Mary Anthes - VP of IR Irwin Simon - President and CEO Ira Lamel - EVP and CFO John Carroll - EVP

Caroline - Banc of America Ed Aaron - RBC Capital Markets Scott Van Winkle - Canaccord Adams Terry Bivens - Bear Stearns Andrew Lazar - Lehman Brothers Jacqueline Rider - Lazard Capital Market Greg Badishkanian - Citigroup Andy Wolf - BB&T Christine McCracken - Cleveland Research David Palmer - UBS Daniel Khoshaba - KSA Pablo Zuanic - JPMorgan

Good day ladies and gentlemen, and welcome to the Second Quarter 2008 Hain Celestial Group Earnings Call. My name is Eric, and I'll be your coordinator for today. At this time all participants are in any listen-only mode. We will facilitate the question-and-answer session towards the end of today's presentation. (Operator Instructions). I would now like to turn the presentation over to your host for today's conference call, Ms. Mary Anthes, Vice President, Investor Relations. Please proceed.

Thank you Eric, good afternoon. I apologize for the technical difficulty we experienced in kicking on the call. We are trying to be more efficient with today's call, and we'll keep our remarks to a limited amount of time. I'm pleased to be with you today to introduce our second quarter fiscal 2008 earnings conference call to discuss our financial results which were issued after the close of the market today. We have several members of our management team here today to discuss our results, Irwin Simon, President and Chief Executive Officer; Ira Lamel, Executive Vice President and Chief Financial Officer; and John Carroll, Executive Vice President. The company has continued during this past quarter a review of past practices in connection with grants of stock options in response to the notice it received from the SEC, that it was conducting an inquiry into the company's stock options practices. This review was conducted with outside counsel for the specific purpose of the investigation at the direction of a group of independent directors. The independent directors completed the review and reported their findings to the Board of Directors, which the company reported through a press release and in its annual report on Form 10-K for the year ended June 30, 2007 and its quarterly report on Form 10-Q for the quarter ended September 30, 2007, on January 31, 2008. In light of the government investigation, the company declined to comment further on the matter at this time. Our discussion today will include forward-looking statements which are current as of today's date. We do not undertake any obligation to update forward-looking statements either as a result of new information, future events or otherwise. Our actual results may differ materially from those projected and some of the factors which may cause results to defer are listed in our publicly filed documents, including our 2007 Form 10-K filed with the SEC. This conference call is being webcast and an archive of the webcast will be available on our website at www.hain-celestial.com, under Investor Relations. Our call will be limited to approximately one hour, so please limit yourself to one question and a follow-up question. If time allows, we'll take additional questions and management will be available after the call for additional follow-up. Now let me turn the call over to Irwin Simon, our President and CEO. Irwin?

Thank you, Mary and once again we're sorry about the technology difficulties, and we will tighten up a lot of the information we're going to talk about today. Hopefully a lot of you had opportunity to look at our press release, sales for the quarter $276.2 million versus $230 million, up 20%. Our gross margin which we’ve been focused on a GAAP basis at 28.7 versus 30.4, but if you adjusted for Fakenham input cost and acquisitions, actually acquisitions of are Alba and Avalon business offset our other acquisitions of our protein business and our Tofu business. So they offset each other. But higher input cost about 1.7, our margin would have been 31%. I'll talk about a little loyal how we’ve, the higher input cost and how we offset them, but still with cost the way they are, I think we’ve done a great job on our margin. Our SG&A 18% versus 19.5% on an adjusted 17.4% versus 19.2%, and I think what we’ve really done is really focus on the SG&A of the company, really focused on the cost. But more important and what it shows you, what kind of job we're doing integrating these acquisitions and the cost efficiencies that we’re really getting out of those and I think there is still a lot of opportunity. Net income for the quarter $15.7 million versus $14.2 million, up 10.2% but on an adjusted basis $18 million versus 15 million, up substantially. EBITDA for the quarter 33.6 versus 29.6 [GAAP], up 13.6. On an adjusted basis; 37.3 versus 31, up 20.6 for the quarter on an EBITDA. Earnings per share $0.37 versus $0.34, up 9%. On an adjusted basis $0.43 versus $0.37, up 16% for the quarter. So, good financials, good numbers. And I think one of the things that you are going to see me, talk about today, we are knocking the lights out on sales and sales are strong, consumption was strong, business is good out there. And business happens to be you know feeling good business and business is continuing that way. So, as everybody else is feeling it, it's a tough market on costs, but even in a tough market on cost, we are doing a lot about it. Our input cost in the quarter as a company, which we didn’t plan for as we put our budgets together and planned, we are up $5 million just in this quarter. So: how do we make it up? Productivity, higher sales, cost savings, efficiencies and I think we did a great job on that. We have taken a price increase at the end of December on grocery and frozen. We have taken our price increase on personal at the end of December. You heard me talk about taking a price increase on tea effective October 1st, which other people have followed. We have taken a price increase in July on our chicken business and in actually October on our turkey business. And all these prices have actually stock in, been effective. What do you do when consumption is goods, costs are good and you got cost going up the way they are? I am not the first consumer package good company out here talking about cost today, and I think everyone is, but: what are we doing about it? We have a great plan in place, and as we sit back and understand what we need to do. We are really watching our expenses as a company, our productivity, and that's where lot of these costs have come from, and cost reduction is our productivity and there is more opportunities. We are meeting with each of our major customers and over the last 35 days or so, since the beginning of the year have met quite a few of them and we are focused on productivity costs with our customers, whether its freight, whether its distribution, whether its manufacturing. And I have got to tell you: “they are thinking the same thing”, because the easiest thing to do is pass on price increase and you are always worried about pricing elasticity, but we have customers that are committed to take our cost of business and customers that have really partnered with us on efficiencies in the business, and how we grow the business. I have got to tell you: “I feel good about it”. The other thing is the company that we're really looking at, if there is a slowdown in the marketplace, which we're not seeing yet: where are your other business opportunities? And what I can say is, the category is strong, consumption is strong and business is strong, but we have a good plan out there to look at additional business opportunities and we're seeing some of them become effective already. So: where we get some of the great growth? Terra Chips up double-digits, Earth's Best, Imagine soups, Arrowhead Mills, Breadshop, DeBoles, Spectrum, high single-digit growth. Garden of Eatin, Rice Dream, Soy Dream, Ethnic Gourmet, our Tofu business doing quite well with our seitan and tempeh. So, getting some good things happening there. Let me talk about Celestial. Celestial for the quarter, we really have a good plan in place and I am really excited about what's going on with Celestial. Our consolidated revenue was flat year-over-year. We took the price increase, in December. Our retail prices were up $0.16 versus a year ago, our deals dollars are way down. We reduced volume on deals by 12%. We've done a great job of driving holiday displays. We reestablished a lot of consumer advertising, consumer communication. We rolled our coffee, Saphara in October. The redesign of the package is 100% direct now and about 60% to 70% through distributors, so it's getting out there. : Others have taken price increase, even when the category soft there was concern about us taking a price increase. And two or three of other major brands have taken in price increase effective January and effective May and we may take another price increase again in May. A lot of new products have come out, our holiday teas, Valentines' day teas, ice teas. We are really working on some things with ready to drink, our Cool Brew. And we are getting really good expectance from coffee and Saphara. What I can tell you is our January sales were quite strong. And which shows you coming off December quarter, so we are quite encouraged of what’s going on in the Celestial. Our Canadian business overall up 15.2%, strong performance from Terra, Garden of Eatin, Imagine Earth's Best, Celestial Imagine Soup and Casbah. We introduced into Canada Saphara organic tea and coffee, we launched a major tea party, lucky enough, we had a big snowstorm that day. So, seeing some good results and good demand in our Canadian market. Protein business, our chicken business is up 26%. Our margins absolutely were affected. Actually if you take our first six months, were affected almost $1 million on feed cost, but because of our sales, such strong sales, we were able to achieve our budgeted sales and our budgeted profit there. We really managed to a live cost initiative on plant savings, major cost reductions, and we feel good about the growth there. We introduced all the new frozen products, ready-to-eat products. Our Turkey business, Plainville which we closed in September drove almost 20% and big increase in [whole birds], big increase in [cooked up] 27%, and tremendous plant saving, so we feel good about having there. From the UK and Europe market combined up 15%, good growth coming from UK, good growth coming from McCartney. As UK saw we have some one-time cost with the Fakenham plant startup, and that is taking basically three plants and brining them into one. It's taken a little longer than we expected and we probably will have about another $1 million going forward, but at the end of day like we do with Westchester, and we prove the Westchester, we are really going to have a real good frozen business in UK and Europe and seeing good demand. And I got to tell you, we really got some good support from the McCartney family, we will bring McCartney into fresh. As a matter of fact, we are looking at the McCartney brand right now in US and maybe even Asia. So we are pretty excited about that. We are excited about our brands in the UK and Europe. As I said Lima is up 17%, Rice Dream up 30%, our carrot chip business up 49%, Earth's Best shipped in the UK for the first time. So we have some good things happening in our European market. In Asia, Hong Kong, Singapore, China, Korea and Japan are our identified markets, and continue to ship into those markets and continue to do some unique things there and pretty excited about the Asia market. So let's look forward, January strong month. Good sales, good consumption, feeling good of our business. So good things coming from our Tofu business which we acquired in June. Our seitan, tofu and tempeh business a whole new category for us, and really some good things. Our diapers, wet wipe business that we acquired in mid December. We are in the midst of launching our Earth's Best Diaper, Earth's Best Wipes rolling the products across the US with a $3.5 million, $4 million business, and we think just a tremendous opportunity in that category and pretty excited. I’m not sure if some of you've heard today, in regards to possible sources of dyes in baby products. None of Hain products, whether its Earth's Best or Avalon Baby contain any. And it just goes back and shows you the concern of ingredients and products, but then I got to tell you, that is just the beginning of people recognizing ingredients in that whether it's in personal care products or other products. And again I can't tell how many people are really concerned about chlorine and wet wipes and diapers and really converting over to chlorine-free diapers. Our international business continues strong and we're looking at tremendous things growing internationally. The acquisition pipeline has picked up, it's been a year since we've really done major acquisitions, because we’ve been disciplined, we are multiples and prices. As the private equity markets have changed, a lot of these acquisitions have come back to us and we are relooking at them and looking at some good categories and some good things. I sit here today and show you the strength of Hain, the depth of Hain in our brands, as we have really partnered off with our partners out there, the retailers and our distributors to really look at how to grow the business and how to take cost out of the business, because that's a major, major plus for them and that's something that they are looking at is not just to raise a price. As we look at categories, we continue to move in the categories and involving categories as we deal with Earth's Best, take the brand name into other categories. We'll continue to look at that with other categories and other brands. From a private label standpoint, as other retailers move into private label, we are looking to do some more and more business in private label where it make sense, where we have supplier and where we have capacity. But we're not going to do as just meet two products and we're not going to use up any of our capacity or any of our ingredients. So with that, we are looking at lots of new business opportunities and lots of new products out there. Moving ahead, feeling good about our categories, feeling good about our business, feeling good where we are in January. We are continuing to confirm guidance for fiscal '08. What I would like to do is turn it over to John. He will take you through some of the Grocery and the Personal Care business. Thank you.

Good afternoon. Let's start with Hain Grocery and Snacks. Q2 was a very strong quarter. Top line growth was up 8% plus, which represents organic year-on-year growth as there were no acquisitions in this line. The growth was driven by a combination and consumption increases, alternate channel gains and new product sales. As indicated in the press release, we saw growth across the entire brand portfolio. So instead of listing all the growth brands, I would just like to highlight a couple of great stories within our portfolio that reflect our continued investment across our core brand. The firs brand is Terra, which is an example of great turnaround story by our marketing and sales team. Q2 was the fourth quarter in a row that we saw growth on the Terra brand, after a year decline. This turnaround was driven by velocity increases on our largest segment Terra Exotic, from a product improvement and a better value proposition, and a strong consumer response to our latest innovation Terra Stripes & Blues. The second brand I'll highlight is Arrowhead Mills. This traditional natural foods brand is a great example of accelerating growth of innovation. Arrowhead Mills grew 14% in Q2, reflecting continued growth on our baking, mixes and ingredient segment, driven in part by gluten-free products, as well as the introduction of our first ever holiday products in the line; Arrowhead Mills, Organic Stuffing and Holiday Cookie Mixes. This holiday innovation program was a sell-out for us in Q2. It also led us to an enhance next year's program with some great new holiday items across a few other categories, that will be unveiled at Expo West in March. Turning to the middle of the Hain Grocery and Snacks P&L, we experienced unprecedented cost pressure, as Irwin discussed, on input costs and fuel related expenses in Q2. We saw continued cost increases for organic corn, soybean, wheat, canola oil, fruit and dairy, as well as packaging and diesel fuel. In fact, our Q2 input cost alone for Hain Grocery and Snacks were up over $2 million versus a year ago. Additionally, although we announced the 4% price increase in November, across the majority of our Grocery and Frozen line, we will not see benefit from this price increase, until second half. Despite these challenges, our Q2 delivered product costs actually improved 20 basis points as productivity offset continued rising commodity and fuel costs. Q2 was a second quarter in a row that the Grocery and Snacks operations group generated over $2 million in productivity savings. Key to this productivity savings were a throughput and yield improvement on some of our biggest product lines, including the Terra line in Moonachie, logistics savings from realigning our distribution footprint on some key categories and long positions we took on some of our most volatile commodities, namely corn and wheat. The cost outlook continues to be challenging as we enter the second half, while we expect to have aggressive productivity initiatives in place, we'll not see any relief on the input costs, and actually expect indirect fuel related expenses to accelerate in the second half, as suppliers try to offset their own cost increases by passing through pricing. As a result, we anticipate that we like other CPG manufacturers will need to implement another round our pricing in the second half. This will be required along with productivity, simply to maintain our margins in this inflationary environment. We will release the details of this increase in mid-February. Moving down the P&L, our Q2 SG&A expenses were down 15 bps in Q2. We continue to exercise strong discipline on our operating costs, which is essential in inflationary environment. Our Q2 inventories were higher than year ago, as we are carrying an additional $10 million to $15 million on the fast growing Earth's Best brand. This is consistent with what we discussed in our Q4 call, where we said we would maximize our fresh pack productions in September to December to ensure supply for our fastest growing brand. Our inventories, excluding Earth’s Best, were down versus year ago, as tight cash management continues to be a priority for the Grocery and Snacks Group. So, to conclude on Hain Grocery and Snacks, Q2 was a very strong quarter with the top line increase of 8%. Delivered product costs improvement, despite rising input and fuel costs, as well as continued investment on our core brands. And continued improvement on our SG&A expenses as a percent of sales. We are facing cost inflation pressure, like everybody else in the CPG world, and we expect to announce another round of price increases to help, along with productivity, to offset these costs and maintain our margins. : Gross margin improved driven primarily by a more favorable mix from the Avalon Organic and Alba brand. Just as with Grocery and Snacks, Personal Care is also being pressured with cost inflations, especially in the areas of fuel related packaging costs and co-packer costs for Avalon. We put into place a 3% to 5% price increase across, both the JASON and Avalon line, from which we will begin to benefit in the second half. SG&A was down 19 basis points, as the benefits of our JASON and Avalon consolidation continue to ramp up. This benefit was not fully realized in the quarter, as we absorbed the cost of some severance and headcount duplications, while we transitioned functions from our Culver City to Petaluma offices. The integration of JASON and Avalon is now essentially completed. We are now one reporting unit Hain Personal Care, with one management group, one organizational structure, one broker network and a common IT system. Our focus now shifts from driving profitable growth, while we integrate, to accelerating profitable growth via innovation and productivity. Towards that end we are finalizing evaluation of aggressive skew rationalization program, similar to that executed in Grocery and Snacks a few years ago. We believe that a Personal Care skew rationalization could potentially reduce business complexity, drive margin enhancements and improve operating efficiency. We are also initiating a project called Streamline, to leverage the procurement scale of Hain Personal Care, starting with the real focus on reducing our packaging unit and costs. We are also implementing an integrated Hain Personal Care trade promotion program in this second half that leverages our scale and reduces inefficient trade spending on a brand-by-brand basis and deploys it against the consumers. We are also creating a Hain Personal Care R&D center of excellence at our Culver City plant that will drive meaningful innovation across all of our Personal Care brands. And finally we are identifying current co-pack lines that we will be able to bring in to our Culver City plant, to improve quality and margin, starting this second half. So, to summarize on personal care, we continue to see strong consumption growth on key brands. We experienced gross margin improvement, as well as the reduction of SG&A from the consolidation of duplicative function. We are feeling the effects of cost pressure on this business as well and have implemented a 3% to 5% price increase that we'll realize in the second half. We have essentially completed the integration of JASON and Avalon into Hain Personal Care and Avalon continues to drive in the part of Hain. Our focus now shifts from driving profitable growth while integrate to accelerating profitable growth to the innovation and productivity. Overall, we continue to be very well positioned to take advantage of the continued growth of natural personal care both in the natural channel as well as in channel such as grocery, drug, mass and club. Now I'll turn it over to Ira Lamel. : Gross margin improved driven primarily by a more favorable mix from the Avalon Organic and Alba brand. Just as with Grocery and Snacks, Personal Care is also being pressured with cost inflations, especially in the areas of fuel related packaging costs and co-packer costs for Avalon. We put into place a 3% to 5% price increase across, both the JASON and Avalon line, from which we will begin to benefit in the second half. SG&A was down 19 basis points, as the benefits of our JASON and Avalon consolidation continue to ramp up. This benefit was not fully realized in the quarter, as we absorbed the cost of some severance and headcount duplications, while we transitioned functions from our Culver City to Petaluma offices. The integration of JASON and Avalon is now essentially completed. We are now one reporting unit Hain Personal Care, with one management group, one organizational structure, one broker network and a common IT system. Our focus now shifts from driving profitable growth, while we integrate, to accelerating profitable growth via innovation and productivity. Towards that end we are finalizing evaluation of aggressive skew rationalization program, similar to that executed in Grocery and Snacks a few years ago. We believe that a Personal Care skew rationalization could potentially reduce business complexity, drive margin enhancements and improve operating efficiency. We are also initiating a project called Streamline, to leverage the procurement scale of Hain Personal Care, starting with the real focus on reducing our packaging unit and costs. We are also implementing an integrated Hain Personal Care trade promotion program in this second half that leverages our scale and reduces inefficient trade spending on a brand-by-brand basis and deploys it against the consumers. We are also creating a Hain Personal Care R&D center of excellence at our Culver City plant that will drive meaningful innovation across all of our Personal Care brands. And finally we are identifying current co-pack lines that we will be able to bring in to our Culver City plant, to improve quality and margin, starting this second half. So, to summarize on personal care, we continue to see strong consumption growth on key brands. We experienced gross margin improvement, as well as the reduction of SG&A from the consolidation of duplicative function. We are feeling the effects of cost pressure on this business as well and have implemented a 3% to 5% price increase that we'll realize in the second half. We have essentially completed the integration of JASON and Avalon into Hain Personal Care and Avalon continues to drive in the part of Hain. Our focus now shifts from driving profitable growth while integrate to accelerating profitable growth to the innovation and productivity. Overall, we continue to be very well positioned to take advantage of the continued growth of natural personal care both in the natural channel as well as in channel such as grocery, drug, mass and club. Now I'll turn it over to Ira Lamel.

Thanks John, good afternoon everybody. I’m just going to go over a few key items and not go through the normal full blown results review. As I said in our press release, input cost are rising, a phenomenon that the entire food industry is facing. During the second quarter, as Irwin said, we saw a 170 basis points of pressure on our gross margin from those input cost. When adding the effects of these cost pressures, along with the acquisition integration and startup costs at our Fakenham United Kingdom plan, our gross margin would have been at 31% this year versus the 30.6% as adjusted last year. Included in that 170 bps of cost pressure, was an increase of 28% in the feed cost and our Hain Pure Protein and year-over-year diesel fuel increases of 13%. And John went through some of the impacts of other commodities on our business. Acquisition activity was virtually neutral on the gross margin line with Avalon, Alba adding 90 basis points to our gross margin, and our other acquisitions the combined Plainville Farms, TenderCare and Tofu taking away 80 bps. And last, as we continue to grow our company as a whole, Celestial Seasonings continues to become a smaller percentage of our total sales. Celestial was 270 basis points lower as a percentage of sales this quarter, as compared to last year's second quarter. This phenomenon reduced gross margins by 75 basis points. For the full year, we expect Celestial Seasonings will come in at about 9% to 9.5% of our total consolidated sales. There's a couple of other things I'd like to point out here. Adjusted operating income was up 50 basis points this year to 11.9% versus last year's 11.4%. Our adjusted EBITDA was up $6.5 million this year versus last year, with this year at 13.4% for the quarter. Our current run rate for depreciation and amortization for the full fiscal year is $18 million. Our operating free cash flow was $33.4 million for the trailing 12 months ended December 31. Our days in the cash conversion cycle have increased a bit, going from 68 days last year to 72 days this year, as the result of having higher inventories in our Personal Care unit, which is known to the industry with the acquisition of Avalon and Alba, having higher inventory at Celestial Seasonings with our two packaging relaunch, and the introduction of our Saphara Teas and our coffee. And further, with the plant build up in the number of days of ingredients we carry for our Earth's Best jarred baby food brand in order to protect our source of supply as we continue to support the fast growth in that brand. And last, as Irwin mentioned, we've reconfirmed our full year guidance. We are at $1.025 billion to $1.050 billion in sales and for the earnings per line we are at a $1.38 to $1.42. With that we're going to open it up for questions.

Eric, may we go for questions?

(Operator Instructions). Your first question comes from the line of Scott Mushkin with Banc of America. Please proceed. Caroline - Banc of America: Hi, guys. This is actually Caroline calling in for Scott. I just had a question about kinds of opportunities that you're seeing in the mass channel. I know you mentioned improvement with the Celestial brand. But in general, I think, especially in the center store are you seeing additional opportunities for the Grocery and Snack category and could you talk about may be some initiatives that you're having to continue to drive sales through to the mass channel?

Carolyn I'll start it and then John can jump in at any time. I think there's a couple things here. Certain categories and certain product lines will grow from an [macro] section to the main isles. So that's the number one. And I've said it before when we see a product and we'll overcome the [macro] section of the main isle, we see it increase four to six times in sales and this Natural Organic becomes a bigger part. Retailers are looking at that today and meeting with a lot of retailers, that's something high on their list. So, that's number one. : What I must say today is Earth’s Best is the number one organic baby food out there today where at one-time 85% of Earth’s Best was only sold in natural food stores. So just by sheer numbers of stores, our sheer number of products, and the big opportunity for us Caroline also which you heard before, I was saying is logistics wise, what retailers are looking for is, how I deal with one supplier, how do I take cost out of this business and how I do it much more efficient and much more effective. And there are tremendous things that we’re doing in regards to [LTF] or truckloads, backhauls with our partners and retailers and our vendors out there. Particular costs but to sell them more products, and to replace other products out there with some of our brands. I hope that answers your question. Caroline - Banc of America: Yeah. And I guess just one more follow-up. Do you anticipate making any more investment in terms of personnel in the next two quarters, are you seeing to that as well?

In personnel.

In personnel, well I think with regards to our business, I mean, it's growing and building the bench strength and one of the things we do for future acquisitions, well, we'd like to have a place where people within Hain can move around. I got to tell you, there is a team here that has stepped up in all the aspects whether in Spectrum, the Personal Care and what is being spread around, and there is a couple of things. A lot of the people that we have running the Grocery for the Snack business have taken on additional responsibilities in the Personal Care side of the business. And as we look at additional acquisition and opportunities there is more and more of the responsibilities going to be given to the current management here, but we are going to be more and more bench strength. The other thing, we look here from a corporate standpoint, there’s lot more support we need; as we become bigger there are other things we need in Europe. So adding personal is something that absolutely is going to happen here.

Your next question comes from the line of Ed Aaron with RBC Capital Markets. Please proceed. Ed Aaron - RBC Capital Markets: Thanks. Good afternoon guys.

Hey Ed how are you? Ed Aaron - RBC capital markets: Great thanks. I wanted to focus my question just on the gross margin line. First of all the 170 basis points impact from higher input cost, is that net of what you got back from pricing increases?

No that's the straight up cost increase pressure that we have felt Ed. Price increases which we put through in the past have always looked at what cost pressures we've seen through that point to putting up the price increase. So we have not really put in a price increase yet that kind of addresses the very recent sky rocket in these input cost. So we're going to be looking at that as we go forward, but price increases from the past, we've often said when we have them, they are meant to be neutral to the cost increase pressures that we've had in the past, particularly when we were feeling high pressure from fuel. But this latest pressure was very new across the food industry and we've not yet addressed that with a specific increase.

And Ed this John; just one point. the price increases we did put in place as I said in the discussion will mostly, primarily benefit in the second half as they were announced in November and with lead times we will not begin to realize them until the second half, and then its takes a good six to nine months to get a full price increase through the promotions and catalogues and changing out there. So even if we take pricing in July and announce it, we are really not seeing a lot of benefit from it until say January, February. And as Ira or John said, the pricing that we saw in this quarter was new cost that we never even planned for. Ed Aaron - RBC Capital Markets: Right. Okay. And then secondly I was a little bit surprised to hear that the benefit to margin from the Avalon acquisition was almost fully offset by the other acquisitions. And I'm just trying to get my head around the pace at which you think you can ramp the margins up on those other businesses. And also does that 80 basis points of margin, I guess dilution from those other acquisitions, does that include what you might call non-recurring charges in the UK that accounted for $0.03 this quarter?

No, those are separate. The Haldane acquisition, which is where the startup costs are coming from, from the combination of those factories that Haldane brought up to the Fakenham facility, is separate and apart. The 80 points of drag that comes from the other acquisitions, it's predominantly from the Plainville Farms acquisition, the other two TenderCare and Tofu were much smaller. But Plainville Turkey Farm, which is a protein business, much like FreeBird has substantially lower margins than the rest of our businesses have. It's a bit higher than FreeBird, but it's still almost only half of what our overall gross profit margin is in the rest of the business. So, that's where most of that drag comes from. Ed Aaron - RBC Capital Markets: Okay, thanks guys.

Thank you Ed.

Your next question comes from the line of Scott Van Winkle with Canaccord Adams. Please proceed. Scott Van Winkle - Canaccord Adams: Hi everybody, couple of questions. First John, when you mentioned the second half, you're talking second half of the calendar year not fiscal, right?

No, second half of the fiscal year. Scott Van Winkle - Canaccord Adams: Okay. You're taking second of the fiscal year, so you are impacting the current quarter now from the prior price increases?

That's correct. Scott Van Winkle - Canaccord Adams: And Ira for you, what was the impact from currency?

Currency is about 2% of our overall consolidated sales. One of the things you have to focus on with currency is, is even if rates are going up, and let's just take the pounds and the euros, if they go up 8%, just to make it nice and round, given that our international businesses are only 25% of our consolidated total, the impact probably comes in at about 2% of that. Scott Van Winkle - Canaccord Adams: Okay. And when you're putting it through price increases, are there really any efforts you're making in your promotions or what have you. How much easier is it for the system to get in to the independent channel versus supermarket? Is it a significant difference? Is that something we have to consider, as your channel shifting goes forward?

It's not difficult, Scott. It's just timing and changing promotions or independent promotions. We set out our promotions sometimes, six to nine months ahead and when pricing comes, much of the promotion is set and they don’t need to change it. So, it's not more difficult to get into grocery or mass market, it just takes longer. Scott Van Winkle - Canaccord Adams: And John you mentioned soup, I apologize that I must have missed it but can you give me an indication on how soup performed with in the Grocery segment and if there has been any change in the trend, as we go into the next couple of months, I think January and February are generally strong?

Actually Ed, we saw a very strong double-digit on Imagine, -- oh Scott, I am sorry, Scott, a very strong growth on Imagine, as well as good high single-digit on Health Valley. Scott Van Winkle - Canaccord Adams: Great, thank you.

Thank you, Scott.

Your next question comes from the line of Terry Bivens with Bear Stearns. Please proceed. Terry Bivens - Bear Stearns: Good afternoon, everybody.

Hey, Terry. Terry Bivens - Bear Stearns: Irwin as you know I am both the tea and coffee connoisseur, but since I am going to adhere to the one question rule, I just want to ask you something about the P&L here. If we look at our model it looks as though sales ex, as you cycle through some of the acquisitions they are going to begin to decelerate a bit from what we've seen in the first two quarters. So, we're looking at kind of flat gross margins on the year, is that realistic now in light of the push you experienced in this quarter?

Terry with only input pressures that we have seen, I don't think that's an unfair conclusion. On adjusted margins, without any add-backs for the various items, clearly you run the pressure throughout the food industry. So, if we are flat for the rest of the year which is a year-over-year flat, I think that's pretty good, and we will be somewhat satisfied with that. Certainly we want our margins to improve. John talked about all of the efficiencies [that we have gone through], that have offset a lot of the pricing pressures; we continue to get those efficiencies. Hopefully, when we are completed with the integration and start-up costs in our UK facility, we'll get some improvements there as well as on a reported basis.

And Terry just to add to that, I think, we had a couple of things in here. Yes, we will get some benefit pricing that we have not got in the first half. The second thing, there is a lot of efficiencies we continue to work on here. There is a lot of things we are working with our customers on. And last but not least, sales are strong, and sales continue to be a great solver for a lot of problems out there, and sales continue to really accelerate. So, with that I feel good about the margin. Listen if you sat here last June asking where corn would be, where soy would be, or oil prices would be and fuel would be, I would say you are absolutely crazy. But considering where everything is today, I feel we've done a great job on managing our margins and I have been all over margin enhancements, and I think we would have hit our margin enhancements number today if we never had all these cost increases and we were back to those two year ago prices. So, we're really focused on it and I think we absolutely can do it.

And just one more item and I know it's a repeat of what I said during my little discussion about gross margins. Celestial Seasoning is now less than 10% of our company sales in overall, and Terry you go back with this company far enough to know, when we first did transaction with Celestial Seasoning, they made up about 24% of sales. So, that in and of itself is an embedded dilution in the margin line, which we have offset with a lot of other things that we have been doing. Terry Bivens - Bear Stearns: Okay, thanks very much.

And Terry you are so going to assert our coffee is a good product and so are the teas. Terry Bivens - Bear Stearns: I know. Thank you.

Thank you.

Eric?

Your next question comes from the line of Andrew Lazard with Lehman Brothers. Please proceed. Andrew Lazar - Lehman Brothers: Good afternoon.

Hey, Andrew. Andrew Lazar - Lehman Brothers: Really just a few very, very quick ones. I have about $22 million, $23 million running through the sales line in terms of acquisitions in the quarter, is that about right? I'm just trying to get a sense, it seems like organic growth accelerated a bit from the past couple of quarters, but I want to make sure that's directionally right?

I think you are directionally on track Andrew. Andrew Lazar - Lehman Brothers: Okay, and then I think in the release you mentioned that the tax rate might be lower for the full year, can you give a sense about what that is?

The 37.5 is really the rate that we set out at the beginning of the year. It compares favorably to the prior year by a little bit for a couple of reasons. The first is, last years full year rate had some special transactions in it, so that increased last years rate, so they have come back down to a more normal rate. And then our tax rate again is probably a little bit better than the prior year, because of the mix of where our income is coming from. Overseas, our income is taxed at a lower rate than our income is here, so the rates come down a little bit as a result to that. But the 37.5 was our estimated rate at the beginning of the year. Andrew Lazar - Lehman Brothers: Okay. Is there anyway to get a sense of how much of your key ingredients are, either hedged at this point or -- just trying to get a sense of what your level of visibility is now, looking forward for the rest of the fiscal year on your key inputs?

Well, I think just coming back from our protein side of business, we are pretty well covered out on grain and soy and corn for the rest of the year. So, we are okay there. And most of our tea products, hibiscus is which has gone up, incredible. I mean we are okay there. And again, the two big tea companies took price increases, much bigger than we did in January. And another one took a price increase in May, which we may follow. So, if we aren't covered, we will take another price increase in May. Snacks, we are covered. I think the big unknown is where oil is, canola, but we are covered. I think from Personal Care we are pretty well covered. But I think, John had some wheat and corn, not knowing where that's going and soybean that's the three big ones up there that we're just -- and to some degree, you know what, the thing is which we are little different to Andrew, we are using organic, so it's not even if you are covered you are sometimes not covered out there. So that's why what we're doing, that's why you see our inventories in Earth's Best go up, because we're buying as much as we can and out there because just number one volume is tremendous and number two, whenever we can get our hands on it, we'll buy as much as we can. So, I'd like to say, we're out there hedging as best as we can, but I’m not sure anybody is that good out there today to hedge. Andrew Lazar - Lehman Brothers: And then in terms of obvious sales I guess, you obviously seem pretty confident about where that's going. To-date I would assume then that you have not seen much in the way of broader consumer trade down, whether its through private label or value oriented brand, I mean it’s a little different what we're talking about organic and natural customer to some extent, anyway but trying to get a sense of what you're seeing out there anecdotally?

Well, I'll tell you couple of things, what I’m seeing, what I’m hearing as we're meeting with our customers. I think retail is much better than people believe it is, okay. I believe that people are not going out to restaurants and they are going to supermarkets and purchasing and staying home. At the same time, is there some soft spots in the US which may be softer than the other? Absolutely. But I think so far, and this is continued in to January and January ended on Thursday. We saw much stronger January this year overall business than we did last year and that's across the board, not one category here etcetera. If I sit back and the big thing with our team is, we sit back and sort of say if there is a softness and that's what I've said before, what are we doing out there to make sure we have new business and new business opportunities to make up for that. And what we're going to do is just drive sales because if we have options, if we have margins, softness because of the cost and the sales will absolutely pick that up. But right now we're feeling good about the business, we're feeling good about the category, and we are feeling good about the consumer, and there is nothing in front of us today that's saying that softening can I predict in three months? No. But there is not an indication out there. The other thing Andrew from a company standpoint innovation of new categories, new products or something we got to continuously do and you heard what I said before, one of the things we are also looking at now for the first time or we never, a lot of retailers are taking about private label and we are looking at private label where it make sense for us, and we think there are some opportunities and we think there is some volume opportunities. We will not utilize or use any of our ingredients or manufactory and already demand for our products, but we think there is some good growth opportunity there too.

Your next question comes from the line of [Jacqueline Rider] with Lazard Capital Market. Please proceed. Jacqueline Rider - Lazard Capital Market: Hi, good afternoon.

Hi, how are you. Jacqueline Rider - Lazard Capital Market: Good, thank you. How it's going?

Good. Jacqueline Rider - Lazard Capital Market: Wondering if you could just -- you are going to have great, well we are going to see SG&A improvement from your Personal Care business UK, you've been doing an amazing job in the Grocery business just squeezing out cost. Where specifically should we be looking over the next few quarters, I mean, you really mentioned Personal Care as an area for more rationalization. What other areas are you really going to go after and try to squeeze the cost out of?

Well, I think number one is sales, and when sale's strong, we are going to continue go after sales. I think that's number one. Number two, from a productivity standpoint, logistics. Today logistics are one of our higher costs out there and logistics have become such a big percentage of factor today. So, what we were doing is looking at making sure we ship full truck loads, not LPL anymore and how we get off that. We are working with our customers that they do a pick-up on a backhaul and multiple ways there. We are also as a company that's very much into recyclable and green; we're looking at multiple ways to change packaging, we're looking at ways to cut back on packaging, and we see tremendous savings on where it's a penny here, a penny there. So, there is many studies and many cost efficiencies going right now on packaging. As John took you through Personal Care and consolidating those two businesses from an SG&A and headcount standpoint, we're looking at tremendous synergies and opportunities there. In regard to procuring ingredients what has not had happened from purchasing standpoint from our Melville operation to our Personal Care operation to our protein, we now have a global head of procurement that's out there procuring products and ingredients for us, we are looking for the best prices where before we were only buying in certain businesses. So if each of those get a quarter of a point, there is just tremendous savings there and that’s where the big focus is, because what we don’t what to do is focused on ten of them and come up with one. But there is four or five big ideas Jackie that we are really focused on, where we're going to get our savings and initiative from. Jacqueline Rider - Lazard Capital Market: Okay, that's great. And do you add capacity on any of your businesses from manufacturing standpoints or do you have enough room to grow all of your businesses what you have?

We today do have some capacity constraints out there, and we are looking at one of our businesses where we may have to build a new facility because of demand and growth. And as we look out over next four five years, we will need an additional facility. As we today look at freight and distribution, where are the best places we ship to our customers around the country, and that's a big one with our Snacks businesses. We are shipping Terra Chips from Moonachie, New Jersey to Los Angeles California, that’s a long way. The other thing is we are working with growers today. We are big users of Blue Potatoes, a truck load of Blue Potatoes coming from Washington state to Moonachie, New Jersey versus Maine. We’re working with that versus Long Island. So there are multiple studies and there are multiple tasks coming on when purchasing logistics, manufacturing and where we are going to move some of our manufacturing facilities, and the good news is there is demand for the product. Jacqueline Rider - Lazard Capital Market: That's fantastic. And one last thing, you were talking the direct versus distributors in the last few quarters, what’s that number right now? I think of it last 55% going the rest to your retailers?

It’s probably still 55, 45, and there is a big difference for natural and natural’s probably a lot higher, natural's probably [780.20] from the natural standpoint 90.10. And listen, our distributors do a great job for us. At the same time, we are working with them on how to talk cost out. And the other big thing which I didn’t mention to you, you just asked me for the cost. 98%, 99% fill rates are key out there, because the last thing you want to do is be shipping product and shipping truck, and cut and shorten some stuff like that, because a lot of that money, you are wasting a lot of space on the truck. So that’s been another big thing. We’ve got our fill rates up to 98%, 99% year, and our distributors have really done a great job partnering with us out there. Jacqueline Rider - Lazard Capital Market: Great, thank you very much. Great quarter.

Thank you very much.

Your next question comes from the line of Greg Badishkanian with Citigroup. Please proceed. Greg Badishkanian - Citigroup: Okay, thanks. I got question on the pricing, are you seeing your competitors pass through price increases pretty similarly to what you are -- are you leading those price increases?

Hey Greg. I think we are leading those price and I'd say this year if you are out there sitting and you are not taking pricing, I am not sure you'll be in business next year because you just can't be out there absorbing these price increases. I think people like us take pricing first, but back when we announced our price increase in October or August on tea, I think everybody felt there is tough category. How can you take a price increase? Well, thank god, we didn’t take a price increase, and then you saw the big guys come after us. Everybody is taking pricing, and meeting with our retailers out there. I mean it's something that they are seeing across the board and so its part of business today. Greg Badishkanian - Citigroup: Good. And in terms of your EPS guidance of those commodities that are not hedged, does that sort of assume a similar type of commodity price going forward for the remainder of the year? What does that assume?

Well that assumes that our reconfirmed guidance and that we will -- if there is some price increase and we are not hedged on it, with productivity, with all the cost initiatives and that I have mentioned before, between strong sales and strong initiatives out there we'll just have to offset it. Greg Badishkanian - Citigroup: Well that’s great. Thanks so much.

Thank you Greg.

Your next question comes from the line of Andy Wolf with BB&T, please proceed. Andy Wolf - BB&T: Thank you and good afternoon. If John is still there, this is I think more for him. John, you mentioned in Personal Care you have plans for SKU rationalization, and I just wanted to ask you, do you see, kind of, I know it’s a smaller business unit than was Grocery when you did the SKU rationalization there. But do you see a similar type of potential positive outcome out of it that you got in dry grocery, in margin and in sales and really in organizational focus in marketing? Is there that much of a harvest there, if you will?

Sure, Andy, look we're busy evaluating this, but we see the same set of circumstances within the Personal Care unit that led us to do SKU rationalization in Grocery and Snacks. And as a result, we'd expect comparable benefits from doing such action.

The one thing there Andy, it's Ira, the one thing that, and you were right in your question, the Personal Care unit itself is much smaller scale than Grocery and Snacks, as a business unit, as a reporting unit. So, while the benefit within the unit through itself maybe the same as was with Grocery/Snacks, the consolidated benefit may not be as great as it was for Grocery/Snacks. Andy Wolf - BB&T: Absolutely, got it. I just wanted to get a sense of it and using that as the benchmark that we could all understand. And I also want to follow-up, but I guess like everyone else in the margins, you are just doing some quick math on 170 bps. The pressure in increased cost this quarter is about $5 million, and at 3% across the board price increase becoming effective sometime around now, the second half of your fiscal year. On grocery gets about actually -- its little under $5 million, but around it. And the same with the 3% of price increase. Is that, not that it was necessarily planned that way, but is that kind of how we can get to plus with your hedging and without any unanticipated further hyperinflation and some input costs, but is that more less how we can get to a flattish kind of a gross margin in the second half?

I think, just as in your first question, you are right in phrasing your second question. The operating efficiencies and the leverage we are getting and what -- the operating people themselves are driving through, is what's helping us offset some of the pressures. Now, a lot of the pressures that we talked about with that offse,t are exceeded by the efficiencies, because you take what the effect was at Celestial Seasonings, as I mentioned, at another 75 basis points. And there are efficiencies within Celestial that have to be achieved, which that management team is doing an excellent job of watching and the Grocery/Snacks team is doing an excellent job of handling. And wherever it is that we have manufacturing operations, people are very, very focused on cost consciousness and that's where we are helping to offset a lot of the increases that we are seeing. Andy Wolf - BB&T: Okay. And lastly I'm sorry to violate this, but the backhauling idea just -- this would be like let's say a big retailer or distributor, whoever coming to your facility actually brining you some ingredients at a [DC] or supplies, number one. And secondly, I mean just given the size of the organization, the scale, it sounds like you probably one of the few organic distributors and manufactures out there, marketers that can actually do this effectively with another big organization.

I think, anyway, we are doing and making sure. And I had many meetings, John and I, with retailers and distributors. What happens is that we have a distributor delivering product to Denver and he is going empty, right now. Celestial is at delivered price. They would go to Celestial and pick up key and pick up a truck load of tea, where normally they were going back on an empty truck. So, it may be half the freight or we split it. The other thing is, which we need to do with our customers and some of the things we are doing, is better forecasting to ship directly from our factories, instead of going into a warehouse and having another set of hand-cut chicken flaming with that. So, what I can tell you is we really have a strong initiative with our customers out there of how to take cost out of the business and not just sit there and keep taking price increase after price increase, because I think the day of cheap food in America is over. And there is something we have to do about it and whether it's smaller sizes, better packed, cheaper packed and cheaper logistics. We just got to be careful with our pricing.

Your next question comes from the line of Christine McCracken with Cleveland Research. Please proceed. Christine McCracken - Cleveland Research: Good afternoon. Just wanted to touch a base I guess on -- in terms of the Personal Care rationalization, historically you guys and you commented on this earlier, but this is kind of a follow-up. In terms of the drag that that might have on your business historically when you did rationalize SKUs, that did kind of hurt results for a few quarters, is that your expectation and kind of how would that roll out?

I think Christine what we want to do is have a full plan in place. And I think number one is, its not hurt, its how we go forward and what I would like to do is let us have it totally in place of what our products are, what pack size are and what we're going to discontinue and how it can help margins, not how it can hurt. And I think that's something we're not ready talk about yet. Christine McCracken - Cleveland Research: But you wouldn't expect any drag on sales?

Actually, not at all. I think it actually improves sales, because what you are doing, -- well, there are two things, if you are discontinuing products there is some drag, on the other hand the offset there is this here, if you are discontinuing sales you are going to put in the faster moving sales in this space, okay. So there maybe some offset, but net-net you may have a quarter or you two where you see a drag but net-net in the long-term. And as we look at as a full year basis or quarter basis, you're going to see an increase. Christine McCracken - Cleveland Research: And you would expect that probably not to really come into play here until probably earlier '09 is that kind of timing on that, because you haven't even finalized those franchises yet, so probably it would be two quarters before you got any impact?

Yes, before we see an impact exactly. Christine McCracken - Cleveland Research: Alright, I will leave it there, thanks.

Thank you.

Your next question comes from line of David Palmer with UBS. Please proceed. David Palmer - UBS: Hey guys, all questions were answered. Thanks.

Thank you, David. I think it's the last question.

Your next question comes from the line of Daniel Khoshaba with KSA. Please proceed. Daniel Khoshaba - KSA: Hi, Good evening.

Good evening. Daniel Khoshaba - KSA: What was your CapEx for the last four quarters?

Give us one second. Daniel Khoshaba - KSA: Sure.

We can work it up on the trailing 12? Daniel Khoshaba - KSA: Yeah, that's what I'm looking for?

Okay. About $13 million. Daniel Khoshaba - KSA: About $13 million. Okay. You said in your press release that your operating cash flow was $33 million on an LTM basis is that CFOA? Debt before CapEx?

That's after deducting CapEx. Daniel Khoshaba - KSA: That's after deducting CapEx, okay. Now I'm just trying to back into this math, one of the callers had suggested that acquisitions accounted for about $24 million to $25 million of revenue and you said that FX was about 2%, that's roughly about $5 million, which means that volume and price together might have been something like 5% to 6%, is that correct?

Well, I am not sure, what you are doing on that, with taking acquisition sales and a percentage to get the CapEx. Daniel Khoshaba - KSA: No, it has nothing to do with CapEx, besides the second question is totally different, it has nothing to do with CapEx, it has to do with sales. I am trying to figure out what volume and price combined were in the quarter?

In terms of breaking out the total sales growth? Daniel Khoshaba - KSA: Yeah, sales were up $45 million year-over-year right?

If you are trying to get to, what some people have called organic growth, John talked about the organic growth in his Grocery and Snacks business, which is more than 50% of our total business, so I think that's probably the way to go. Daniel Khoshaba - KSA: Also, when I am trying to get to organic growth for the company and then organic growth, my next question was for teas at retail.

Number one, I think from what we gave and what was answered was what was acquisition? I think we gave pricing, and what I ultimately gave is what our shipment sales were on Celestial. And there is no way I am going to be able to give you what our organic growth at retail was on Celestial. Daniel Khoshaba - KSA: You don't have organic, well, how about organic growth for the company?

We do not give organic growth for the company. Daniel Khoshaba - KSA: Why not?

Because we don't give it. Daniel Khoshaba - KSA: I would think you would want to share it that with your shareholders?

We don't give it. Can we move on to the next question?

Your next question is from the line of Pablo Zuanic with JPMorgan. Please proceed. Pablo Zuanic - JPMorgan: Good afternoon everyone.

Good afternoon Pablo. Pablo Zuanic - JPMorgan: My question is really more about the sales growth and not entirely a follow-up to the previous question. But the 8% sales growth in Grocery, was it just Grocery, or Grocery and Snacks? And related to that you don't have to give us, Irwin, the organic sales growth, if you don't want to, I mean, you own the company. But I think it would be helpful to us, if you can tell us whether on a total companywide basis, are you seeing an acceleration in, what we would call, organic sales growth, quarter-and-quarter, and if that's the case, what's driving that? Is that being driven by an acceleration in Grocery, an acceleration in health and body care, in tea? Some clarity, there is improvement in terms of the total organic sales growth, where does it come from? That would [fill] the level of clarity.

I think, Pablo, number one on your (inaudible), I don't own the company, the shareholders own the company, okay. So I think I will make that very clear. Number two, I think we have been very clear in regards to how we give our growth. John Carroll took you through what organic growth was on his Grocery, Frozen and Snacks. He took you through what his shipments and consumption were on Personal Care. I took you through what our business was, on Celestial was flat year-over-year and at the same time I took you through our Canadian business growth and our European business. And at the same time Pablo, we said approximately $22 million came from acquisitions and 2.3% came from prices. I am not sure what else I could give you to nicely figure out what organic growth is. So, I think we have been very clear when we acquired businesses, discontinued product lines, we try to give as much clarity. It's not like we are doing major acquisitions here and it's basically the big acquisitions that overlaps here is Avalon-Alba. Pablo Zuanic - JPMorgan: Okay. And (inaudible) if shipments were up 4% in the September quarter, and now they are flat in the December quarter. That doesn't show any signs of improvement right, although there has been all these effort behind the brand how do we explain that?

Well, number one, this is a big quarter and I think Pablo, you continue to focus on key. Key is 9% of our sales. With that our pricing, what happens from a shipment standpoint. Shipments are affected by inventories coming down; shipments are affected by pricing at retail, where we are not promoting. And I think I saw in your note where you expected shipments in the quarter to be down substantially. So with that three shipments being flat, number one, I think is good. We are seeing good consumption, good movement at retail and what we are not going to do and it's very easy, Pablo, to see shipments increase when you go there and promote heavily. We are out there changing our promotions too for $5 and ranging our promotional prices. So, I think we have been very clear on what our key strategy is and we are going to vest back into the consumer, and vest back in building the brand.

Ladies and gentlemen, this concludes our Q&A at this time. I would like to turn the call over to Irwin Simon for closing remarks.

What I would like to do is thank everybody for your time. As you can see, we had great sales growth, costs are on the way they are, good enhancement in margins. We have really watched our SG&A. Our businesses are performing strong and others. Key is we had some of those challenges, so I think we have really got a good plan in place in key, it's not about a quarter, it's not about two quarters, it's really focused on shipments, it's really focused on consumption, it's really focused on getting the right price points out there. And I think, I feel good about where the consumer is and the focus on our business. And thank you for spending time and listening to us this afternoon, and drink plenty of tea out there. Bye-bye.