The Hain Celestial Group, Inc. (HAIN) Earnings Call Transcript & Summary

Thank you. Welcome, everyone, to the Jefferies Nantucket Consumer Conference. I'm honored to be joined in this fireside chat virtually by President and CEO, Mark Schiller; and CFO, Chris Bellairs of The Hain Celestial Group. Within his almost 5 years at Hain, Mark has successfully restructured Hain, I'd argue, in a much more focused, higher-margin company with a clean balance sheet and the potential to outgrow many peers over the next 5 years. Chris recently joined Hain this February as the company steps into its 3.0 strategy and during an interesting time in the food space, to say the least. Welcome again, Mark and Chris, and with that, we'll kick it off. So look, Mark, I think coming out of Q3, and recently, you made a couple of comments that suggests there could be some potential pushback in your fiscal '25 growth targets. I heard you mentioned slower shelf resets, some European demand, issues in the near term at least and some labor and supply shortages outside of just kind of general cost inflation. But it also doesn't seem like there's any real need, right, at this point yet to officially push back those targets or to pivot kind of with that broader strategy. So I'm just curious if the operating environment really doesn't change, like are there areas in which you could change to achieve those targets, although maybe through a different path? And kind of what I mean is just snacks are doing so well, can like snacks be a bigger growth driver than meat and dairy alternatives in Europe? Or could North America just overall be a bigger growth piece relative to distribution potential in Europe? So just all very broad-based, just curious of how you're thinking about it at this point.

Yes. At a high level, the 3.0 strategy that we laid out still makes complete sense. We have tremendous distribution opportunities. We have an innovation model that's working very well and drives incremental consumers into our categories. And we have lots of opportunity to market these brands and really make them more loved marks for consumers. So none of that's really changed. But to your point, the environment has changed dramatically in the last 6, 9 months since we laid out Investor Day. And we are seeing certain categories like snacks growing much faster. We're seeing baby growing much faster. And we're seeing things like meat-free alternatives growing a little bit slower. So the good news about having a strategy that had a portfolio in it is there's going to be some puts and takes. Some pieces may perform a little bit better, some may perform a little bit worse. But as we also said on Investor Day, we expect that we will continue to reshape the portfolio as we've done during Hain 2.0. And so acquisitions like That's How We Roll add to our snacks portfolio, both incrementally as well as accelerating our top line potential. And there's still some things in the tail that likely will be divested over time. So we expect that we're on track to do what we need to do. But in the short run, some of our resources have been diverted to some of the things that we laid out in 3.0. We're working very hard on service. We're working on backup sources of supply. It's harder to get geographic and category expansion into other channels in this environment where retailers are just trying to keep the shelves full. So we're still doing it. We're making progress, but it may take a little bit longer as I've alluded.

Okay. Fair enough. I'd say recently, you have discussed numerous times, some differences right now, right, between, let's say, the U.K. and the U.S. in terms of consumer behavior, really driven off a higher cost and, I guess, somewhat of the Russian-Ukrainian conflict. My sense is the hope is kind of maybe U.K. at-home food demand starts to improve as we get through the end of the year, right, if consumers, let's say, don't go away from home to restaurants, what have you as much as you kind of get through maybe some pent-up demand period, you get to the summer. But at the same time, as I think through it, I feel like what we saw this past winter, right, were extremely high heating bills and costs just overall have increased. So if those heating bills were to remain, as we get through the year, even if people are staying at home, are there ways you could still capture maybe some reversion to at-home food demand within the U.K. just potentially through innovation, different products, pricing strategy, what have you?

Yes, so right now, the government is forecasting that the back half of the year in the Ukraine will see food consumption growth, albeit low single digit versus down high single digit in the third quarter that we just experienced. And part of the softness is driven by COVID overlap because they were in complete lockdown in Q3 and beginning of Q4 last year. But certainly, part of it is based on the economic situation. So the good news is the overlap gets easier as we indicated on the last call, and we're seeing our May consumption coming in higher than our April consumption and the store a little bit better, albeit negative, but less negative. So there are some signs of things stabilizing. And to your point, I do think when we get to the fall, after people have gotten kind of the post-COVID rebound out of their system, and they've done some traveling and they've eaten out and they've gone to concerts, they'll get to the fall and they'll see that energy prices are high, that mortgage rates are high, that the weather is getting cold again. And I would expect that they will spend more time back in their homes over the winter than they are spending right now. So that means some of those eating occasions will come back into the home. And we're well positioned because we have leading share brands. In fact, we have 9 #1 and #2 share brands. And the other thing that's important is there's a government regulation change for products that are high in fat, sugar and sodium are no longer going to be allowed to be merchandised on the perimeter of the store. They're no longer going to be allowed to be advertised. And so being a health and wellness company, that's going to mean opportunities for us to pick up space, to pick up merchandising that we might not have gotten otherwise because, again, we're in the health and wellness part of the category. And we sell things like puddings that have 10 calories in them that are very low in sugar that are going to get a lot more exposure than they would have when we were competing against all of these less healthy alternatives. So we're still bullish on the long term, but certainly, we've got to navigate through the short term and high inflation.

Okay. That's an interesting point. And just in terms of portfolio positioning relative to regulation. I mean if you kind of think through 3.0, right, in the distribution strategy, would you say then at this point, kind of given that shift from regulation, that despite the plant-based meat category, let's say, for example, having decelerated a bit that your hope here is that regulation could actually continue to act as a tailwind, especially as you look for new distribution?

Yes, I'm optimistic that, that will be a tailwind. Obviously, again, we're in a very volatile environment. This war is affecting a lot of people's lives. It's affecting their ability to get immigrants into the country. When they pulled out of the EU, obviously, the EU is going to hold on to the resources they have before they export them into the U.K., whereas part of the EU that would have been easier. So there is a number of headwinds, but there's also a number of tailwinds. Like I said, we're in the right part of the category. We've got regulation on our side. We've got terrific brands that have demonstrated strength over the long haul. And so we feel very well positioned for, I'll call it, the midterm. The short term is the challenge we've got to fight our way through.

Okay. Fair enough. And then also, you've spoken recently about incremental pricing potential, right, in Europe. It sounds like that's slated for some time early next fiscal year. All while, again, hope is some of the labor and supply issues could improve. As you think about that pricing relative to cost, obviously, we're not guiding per segment even into next year. But I mean it feels as if European profitability stability or improvement should that occur through next year unless there are still ongoing offsets like private label pricing lag, what have you. So maybe just comment on that.

Yes. So the pricing that we're taking is primarily in the U.K., and I do expect that, that will go through, and we'll see that materialize in-market in the first quarter. But to your point, the private label nondairy beverage business, which is in Continental Europe, the pricing is going to lag. You have contracts with retailers breaking those contracts and we're coming in, in the middle of a contract with a double-digit price increase, it's going to be very hard to pull off. So those won't take place until the middle of the fiscal year, calendar years when those contracts tend to expire and be renegotiated. And so there's going to be a lag in Europe. We'll catch up with the inflation that we know of right now in the U.K. But right now, the government there is saying it's going to be a double-digit inflation environment in the back half of the year. So we're probably going to have to take more pricing on top of what we've already taken. So again, a lot of this depends on consumer and customer response. If we can get the pricing through the customer, which we expect we will, and being a health and wellness set of brands, we think the elasticities will be relatively low. But that remains to be seen, right? So far, it's been low, and we'll see what happens as the consumer feels more cash strapped, whether their behavior changes materially or not.

All right. Good stuff. So look, you are in somewhat of a unique position with respect to private label, given you are a supplier, right, to serve retailers and also do some co-manufacturing for manufacturers. I'm just curious, so far, have you seen an uptick in these private label offerings? The demand landscape seems stronger relative to some brand, just given price deltas. Or is demand in kind of most of your categories maybe given the positioning of those categories still fairly even and strong? I'm speaking at least for the time being, just with respect to Europe.

Yes, so if you go back to the last recession, there was a trade down to private label during that recession. And then as people's wallets got more stable and their financial situation got better, they went back to branded. So I would expect we'll see a similar dynamic. There are certain categories like nondairy beverage that we are a big private label supplier, where private labels picked up 6 share points in the last 18 months as an example. So we are very well positioned in the right part of the market there. But in the U.K., for example on plant-based meat, there's so many new competitors that have come into the category. There's not a lot of room for private label. So it really does vary by category. And depending on the strength of the brand and our competitive position, we're, in many cases, very well insulated. Ella's Kitchen, which is our baby brand, sells at more than 2x the price of private label and yet it's up 20-something percent this year. So even in a cash-strapped environment, there are consumers who are saying, I want the organic baby food, I believe in this brand. I trust this brand, and I'm going to stick with it. So it's just going to vary a little bit by brand and category.

Okay. Great. Maybe just since you mentioned baby food, we could shift to baby food and formula. I mean obviously, when we look through the track channel trends, the pricing acceleration and formula is fairly impressive, still on the U.S. side. And we all, I think, know at this point kind of what's occurring within that category. I'm just curious, again, if you think about capacity and where it stands in the industry, if that capacity starts to normalize a bit, birth rates hold steady. Do you think pricing could hold steady, right, or is some of this likely given back over a longer-term period?

Yes. I'm not overly concerned about pricing going back. Just for context, we're only about 3% share of formula while you see massive consumption numbers, we're not shipping to those consumption numbers. There's not enough capacity for all the demand that's out there. So I don't want anybody to think they're going to see 150% growth in our formula business. The volume doesn't exist in the marketplace, hence, we're going to Europe for products. But it is a strong business. It was performing very well before the [ short fall ]. Our snacks business and baby has done exceptionally well. And we've been hampered this year by a worldwide shortage in pouches that is now starting to work its way out. So that will be a tailwind as we get into '23. But certainly, this growth in formula is going to be a little bit of a headwind. The volume won't remain at the same level once the competitors that dropped out of the market short term once they come back. But I think when you're talking about your infant, moms very much want to find something that their baby will eat and is thriving on. And once they find it, they're not likely to switch back, and they're not price elastic. It's not like other categories where, hey, I'll just switch to something less expensive because you're talking about your infant, which is the most important thing in your life. And so people aren't going to skimp there, and they will stick with brands that they enjoy. Earth's Best is a very strong brand, has been for a long time, and it's the opening price point in organic baby food. So even if people choose to trade down within organic, we're very well positioned there.

All right, super. Just in terms of product portfolio and elasticity risk, as you just mentioned earlier, hopefully, I mean, especially as we look back at history, elasticity in theory should be a little bit better, right, relative to other categories and brands, potentially just given the demographic makeup of your buyer base. Mark, given your seat, given the need to think longer term, if you're able to extend distribution, right, with the goal, obviously, to increase household penetration, do you think that elasticity benefit or advantage, so to speak, could shift if you do kind of now sell to a broader consumer base, or are there ways if that were to occur, that you could control such risk, right? Like as you said, if you are still operating in an organic space as health and wellness, even if they trade down, you have a better price point. But do you think about that kind of strategically across a number of different categories, especially if the household penetration were to increase?

Yes, I mean, first prize for us is household penetration. So I'm much more fixated on how do we double the number of households buying than I am on whether or not long term the elasticity will be higher or lower. I think elasticities in this environment is a relative game. What's unusual right now is everybody is taking pricing. And if you go back historically, when you took pricing, your elasticity data shows you what happens when you go up and other people don't. In this environment where everybody is going up, it really is much more important that you're watching your relative pricing to your direct competitive set, who you source volume from and who sources volume from you. And as long as you manage that closely and everybody is staying at a similar kind of price gap to one another, then I expect the elasticities will be very low. Now if we raise prices much higher than other people do, we'll see an impact. And if we take less pricing than other people do, we may actually see a volume benefit. So we watch it very closely. Right now, everybody is going up. At some point, this inflation will slow and some people will come down, and we'll have to watch that. And hopefully, that is minimal and people hold on to the pricing they have. But history would say that dynamic will exist. There's always somebody who very much needs to either gain volume to fill up their plant or for other reasons. And so we just have to watch our relative pricing there. And that's really what's going to dictate elasticities at the end of the day.

And given what you said regarding someone, right, usually kind of firing the first shot, so to speak, right, just in terms of maybe it's promotional dollars or lowering prices, spending up on A&P, what have you, right now, we're kind of in the thick of it, right? Everyone's taking prices up, costs are inflated. The doors seem to have been open for some time with the retailers, they understand it. If the cost environment were to actually ease whenever that might happen, do you kind of view it as kind of first steps would be likely increased promotional spend by maybe number of companies, even close competitors could increase A&P, maybe prices were to deflate? Or is it kind of this general understanding that if we're in this period of time, which we really haven't seen historically, where prices are inflating so much, that you comparators retailers alike could actually try to hold on to a significant amount of this pricing as such that we could wind up even expanding the profit pool within the larger space?

Yes, so we are not likely to roll back pricing. But to your point, we can always use trade as a lever. But the list pricing will stay where it is. And by utilizing trade, you have a lot more flexibility on a lot shorter time frame to make changes. And that's exactly what we're doing now. We've been leading a lot of the pricing, then we measure and see who's followed and who hasn't, and whether we took too much or too little, and we're using the trade lever to adjust. I can tell you we are not likely to be the leader in lowering pricing. But if others do, we will follow and the plant-based meat right now is deflationary in terms of pricing even though the costs are inflationary because you have some very big players who have really sold their story on top line acceleration more so than profit acceleration. And when the top line slows, they lower their prices to be closer to animal proteins. And so as they lower, we have to lower. So that, again, we keep our share and we stay relatively competitive. So it really is going to be a lot dependent on how rational the pricing environment is across competitors. And as long as everybody believes that the consumer is going to stay with them at the higher prices, then I don't expect they'll come down. But the reality is history would tell you, post recession, there's always a little bit of lowering of prices. I hope that a good portion of this [ does sticks ].

Okay. Fair enough. And just a follow-up on commentary around kind of plant-based meat and the pricing dynamic [ by grain ], we have seen some of that pricing deflate a bit at retail given the competitive dynamic. It sounds like this is occurring not only in the U.S., but also in parts of Europe. Why do you think just simplistically that category has decelerated some, right? I mean we -- obviously, the category itself has decelerated. There are certain companies who are still taking share and growing better than other companies, who are still probably in early stages of the category. I think retailers have to step back, right, and reevaluate who's growing, who's not growing, what's the real potential of the category, et cetera. So kind of any perspective on what you think has happened? Where do you think it goes?

Well, I think when the pandemic started and animal proteins were not available at the beginning, if you remember, with all the labor shortages and challenges a lot of people tried plant-based meat for the first time, and many of them have been rejectors and some have stayed. But if you look at the heavy users of the category who were heavy before the pandemic, they're still heavy now. It's not like we've lost those people. We've had just a lot of new people come in and try and you're always going to have some try rejectors. So some of this is overlap. And we do expect that this will continue to be a growth category, just maybe not at the mid-teens level that it was growing 4 years ago. But this is still a category that we think has a lot of potential. And look, the retailers have brought in a ton of new brands, and there will be a shakeout at some point because there's -- the velocities aren't keeping up with the number of brands. And so as that happens, brands like Linda McCartney, which is the #2 frozen player in the U.K., or Yves, which is #1 in chilled, they're well positioned when there's a shakeout for us to pick up share of shelf and have more consumers gravitate back to our brands. So we just need to keep innovating, keep the brand strong. I think the category will end up being mid-single-digit growth category over time. But again, we've got to get through this short-term kind of overlap issue.

All right. Got it. That makes sense. And then, I guess, just specifically in terms of your ability to gain distribution within the category in the new markets, I mean, new markets, let's say, for those brands, maybe not necessarily for you as a company overall. I mean and then combined with some of the comments around shelf reset slows and some complications in Europe, kind of maybe pushing out some of the growth opportunity. How are those conversations now with retailers, right? Is it like they understand what you want to do? They understand what your strategy is, they know who you are and what your brands are, they might be willing to try a couple of SKUs, let's say, in Germany, right, or name the country. But things are just a little complex, right? They're just things that are a little backed up and maybe that might go the next year. So I'm just curious, as you lay out the 3.0 strategy, it's a multiyear strategy such that you don't necessarily need the distribution in year 1 or maybe not year 2. I'm just trying to gain a better sense as to maybe when you hope you actually start to see some of that distribution upside come through the P&L.

Yes, so we actually are getting some wins there. But to your point, it's a little bit slower than it would be in a more normal environment. There's a lot of retailers who've had empty shelves and supply issues, and they're much more focused on keeping the shelves full and using their labor around that than they are resetting shelves for innovation. But there's innovation going out and people are taking it. And there are certainly opportunities in new channels or new segments of categories that we're going after. So for example, we brought the nondairy beverage business into the U.K. under the Linda McCartney brand. We've got a handful of SKUs in at a handful of retailers. To the extent that that's successful, we can use that data to go sell to the other retailers. We've had some really good wins in channel expansion here in the U.S. We've gotten our personal care stuff into CVS and Walgreens, which is a huge channel for hair care and personal care items. That gives us big upside. We've got snacks getting into foodservice where we previously weren't in. And again, it strips and drags. It's not like a wave where we've just gotten this massive set of wins, but we are getting wins. Getting sunscreen into surf shops, we're making progress there. We just got our Joya nondairy beverage brand into Germany starting in July, which is a big win. So they're coming but they're episodic versus, hey, we just entered 9 countries. And so I expect that we'll continue to make progress and hopefully, assuming that these things go well. We can use that data, like I said, to go to others and say, you should try this too, it's working.

And maybe not being in 9 countries at once is a good thing, right? Live and learn, right?

Actually, we're not doing that anyway. We don't want to add too much complexity in a company that has spent the last 3 years trying to minimize complexity. But we're doing it very thoughtfully and methodically. Where is the consumer shop? Where do we have brands that will resonate. So Linda McCartney in Germany. Paul McCartney is very well known in Germany. He's very iconic. Linda McCartney is very well known there as a person. And so bringing that brand there is not going to require a massive marketing investment as an example. We can leverage the relationship we have with the McCartneys for him to do some events and some PR and things that will get that brand jump-started for us.

All right. What's next? Maybe snacks in the U.S. Look, innovation's been impressive, right? You also play in some kind of subcategories, let's say, with not a tremendous amount of direct competition, right? Everything is about Sensible Portions. Everyone, I feel like, has been talking about it for years that, oh, private label could take that over and it's not that hard to compete against that brand but the brand obviously continues to do extremely well. And you have a fairly clear outline strategy and how to continue to accelerate the growth within snacks in North America. So as we step back and we think about shelf resets, call it channel strategy, just kind of touched on in terms of foodservice. If you're thinking through next year, first question is just are there any impediments you're feeling right now in North America in terms of incremental distribution innovation rollout in snacks? And then secondly, every category has usually has different elasticity dynamics. My personal opinion is snacks feels a little bit more hedged, right? It seems like it's maybe a little bit better. You have different channel eating occasions. You have a single serve relative to at home, what have you. So maybe just also touch on snacks as kind of a broader category, maybe how that could do a little bit better than other categories with some incremental pricing.

Yes. So we're very bullish on snacks. And Sensible Portions, as you mentioned, is up almost 80% over the last couple of years. And quite frankly, we've had supply challenges on Terra and Garden of Eatin' that have gotten considerably better over the last several months. So we can turn the spigot back on in terms of marketing and promoting those brands that we haven't been able to do. And then we just bought the That's How We Roll business with ParmCrisps that we're very excited about. And over in the U.K., we have the Hartley's business, which is a Jell-O -- gelatin type product that also does exceptionally well. So we're very bullish on the category. We have a lot of distribution opportunity, both in core channels and in new channels as we've talked about. And geographically, we got to bring all these brands in the U.S. up to Canada. We don't even have them all in Canada yet. So we feel very strongly that there's a lot of upside here and that we're very well positioned. I would say short term to the first part of your question, massive inflation in this category. Oils have gone through the roof. They're about 80% inflationary year-over-year. We're going to be faced with some pretty significant inflation next year and potential supply shortages because the Ukraine is not making any sunflower oil and people that were using sunflower oil are gravitating to the other oils, and hence, you've got a supply and demand imbalance. So the biggest challenges there are going to be cost and supply. But our innovation is great. Our geographic and channel opportunities are great. And even in our core channel, Sensible Portions' Veggie Straws still only has about 72% ACV. I mean, we're still only in 3/4 of the stores in our core channels. So we see a lot of upside there as was laid out in 3.0.

Okay. And then the margin profile too is attractive, right?

Yes, we've got to cover these costs. Again, short term, with 80% inflation in oil, the margins are going to be challenged. But long term, those prices are not going to stay where they are on oils. They'll come back down. And for us when we have a brand like Sensible Portions, which is the biggest brand in the company and it has less than 10% household penetration, if I can just double my penetration over the next 3 to 5 years, you're looking at a $0.5 billion plus brand that's going to be a real juggernaut. So yes, I'm worried about the short-term margins, but I'm really building for the future by continuing to innovate and drive distribution and consumers to the franchises.

Okay. And then just on the pricing side, a decent amount of pricing came through in Q3, expectations for a bit of solid pricing in Q4. We can see the pricing kind of at least overall in general at retail and track channels, which looks great but costs are up and little near-term margin pressure continues. Is there a point in time, right, on the price relative to cost side such that you feel as if you've now priced enough to pass through the cost inflation and then you're back to standard operating procedure with reinvesting back in A&P? Or is this kind of this gradual road, right, over the next few quarters such that it still is going to take some time to kind of get back, right? Q3 margin was obviously a little pressured in North America relative to history. Expectation is for you not to grow faster than revenue, right? So you -- longer term, you're still expanding margin. You're in this little pocket of time. Is there a time such that you actually get to a decent level of pricing, let's say, with hopefully still flattish volumes such that you feel like you've kind of hit like a steady state off of which you can then expand?

Yes. I mean, the answer to that question is it's -- we need to first see inflation stabilize or come down, and we need to see supply disruptions. And the good news is we are seeing labor is somewhat stable, albeit at an inflated level. Freight costs ex gas prices, just the truck and the driver are pretty stable, albeit at a higher level, which is good news. It's stabilizing. But as I just mentioned, on ingredients, we're still seeing double-digit inflation. On packaging, we're seeing double-digit inflation, and we continue to have supply disruptions. So as long as that continues, the pricing is going to lag the inflation as it has been because you have to have the data to go to a retailer and make your case, and then you got to give them 90 days lead time. And so I expect that we'll still see margin erosion in the short term. But at some point, prices or inflation will stabilize and that pricing will have caught up, and that's when you'll start to see potential margin expansion on this business. But it's hard to do it when you're continuing to chase inflation that's getting ahead of your ability to price for it.

Yes, I mean, overall, it basically sounds like there are some hurdles now in the top line in terms of distribution growth hitting kind of longer-term target in the near term. You get past that period, strategy is still in place, right, everything -- nothing has really changed. On the profitability side, longer term, right, what's implied in the guidance, obviously, margins expand. And I need to get to kind of this pretty place, you get to your stabilized spot and then all of a sudden, if everything else plays out, you still have the mix benefits and the productivity comes through, what have you. Is that -- I don't want to put a time frame on it, but it almost feels like you need to get through a couple of quarters, so to speak until we can all settle and say, okay, now we're here. Now we're going to expand.

I think that's right. Look, our strategy in 3.0 is we price to cover inflation. That was assuming inflation was 2% to 3%. We use productivity to take to the bottom line and invest in the brands, which is how you get some of the margin expansion. Short term, we've been using the productivity to try and offset all these supply disruptions, and the pricing has lagged the inflation. And that's why you're seeing margin erosion in F '22. And it will continue into the beginning of F '23 until we start to see some stabilization on the cost side. But once we do, we still have the productivity projects that we can then deploy into the brands and take some of that to the bottom line, which is what the 3.0 strategy was all about. So it's a little bit of a headwind in the short term, but this can't go on forever. It will stabilize at some point. And to your point, prices will come back down to earth at some point. And that's when all this productivity really will fuel expansion of our margins.

Got it. Okay. Maybe just a few more minutes. Maybe just shift to the token M&A divestment conversation which we all like to end on. I know you said upfront there could be a number of brands, you could still divest. You pointed to those at the Investor Day. Not sure how big those brands would be or how material those brands would be. While at the same time, I know you've mentioned before the willingness to divest the HPP business, right? However, still is doing very well, being new distribution, surf shops, right, what have you. Is there -- are there brands that, let's say, could be divested and actually really help fuel the algorithm in the out-years? Or are they still kind of smaller brands that will help you in terms of more focused spend? Maybe their benefits to EBITDA and margin to some extent but not that big. And then secondly, there's still HPP. And so kind of what I'm seeing and feeling is, look, somebody offered just the right price, great. We'll take it. Until then, you're going through a period of time, high cost inflation, gain distribution, still growing and improving the business. So it seems as if the value of that business hopefully would improve the longer you wait, obviously, continuing evaluation.

Look, our goal is to continue to simplify the organization, and personal care really has very little synergies with the rest of the business. And so at some point, as we said in the Hain 3.0 strategy, it will make sense to sell that business. It's dozens and dozens of categories. We think of personal care as 1 category. It's really a department with lots of categories, right, body wash and shampoo and deodorant and mouthwash and toothpaste and sunscreen, et cetera. So it's very complex. It's not our core competency. But as you said, we are adding value by growing the top line. And at some point, that will likely be a candidate for divestiture. Beyond that, there are things in the simplified fuel bucket that are relatively small that just add complexity. And some of them, we may just end up shutting down. Like, for example, we have Hain salt which is not going to be a very differentiated business. It's a commodity, it's going to be very hard to recoup all of our costs when there's plenty of other people that sell salt. And do we need the complexity? Probably not. So I think those are conversations you have with the retailer that says, look, are you either going to take a 20% price increase or I've got to exit the business, what do you want to do? So some I think will likely get shut down. I think there's more sizable ones. We will always be looking to find an opportunity to simplify the portfolio. And we are having conversations with people as we speak on some of those. And then on the flip side, we want to acquire more in those core categories that we think really have the growth potential. How do we get another big snack brand in here as their opportunities in tea or some of the other categories that we've prioritized. And I think that's how, over time, we end up being a much more synergistic and cohesive portfolio that will give us efficiencies and margin expansion as well as top line acceleration. And I think That's How We Roll is a good example of we've basically eliminated their distribution costs because they're now riding on our trucks for free, and yet we have lots of top line opportunities to put them on displays with us with the rest of our snacks portfolio. We have opportunities to automate in their plants. So that's a good example of where we're going to add both top line as well as cost synergies that will really help accelerate the algorithm. So expect that you'll see that over the next several years, just as we did in 2.0. Obviously not at the same rate. We sold 23 brands in 2.0. I don't think we're going to sell nearly that many. But we'll continue to reshape the portfolio over time.

All right. And then just lastly, the balance sheet remains strong. You've mentioned before, a fair amount of firepower you have on the acquisition side. I believe that's excluding other divestments that could obviously generate more cash. If you think about just acquisition appetite, feels like it's obviously there. However, maybe just spend a minute speaking about how you view the environment.

Chris, do you want to take that?

Yes, so the balance sheet is sound, Rob, we closed the last quarter at 3.3x leverage. And so we talked about a range between 3x and 4x as our comfort zone and the ability to go above that 4x for the right acquisition opportunity. So again, the balance sheet is sound, and for the disciplined approach that we've applied to acquisitions in the past. Before I got here, before the That's How We Roll, ParmCrisps acquisition, I think the company looked at somewhere between 20 to 25 different opportunities and was very disciplined on what are the things that we're looking for and where are we willing to pull the trigger to put that dry powder to use. And I think you see that the That's How We Roll acquisition was really a poster child, a case study for the company's disciplined approach towards acquisitions.

Okay, makes complete sense. All right. Look, with that, I'll just say thank you to you, Mark and Chris, for participating again in the Jefferies Nantucket Consumer Conference. Thank you to everyone listening. If you have any follow-up questions, feel free to reach out to me or to anyone at Hain. Happy to take any follow-ups. So thank you very much. Have a great day.

Thank you, Rob.

Thanks, Rob.