest of the sort of P&L and balance sheet restructuring to work? .

Well, I can talk a little bit about the top line is an important part of this. So obviously, when we talk about restructuring, and all the work we'll do against cost structure overall across all levers of our P&L, I mean we're doing that in the spirit of driving financial flexibility so that we can fuel the growth of the business. So the work we're doing is really twofold. One is building the financial flexibility. And then the second thing is investing for growth, and I spoke a lot about the things that we're doing around our product to have great food, whether it's renovating our existing products or innovating and driving innovation against our current categories. We talked about revenue growth management and investing in that capability. We're seeing the value of that with our ability to take pricing. But revenue growth management isn't just pricing. It's getting the price-pack architecture right. It's ensuring that we're continuing to drive strong returns from every promotion that we run in the marketplace. So again, that's an area that we're investing and that will drive top line growth and bottom line growth. We are looking at our marketing and ensuring that our marketing model is very social, digital first, and that we can protect that marketing investment, very important in terms of driving top line growth. So we are focused against not only sort of the restructuring that delivers financial flexibility, but also the areas that drive growth. And the final thing I'll just say is also on customer side, doubling down on e-commerce, which is a significant growth channel. It's a channel where we've done a great job over the last few years of getting our content and assortment right in that channel, but now we need to invest in that channel at sufficient level to really drive that search and drive that visibility and drive that real recruitment once you get a consumer to buy in an e-commerce channel. So that's what I would say in response to your question. I hope I had answered that somewhat appropriately...

No. No, I would agree. I mean, obviously, then we are looking to control what we can control within kind of the middle and the lower part of the P&L. So especially, I mean, unlocking the savings, and we do see significant savings within the operating model itself. So that then does give us kind of the the fuel and contingency as we move forward through the balance of the year. So that's why we're putting the restructuring in place. The other thing is, and we mentioned it, it's continuing where we've got a great track record is continuing to drive the productivity as well and support our gross margin.

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

I wanted to ask also for Lee. On the kind of the restructuring efforts around a shift from kind of global to -- or regional operating structure. Is that the basis of the majority of the people cost reductions that you talked about earlier? I think, about 12% or so. And is that all baked into the productivity number that you gave, the $60 million in productivity for 2026? And would that kind of build in '27 or too early to say?

So a couple of things. The focus around the 12% that we gave is around SG&A. It's not actually that productivity number. So it's incremental to that productivity number. So it's around -- yes, the SG&A base. And then the way we would see that is really beginning to get that -- we'll get that full run rate by the end of this year. So I think we announced that we're working kind of -- working through that restructuring right now, but you'd get that full run rate by the full quarter. And again, it's people-related SG&A. So outside of the productivity number that we've done a good job of delivering.

Okay. And would that kind of build sequentially through the year? Or is there a point in time where those benefits will kind of kick in?

Yes. I mean it will build sequentially as you go through the year, but that's why I said by fourth quarter, you'd be at a full run rate by that.

Okay. One of the other the five key actions is stabilizing sales. And I'm just wondering if you could talk a little bit more about that. Obviously, the levers you're pulling in innovation et cetera, marketing or key to helping that happen, but you have quite a few offsets in SKU rack. And then just in some of the underlying headwinds you're experiencing currently, do you have kind of a loose time frame in mind for where we might see sales begin to stabilize kind of on an aggregate basis? .

Yes. So you're absolutely right that the actions to win many of them are around how we accelerate sales. So if you think about renovation and innovation. If you think about revenue growth management and pricing. If you think about digital capabilities, e-commerce and digital first marketing, those are all really around accelerating sales. When we talk about simplifying our business and SKU we are talking about taking out SKUs that quite frankly, are very small in terms of overall sales. And they add complexity to our business overall, but they don't have a lot in terms of the overall top line and quite frankly, in many cases, not to the margins or the bottom line either. So we're being very smart about how we balance sort of the SKU reduction with getting to a point where, as I noted, one of our priorities is stabilizing sales to get to that stabilized sales position and ultimately to a grow sales position, but we're coming from behind, so it starts with stabilization as we move through the year and then getting to growth ultimately as we look at our further out models.

I will turn the call back over to Alison Lewis for closing remarks.

Great. Well, thank you, everyone, for being with us today. I'd close by just saying, our priorities are clear. We are here to really ensure that we optimize cash, we deleverage our balance sheet, we stabilize sales, and we improve profitability. We've outlined our five actions to win, which are critical to both delivery of the top line and the bottom line, and we're moving aggressively against all actions associated with those actions to win. At the same time, we are building financial flexibility with things like the operating model reset, all of our productivity work, which really allow us to protect the investment in our business to ensure that we ultimately get the flywheel going. So thank you again for your time today, and we look forward to seeing you next quarter.

Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.