Good day, and welcome to The Scotts Miracle-Gro earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Jim King. Please go ahead, sir.
Thanks, Carrie, good afternoon, everyone. Welcome to our second quarter call for fiscal 2014. With me here in Ohio are Jim Hagedorn, our Chairman and CEO, Barry Sanders, our President and Chief Operating Officer, Randy Coleman, our recently named CFO, and several other members of the management team. We appreciate everybody adjusting their schedule for today's call. You might recall that we've released Q2 earnings after the market for the last few years now. The National Hardware Show is held right after this event, several members of our team are leaving to attend that, we appreciate your flexibility. Given the hour, we're going to try to keep our comments concise today. When we get to the Q&A section, I'd ask that you have just one question and one brief follow-up.
I've got follow-up calls scheduled with many of you well into the evening and will be available tomorrow as well to answer your questions if we don't get to them in the time allotted for this call. With that, let's get to the business at hand. As always, I want to remind you that our comments today will contain forward-looking statements, our actual results could differ materially from what we discuss. We encourage investors to familiarize themselves with our risk factors that can impact our business. Those could be found in our Form 10-K, which is filed with the SEC. Finally, as a reminder, this call is being recorded an archived version of the call will be made available on the investor relations section of our website, investor.scotts.com. With that, let me turn the call over to Jim Hagedorn to get us started.
Thanks, Jim. Good morning, everyone. I'm going to be brief with my comments and keep things at a pretty high level. I'll turn it over to both Barry and Randy to get the details to you guys. As you can see from the press release, we had a great result in the second quarter as our retail partners in the United States took an aggressive stance in getting ready for the season, our European business got off to a great start. Gross margins exceeded our expectations, we continue to do a good job of managing expenses. I normally don't like to talk about the consensus, the fact that our Q2 results were nearly $0.20 better than what Wall Street expected might cause some of you be tempted to take your numbers higher. Not so fast.
There's no doubt that our retailers were in better shape entering the season than I can recall in a long time. Consumers were understandably slow to get out of the gate due to an extremely long and harsh winter. There was snow in much of the Midwest and Northeast all the way through the second week of April. For us to have negative POS in March after last year's record poor weather is the last thing I ever would have predicted, but that's what happened. On a real-time basis through yesterday, POS is still slightly down to last year after including the impact of acquisitions. The good news is now that the weather's broken, the consumer has been engaged. Our retail partners are also still engaged.
While there are some tweaks to our forecasted P&L, we feel like we have good control of the business. Our adjusted EPS guidance of $3.05 to $3.20 remains our best estimate to where we'll finish the year. I'm going to let my colleagues focus on the results and our outlook for the year. I want to spend my time updating you on the steps we've taken to position the organization for some of the long-term opportunities we outlined in December. I also want to update you on where we stand in relation to our commitment to focus on shareholder-friendly actions. When we met with you back in December, the theme of our Analyst Day event was pretty straightforward. Given the current environment, we'll continue to plan for growth in the existing consumer portfolio of 1% to 2%.
We'll supplement that growth with acquisitions like Tomcat. We also see incremental growth opportunities in areas like urban gardening, indoor gardening, and organic products. We also continue to see nice opportunities in Scotts LawnService. In addition to properly stewarding our existing brands, we also have to properly invest in these higher-growing businesses. The goal is to make these investments without impacting the P&L. To do that, our leadership team has been developing a plan to redeploy assets and resources in an effort that we will likely be going through for the balance of the year. We know we're going to take some charges this year to make that happen. This quarter, we took a $4 million restructuring charge related to some of those changes. By the end of the year, we expect that number to increase to about $20 million.
Because of the approach we're taking, we consider this a one-time initiative, and we're excluding those charges from our adjusted EPS. The steps we've taken so far to begin that process are both streamlining and strengthening the leadership ranks of the organization. I believe we've greatly improved our probability for success as a result. Following the departure of Jim Lyski in late January, we gave some expanded duties to Mike Lukemire. We've now taken Mike's role one step further, as he's been tasked with overseeing the entire North American business. Mike came here about 15 years ago to run our Marysville manufacturing facility. He eventually ran supply chain, oversaw our R&D, our IT department, and eventually was named president of our South region in Palm Beach. His new role is one that I've had myself, and I'm confident that he's well-prepared. Mike does what I would expect from a leader.
He immerses himself in the business, he understands the key issues, and then he works with his people to help them succeed. When he first moved into sales, he visited practically every store in his region, met with almost every associate, and quickly had a firm grasp on this side of the business. I have enormous confidence that Mike will run North America in a way that allows us to be more efficient, more consumer focused, more responsive to our retail partners, and therefore, more profitable and predictable. The other benefit of giving Mike this expanded role is it allows Barry to change his role as well. Since he's taken over as Chief Operating Officer, Barry's done an outstanding job improving our processes, our visibility into the business, and alignment around what needs to be done.
Our ability to over-deliver on our numbers last year, despite the extremely slow start, was a testament to the groundwork that Barry had laid. While Mike will report to Barry, the structure now allows Barry to spend significantly more time working on all of the emerging channels. Our urban, indoor, organic, biotech, and services business will report to Barry, so will strategic planning, M&A, and international. There are two other structural changes we made in the quarter that deserve your attention. The first is in Scotts LawnService. Mark Wilhelmi is a name that most of you probably don't know, but he's been the head of operations at LawnService for seven years and has a 40-year track record at Scotts. Mark has been an unsung hero in this business, but has played an enormous role in the successful turnaround of Scotts LawnService.
A month ago, we named Mark President of this business. At the same time, we moved Jim Gimeson from our Miracle-Gro business to SLS. Jim has a proven history in leading field-based organizations as well. His move to SLS gives us long-term stability and a natural succession plan as Mark prepares for retirement. I want to provide some context about the changes at SLS. I want to stress that nothing at SLS is broken, and you've been hearing me praise that team for years. In fact, we made these changes because we're so confident in the future potential of this business that we wanted to make sure we had the right leadership for the long term. New products, new services, and acquisitions are all on the horizon for this business.
The leadership changes we made in SLS, I believe, will increase the probability that we execute the vision of this business in a way that enhances shareholder value. The other obvious change we've made is by naming Randy CFO. As many of you know, Randy was a candidate for the job when we made the decision to go outside and hire Larry. That decision was never about Randy. Given the direction we're heading, my entire team, as well as the board, believe we needed someone in this role who liked to get his hands dirty and who already had a deep understanding of the business. As we've evolved over the past year, we realized that we had created a structure that resulted in a Corporate CFO, Larry, and an Operating CFO, Randy.
It became clear that this was not a sustainable path, especially as we're looking to get leaner and redeploy assets. We made a change, and if there's someone in the organization who likes to get his hands dirty, it's Randy. So much so that we will not backfill his previous role because he'll bring a lot of that responsibility with him to the CFO's office. Many of you met Randy in the past, and I know he's looking forward to getting engaged with our shareholders. He's a good addition to my team, and our shareholders should be pleased. As I think you'll hear from him, Randy and I are aligned about what we need to do to manage for growth and create the type of long-term shareholder value that I believe is achievable.
That brings me to my final point, which is an update on our thoughts on uses of cash. Nothing's changed, but we are getting closer to the timeframe we announced previously regarding returning cash to shareholders. Our operating cash flow guidance for the year was $275 million. Our leverage ratio right now is 1.8 times, and we've expressed a willingness to take our pro forma leverage as high as 2.5 times by the end of the fiscal year. When I exclude capital projects, Tomcat acquisition, shares we've repurchased throughout the year, and the recurring dividend, that leaves us with roughly $125 million-$150 million, or about $2.50 per share available to us if the year comes together as planned. Later this summer, most likely in August, we'll make a decision about returning cash to shareholders. I want to stress that we've not made a final decision.
If the results in May or June throw a wrench in our numbers this year, we'd probably reevaluate how aggressively we attack this. This business has historically generated a lot of cash. Deploying that cash with discipline, combining it with reasonable assumptions for the core business as well as having confidence in the emerging businesses, puts us in a great position to drive long-term shareholder value. As I've said at the outset, I'm pleased with the overall picture that's taking shape here. We're taking a reasonable approach to the existing portfolio. We're investing for the upside where we believe it exists. We're focused on emerging areas that we believe have strong growth potential, and we're using our capital structure in order to meet near-term and long-term needs of the business while also sending cash to shareholders.
In my view, we're executing well against all the things that are in our control. I know you want to learn more about the second quarter results and our view of the rest of the year. At this point, let's switch gears. I'm going to turn things over to Barry to talk about the state of the business, and then Randy will look at the numbers. Barry?
Thanks, Jim, and hello, everyone. I agree with what Jim said. Our Q2 results were extremely strong and our retail partners have been supportive in both the U.S. and in Europe. If you exclude the Easter weekend, we have had a series of weeks in which consumer purchases were well above $100 million, and we had solid momentum as we enter the peak weeks of the gardening season in May. In the U.S., we have seen increased consumer purchases of lawn fertilizer, grass seed, spreaders, and mulch. We've seen slight declines in plant food and soil, and we've seen a larger decline in controls, where the weather delay has been the most pronounced, and where we've also seen aggressive retail price points. Overall, POS year-to-date through yesterday is slightly down.
As you might expect, consumer purchases in our north region have been the slowest to take off, but all of our markets are now in full swing. Across the board, the level of support we have seen from our retail partners is outstanding. Some channels have done better than others, but they have all been highly engaged. More importantly, they have remained committed despite the fact the weather has caused us to have a late break to the season. In terms of specific product categories, we are pleased so far with the retailer support and consumer support for our new Roundup 365 product. The product not only kills weeds but provides a residual benefit for a year. This means the consumer can apply just once a season and not have to deal with the problem until next year.
In our gardening business, we've seen a strong start to our Gro-ables product line. For those of you who are unaware of it, the product is a compostable pot about two inches long. It contains soil, plant food, and seed, such as a tomato, green beans, or a variety of other herbs and vegetables. All a consumer has to do is stick the pot into the ground, water it, and then wait for it to grow. This product is still in its infancy stages and is a classic case of investing for the long term. If margin were the sole test for Gro-ables, it would have never been launched.
With the long-term vision of selling tens of millions of units a year, and with the expectation that this product will be an entry point for new consumers, we are bullish what Gro-ables can mean for the category and over the long term. So far this year, we have had almost a 50% sell-through nationwide entering May. This not only has proven to be a great impulse buy at retail, but has been very strong online as well. E-commerce consumers have been highly active, both in making purchases and writing positive online reviews. Our natural organics tests are also going well. We have seen this segment of the soils category outperform the rest of the business entering May. As you have heard us say repeatedly, we believe this business can be a significant one for us.
This year, we are testing two different organic products under the Miracle-Gro brand, and one of them will receive nationwide support next year. Finally, in lawn fertilizer, we've seen some strong results, especially in the South. In that region, our most popular product, Bonus S, is up 5% on a year-to-date basis. Recall that in two markets in Florida, we are currently testing a new formulation of Bonus S. This product has a new and better active ingredient that will result in a much better consumer outcome with a better environmental profile. In these markets, POS of Bonus S is up double digits on average, and retailer support remains strong. In the West, Bonus S is up 18%, bringing total Bonus S up 11%. This gives us a great deal of confidence as we prepare to launch the new Bonus S product in all the appropriate markets for 2015.
Let me move on to Europe. In our largest three markets, France, the U.K., and Germany, we have seen strong sales increases, and the overall business has grown by more than 10% year-to-date. By category, we have grown across the board with the exception of plant food, which is essentially flat. It's too early to declare victory in Europe, but we are extremely pleased at the outcome so far. We still have a ways to go to get the business back to its historic levels of profitability, but we should beat our planned operating income targets this year, and we will be well positioned as we prepare for the next year. As you might expect, Scotts LawnService is trailing our expectations right now, as the weather has been a big impediment in many northern markets.
While SLS has been enjoying some momentum in recent weeks, it is unclear whether they will make up the revenue weakness from Q2. However, the business has good contingency plans in place, and I'm confident they will be able to hit their profit targets for the year. Many of you recall that a year ago, I was frequently using the phrase, "Success equals predictability." We are in the lawn and garden business, and things happen beyond our control. Like Jim, did I think that there was any chance that this March could be worse than last March? Not on your life. But it was, and we now move on. The good news is that the consumer trends we're seeing right now are positive. And just like last year, we have done some contingency planning in advance of the season in case we saw issues arise.
That phrase, success equals predictability, still applies to our team here, even when outside forces get in the way of our results. This is why I'm confident that we will continue to see strong consumer response and retailer support through the rest of the season. And that is why I believe that the guidance range we outlined entering this season remains achievable. To be more specific about that, let me turn the call over to Randy.
Thanks, Barry, and hello, everyone. I want to start by saying that I'm excited to be sitting here talking to you today. I appreciate the trust that Jim, my peers, and the board have placed in me, and it's a responsibility that I take seriously. For most of my career here, I viewed the operators of our business as my clients, but today that's changed. As a CFO, I view our shareholders as my primary clients, and I'm focused on doing everything I can do to make sure we're executing a financial strategy that balances the short-term needs of the business with the ultimate goal of creating long-term value for all of our shareholders. I want to be respectful of everyone's time, given the hour. Before I jump into the numbers, I want to spend a few minutes sharing a little bit about my background and my approach.
I've been at The Scotts Miracle-Gro Company for 15 years now. I've led the operating finance group for the last seven years, had a series of other finance leadership roles before that. Most recently, in addition to leading operating finance, I had responsibility for leading and shaping our analytics group. You've heard us talk about our efforts to better understand the data around our business, and I'm glad to have been a key driver behind this effort. I can tell you that our use of data has made us a smarter and better-informed company than we were just a year or two ago. In terms of my approach, you won't see or hear much different out of me than you did from my predecessors, especially Dave Evans, who I worked for directly during much of my career at Scotts. Dave and I saw the world in much the same way.
You'll see me operate with the following five core principles. First, regarding short-term growth, we need to establish reasonable expectations. I believe we can grow, but I agree with our assessment that low single-digit growth is our near-term reality. I don't want to spend money and sacrifice profit by chasing growth that isn't there. Second, regarding long-term growth, we must maintain appropriate focus on the long-term potential of our business. We must balance our plans for near-term profitability with necessary investments in our brands and innovation pipeline so we can achieve our long-term upside. Third, a sound capital structure is critical. We don't need to swing for the fences to drive shareholder value. The combination of modest levels of growth and a smart and consistent capital allocation strategy will allow us to continue to deliver solid and consistent returns to our shareholders.
Fourth, I believe in frequent and transparent communication. You'll see Jim King and me out on the road a lot to meet with our investors. I want to make sure our shareholders understand the path that we're on. Just as importantly, I want to make sure that we understand how our decisions will resonate with our investors before we make them. Fifth, I will be a hands-on CFO, because I believe this is the only way to accomplish the first four principles I outlined. I'm a roll-up-your-sleeves kind of guy, and like my boss, I'm a straight shooter. I'm not a micromanager, but I do want to understand the details and nuances of our business.
I've been here long enough to have a good head start in the CFO role, and I'm fortunate to be surrounded by exceptionally smart and experienced people who I know are dedicated to helping me succeed. Importantly, Jim Hagedorn and I are aligned on these five principles, and this alignment was crucial to both Jim and me when we talked about me moving into this role. Ultimately, my success, Jim's success, the company's success, and increasing shareholder value are all linked together. Enough about me. Let's talk about the business. I'm going to run through the numbers quickly, then I want to share some thoughts about our outlook for the year. Let's start with the top line, where we had a solid 7% improvement in the quarter. That gives us a 6% increase through the first half of the year.
The entire increase was driven by our global consumer segment, which was up 9% in the quarter and 7% year-to-date. Within this segment, we saw a 9% quarterly increase from the U.S., driven by the acquisition of Tomcat, some pricing decisions we made entering the year, and finally, strong sell-in getting the retailers ready for the season. The increase outside the U.S. was 5%, or 3% when you exclude the impact of foreign exchange. The season in Europe got off to a strong and early start, especially in the U.K., where good weather contributed to a 6% year-to-date sales increase versus a year ago, excluding FX. Scotts LawnService was down 12% in the quarter.
This business had a tough start in many parts of the country due to the same weather challenges faced in our U.S. consumer business, the team is focused on making up ground quickly and remain bullish on the year. Corporate and other was down by 50% in the quarter. Recall that sales in this line are related to a supply agreement linked to the sale of our professional business from a couple of years ago. This is effectively a zero-margin business for us, our margin rate improved slightly as our sales here decline. One point I want to make sure you understand, all of these numbers exclude our Wild Bird Food business. As most of you probably have read, we sold the business in a series of transactions over the past two months.
While we had budgeted for about $35 million in sales from this business, exclusion of these numbers will not affect our earnings guidance, as this business generated little profit. Within the next few weeks, we will file a separate 8-K that will show five years of data excluding the Wild Bird Food business. The 10-Q filing will also contain quarterly information for the past two years. This should help you adjust your models, if you have any questions, please give Jim King a call. Moving to gross margin, I'm really pleased with the improvement we're seeing here. We've been saying for two years that we're focused on driving this rate higher, we continue to see traction from our efforts. The rate improved 270 basis points in the quarter, and we're now 290 basis points better year-to-date.
The big drivers of the rate improvement in the quarter and year-to-date were product cost-out initiatives launched in the second half of last year, targeted pricing in our U.S. business, and increased sale volume associated with the strong early-season sell-in, which drove favorable product mix and improved leverage on our fixed costs. We continue to do a good job with SG&A as well. The 3% increase is in line with the guidance we provided. Most of the increase is related to higher planned advertising expense for the full year, which we've talked about numerous times in the past. Company-wide reported operating income in the quarter was $217 million, compared with $172 million a year ago. Year-to-date, we're at $127 million versus $80 million a year ago. By segment, global consumer operating income was up 23% in the quarter and 35% year-to-date.
For SLS, the operating loss increased $3 million in the quarter to $20 million and remained flat on a year-to-date basis. On the bottom line, adjusted net income was $136.7 million, or $2.17 per share for the quarter, compared with $99.3 million or $1.59 per share a year ago. Year-to-date, adjusted net income is up 130% to $71.1 million, or $1.13 per share. I want to point out that the numbers in the quarter exclude $6 million of costs categorized as impairment, restructuring, and other. As Jim said, $4 million of that is related to severance costs. That said, let me now transition into an update on our guidance. As Jim already pointed out, we are reaffirming our original earnings guidance for the year.
Given the poor early weather and slower-than-expected POS, we ended Q2 with retail inventory levels that were higher than we planned. This situation has corrected itself since the end of March, and retail inventory levels today are only slightly higher than a year ago. As in most years, the period between now and Memorial Day and into early June will be crucial to our top-line results. We expect to do better on the gross margin line than our original guidance of a 100-basis point improvement. We will see a lot of pressure on the rate in the back half of the year due to the volume shift between Q2 and Q3 and the related fixed cost absorption, higher freight rates in early Q3, especially April, and unfavorable product mix.
As Jim also said earlier, we are moving swiftly to begin executing a plan to shift some G&A dollars around the organization. Executing this project is going to result in approximately $15 million of additional restructuring costs spread out for the balance of the year. We will exclude these costs from our adjusted earnings. Excluding restructuring, SG&A will likely be in the original 2%-3% range provided, but it could swing a bit depending on our results and variable comp. We entered the year saying interest expense would be $5 million-$7 million lower. We'll probably do a bit better than that. So far this year, we have repurchased 1.1 million shares of SMG, including almost 900,000 in the second quarter. Given the timing of those purchases, they won't impact our EPS numbers until next year.
Pulling it all together, we still expect adjusted EPS of $3.05-$3.20 per share. Overall, I share my colleagues' enthusiasm for the strong start, as well as their confidence for the second half. Just as importantly, I'm pleased with our early planning efforts for next year. I'm glad to see us taking aggressive steps to set up the business for even longer-term success. With that, let me wrap things up and turn the call over to you. Operator, at this point, let's open up the call to questions.
Certainly. If you would like to ask your question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, it is *1 to ask a question. We'll take our first question from Joshua Borstein with Longbow Research.
Hi, good afternoon, everyone. Thanks for taking my questions here. Just on the guidance, you reiterated it. I'm just curious, has anything changed, gotten either better or worse, or offset by other parts of the business that's different from when you originally provided guidance?
Sure. Josh, we've really confirmed our $3.05-$3.20 earnings guidance for the bottom line. When you think about the pieces of the P&L, we do feel there's a little bit of pressure on the top line, but at this point, we're not willing to call that number down given how much POS is still ahead of us. On the gross margin line, we think we'll do better than our original guidance of 100 basis points, but until we see how the top line plays out, reluctant to be too specific on what that might mean. As I pointed out on SG&A, we right now would stick to the original range, but that could vary a bit depending on how the year plays out, again, depending on the top line and how incentives might line up.
I'll just throw in there that I think the things we control, we're doing better than budget on pretty much everything we can control. The parts that we can't control is the top line. I think that the only thing I would add to what Randy said is that I think we're pretty agnostic to sort of the top line. The top line, we're going to do the best we can, and I know the sales group is out there really pushing and executing. The weekends we've seen recently have been good. That being said, I think that the one thing that we sort of are less in control of is the top line, but I think we're pretty relaxed about it and don't feel particularly exposed. I think that's the important part.
Okay, great. I appreciate that. Just one follow-up. Looking at 3Q, what things should we keep in mind from a modeling standpoint with respect to weather comps or other one-off incidents? Thank you.
This is just a repeat of what I kind of say every year, which is the thing that I would watch is look out the window. That's what's going to drive sort of ultimately what matters. Which is, if we're going to exceed guidance, it's going to be because we've got good weekends, and that's pretty much what I would say. That's the one factor. If we're comfortable with the consensus, or with the guidance, I guess is the word, then sort of variations on theme will come out of top-line growth, and that's a matter of looking out the window. I don't think there's much more cosmic shift that'll happen. Excuse my French.
Looking ahead at the months coming up, our biggest POS month of the year typically is April, but this April we expect to be a little bit unusual. After that, May is the second biggest, June is the third biggest, then March would be the fourth. There's a lot of POS still ahead of us.
We're still optimistic and bullish, but realizing the weather has to come together, and there's six big weekends between now and mid-June.
Terrific. I appreciate it. Thanks, and good luck on the rest of the year.
Thank you.
We'll take our next question from Olivia Tong with Bank of America Merrill Lynch.
Thanks. Good afternoon. First question is just around the second half guidance. It looks like if you're sticking with your original EPS outlook, that you're looking for a pretty decent-sized deceleration in EPS in the back half. I realize that a lot of the year is still in front of you, what would get you sort of towards the top end of that range or potentially beat that range relative to the bottom end or getting in that range? Thanks.
I'm sorry you wasted one question on that. I'll say the same thing, I know Barry was kind of whispering while you were talking, weather. Weather would get us over the top of the range.
Yeah. This is Barry. The South is in pretty good shape. The West is in pretty good shape. This is the latest spring we've ever seen relative to the Midwest and the Northeast. What Randy said, is if we had a string of six, seven great weeks across the Midwest and the Northeast, that could push our numbers. What we're not counting on is that happening. We're planning for the worst, we're comfortable with where we're at. If we had better weather, it could push it to the other end.
Olivia, is that it?
Oh, sorry, I put myself on mute. Just on gross margin, clearly this is the best gross margin you've had in a couple of years. Even with, presumably, you're going above 100 basis points, as you said, even then, you're probably looking for a fairly material deceleration in the second half. First, where were the overages in gross margin relative to your expectations in Q2? Other than raw materials, what could potentially trip you up in the second half?
When you think about where we are here today, that's probably a little bit easier to explain. There's three big drivers why we're up almost call it 300 basis points. Pricing our U.S. business is roughly a third. Cost out from product changes that haven't decreased the quality of our products but just improved our profit is worth about a third. A combination of favorable product mix and absorption from higher sales is about the other third. That last third will more or less reverse itself in the second half of the year. Continue to see the pricing impact.
On the cost out, while we'll continue to see benefits, it won't be quite as dramatic in the second half as what we saw in the first, because last year's second half, we had ramped up when we were starting to already see some of those benefits. The other factor that I referenced earlier was freight rates, which not even specific necessarily to our business, but just with the weather being so bad across the country in March, there was a lot of pent-up demand for freight in early April, and especially around our growing media business and our mulch business. We saw some freight rate impacts that hit us most immediately in the last 30 days. We'll still see a little bit of that in Q2.
All those headwinds will contribute to why we think we, well, we know we won't be as up as high in the second half as we were in the first half. Given that, we still think we're going to finish higher than 100 basis points for the full year.
Got it. Thanks. Just lastly, can you call out maybe the growth disparity in a couple of regions? Maybe compare and contrast how you did in the West versus the Northeast and Midwest.
Olivia, the question was business results, how we did?
Basically, growth rates in the South and the West compared to the North right now.
Exactly.
Sure. I think basically the South is flat. Call it down 1%, 2%. The West is down 2%. What we call our North region, which is the Midwest and Northeast combined, is down about 5.5%. The North and Midwest is down a little more than double what the South and the West are.
Got it. Okay. That's year-to-date numbers?
Yes.
Okay. That's still quite a bit below this is inclusive of April as well?
Those are numbers through April, excluding Tomcat.
Understood.
We're considering Tomcat to be closer to flat on a year-to-date basis.
Got it. Versus your plus one to three outlook.
Got it.
It's flat versus your plus one to three full-year outlook?
Sorry, Olivia, can you restate that one more time?
Sure. Right now, the way that you're trending year-to-date through April is about flat. That on a like-for-like basis compares to your plus one to three top-line outlook.
Yes, that is right.
Got it. Okay.
That one to three outlook is company-wide, including our European business, which is going bonkers right now. Olivia, just to make sure I'm clarifying. The numbers we're talking are sell-through, not our sell-in numbers. Correct?
Right.
Right. Okay.
Okay. Thank you. Randy, congratulations on your new role.
Thanks, Olivia.
We'll now move to Joe Altobello with Oppenheimer.
Thanks. Good afternoon, guys. I guess in terms of the base period, could you remind us what kind of comps you're facing or did face in April and then in May and June versus last year? As I recall, it was pretty volatile from month to month last year. I'm just trying to put your guidance into context, that's all.
To reference, whether it be April, May, or essentially every month over the balance of the year, we're essentially facing double-digit comps almost every single month. If you recall, we started out last year in March, we were down 30%-ish and climbed out of that. We're seeing something to a large degree that's similar to last year and expecting a lot of that to come together for us in May and into June, which are two of our three biggest POS months.
Okay. Even on a double-digit base period comp in April, you were still up on POS.
No. We were down about 3% at the end of March, and at the end of April, still down about 3%.
Yeah, I'm sorry. Just for the month of April, you were up year-over-year.
No.
Okay. Sorry. Got it now. In terms of the advertising, obviously you guys are coming off of a pullback last year. I expect the advertising to be up a little bit this year. Can you talk about market shares? I think last year you held market shares flat despite the fact that advertising was down a little bit. I would imagine, given the increase in spending this year, you would hope to get a little bit of an uptick in market shares. Thanks.
Yeah. Market share, Joe, is about the same story this year. What we're seeing is when the markets are accelerating, we've seen good news in fertilizers and mulch and so forth. Where we've seen a little slippage is in the control products, but that business really hasn't started yet. Overall, I think we're roughly flat. One of the things we have done this year is we have not pulled back our advertising like we did last year. We've gone ahead and stayed consistent with the investment that we said we were going to make this year in advertising.
Okay, great. Thanks, Barry.
We'll now take William Chappell with SunTrust.
Thank you. Yeah, I'm going to just ask a question to clarify this one more time. Through March, it was down 3%, April was flat to down 3%, in May we need to be up kind of mid-single digits or higher for May, June to kind of get you to your numbers. Is that the right way to look at it?
Yes, Bill.
Okay. Thank you. Sorry. Then second.
Well, I just want to be clear. This is why I'm relatively chilled. We have good control of the bottom line of the business. What you just said is to get to our top line, the original top-line budget, that's what we would need. Okay? That's not the case to get to our earnings guidance.
Yes.
Okay?
Correct. No, I just wanted to make sure I got all the numbers and I'm looking at them the right way. Then in terms of the non-margin items, what are you expecting now for interest expense and for share count for the full year to kind of get to those EPS numbers?
Share count will be roughly similar to our original guidance. On interest, we'll be a bit better, call it a few million dollars.
Okay. Then my last one. Europe, why is Europe on fire? I know this has been a struggle over the past, let's say, decade of good years and bad years, and I would think that the season is still early over there as it is here. Can you maybe help me understand that too?
Well, pretty simple. Good weather, excellent expense control. The European business last year not only suffered crap weather, but went through a pretty traumatic change, particularly in France, of effectively eliminating one half of the sales force. We had two sales forces, one for call it the independent or the sort of mass merchant, and then one for DIY. We basically said that doesn't make sense. We went through a lot of changes to enhance the profitability of the business, and now they've gotten good weather as well. I think it's really come together. I can speak for all of us in the senior management team, we're all really happy with where the European team is right now. They got a tailwind at their back with the weather. I think an important part of the season is they're in right now.
They continue to do really well, and it's great for them. I wish we had the weather that they're having here.
Got it. All right, I'll turn it over.
Thanks.
Thanks, Bill.
We'll now take Connie Menniti with BMO Capital Markets.
Hi. I have a question on the third quarter gross margin. Last year's margin went up 350 basis points, it's pretty clear that there's a real tough comp there. If retail inventories are equal to last year or just slightly above, and you've got your biggest POS months ahead of you, do you have an unusual amount of inventory yourselves? Just help me understand the pieces there, especially with regards to absorption.
Right. Connie, when we ended March, our retail inventories were up 16% in our largest customers versus a year ago. We were working collaboratively with our customers. We were all ready to go. Operationally, we were as sound as I can ever recall. Now, April POS wasn't what we had expected. We continue to see bad weather and thawing snow, et cetera. April wasn't what we expected and wasn't as good as last year either. We've been able to work through with POS to the point now retail inventories, as we sit here today, are only slightly higher than where they were a year ago. For the rest of the year here on out, shipments and POS should more or less be in line, and you won't see these aberrations and flips from quarter to quarter. That's speaking about our retail inventory.
How does that mean that if shipments and POS are going to be in line, why does that suggest absorption pressure? Did I misunderstand you?
The fact that we had shipped in $70 million more than last year, approximately, in our U.S. business through March, we gained a lot of absorption through our P&L, just fixed cost absorption in the month of March. As we shipped less in April and that inventory worked itself through the stores, we lost that absorption in our P&L. More or less, it was just timing one month to the next.
Oh, okay. It's an April issue. Got it.
Yeah. First of April.
I think that what people shouldn't do is overreact to what we've said. I think we continue to believe that for the full year, we will be better than what we've said, okay? Just not the level we are through the first half.
Yes.
Yeah. Okay. I got that. Could I ask, the outlook for urea pricing, I think, is starting to look quite favorable for next year. Have you started locking in yet, or what's your view on that?
At this point, we've purchased about 15% or 20% of our expected quantities required for next year. We have the same outlook you do, looking forward, thinking that the price should potentially drop as we work ourselves into May and June. At this point, we're not out aggressively buying, but waiting a little bit.
I mean, Connie, this has been something we actually spent a lot of time talking about today, which is our outlook is favorable. I think other than a little bit of a blip up like last couple of weeks, I think we generally feel that the environment for urea purchases is pretty favorable. Personally, I would hedge harder on this. Barry's shaking his head. I think there's people there who believe urea could go down over the summer, down to as low as $250. That's kind of holding people up. I personally, if we're kind of sub $300, I'm encouraging people. This is an internal debate that continues.
The bottom line is whatever the number is, whether it's $290 or $250 or anything in between or sort of anything below $300, it's pretty favorable to our strategic plan and where we think we are as far as standards that have been set for next year. That's good news for us.
That's all I had. Thanks.
You bet.
From KeyBank, we'll hear from Jason Geer.
Okay, thanks. I have just two questions. The first one, maybe if you could talk a little bit about the competitive environment and obviously you're saying from now until probably early June is when you really kind of got to get the consumer activity kind of going at this point. Are you seeing anything from your competitors that are getting maybe they don't have the same scale that you have to kind of still hit their bottom line numbers, but obviously the top line needs to drive. Are you seeing anything unique coming in on the competitive side that as we get further and if POS is not improving as well as they need to, that it might get a little bit more promotional? I'm just wondering if you're seeing anything out of context.
Look, there's a lot in that question. First, I think we feel pretty good about our relationships with our major retailers. By the way, the independent channel is doing really well also. When seasons don't perform and people start focusing on closing inventory, I would say we really want them focusing on our stuff, not on inventory problems they have, okay? I think that can always drive kind of discontinuities that are irritating as hell. I'm not suggesting that that's going to happen, but I think when weather is poor and people start shifting focus on what's my ending inventory going to be as a retailer, we want them to be thinking about us, okay? We've got great tabs, really good programs, a lot of advertising dollars still ahead, both with us and with our retail partners, and we feel okay about that.
If somebody would say, "Who's impressing you?" I would say Spectrum Brands continues to be. I think they had the benefit of going through a bankruptcy. I think they know who they are, and this is on the pesticide area. This is a group of people who I think have competitive pricing, the ability to market. They're making us better. This is an area that within our Ortho Business Group, I think they really got to raise the game. I think everything I know about where Mike is headed with that business, both in sort of the brand support, sales, programs, marketing, there's a lot of pressure to really up the game. I would say on the competitive front, that's what I would say. I'm not saying they're whooping our ass, but I would say they're legit competitors and respect them.
Within the guidance, I should talk about the gross margins and the comparisons to last year. Are you building in maybe any shift of dollars from some of the pure advertising to a little bit more in-store promotions, just to make sure that when consumers do buy, obviously they're buying you guys. Just seems to be that right now you're waiting on the weather to work, then the consumer will come. I think everybody is looking at the same kind of dynamics, that POS is not as strong right now. Just wondering if you've built that in there.
It's a good question, I can answer that. Within Mike's P&L, without affecting what he owes Barry and Randy and myself, he has room built in. I know Mike is, every day, working promotional support across all the brands, given the year. Without decreasing the advertising, Mike has money, what we would call here walking around money, to make things happen, he continues to exploit that. Any comment, Mike, on that?
I think we'll respond to competitive pressures, it won't be additional funding. It'll be funding that we redeploy within our control.
Okay.
I think the good news here is when you think about our category, the whole category through March was down mid-single digits, where controls was down double digits. We typically, when the category's growing, that's when we tend to take share. When it's declining, we lose. I think as we look forward, there's more reason for optimism there in that particular controls category also.
Okay. The other question, it's more of a longer-term question. I know that, maybe it was two years ago, Jim, you were talking about trying to get those operating margins back to the 2010 level. Clearly, we've seen how you guys have progressed really well. I guess once you get to that level, what type of sales growth do you need to see going beyond that to get more operating leverage in the model? Right now, the one to three this year seems like it might be hittable, it might be doable, it might not. It depends on how the weather plays out. Just wondering that once you get back to that margin that you got in 2010 that you've talked about, to go beyond that, to get more upside, what do you need to see?
I know what I would say. I'm kind of looking to see what my partners, how they react to it. Slightly more growth than that. I think that would be extremely useful to us on utilization of our assets. I think absorption, lots and lots of good things happen. I think that we are definitely on track or ahead of track on margin. Okay?
Okay.
I just was pausing and thinking carefully about my words. A lot of the work we're doing here is to basically, without promising you guys more growth, improve the probability that we get growth that is above that 1%-2%, which is what we based our strategic plan on. I think that means by stewarding the brands properly, by spending the amount of money, not crazy money like for us would've been a couple of years ago, but money that we've talked to you guys about as far as advertising or marketing to sales ratio, relative to what we've told you and what other consumer marketers have done. We believe if we run the business properly, we steward the brands properly, we invest in innovation, which we've got a pipeline that's starting to look interesting, and we maintain the margins that we've talked about. Okay?
Which is the subject of the question. If we can do that, it's growth that will make this and turn us. Go ahead, Barry. You can.
Yeah. Without over-promising on the core business, we've talked about that we believe that there's adjacencies that we can acquire into. We're looking at new businesses. We're stewarding our existing business right, and we think Scotts LawnService is a tremendous growth opportunity for us. While we've been promising low single digits, we think we can get it up into the mid-single digits. Jason, I think the thing that's important is, it's not only that, is we are taking a view of total shareholder return.
A combination of getting that growth up 100-200 basis points, plus the shareholder-friendly actions that Jim has talked about earlier, that we can get total shareholder return on a consistent basis in the 15%, 16%, 17%, being able to consistently deploy that to our shareholders and be predictable, like we talked about earlier, to them on a long-term basis.
No, that makes sense. The last housekeeping, just how much did Tomcat contribute to the quarter? In terms of the 9% that you had in consumer, can you break out price, volume in Tomcat, like the acquisition? Then I promise I'll leave.
On a year-to-date basis, I would tell you that the sales of that business are approximately $20 million, and the bottom line impact would be about $0.03.
Right. In the quarter of the 9% growth, how much? Just for modeling purposes, because obviously you'll still have it in as an acquisition until its anniversary. Was it 3% of the 9%? How it was priced, two or three? Just trying to figure out how much underlying volumes were just in the second quarter.
What was it, $13 million in the quarter?
$13 million.
$13 million of sales in the quarter, so $0.02.
Is Tomcat?
Tomcat.
It's your baby.
Okay. Great. I'll pass on to the next person.
We'll now take Jeff Zekauskas with JPMorgan.
Thanks very much. Jim, I think three years ago, you were interviewed in The Wall Street Journal. You talked about the medical marijuana market as being interesting. Since then, marijuana's been legalized in Colorado, and there are initiatives in other states. Does Scotts care about this market, or does it not care about this market?
Cares.
Okay, what do you got?
Look, I think that with AeroGarden was really the beginning of work in hydroponics. I think broadly, if you look at sort of the West Coast business in particular, it's unique compared to sort of the organic and natural business on the East Coast is different than when you go sort of, I'm going to say Denver West. There, I think it's a very interesting and dynamic market where I personally think it's the biggest change I've seen in sort of lawn and garden. It's not just sort of what I would call high-value agriculture. I think that the business is interesting in a bunch of ways. Number one, I think it's younger. We've been talking about this, and part of it is just directionally, it's younger, it's more independent, it's more natural and organic. It's less brand-focused.
I think that if you look at this business, just the entire dynamic, which is not just that part of the business that you mentioned.
Yeah.
Just in general, it's much more like what you're seeing in sort of beverages, I think. Whether it's The Coca-Cola business, where it's more sort of fruit drinks, energy drinks, teas, et cetera, waters, but not the main brand. I think if you look in the beer business in particular, it's much more the craft beers. I think there's a craft element to lawn and garden that is extremely active on the West Coast and really exciting. It's an area of the business that we are. What have we got? I would say we've got the best brands in the business, but they are less important for the sort of people we're talking about out there. This is a part of the business that I could go on for a long time on it.
As the world went to crap, sort of 2007, 2008, 2009, the business of DIY and Scotts did okay. The people who frequent Lowe's and Depot, they didn't lose their houses, most of them. They had above-average earnings. They had kind of gray hair. They liked spending time in gardening. If you had to hang on to a constituency, the group of people we hung on when things got tough, our core consumer did pretty well, considering. The question is, Is there a lot of growth in that going forward? We believe there is growth. That's, I'm going to say, a little bit. That's the core of the business that Mike runs. The part of the business, which is kind of craft, hydroponic, service. I mean, all the things that are now direct reporting to Barry are really different than that.
It's like a different world, it's not a world that we totally get yet because we tend to be kind of the DIY big box. We represent that. It's a little bit like the Republicans, can you win an election here without young people, without women, without Hispanics, without gays? I think the answer is you can't. For us to get the kind of growth that we believe is achievable, we want to invest in those areas where we get the growth that we think is available, the crafty part of the business. I don't think we're different than the sort of beer people. I think if you look at MillerCoors, where's their growth? It's in their Blue Moon and their craft labels.
We are going to develop, and it reports directly to Barry, sort of our craft lawn and garden business, where our main brands are less important. There's a level of authenticity and energy and youth and sort of non-core that's pretty important to driving that business. If you look at the things we talked about that report directly to Barry, you got Mike running the core, which I think we have very cautious, and that doesn't mean negative, because I think we all believe that if we do the right things and we
Take this mission we're on right now, we will get better growth than we're telling you, we think. We're just not going to promise it, and we're not going to base our forecasts on that. We believe if we do the right things, we can do a couple % better than that. That difference between our forecast, our sort of strategic plan numbers, and if we can do a couple % better, the output from that economically is huge. It's really good if we can do it, and probably half the benefit that we get through this project is going to go to the core. Plus you get core branded adjacent acquisitions. That'll go into Mike's business as well.
If you look at our sort of M&A dollars, about a third of it will be toward kind of hydroponic-y businesses, craft businesses, about a third of it will go to service, and about a third of it will go to Mike's business. This becomes Barry's mission, and I'm really excited about it and very enthusiastic. Long answer, but it's.
That's a good answer
where we think there's above average growth rates.
Okay. For my second question, when I read your raw material slides, there's always a focus on diesel fuel. I forget, why do you use so much diesel fuel?
It's our Scotts LawnService business with the trucks that we use to deliver the service.
Okay. Thank you very much.
You bet.
We'll now take Eric Bouchard with Cleveland Research Company.
Two questions. First of all, it sounds like you've got levers to pull on the margin line that, as you said, make you agnostic about sales. Can you just talk about what is playing out differently than when you started the year or what you're doing differently in regards to the margin performance for the year that gives you confidence on the earnings number regardless the issue of the sales?
Look, I'll let the sort of pros answer. I start with underpromise and overdeliver so we don't get ourselves in a bind, number one. Two, I think the things that we control, we're actually doing a pretty good job on. As far as sort of negative in there, I think really the big one right now is freight. I think we believe that there's competitive pressures largely due to fracking in a lot of areas that we care about, that mean that a trucker can get $200 more by delivering freight, fracking crap, than picking up our stuff. Where we have our freight contracts in place, we're doing pretty well. Where we're sort of buying on the spot market, it's just a little more competitive than we'd like to see, which is a little bit below standard.
I think that's the only significant negative that we see. That's not huge, but it just means that we just wouldn't have expected to be negative on freight at this point.
A couple of the upsides are the product cost out and basically management of commodities that have gone better than we would've expected. I referenced earlier about being operationally sound, but typically at this point in the year, we look back and there's a couple hiccups that we point out and we kick ourselves about. At this point, there's really, like fundamentally, we're trying to scratch our heads, trying to come up with something to beat people up about.
Dude, now you probably jinxed us.
I'm just saying. Aside from the freight issue, which you could argue kind of.
Look, Eric, you know what I would say is that this has been a journey for us. I think where we're headed with the business and the way we're talking about it, which is very consistent, there's no changes really as we've been talking about this, shareholder friendly, what we talked about for the last couple of investor conferences. We are executing it and we're pretty well down the path. I think the lack of major hiccups says that where we are in the journey is a pretty well-controlled business. In spite of the fact that I'd say the weather has been a negative, obviously has been a negative for us. Barry and his team have done a really super job of getting it to the point where it's kind of no drama on the business side.
As we look forward to where we're going, it's to take that control of the business, now apply ourselves to saying, what can we do to take a relatively low-risk business, and without swinging for the fences, add like 1 or 2% more, and that is really nice for us financially within the core, add some acquisitions to that, then focus on these areas, continue to get Europe where we want it to be, this whole craft/hydroponic space, natural, organic, urban, and then our service business. We think that we can do this in a pretty low drama way. I think where we are in the journey coming out of sort of economic crisis globally, and relative to other consumer companies is I'm really pleased with where we are right now, and I'm really pleased with how the team is doing. I'm pretty chilled.
It's just everything right now is okay, except that I would say minor issues, and the biggest thing is weather.
That's helpful. The second question I want to ask, I understand the North and the Midwest numbers being down, I think you said five and a half year-to-date in terms of sell-through. The South and the West being down a couple of points, can you give some thought or explanation around that? It seems like the weather's been okay there and you've had some good products there. Can you just frame how we should be thinking about the South and West [uncertain] year-to-date as well?
Texas-
That's Mike Lukemire talking.
Yeah. This is Mike. Texas has been a little bit of a struggle because of drought, and that's been slower. The transition zone for the South, that's actually recovering. They were actually up this weekend. Florida's actually been up a couple of percentage points as well. I would say Texas, California's had some drought issues, is a little slower, and then the transition zone in the South.
Transition zone, Eric, means the Mid-Atlantic states were slow to start.
Right.
Okay. One last one, if I can. The $15 million of charges for SG&A out, that creates no benefit this year but creates benefit next year. Could you just size the magnitude and timing of the benefit related to those efforts?
Eric, the way to think about that is it's essentially a redeployment of SG&A. We will not see necessarily an immediate benefit in our P&L in 2015 by taking that out. What we're going to do is relocate, redeploy, reallocate some resources across our P&L, largely to prosecute the ideas and the plans we have that Jim was referencing earlier about urban indoor lawn service and just grow in the category in a lot of different ways. While there will be the $15 million charges here that we'll exclude, next year, we're not expecting to see necessarily a pickup from that. At least a direct pickup within SG&A.
Thank you very much.
What I've asked people to do is, this is not a way of taking expense out and building the P&L. This is saying, "Look, guys, let's run the business." The benefit of the team we have in place right now, which is, I'm going to say, a very combat-oriented group of people who have sort of been through the wars with me. It's not driving money to the bottom line. It's basically saying to run the business properly, what do we need to do differently than what we're doing today? If we're going to steward the brands properly, how would you redeploy that money without putting money to the bottom line? With the idea that if we start doing more and more of the right things and fewer and fewer of the things that you'd say, "I don't know if that's worth it." Without swinging for the fences.
There's nothing huge here. About half of that money goes back to effectively brand support within the core, within Mike's business, about half of that going to sort of these growth opportunities. We believe it's all part of what I would say is improving the probability that we can do better than what we said. That's how I would describe it to you.
Okay. Thank you.
From William Blair, we'll go to Jon Andersen.
Thank you.
Hey, man.
Most of my questions have been answered. Just one on use of cash. Jim, I know you mentioned that you're evaluating that through August. Last year, you took a dividend of 35%. I think the yield now is closer to other CPG companies at about 3%. As you evaluate returning more cash to shareholders, is it more likely to come in a different form, i.e., not an increase in the regular dividend as much as maybe a special or a more aggressive share buyback? Thanks.
Yeah. We just had a board meeting last week. We spent a lot of time on this one. I think we believe that we've got a pretty good valuation going at this point. I think, for sure, it would be one of the two of continued share repurchases or a special. We'd like to get to the point, and this is part of our planning, that you're seeing small but regular increases in the recurring dividend over the years. We're trying to balance that by saying we don't want to get in a position where we'd ever have to reduce that. We'd like to be in a position to say small but regular increases in the regular recurring dividend with sort of the excess cash. This is one of those things, get back to sort of the pro forma 2.5 times leverage.
Look at our cash flow minus CapEx, minus acquisitions, with the two-thirds, one-third, meaning two-thirds going home, one-third staying for use in the company on average over the plan. I think at this point, we're probably pretty highly focused on the special at the sort of end of the fiscal year or very early in the first Scotts fiscal year quarter. I think we're seeing that we would make a decision on that probably in August and then execute that sometime before the end of the calendar year.
Thanks for the color on that, and congratulations, Randy.
Thank you very much, Jon.
We'll now move to Jim Barrett with C.L. King & Associates.
Good morning. Good afternoon, everyone.
Hey, Jim. Feels like midnight to me, hey, Jim. How you doing?
I'm doing pretty well. Jim, can you talk a little bit about Roundup 365? You appear to be more proprietary. To what degree will it cannibalize the existing line as opposed to gain share? At least, what is the objective in that area?
objectives to run them both and be successful with them both. This is something we're spending a lot of time on. I think we feel okay about it, actually.
Yeah. No, I think, Jim, first of all, from a price point standpoint, it's higher, the consumer is getting more value. This is a product that the consumer wants. It meets a specific need of that consumer, we're seeing a little bit of cannibalization, quite frankly, it's better than what we thought it would be. Overall, from a category standpoint, the tough thing to read right now is, like we said, the weed category is down, it hasn't hit it yet. What we are seeing relative to mix and what we expected, that the advertising is working, the consumer gets it, and it will drive the overall category growth.
That makes sense. Boy, thanks for the answer.
We'll now move to Alice Longley with Buckingham Research.
Hi, good afternoon. Hi, I'm still having trouble with the numbers. Can you tell us what POS was for you in the U.S. alone for the March quarter, for April, and for May to date? Also, could you tell us if those numbers include or exclude Tomcat and the Wild Bird Food? Thanks.
I think the easiest way to talk about this, Alice, is with Tomcat excluded. For the quarter, I don't have that handy, but I can tell you year to date, March, we were down 3% excluding Tomcat.
We know year to date. We're looking just for the March quarter.
Alice, we'll have to follow up with you later to give you the details quarter by quarter. We've been much more focused on where we are year to date going into April and the outlook beyond that. I'd rather just follow up with you offline and have the real numbers.
Okay. Can you give us April and May to date? Because supposedly May's gotten better.
Right. April year to date, we're still down about 3% if you exclude Tomcat. May, we're just starting. Looking forward again, we have double-digit comps, May, June, July, August, September. To get back to the original guidance, we would need to be up, call it 5%, 6%, 7% over the balance of the year to get back to that original guidance, which we don't need to do to hit our earnings guidance.
Okay. I'll get the numbers offline. Also in those numbers you just gave me, what about Wild Bird Food?
Exclude Bird Food.
Yeah, all these numbers exclude Bird Food also.
Exclude that. Okay, thank you. Then I had a question about your comment about share buybacks. You said you bought back $1.7 million to date and $900,000 in the second quarter, but somehow that won't help you until next year. Why is that?
We've bought back year to date about $60 million. There may be some more in Q3, just because we have a 10b5-1, and there's a purchasing grid depending on the day and the price, what we buy. The reason why it won't have effect until next year is essentially because of the options that are granted and the buyback's more or less not out. We will see a slight improvement probably in the share count next year, but it's not really significant enough to talk about at this point.
The number is 1.2, not 1.7, correct?
Yeah, it's 1.2.
Okay. Thank you very much.
You're welcome.
That's it.
That does conclude the question and answer session. At this time, I would like to turn the call back over to Mr. King for any additional or closing remarks.
All right. Thank you, Carrie. If there are still follow-up questions that we haven't gotten to, feel free to give me a call directly, 937-578-5622. Separately, we're going to be at two different conferences coming up here shortly in both mid-May and mid-June. You'll see press releases regarding those presentations. Otherwise, we will talk to you again in early August when we issue our third-quarter results. Thanks for joining us. Have a great day.
Once again, ladies and gentlemen, that does conclude today's conference. Thank you for your participation.