I think we're going to go ahead and get started. Hi, everyone. My name is Jim Salera. I'm the Packaged Food and Beverage Analyst here at Stephens. With us today from the Hain Celestial Group is Wendy Davidson, President and CEO. Wendy, thanks for joining us.
Absolutely. Appreciate it.
Wendy, I want to start off with a high-level question. As we near the end of 2024, you've been at the helm at Hain for nearly two years. There's been a lot of changes over that period. Can you just give us an overview of how you've reshaped the company and how we should think the business is positioned to grow moving forward?
Yeah, I really appreciate that. You know, this has been two years of pretty significant transformation. For those that have followed Hain for a long time, you'd know that the company's been around about 30 years. Largely grew through acquisitions, some 60+ acquisitions, but very little integration. About five years ago, there was a change in leadership, my predecessor, and a significant amount of portfolio simplification, really at the brand level, resulting in divestiture of about 30 of those acquisitions, but still very little integration of the business. So when I joined, we knew there were a few things that we needed to address from a go-to-market. We needed to identify how Hain would compete at scale, how we would drive synergies, but we also wanted to benchmark ourselves externally and make sure that we were driving the most efficient operations possible.
We did a lot of work in the first year on strategy and structure. We also did quite a bit of work around mission, vision, and values to clarify who we are as a company and how would we go to market, because telling our story also results in how we drive on-shelf presence. And then we needed to drive the appropriate synergies across the business. We went from multiple siloed, separate P&L structures across the globe to global centers of excellence. That allows us to drive more end-to-end consistency in processes, but also reduce the overall cost by not having those multiple structures. We needed to simplify how we ran the business, but also simplify how we talked about the business. Instead of 32 separate businesses, we're in five core categories, and we're in five core geographies.
That meant getting out of non-core businesses, in some cases divestitures this last year. We divested of three different businesses. It also meant consolidating the footprint operationally. We focused on those five geographies, exited non-core areas, and went to a distribution relationship there, consolidated manufacturing operations in the U.S., consolidated distribution centers in areas, expanded distribution in North America so we could put our products closer to our retailers. So a lot of reshaping of the overall business and reshaping of the organization. About 50% of my leadership team are new in the time I joined the company. About 40% of the next level down in the company are new to the company.
We were looking for people who had experience in both small company and big company because we want to drive the kinds of processes and route to market that a big company capability would be that allows us to talk with the right voice with some of our retail partners. That said, you don't want people who only know how to do big company processes because we're in a resource-constrained environment and we need to make sure that we're driving with agility. We wanted people who knew how to do both. How do you flex fast and speed like a startup, but how do you drive good operational systems that you'd expect at big CPG? We've made a lot of progress. We've paid down a significant amount of debt, improved our leverage to 3.9x on our path to get to 2-3 times.
We've done a lot to unlock working capital. We identified on investor day a year ago that we would improve $165 million. We did about 1/3 of that in the first year. We've done a lot to improve our SG&A capabilities, but staying within our SG&A spend, which if you recall, a year ago we said we have about the right amount of SG&A, but it's not distributed in a way that allows us to have the capabilities we need to have in brand building, in innovation, in route to market. So those have been capabilities that we've been investing in. And I've said publicly we're a very different company than we were a year ago. In every way possible, we're different in how we work our business, but we're different in how we talk about ourselves as well and in how we go to market.
That's allowing us to have very different conversations with our retail partners.
That's great. And I think there's a lot of things there that we'll drill deeper on. But one of the things you mentioned, you know, distinct categories that you operate in, I think probably the one that you're most well known for is either snacks or tea. Obviously, you know, the name of the company shared with your tea brand. But I want to start in snacking. I believe, you know, that's one of the core drivers of growth moving forward. It's about 25% of your revenue. You have sold some brands recently, invested in other brands. Just how should we think about the best assets in what remains of the snacking portfolio and how that's positioned moving forward?
Yeah, snacks, you're right. Snacks is about 25% of our business. It's disproportionately overall snacks in North America to our international business. Our international snack brand is Hartley's. That's where you would see the individual Hartley's jelly pots where we have a nice market share. That product is largely on feature display. It's an immediate consumption type of brand. And so Hartley's would be what you would see in the snack brand. Our core brands in the North America business, and we sell outside of North America as well, would be our Garden Veggie portfolio, our Terra Snacks, Terra Chips brand portfolio, and then Garden of Eatin', which is a tortilla brand. And each one of those brands, to your point, we divested of non-core snack brands that really didn't have the kind of scale potential that we wanted to have.
You know, the fewer brands with larger opportunity ahead of us, that's really what our focus is on snacks. All three of the core salty snack brands have high brand awareness, have low household penetration. That's a huge opportunity for us. You've heard me talk about it as we have brands that the consumer loves. We just make it really hard for you to find it. So our goal is drive distribution, continue to invest behind those brands to drive brand awareness, but also continue to drive innovation that keeps new food news. This last year, we launched Flavor Burst in the Garden Veggie franchise. It's the number one better-for-you snack launch in the snack category. It's 80% of the sales of that are incremental to the Garden Veggie overall brand. And we launched our first master brand campaign in the Garden Veggie franchise in August.
Terra Chips has really strong velocities, not as much distribution. Our focus is driving, again, great awareness, great velocity, and more points of distribution. We are leaning into that. Garden of Eatin', we've converted to organic. You'll see that showing up in some of the natural and organic stores. Each one of the brands sort of has its own focus and potential as we go forward. I feel very good that we have the consumer trends in our favor, with consumers looking for better-for-you. What they want is better-for-you without sacrifice, without sacrificing the ingredients, without sacrificing taste. Our job is to make them more available and accessible. That's price pack architecture. It's driving distribution across channels, but it's making sure that we have really relevant food news.
And if we know the number one barrier is taste, we need to also get it in their mouth. So lots of sampling activity, especially on Flavor Burst, because we know that there's skepticism that better-for-you can also taste good. And so we'll lean into that. And then obviously flavor extensions and pack extensions as we go forward.
Great. And I think you touched on something important there, which is kind of this shifting consumer preference and better-for-you, you know, occupying kind of more and more of the consumer's basket. If we think about snacking more broadly, you know, lots of strong years of growth post-COVID. 2024 has proven to be a little bit more of a challenging year for the snacking categories with some volume pressure across the store. That's led to some promotion, increase in promotion for the mainstream brands. How should investors think about, I guess, two-part question.
One, your price gaps relative to mainstream brands, but really how the consumer engages with your portfolio versus a mainstream portfolio and how the overall engagement with the snacking category affects, you know, where you're at on the price ladder, or if that even is an important distinction because the consumer might be different for yours versus, you know, a large CPG.
So in snacking, and you're right, pre-COVID, we actually saw stronger growth in better-for-you in general across categories than in conventional. And that flipped during COVID. And I think there was lots of speculation about the demise of better- for-y ou. We knew that things would begin to stabilize and revert back. And we've definitely seen that over this last year. Our opportunity is a little bit different than conventional snackers. Most of them have all the distribution. So they need to promote to drive velocities. For us, we have good consumer trends in our favor. We don't have broad distribution. So our focus is to get our products in the right points of distribution, get the right assortment of those products available where the shopper would expect to find them, and maintain the price gaps of the consumer's willingness to pay.
The latest Circana data show that actually premium and super premium continues to grow, and private label, where the industry has seen challenge, is in value and mainstream. Our brands don't fall in value and mainstream. They really fall in premium and super premium, and our goal is to maintain that price delta. We don't want to get out over our skis, but we also don't want to discount something that truly is better-for-you, and the consumer sees it as better-for-you. Our biggest goal is to fill the white space, put it in the right points of distribution to disrupt the consumer on their journey.
So something else you touch on there is interesting. And if we look at some of the mainstream sets in other large categories like carbonated soft drinks, you know, we've seen major retailers expand better-for-you on-shelf presence mixed in with these mainstream brands. And something you touched on earlier, you know, the difficulty of the consumer finding your brands in the store. How should we think about the on-shelf composition in the store as consumer preference, you know, oscillates between kind of mainstream and better-for-you? And is there an opportunity for broadly better-for-you and specifically for Hain getting more of your products mixed in in kind of the traditional salty snack aisle?
Yeah, if you look historically, natural and organic products, you had to go to a special store to get those products. Then they became more available in mainstream retail outlets, but they were in a separate aisle in the dusty corner, dark lighting, very hard for you to find. We know the same shopper who is shopping across all retail formats is looking for these products. So we're actually working with our retail partners using the consumer data to walk them through how they are missing shopper dollars by not having the products available in the mainstream set. You have seen this in some categories where they're actually doing cut-ins of better-for-you inside the aisle.
We think that's the winning proposition is when the shopper's shopping a category like snacks or they're shopping in soups or they're shopping in nut butters, they're not expecting to have to go to some separate aisle somewhere to find something that's better. They want it available in the same assortment. We need to work with our retail partners on what that looks like and then make sure that the SKUs are the right assortment that are the hardest working SKUs so it's available to bring the shopper into the store, but also increase the size of the basket.
You had a promotional event in snacks that moved from Q1 last year, and this year it's going to be in Q3. You also have, I believe, the first national advertising campaign for Garden Veggie. Could you just give us some details on the impact you expect for those and how that could potentially drive consumers into the sales funnel that either might not be aware or, you know, re-engage with consumers who have kind of fallen out?
Yeah, in terms of, you know, sort of short term, very acute, and we guided intentionally for this because we didn't want anybody surprised by what was taking place. We moved actually two very large promotional events from Q1 into Q3. They're material from a year-on-year basis. Without those two events, we actually would have seen Garden Veggie in sort of low to mid-single digits in Q1. So they were material to the overall portfolio. It also meant that the overall snack portfolio without those would have been up low single digits in Q1, which significantly is sort of better than category rates during that time as well. So those move into Q3. Those are known headwinds in Q1, and they're known tailwinds as we go into Q3.
And it'll give us a nice fast start to new year, new you with a variety of our retail partners. When we think about the master brand, if you look at Hain historically, marketing was more episodic. We would have promoted really heavily, and then we would have pulled back. And in fact, when I joined the company, we'd gone dark on most marketing on our brands for almost 12 months. You can do that for a period of time to deliver a quarter, but if you do it too long, it'll actually hurt the overall brands. And we definitely saw that impact brand awareness and household penetration. What you should expect to see from Hain going forward, and the Garden Veggie master brand campaign, to your question, is a great example of it. How do we tell a consistent story?
How do we keep consistent on pressure to make sure our brands are top of mind? And then we want to make sure we're driving distribution to make them easy to find so that it's a one-two punch. Garden Veggie is a fantastic franchise. In the past, the company would have talked about it as Sensible Portions. Reality was the consumer research told us Sensible Portions had low brand awareness. Garden Veggie had very high brand awareness. The brand portfolio is Garden Veggie. And underneath that, we have Straws. We have Puffs. We now have Flavor Burst. We have stacks. So there's an opportunity for us to leverage Garden Veggie overarching and then be able to do individual promotional events that tie into the subcategories of Garden Veggie. So that's part of what's tied into the overall brand campaign.
What we expected to do for us, Garden Veggie is a big, and actually the snack category is a big part of our growth belief in the back half of the year. We have known distribution gains, C- store in the value channel across food, drug, mass. We have known promotional events across big retail partners as we go into the back half of the year. We have consistent pressure on the brand. We have new flavor news coming in Flavor Burst in the back half of the year. So lots of good activity in the snack category.
Great. As much as I love snacks, you have other categories we want to touch on as well, so maybe shifting gears to baby and kids, which is roughly 16% of sales. You faced some challenges last year with constraints on formula supply. Just give everyone a kind of a quick summary of what happened there, potential risk maybe to future disruptions, and you know where we should think about that moving forward.
So approximately, so start with first Baby / Kids, you're right, it's about 15-16% of our business. We have two primary brands. We have Ella's Kitchen in international. We have Earth's Best in the U.S. They're both leading brands in baby and kids in natural and organic. In Earth's Best, we don't do infant formula in Ella's Kitchen. We start at the baby food stage. And with Ella's, we have 53% of new parents within the first six months of their kids being born engage with our brand digitally. So we have great consumer insights. We have great consumer engagement. That helps us drive right assortment and right activation in our international business on Ella's. And there's great insights that come from that that actually feed into our Earth's Best business.
Earth's Best has a portfolio that goes from birth with infant formula all the way to backpack, which is where we have toddler snacks, kids' snacks. In the infant formula stage, that's where we recruit consumers into the brand. It was significantly disrupted two years ago through the overall industry formula disruption. We were acutely impacted not just because of capacity issues of manufacturing locations, but also the access to organic lactose that goes into organic formula. The U.S. government gave a temporary exemption to allow importation of formula outside the U.S. to help shore up the U.S. supply of formula for a period of time. At the same time, we were working with our supplier partners to get improved operations consistency, but also multiple locations to be qualified to run the products. That gives us operational contingency.
We've also increased production or inventories that allows us to have more available supply. Again, another contingency. We are now back in supply on all of the formulations. We have a formula and all of the pack sizes as of this month. And we're leaning very heavily into recapturing our share in infant formula. We had the number one market share prior to the market disruption. What we know in the last six months as we've been back on shelf, our velocities are at or better than what they were before the disruption. That tells us a couple of things. The brand is beloved and trusted by parents that they've been looking for that product, and it's an opportunity for us to go recapture that share. We turned back on marketing for Earth's Best over this last month.
We will lean into that similar to Garden Veggie with a consistent always-on strategy while we also drive both formula availability, but also improving the overall portfolio of birth to backpack with innovation that comes in Earth's Best in the spring.
Great. You mentioned on Earth's Best and Ella's some of the insights you can share across platform and obviously Earth's Best primarily U.S., Ella's primarily U.K. How, I guess, first of all, is there a meaningful difference in the U.S. consumer versus the U.K. consumer when it comes to this category? And if you can offer any examples of kind of that portability of success in one market to the other one and how that improves the overall marketability of one brand or the other one.
I think actually Baby / Kids is probably our best example of where we see the opportunities for synergy and scale across Hain and why we believe in Hain Reimagined. In the past, these are two brands that really didn't work together and two regions that really didn't interact with one another. But what we know from the research is that the same thing that parents want in the U.S. is the same thing that parents want in the U.K. And leveraging those insights allows us to have innovation that can punch above its weight. Last year, we launched Melty Sticks in Ella's Kitchen and Crunchy Sticks in Earth's Best. Same product, same application, which is actually encouraging kids to play with their food so that we're building healthy eating habits for young kids.
We believe as a leader in better-for-you, our job, our role is to use our brands to actually help parents, help shoppers, help consumers make better-for-you something that's easy to fit into their lifestyle, and I think that starts with kids' behaviors and their eating habits, so we want products that actually encourage kids to grow with flavor and texture and food attributes. They sort of learn as they go. That's our job with parents, and we can leverage those learnings from Ella's Kitchen, leverage those into the Earth's Best brand as well. This spring, we will actually have the same self-feeding platforms launching in both brands at the same time, and that'll be the first time in the, I think, our Baby / Kids portfolio that we will have launched the innovations in the same time period.
Great. How should we think about the growth potential for these brands? And really, what drives household wins? I mean, because you're, you know, inherently not advertising to the end consumer. And so how should we think about what drives consumer engagement with these products? You know, is there opportunity for awareness, you know, improvement in awareness, improved shelf presence? Do people just need to understand what the use occasion is? How should we think about that for Earth's Best and Ella's?
The interesting thing about playing in Baby / Kids is you are recruiting new consumers every 24 months because they age out of the category. This really is about us engaging with parents and building parent advocacy and being their partner in the parenting journey. That is the importance of keeping your brands top of mind, making the products easy to find, but also making the shelf easy to shop so that a parent who is going into that aisle as a new parent, they can also, and we're helping them figure out how the different parts of the portfolio play for every age range. That's on pack education. It's online education. It's parent engagement education. It's making sure we have products that sort of keep the consumer, keeping parents being able to move kids through that food journey.
And then you'll see us do things with innovation, especially with Ella's, as we age up the brand. We know that we've got consumers once they hit 24 months, they may age out of the brand, but there's an opportunity for us to actually have healthier kids' snack options that are available for an Ella's consumer that's aged three or four. Earth's Best has a fantastic line of things like chicken nuggets and chicken fingers that moves kids from toddler snacks into actually toddler and kid meals. So we'll do that in both brands.
Great. Let's switch over to Meal Prep, which is actually your largest segment, makes up around 40% of revenue. I think it's also fair to say it's your most international segment. How should we think about the growth prospects in Meal Prep? And just maybe some thoughts on, you know, the international consumer relative to the U.S. consumer and maybe some of the differences in how you market brands, you know, internationally.
Meal Prep, you're right, it's about 40% of sales. It's actually about 60-40 international to North America. It is a bit more tilted to international, but not as much as we see like in snacking tilted to North America. The portfolio in Meal Prep includes a couple of really big categories. Yogurt in North America, Greek Gods Yogurt falls there, and that's a brand we feel really good about. You'll see some things around distribution gains and growth in Greek Gods Yogurt as we go in certainly into the back half of this fiscal year. Soups is a very big category for us in Meal Prep and in the U.K. business. We're the number one, number two, and number three brands of soups with the Cully & Sully brand, with Yorkshire Provender and with New Covent Garden.
And they essentially play at three brand tiers, but also with a different consumer need state. And we continue to be the share leader and the share growth leader in all three of those brands in that market. So I feel really good about the soup category there. The other part of what falls in Meal Prep where it's a category dynamic is in meat-free. So we're the number one brand in meat-free with Yves in North America and Canada. And we're the number two brand in meat-free with Linda McCartney Foods in the U.K. Those are both really strong brands with strong brand awareness, but in categories that are in a category that's under pressure.
So our goal in both of those markets is to have a fighting core assortment that we continue to support around authentic ingredients, taste, and convenience so that we continue to win share as the category continues to consolidate. But so meat-free is part of what you find in there. And then the other big category for the international business there is spreads and drizzles or jams and jellies. You would know it here in the U.S. and then nut butters. And we play in nut butters in the U.K. and Sun-Pat. We play in nut butters here in North America and MaraNatha. Those are areas where we again feel like better-for-you without sacrifice means we've got products that fit into the consumer's everyday pantry lifestyle. So better-for-you options and just sort of your regular repertoire. Feel good about the portfolio brands we have.
Feel good about the assortment that we've got. Continue to make sure that we are appropriately supporting the brands, but not oversupporting the brands. So you'll see increased marketing around Greek Gods Yogurt. This fall, you would have seen some really good brand activation around Linda McCartney Foods with Van on the Run, which are sampling events because we know the number one driver of both purchase intent, but also the number one barrier is taste. So we needed to get product in people's mouths to be able to see that meat-free doesn't mean sacrifice. But we feel good about the potential of growth in Meal Prep. Overall, Meal Prep is in a maintain category for us. It's one that we'll have parts of the portfolio that will grow soups, Greek Gods Yogurt. We'll have parts of that portfolio that we're stabilizing meat-free.
We'll have parts of the portfolio that are just steady drivers of growth, steady drivers of margin that helps us overinvest in the growth categories like Beverage, like Snacks, like Baby and K ids.
So if we think about organic net sales, ignoring some of the portfolio composition changes, organic net sales for Meal Prep, I believe over the last three quarters have been kind of consistently down mid-single digits. How should we think about the composition of what would get that back to, you know, more kind of stable, flat to up low single digits? Are there any, you know, specific subcategories like you mentioned meat-free that we would need to see turn around to start to move that back towards, you know, positive organic net sales?
Yeah, well, there's because of the subcategories inside Meal Prep, meat-free, even if we're gaining share, is still a category that's under pressure. That's why we have it sort of targeted for stabilize. But there were a couple of dynamics around shift in private label that we saw in jams and jellies or spreads and drizzles in the U.K. and in Greek Gods Yogurt that we saw in North America. You will see us lap those as we go into the back half of the year. So you should see Meal Prep return to growth in its core.
Great. How should we think, maybe just wrapping up thoughts on Meal Prep, how should we think about, you know, the difference between the U.S. and the U.K. consumer? You know, despite whatever challenges we've talked about for the U.S. consumer over the past year or so, I think the U.S. consumer is still materially better than international consumer. I guess, does that match with what you see maybe as a starting point? and if it does, how should we think about, you know, the state of the U.K. consumer and what might put them in a better or worse position as we move through the year?
We definitely saw in the last two years the economy and inflation impacted in both markets much more acutely in the U.K. than in the U.S. We found the U.S. consumer to be more resilient and to continue to spend for premium products. I think the latest Circana data we actually saw that play out as well. The buy of premium and super premium, but also increases in private label. In the U.K., we saw growth return in private label before we saw it grow in brand, and for us in our business, we play in both private label and brand in that market, and so we saw benefits in our private label portfolio, but we saw a slower return to growth in brand, and I think that's consistent in that market. We've begun to see inflation stabilize in both regions.
We're seeing the consumer begin to return some shopping behavior in the U.K. But what was interesting, we watched in the U.K. consumers shift channels. So they went to discounters more. We also saw their size of basket reduce and the use of multiple items, you know, the sort of use of leftovers increased as shoppers were really stretching their dollars. So we still see an opportunity to make sure that the shopper sees value for dollar. Even if they're willing to spend the dollars, we need to demonstrate value for dollar in both regions.
Great. Last segment I wanted to touch on is beverages, roughly 15% of sales and definitely been one of your stronger segments. I believe it's the only segment to not post negative organic sales growth over the last four quarters. So maybe starting there, you know, what do you attribute the relative strength of your Beverage portfolio, you know, compared to some of the other segments? And is that the category as a whole or your positioning within the category, your brand positioning within the category?
So in Beverage, we've got really two subcategories there. We have our tea business under Celestial Seasonings Tea, and then we have non-dairy beverage, which is all in international. In non-dairy beverage, about 30% of that business is branded under Natumi and Joya brands, which are leading brands in especially the Western European market. And then we do a lot of private label and non-dairy beverage in the European market. We actually do our retail partners' own label where we also have our brand on shelf.
What's interesting is you can walk into a retail location. You'll see a, you know, four- to six-foot set, and the majority of that set is actually produced by Hain, but a portion of that is our brands, a portion of that is our customers' brands, and it allows us to help them maintain the right shelf assortment, price points, things like that. We saw really good growth in non-dairy beverage over the last 18 months. It's a large category that's growing. We're well positioned. We did a lot of work in portfolio cleanup. In the Joya brand, for instance, we eliminated 50% of the SKUs in the portfolio so we could get it to a fighting core that ended up having really strong, nice velocity.
It's sort of an overall focus for us at Hain. Having more sometimes just means more, but having fewer that can actually be more productive is a better use in some parts of the portfolio. That was definitely our focus in non-dairy beverage. It's a category we feel good about. We think we're well positioned in. Our plants are running very well, good capacity utilization. We're well positioned, we think, in a growth category. Celestial Seasonings Tea, I would tell you, is, no pun intended, a sleeping bear in our portfolio. That is a large category. We're well positioned in herbal, but there's growth opportunity for us in green and black tea. We have green and black tea. We've not leaned into it historically. That's an area that we've done a lot of work in.
Innovation is a good opportunity for us, but not just flavor innovation, but real wellness innovation. We launched last year Sleepytime with Melatonin, and we launched Throat Cooler that actually has menthol in the tea that actually physically cools your throat. Both of those SKUs did very well for us. Sleepytime with Melatonin was in the top 100 selling SKUs in the entire category within its first 12 months. We just launched two new innovations in Celestial, the new Lemon Honey Drop, which was a consumer tested requested flavor, and then Sleepytime Beauty Rest that has biotin in it. So you'll see us doing more there around innovation that's meaningful, and then we're actually doing a big master brand campaign on Celestial that just launched this month, Taste Our World, which was tied to two things that really mattered in the consumer research.
One was taste was really important. The other was sourcing. So us being able to talk about the global attributes of the ingredients that go into Celestial Seasonings tea and then the fact that taste is the number one attribute and bring that to life for the consumer. And actually this month, our updated direct-to-consumer site comes live in Celestial Seasonings Tea. And you'll actually see us taking some of what we have in branded merchandise at our Celestial Seasonings visitor site, which is, I think, the number two tourist destination in Boulder, Colorado. So Jim, if you find yourself in Boulder, you'll have to stop by the tea shop.
I'll put it on the list.
But even some of our tea branded goods will be available on the direct-to-consumer site. So really leaning into brand building for Celestial, portfolio building, and then availability around distribution.
So drilling down on the tea side of that, it sounds like obviously a lot of innovation and a lot of new ways to engage with the consumer. You do already have a pretty sizable market share in teas. How should we think about the growth potential as you bring some of these new resources to bear for your tea portfolios? Is it still going to be, you know, not constrained by, but tied to the category growth? Or do you feel that as you have these new opportunities to engage with consumer, there still is opportunity for meaningful market share improvement, even though you have, you know, a pretty dominant share to begin with?
We have a really good share in herbal. We are under-indexing green and black tea, which are actually the largest share of the overall tea category. So there's still upside white space for us. And we have tea credibility, so we could definitely leverage that. Availability in all the points of distribution still remains a huge opportunity for us to ensure that our teas are everywhere the shopper is shopping. And for us, that also means away from home. So leaning into hotel, travel, so that our brand is on the go when you're on the go is a great opportunity for us. Our overall tea share, I think, is still somewhere around 11% in the overall tea category. That's still significant upside for us to be able to drive in the overall category.
So, you know, what I think we've said all along in Hain Reimagined, we really don't want our growth rates predicated on category growth rate. If we're relying on the outside factors to help us drive our growth, those should be additive to our growth rates, but it really should be within our span of control. So we've focused on three elements of growth across the portfolio. Brand building should be a focus for growth. And so how are we driving both household penetration and awareness? Channel expansion should be an element of growth. How are we driving TDPs and channel expansion? And as I mentioned, away from home and especially e-commerce are big growth areas there. And then innovation, our innovation renewal rate or the rate of our growth that's coming from innovation born in the last three years should be between 8% and 10% for each category.
Historically, for Hain, it was somewhere south of 5%. So there's opportunity for innovation to be a key driver of our growth as well. And all three of those are within our span of control.
So we talked pretty extensively on the sales drivers for the business. Why don't we switch gears and talk a little bit about the margins? At Investor Day, you laid out an adjusted EBITDA margin target of 12% plus by FY 2027. This is the first year where you're expected to deliver meaningful upside on the gross margin, you know, more than 125 basis points. What's your line of sight to achieving that margin expansion this year? And if you could maybe walk us through some of the components that drive that upside this year.
Yeah, so we guided for this year 125 basis points. We said it was largely going to be back end, which I know every investor loves to hear that. So let me unpack a little bit around why we know there were front half drivers that were meaningful and then why there are back half drivers. In the front half, we did a lot of portfolio cleanup at the end of the last fiscal year. And so we've got some inventory that's moving out in the front half of this year that impacts the margin expansion opportunity in the front half of the year. As we go into the back half of the year, you've got a couple of big drivers. So our tea growth in Celestial, our infant formula recovery in the back half of the year.
At the same time, our productivity pipeline, which we have a really good history of delivering on our productivity pipeline, driving out costs in the business, we have quite a bit of initiatives that hit in Q3 and Q4. Last year, productivity, we said would deliver about $60 million. We actually delivered more than that in fiscal 2024, and our goals for fiscal 2025 are more, and we also have a greater line of sight this time this year versus what we saw last year at this time, so I feel very good about the capabilities in the organization to continue to drive effective productivity, which does two things. It allows us to expand margins and invest back in the business so that we don't have to take a step back. We're still doing a lot of the work in working capital.
We identified $165 million in Hain Reimagined. We delivered 1/3 of that in the first year. That's our days payable. It's our days inventory, and it's our days sales outstanding, our focus around that overall cash conversion. And so we continue to make headway there. And then I think the biggest driver that you'll see last quarter, we disclosed price volume mix for the first time. Thanks to the team for putting in place some really good systems to be able to allow us to be able to do that. But you would have seen price and volume be an impact in Q1. Price was because of some of this inventory cleanup that affected the overall net price realization and the volume pieces around these promo moves from Q1 to Q3.
You'll see both price and volume become real drivers as we go into the back half of the year because of these known promotional activity moves, known distribution gains in the back half, and the improvement of the year-on-year price realization from some of the work that we've done in revenue growth management. So I feel good that what we've laid out is both achievable, but we know exactly what the building blocks are that will deliver those.
So if we take that and then we look out over the next several years, what are some of the other levers that you can pull to continue to drive margin expansion? And should we think about them as being independent of each other, or is there kind of a sequence of we need to do this first, and then once we achieve that, then we can move on to the next? Is it an ordered process that you need to finish stage one before you can move on to stage two? Or can you do four things at once?
Well, in some ways, we do have to walk and chew gum at the same time inside the company. But there's a reason why we laid out the four pillars of Hain Reimagined: Focus, Fuel, Build, and Grow. And we said in the first year, we didn't have the luxury of a robust balance sheet. And so I was going to need to figure out a way to deliver fuel savings at the same time that we were driving and building the capabilities we needed to go forward. So our focus in the first year was the Focus pillar around simplification of the business and Fuel delivery. And that was intentionally sequenced in that way.
The Focus part allowed us to drive organizational integration, reduce costs that were redundant, operational simplification, close down factories, consolidate factories so we could drive capacity utilization and reduced overall cost, improve our overall geographic footprint, get out of markets with physical assets that were a distraction, and we're adding costs so that we could focus on our core. All of that allowed us to drive some one-time savings or overall cost structure savings. The integration work that we did drove an SG&A improvement that allowed us to fund SG&A and other capabilities that we needed to have. So we did all of that work in focus. We still have a little bit to go as well. In Fuel, that's where the productivity pipeline falls in. That's the work around working capital. It's also the work around revenue growth management.
I would say if I think about the sequencing, we didn't have really robust RGM capabilities, so that was more of a build, knowing that it would begin to bear fruit later on. In the productivity pipeline, we were better built in our capabilities, so that became a driver in the first year. Working capital, we actually delivered more than we expected in the first year, but I would tell you we still have room to go, especially around our inventory reduction and the work that we're doing in simplifying our co-manufacturers, simplifying our procurement overall that allows us to be able to have fewer, more strategic partners that we do business with, and that'll help improve those days payable.
So I would say in some ways, the sequencing was, where do I need to unlock cash so I can invest in the business and not derail the balance sheet? Where do we have capabilities that we have to build how we do it before we can build what it's going to do for us? And now we should start to see the commercial execution. So are we driving the distribution? Are the brand building efforts actually driving and bearing fruit? Are we improving our market share? Is the innovation pipeline delivering at the rate of innovation that we would expect? But that's sort of the sequencing. Focus and Fuel first, build and grow next. It is why you should see this pivot to growth as we go into the back half of this year and begin to start to see our brand building efforts bear fruit.
Great. I think as we wrap up here, you started with the high-level question. Maybe let's end with a high-level question. It appears the new administration could be stricter regarding artificial ingredients, coloring, things like that in food. Do you have any thoughts on how that could impact your business or the industry more broadly?
You know, there's always speculation. At this point, it's pure speculation on what will take place. A little bit of it's unknown to us. If I think about what could be around the use of artificials, 95% of our portfolio doesn't use artificial colors or flavors today. Where we use those, it's actually the definition of artificial. Even if you use real fruit juice as a colorant, if it's used as a colorant, it's considered artificial. Net-net, 95% of our portfolio would already meet the requirements, the potential theoretical requirements that might be out there. I think broadly, we feel very good as a company about our position as a pure play and better-for-you. We think that the consumer trends are in our favor.
We think the consumer is saying that they want real, better-for-you products that are authentic in their ingredients, that are authentic in their makeup, that don't ask the consumer to sacrifice availability, affordability, and accessibility. So that's going to be our focus. But I think our portfolio is well positioned. Our goal still remains. We need to make it so our brands aren't as hard to find.
Great. Wendy, appreciate all the thoughts today. And thank you for joining us. And thank you for everybody for joining in.
Thanks, Jim. Appreciate it.