Earnings Call: Q2 2010

May 6, 2010

Welcome to the Scotts Miracle Gro Company Second Quarter 20 10 Earnings Conference Call. All participants are in a listen only mode. This call is being recorded. If you have any objections, you may disconnect at this time. Now I'll turn the meeting over to Mr. Jim King. Sir, you may begin. Thank you, Rudy. Good morning, everyone, and sorry for the brief delay. We were working through a couple of technical issues here. With me this morning here in Marysville are Jim Hagedorn, our Chairman and CEO Mark Baker, our President and Chief Operating Officer and Dave Evans, our CFO. Jim is going to start the call in a minute with an overview of the current state of the business, both in the context of our Q2 results we announced this morning as well as the progress we're making against our longer term strategic plan. Mark is going to then follow-up with a more detailed look at the U. S. Consumer business, and then Dave will walk you through the financials as well as update you on our revised full year outlook. Before we get started, a bit of housekeeping. In February, you recall that we filed an 8 ks that provided you with an historical look at our numbers when adjusting for the closure of Smith and Hawken. However, that filing not include a bridge to our adjusted earnings per share. So this morning, we've attached 2 additional schedules to our press release to help you with your modeling. All right, so with that, we're going to move on and I want to remind everybody that our comments this morning will contain forward looking statements. As such, actual results may differ materially. Due to that risk, Scottsmere to review the risk factors outlined in our Form 10 ks, which is filed with the SEC. As a reminder, this call is going to be recorded this morning and an archived version of the call will be available on our website. And if we make any comments related to non GAAP financial measures that we don't cover in the press release, we'll put those on the website as well. With that, let me turn the call over to Jim Hagedorn to talk about our performance. Thanks, Jim. Good morning, everybody. It was King's technical problem by the way. It should be obvious that we're encouraged by the results we announced today, as well as our revised If I could boil everything down to a single word, it would be execution. If I could boil everything down to a single word, it would be execution. Execution against our core strengths in sales, marketing and supply chain, as well as execution of our long term strategic plan, which we believe will allow us to drive sustainable growth and shareholder value. The execution we're seeing across the business is driving our results higher than we expected. Our team has worked collectively to develop programs with our retailers, shipments in the stores on time and then activate the consumer. I'll give you several examples later in my remarks demonstrate how well the team has been executing. For now, let me focus on the headlines. The outcome of our effort is a level of consumer engagement as strong as I can remember. As of May 2, POS for the year was up 11%. By category, this is what we've seen lawn fertilizer up 6%, grass feed up 16%, growing media up Consumer purchases are up in all 50 states, 37 states have double digit growth as do 31 of our top 50 DMAs. Remember, there's no pricing in these continued strength of the category and the confidence that the elements of our strategic plan are coming together. Let me give you some examples. Regionalization, we said coming into the year, our goal was for the 3 regional offices to breakeven. Well, mission accomplished. Given the early successes we've seen, not just in those offices, but from running the business more locally throughout the United States. We now believe our new operating model will contribute at least $60,000,000 to the top line this year. Innovation, helping consumers find new and easier ways to tend to their lawn or garden is critical to growing the category. Easy Seed, which we introduced regionally in 2009 was introduced nationally this year. It is on track to surpass $75,000,000 in sales. It will be our most successful new product launch ever. The supply chain, the change we made to co distribute fertilizer and growing media on the same trucks has really begun to pay off. We saw record shipments in recent weeks that would have overstressed our supply chain in the past. We've managed to meet that demand without compromising customer service and the efficiencies we gained help drive strong gross margin improvement. The balance sheet, coming into the year, our goal is to get the leverage ratio below 2 point 5 times at the end of the year. We're now tracking ahead of that schedule. In fact, we could end the year as low as 2 times. As a result, it's increasingly likely we will shift our priorities for the use of cash later this year, perhaps even this summer and announce a couple of shareholder friendly initiatives. Brand support, we remain focused on further investing behind our brands. An executive level team has been developing with the execution and the focus I see in the business right now. In a moment, I'll help you better understand how that execution is paying off in the current year and Mark will follow-up to the market specific detail that reinforces that point. Before I go there, let me touch upon both Scott's lawn service our sales efforts are also more cost efficient as we've improved both our direct mail efforts and our door to door sales. The results of all of this should be another record profit year for Scotts Loan Service. Global Pro has also seen a positive trend. The pricing and commodity issues that plagued us last year have normalized. We're seeing strong unit growth throughout the business and we're on track for a strong turnaround in the second half. But the brightest star remains our core global consumer business, which posted both record sales and operating profit. In our last call, we told you we were better positioned than ever entering the season. Most retailers were set for the season several weeks earlier than in the past. In fact, in March, we had our biggest shipping week ever with more than $160,000,000 of products going out the door, a 25% improvement over our previous peak weeks. Because the retailers were engaged early, so were we. This allowed our sales force to construct highly visible end caps and pallet displays and to better cross merchandise our products. Once the stores were set, the retailers truly kicked in with all three of our largest accounts using both print and TV advertising to support our brands. Before I go further, I want to take a moment and thank our retail partners, no matter how big or small for their continued support of the category and of Scotts Miracle Growth. Of course, in addition to the support from our retailers, our own advertising efforts were also stronger this year. In fact, when we saw the season breaking early in many parts of the country, we got behind the business with an increased level of support beyond our original budget. As planned, we focused most of the money locally and used all forms of media to engage consumers. This gave us the earlier that 40 states had double digit POS growth. Florida, Texas and California were not among them. In fact, POS in those states is about half the company wide average despite the fact that these are the locations of our first three regional offices. One of the reasons I'm convinced our regionalization strategy is working is due to the results we saw in those states. When you look at the numbers with more granularity, you see a pretty compelling story. Let me explain. The El Nino weather pattern hit all 3 states particularly hard in the early part of the season with both Texas and Florida experienced some of the coldest and wettest weather on record. So the season got off to a terrible start. Despite those challenges, we shifted some of our advertising and in store sales support and we maximize the opportunities in individual markets when the weather allowed without pushing too hard in markets where it didn't make any sense. And when the weather broke broadly in mid March, the results were outstanding. POS growth has averaged roughly 30% in both states since then. Entering May, we believe we've gained almost 4 market share points in both the Southeast and Southwest regions. In the lawn fertilizer business, 8 of the top 10 DMAs in the country during April were either in Texas or Florida. Mark will share the numbers with you in a bit, but let me assure you this would not have happened a year ago. We just did not have the flexibility to get that done. By understanding what was happening at the local level and getting our timing right, we took advantage of the opportunities even though the season in those regions broke much later than normal. That flexibility is what allowed us to outperform the competition and gain market share. Remember, our point of sale data comes from just our largest retail partners. So what you don't see in those numbers is activity from independent retailers. Once again, our local focus is paying off. In our West Coast region, we've created partnerships with several new independent retailers this year. By better understanding the local market dynamic, we came to realize that our minimum order size made it impossible for each of those retailers to do business with us. By changing that requirement, we broke down barriers and expanded our customer base. And because our supply chain was able to creatively manage the delivery schedule, we maintained our margins despite the smaller order size. The flexibility with which we are running the business this year has also been evident in the Midwest and the Northeast where the season got off to a strong early start. POS in those regions is up 15% 12% respectively entering May. Even though our offices in these regions won't be operating until next year, we benefited from the improved timing of media buys, the flexibility of our in store consumer counseling program and improved retailer support in all reinforce that we're right on track. We're also on the right track as it relates to innovation. We're extremely pleased with the growth we're seeing in EZC. Consumer purchases of the product were up 140% from last year as we've expanded distribution on a nationwide basis. Consumer feedback on the product remains extremely strong and the in store support and displays that EZ Seed is getting is allowing us to help consumers better understand how and why works before they get at home. We continue to believe EZ Seat sales will exceed $75,000,000 this year about $50,000,000 increase from 2,009. Let me also share some early insight from our Snap system, which we showed you at Analyst Day. We see SNAP, a proprietary system that dramatically changes the way lawn fertilizer is applied as a great innovation in fertilizer category and one that can truly fuel future growth. The system is so easy to use that we believe it could help drive new users into the category or get light users engaged more often. This year we're testing Snap in 3 markets. Consumers are telling us they get it. They understand the proposition. They like the fact there is something new to help them care for their lawn and they see value in the investment. They're also telling us they want more. Specifically, they would have liked to see an even broader offering of combination products and grass seed than we had available for the test. While the lack of a broader offering has probably kept some people out, the feedback gives us even more confidence the concept will work. What's next for Snap? That remains to be seen. However, we're definitely working on a broader launch for next year and continue to believe it will be an important innovation for us for the next several years. Before I turn the call over to Mark, let me anticipate one of your questions. When we say EPS will be $3.25 or higher, what does that mean? The guidance assumes POS growth of about 8% or 9% for the full year. Obviously, we're higher than that right now. But let me tell you that POS in May of 2,009 was up more than 30% from the prior year, so we're up against some pretty tough comps. However, if POS remains north of 10% through May early June, there could be significant upside depending on what investments we make. Clearly, because the year is stronger than we expected, we plan to put more money behind our fall business and also to invest more heavily in areas like sustainability. Although we'll certainly push for a better number of context is important. Delivering 3.25% would represent about a 25% growth off a normalized base of 2.61% last year. And as I said at the outset, our free cash flow is better than we thought and we're quickly reaching a point where we are contemplating share repurchase and a dividend increase, perhaps even both. We have plenty of good news here regardless of how the next 6 weeks play out, but we'll definitely keep you updated. Are currently scheduled to appear at an Analyst Conference in Chicago on June 16, and it's likely we'll provide an update on that day. Before I turn the call over to Mark, I want to acknowledge the work that he, Barry and the rest of the executive team and all 8,000 of our associates have been doing this season. Whether in the Marysville or in the field in the U. S. Or abroad, the entire team has remained focused and committed to driving the business even higher. All of us recognize the opportunity in front of us to continue to drive our category and our business and to continue to enhance shareholder value. As we continue to successfully execute against our long term plans, I think all of us are energized by the potential growth we see out there for Scotts Miracle Gro. With that, let me turn the call over to Mark. Thanks, Jim. I spend the majority of my time these days out in the field visiting stores, the regional offices, spend time with our leadership out in the field. What I'm seeing in the field is a lot of activity. It's a great time to be part of Scotts and a great season. Our retailer support is extraordinary. Everybody is excited, the consumers are excited and we are in stock and prepared for a big season yet remains ahead. As we enter May, we're up 11% over last year, but we don't get POS from all of our independent trade. I can tell you what, they're very excited about the business we're seeing in our shipments are 15% year to date into the independent trade. It's not just North America, it's also international. Canada's POS is up over 60% this year. While the UK might have got off to a bit of a slow start, there have an exciting days and weeks here in the 30% U. S. Range, providing strong momentum for all of our consumer demands worldwide. Let me break down a couple of consumer purchases in the U. S. Though. Jim mentioned this, but the top 50 DMAs as you know we watch those dashboards are up nearly 12% to our national average, but 31 of these are double digits increases well above the corporate average. Let me take you through a couple of the markets that I find pretty exciting what's going on in the Midwest and Northeast. Minneapolis market is up over 45% on a year to date basis. Detroit, as we talked about last year, a market which has relatively high unemployment is again once again seen 21% growth on top of the most significant growth we had last year. Chicago was up 16%, Baltimore over 18%, Midwest and Northeast have an extraordinary results yet this spring. While our Southern markets and Jim pointed this out, we're a little bit slow to break, we had a difficult comparison in January February this year, a little bit of a different story. Dallas has been flat, Miami, Jacksonville, Orlando, all with relatively small single digit increases. While the weather will always be a significant factor in our business, we are not victims to the weather. When we look at this business with more granularity and look at the DMAs, we understand the timing may change, but the business still exists. With the of our states with the largest growing seasons, Texas and Florida, both of these areas had mid to small sales in some cases negative POS on a full year basis as we looked at what happened to us in January February. While they had as you might recall a pretty good Q1, October through December, we gave it all back in January February in those periods of of it and the season has may have been passed. But here I'm going to give you examples of what really happened when we took the focus of our regional groups. Lawn fertilizer business was in Florida was down 10 percent. We waited for the season to come and once the weather broke, our team was out hustling to get back in the game. In April, for example, in Florida lawn fertilizer, which is much later than normal, Orlando and Jacksonville up 60% and 55%, respectively. This product of fertilizer business in Florida now positive 7% for the year, 17 point turnaround from the period of time in through mid March. In total, Florida POS is now at 6% year to date. I think an extraordinary result with the setback that we had early on in the coldest winter in Florida and Texas, California in 25 years. Another example would be Texas. We thought the season might never break, as you recall last year, Texas is one of our best performing markets. Through mid March lawn fertilizer was negative 11. Here's what we saw, Houston was up 80%, Tyler was up 46%, San Antonio up over 31%. Entering May, lawn fertilizer for Texas was plus 15, a 26 point turnaround, extraordinary turnaround and I think it goes to a lot of credit for supply chain regionalization effort to make sure that we take advantage of the timing and the weather when it exists and our ability to replenish the retailers. Remember that about 50% of our media spend will be done locally this year. This allows us to be more closely matched the timing as I mentioned with the local growing seasons, also helps manage the risks in the business from the weather. We told you in February, we're changing the timing of our media buy, we put a bunch of tests together, Sacramento being a great example. We thought we were advertising our early feed in fertilizer probably called halts, pre emergent fertilizer. Too late in the season, we thought we grow the business by moving advertising up nearly 2 months in Sacramento. We were right. Here's a breakdown for HALT's. Nationwide, we're relatively flat in the business. California is up about 3%, but in Sacramento where we put a really targeted campaign together, it's up over 28%. It's our best performing DMA in the country a significant part of the market there, but was irrelevant to any of our other markets, so we ignored it. West Coast result is phenomenal. They put the focus on the MOS Control advertising, merchandising, stacking down, the result is Seattle is up over 61% this year, Portland up over 40 7%. These are the 2 biggest DMAs in the country for MOS Control and bigger than the next markets combined. We said regionalization would help us with singles and doubles. There are 2 great examples between the growth of Holts and Sacramento moss control in the Pacific Northwest. The top line impact was less than away at the $300,000,000 to $500,000,000 goal to gain that market share. Away at the $300,000,000 to $500,000,000 goal to gain that market share. Singles and doubles may redefine regionalization, but home runs are kind of fun at the national level. NatureScapes has been extraordinary once again this year. 8 years ago this product was introduced, so it's been around for a while, but the results this season are extraordinary. He POS sales to the register, our biggest retailers are up 35%. Our shipments are up 71%, so we continue to be in good shape for the business that remains ahead for us in May, biggest test for our supply chain ever and congratulations to them for that great support. As Jim mentioned, EDC is changing the face of the grass category. It's extraordinary when I'm walking through the stores, we have end caps in all major retailers and all the independent distributors and everybody is excited about the aspects of what EZC has done to change the confidence for the consumer in the outcome of planning graphs. With $75,000,000 to $100,000,000 of sales in 2010 possible, extraordinary growth and continue to have plans for even bigger bags, more ad support, continue to educate more consumers about the outcome that they're going to get with Easy Seed. Here's a couple of examples of markets where it's off the charts and is growing the category in extraordinary way. Oklahoma City up 125%, Memphis up over 100% Tampa, San Diego and San Francisco 75% to 90% growth that we're seeing in the category and a good margins for our retailers and Scotts. Before I wrap up, I want to talk a little bit about retail imports. As I've traveled hundreds and hundreds of retailers from the big boxes to the small boxes to the great independents, everybody has confidence about this season, continued opportunities we see ahead in the 5 or 6 biggest POS weeks ahead for our season in 2010 through the beginning of May June. Our largest shipping week as Jim pointed out, brilliant way at over 99% fill rates this year. So the retail a brilliant way at over 99% fill rates this year. So the retailers have trusted us to get the inventory in, they know it's going to sell through, but it's slightly higher than it was in 2009, we're not out of line for the relative POS that we're seeing and the sales that I believe exist in May June and the rest of the summer, as we're going to keep the pedal down, continue to have ad support throughout the summer, drive the summer programs for the bug season and then getting ready for the fall season. Our retailer inventory is in good shape. I feel that we are supported correctly and we'll be in the right place by the end of the year. So where I'm spending my time and I think the engagement we've had with retailers and our field teams in the market next to the consumer. Our ability to get the consumer into the retailer to sell it through the with consumers, our retail levels, inventory relevance are fine, we are ready for the season and the next part of the season as the few assumptions of 8% to 10 percent feel right, we are in the right place at the right time with the right products. David? Thanks, Mark, and good morning, everyone. Jim said at the outset that you hear a lot of upbeat comments on today's call. I'll start by telling you I'm just as encouraged as Jim and Mark are. The results we reported for the Q2 and first half were outstanding, especially in the Consumer segment. But our 2nd fiscal quarter end, whether it falls on March 28 or April 3, is just an arbitrary date early in the season regardless of the fiscal year. Because the momentum of the season is just beginning on a national basis at that time, the value of consumer POS activity in the 4 weeks of April alone historically exceeds the entire 13 weeks of the fiscal Q2. And over those 4 weeks of April, our year to date POS growth improved 400 basis points to nearly 11 percent growth. Now having visibility through April, my comments today will be more forward looking and focused on updating our expectations for the full lawn and garden season, which is fiscal 2010. In the interest of time, I'll keep my comments on the Q2 brief. To have a meaningful discussion about our second quarter and first half results, as well as our second half expectations, you need to start with an understanding of our fiscal calendar. We follow a 13 week quarterly convention with our 1st three quarters ending on a Saturday. Our 1st fiscal quarter of 2010 ended on Saturday, January 2. In fiscal 2 1009, our Q1 ended on December 27. While the period December 28 through January 2 is one I enjoy personally, there's virtually nothing happening in the Northern Hemisphere Lawn and Garden on those days. So the extra days were a non event at least as it related to our Q1 results. Because the 2nd fiscal quarter started later in fiscal 2010, our Q2 also ended later as well on April 3 rather than March 28 as it did last year. Given the seasonality of lawn and garden, that shift positively impacted our 2nd quarter due to the inclusion of additional peak shipping days. That impact will be reversed in the second half. It will have no full year impact. If you normalize the 2 years, that is include the same days in 2,009 as 2010, sales in the quarter were up 10% on a company wide basis and global consumer sales were up 11%. Irrespective of the calendar, it was a very impressive growth. From an EPS perspective, the normalization of sales reduces year over year growth in the Q2 by about $0.23 For those of you who are relatively new to the story and wonder why we don't what impact it would have on our reported numbers as it depended upon the week in which the season broke on a national basis. The strong POS that in at the end of March led to a significantly higher level of replenishment during the last week of the fiscal quarter. So the comparisons will start to turn the other direction in Q3. This year Q3 won't include the 1st week of April, which was a significant week in 2,009 and growth in the back half will look a lot lower than in the first half. But by September 30, everything should come in line with our updated guidance. Beyond sales, the 2 biggest areas that need explanation are gross margin and SG and A. On gross margin, you'll remember that I told you to expect the 2nd quarter rate to still be less than, but narrow the gap to prior year, then turn favorable to prior year in the second half. There are 3 primary reasons why the second half would see year over year improvement. First, we would complete the sell through of older more expensive inventory in the first half of fiscal 2010. 2nd, the professional business would begin to anniversary the price reductions from fiscal 2 2,009 in the second half. And third, we are hopeful we would not experience a repeat of the mark to market inventory charges experienced in the Q4 of 2019 in our Professional Seed business. So what happened? Because of the strong volume growth in our Q2, proportionally less of the inventory sold through was at the older more expensive commodity costs. The strong volume also helped drive more efficient freight costs through larger orders and greater leverage against fixed storage costs. While our recent supply chain regionalization initiatives gave us increased shipping capacity, the network still began the strain in April, resulting in optimal freight locations. I'll speak more on that when we cover the full year outlook. Moving on to SG and A, we told you entering the year that we intended to hold SG and A dollars flat. However, we also said that we may adjust that plan depending on how the season was playing out. In light of the strong early momentum, we have aggressively increased our full year advertising program. We also placed increased resources behind selling and marketing. All other G and A costs in the aggregate were down the prior year, both for the quarter year to date. One final note on the P and L. You see that our effective tax rate is higher. That's because of a $1,900,000 charge related to Medicare Part B. By now, I'm sure most of the companies you're following have dealt with the same issue to varying is The only other financial metric I want to address for the quarter is our leverage ratio. At the end of the quarter, our debt to EBITDA ratio dropped to approximately 2.5 times. That lowers our floating borrowing costs to LIBOR plus 100 basis points of future borrowings. This happened a little sooner than expected, but the impact on 20 expense is likely to be nominal as we have already reached our peak seasonal debt level and are now beginning our annual pay down cycle. With that, I'd like to turn my comments to the full year. On the top line, we now see companywide sales growth of 7% to 8%, up from our initial guidance of 3% to 5%. Because of the calendar shift, normalized first half. We expect the consumer segment to be up 9% to 10% for the full year, and lawn service to be down mid single digits. If we look at gross margin, though margin rates are still less than prior year for the first half, we're pleased with the trends we're seeing. Commodity costs have moved up, but not dramatically. And I already explained that our high cost inventory issue is now behind us. In addition, we're seeing the benefit of the changes we made in creating a more regionalized supply chain. So we are incurring incurring some incremental freight costs to redistribute inventories in short supply. All things considered, we anticipate gross margin improvement up to 50 basis points to the prior year on a full year basis. Remember, we started the year believing they would be flat to slightly up. On the SG and A line, you're going to see a shift from our initial guidance. On a full year basis, we now believe SG and A dollars will be up about 3% to 4%. I'll tell you now that this number could move again by the end of the year, depending on how the rest of the season plays out. Higher sales will likely be coupled with higher media, marketing and selling. And if the numbers improve further, we'll see less benefit from a reduction in year over year variable compensation expense. Regardless, we still expect to see leverage on the SG and A line and strong discipline on G and A spend. That fact, coupled with the gross margin rate improvement is going to drive operating margins over 12%. Interest expense is still expected in the $50,000,000 to $55,000,000 range. Our full year effective tax rate will be 36.5% to 37% and share count of 67.5000000 to 68000000 shares. All of this will translate into adjusted EPS of around $3.25 As Jim mentioned earlier, this is equivalent to nearly 25% growth on a base of $2.62 earnings per share last year. That level of earnings should help us generate free cash flow of at least $200,000,000 even after reflecting more aggressive CapEx investment to add capacity for future growth. And while we continue to pay down debt, that will likely change fairly soon. We are on pace to have a leverage ratio below 2.5 times by year end, perhaps even approaching 2 times, giving us the flexibility to shift our capital strategy to include more shareholder friendly actions. We currently have a bias for both a share repurchase program and an increased dividend. How and when we move forward with those initiatives will be determined over the next few months, but I'm increasingly confident that we'll set a clear course before the end of our fiscal year. With that, I'll turn it over to the operator for questions. Thank you. Thank you. Bill Chappell, SunTrust. Your line is open. Good morning. Hi, Bill. Just trying to understand or put the May comp in perspective, how easy was April in terms of a comparison versus last year? How tough is May? Or does it depend on the region? Listen, I'm not going to people are looking up April. So I'll just say a 30% comp is a tough comp. Last weekend was okay. It was great on the East Coast. It was less good here. I was on the East Coast and it was a fantastic weekend. And we saw significant double digit growth of POS there, not so much in the Midwest, where in Columbus, I think it rained both days. So, and I think it's going to be a relatively cold weekend, at least in the East, this coming weekend. So I'd say 30% comps are challenging. So I think at least in the 1st 2 weeks of May, we probably give a little bit back. But I was telling Mark that I was having dinner at my mother in law's house in Long Island on Sunday looking up and the tree is just leaping out there. So we have a lot of season ahead of us. And Mark was saying that in Minneapolis, a lot of the leaves aren't even out yet. So we got a lot of season ahead of us and so we're confident. Good weather is good. I would say, May well, anytime we're going up against 30% comps, it's hard. Yes. So, Bill, April last year, the comp was up 15 percent over 2,008. So, we had a pretty incredible April even on top of a challenging comp. May is a bit more challenging, but as Jim said, April wasn't a lay down either. Well, were taking me through the comp numbers for yesterday, this morning, and they were very significant double digit increases nationwide compared to the same day last year. So, it is And just anything you can see that's driving that? I mean, obviously, the company is doing a good job, but I mean, are retailers expanding significant shelf space? Is it more in store promotion? Is it just consumer showing up? I would say all the above. But did you say somebody is doing a good job? I would say we're doing a good job and the retailers are doing a good job driving and beating the drum. I think what does this whole thing say to me? It says you have a very dynamic category. The consumers are engaged, and between, I'm going to say, I would say the industry, but Scotts and the retailers are beating the drum hard and it's all coming together. We've got great promotions. We're trying to spend when the wins are sort of at our tail as opposed to when the weather is not good. So I think the regionality, I think, is really kind of saved the day, particularly in those southern markets where I bought a place down in Florida and I think we had record cold throughout January and Texas was just kind of cold and wet for a long time. They had kind of a northern spring. So I think everything is sort of working pretty well right now. So I think it's all of the above, but and you got a consumer that wants to garden. I'd say, Bill, in hundreds of stores in dozens of markets, The ability for Scotts to have kind of call it the big pile of merchandising that communicates to the consumers as they're driving by these retail outlets, again, whether it's big box or small box. And the confidence that we've created with the retailers that can promote this stuff, we're not seeing when the weather is decent, we're not seeing an 8% or 10% lift, a lot of these weekends we're seeing 75% or 100% lift in sales and the capacity that Scotts has uniquely to build support that and recover for it on Monday continues to drive volumes through the weekdays too. I mean, we're having good Monday, Tuesday, Wednesday, Thursday, Friday sales instead of just a good weekend. So it's a unique proposition. We've got new listings on whether it's bird food, easy seed, the Greenmax in the South. We've got some really neat new products hitting the markets that excite the consumer. Great to hear. Just one last one. Dave, with the thought of maybe a share repurchase or dividend and the higher cash flow, How are you looking at the refinancing plan for the second half? Are the expectations for higher interest expense in 20 11 still in play or are you getting more favorable outlook? Well, Bill, so we're monitoring the capital markets continuously and we're running a lot of contacts with our banks. So we understand that the credit market, the bond market, but in that context, But in that context, I think our sense is still that we would look to start the process of renegotiating our next facility probably towards the end of the calendar year and hope to complete that maybe by the end of our 2nd fiscal quarter next year. So it's still on the horizon. The time line hasn't changed a whole lot from what we talked to you about back in January or February. But we'll continue to see if there is any abrupt change or if we see something that feels imminent, we could always accelerate that. The markets continue to be robust on the bond side and I think we see the markets on the kind of the traditional bank side improve at a very marginal, but incremental rate as time continues to march by. Got it. Well, congratulations on the quarter. Thanks. Thank you. Olivia Tong, Bank of America Merrill Lynch. Your line is open. Thanks. Good morning. I wanted to talk a little bit about the pricing environment at retail given some of commentary out of other manufacturers about taking down pricing. What are you seeing and what are your thoughts in terms of price and the gap between your products versus some of the other manufacturers out there? It's kind of a there's a bunch of facets to that question. I would say, we ain't taking pricing down. So we could pricing next year and we're in discussions with retailers now and I think we've got a lot of thoughts. I mean, there's some price pressures we're seeing on commodities. And so one of the things I think we said is we're not slipping back to kind of what we did in the past, which is allowing the margin rate to slide. The second thing is that the results we're getting this year are allowing us to invest heavier in things that we and I'm talking really across the board, Olivia, of things that we know are good investments. So we've invested more in selling, we've invested more already in marketing support, we are going to be investing in an even accelerated year developing the summer and fall markets. In addition, Dave talked about our cash flow of at least $200,000,000 of free cash flow. That's after we make a fairly significant increase in our CapEx to drive what we would say would be in a more capital constrained environment, a sort of list of very low risk, high return projects that we can pull forward and with extra cash on our hands. So I think we're continuing to invest and part of it is then this realization that there's a lot of projects like that, that we can spend money behind to drive the category and I think for the retailers benefit as well as our own. And so part of my pressure on Mark and his team to take pricing is not to sort of be greedy about it, but to say, wow, I mean, if we look at the results we've gotten over the last 2 years, as we've made investments, we've driven the category for the benefit of both ourselves and the retailers, and I think the consumer. And so I've encouraged Mark and I think Mark and his team have picked up that challenge to take pricing that not only includes the cost pressures we're seeing, which there are some, but also to invest more heavily in driving the things that we view as low risk, high return starts with selling and marketing. Mark, I don't know what you add to that. Jim, from the pricing you covered it well, we're confident that our brands and our unique position to deliver for consumers to the retailers and warn us to continue those investments. I'd say for the second part of your question about private label and what's happening with our share, we've grown our fertilizer share once again this year. It goes to the power of the brands, the Scotts Brands and Merkle Pearl call to action that the consumers have, the retailers have supported it at levels that probably are double last year in terms of their advertising expenses going on to support the brands and and drive traffic to their stores. So instead of where again other areas in consumer packaged goods may see a shift towards private label, we have a responsibility to help grow the private label in a couple of our biggest accounts and we've done that and yet our share is up significantly in our branded products this year. Got it, that's all real helpful. A couple of follow-up questions to that. First, maybe can you quantify what impact the additional private label business had on this quarter? I assume that it almost pretty much lapsed this quarter. Then also if you could give a sense of I don't know if it's too early now, but maybe a quantification on how much you might price next year, a range? And then if you could remind us what your CapEx target is for this year and also how much you spent on advertising this quarter? Holy mackerel. Sorry. You said a lot, so I have a lot of follow ups. Olivia, let me start by taking see if I can remember all the questions. First of all, with regard to private label, I think the impact in the quarter is insignificant. It's really lapsed at this point. With let's see, with respect to CapEx, what the guidance was that we shared with you back in January, February is around $70,000,000 I think right now, as Jim said, we have queued up a long list of really high return projects right down the core. We're taking it stepwise, but right now I'm probably looking at a number of more like $85,000,000 But I would tell you that when we talked to you in June, we might try to accelerate more of that based on the bandwidth of the organization. In terms of advertising But while still backstopping the $200,000,000 of free cash. Yes, we won't fall below $200,000,000 We're committed to that number. On now, I'd say it's in the area of like 15% to 20% for working media in the consumer business is probably a reasonable proxy to use for a full year basis. And percent pricing we're looking at is no comment. Yes, well, we're working through all of those with curb retailers, but it's going to be capturing some of our cost changes as Jim pointed out as well as investments that we believe will drive the business. At this point in time, we're in those conversations with our retailers right now. Got it. Thanks a bunch. Doug Lane, Jefferies. Your line is open. Yes. Hi, good morning, everybody. Hi, Doug. Dave, on the financial side, what to be just to take this off the table, you did that Dutch tender and special dividend back in 2007. You're not talking about anything like that. You're talking about sort of an ongoing policy change, right? That's exactly right. There's no significantly individually large event, Doug. Let me deal with that a little bit. I think we have told you, I think, or at least signaled kind of what our biases are in that regard. We in August. And it's my hope that by sort of the August Board meeting, we'll have a conclusion as to where we want to go and the Board would approve that. But I think just directionally, I think we're looking at kind of at a minimum share repurchases that sort of equal the dilution due to the share options being issued, 1, but that's not a huge number. And a dividend rate that is more appropriate for sort of our peer group, and I'll let you do the work, but I think that we think we're below what our sort of peer group is and that it would be viewed positively to and again, it's not usually expensive to have a dividend rate that's more appropriate for our peers. So that's kind of directionally where we're headed. I don't know if you want to add anything to that? Yes, Doug, the only thing I'd add is this is all in the context of thinking about debt leverage on a go forward basis in the 2% to 2.5% range. So that's kind of our view of the world at this point in time. Okay. I think also in conjunction with the events in the 1st calendar quarter of 'seven, there was also a signal that you had taken acquisitions off the table. Can you readdress that for us, Jim, or acquisitions back on the table here? Are you still pretty much sticking to the core business that you have now? Well, I would say, I don't think we have any visions of major acquisitions. I think that I wouldn't say acquisitions are off the table and this is not trying to like send kind of seismic waves out there. We are not particularly active on the M and A front. I think the difference that you're which I think is kind of the second thing you said, which is sticking to our knitting. I think that either I've learned a lesson, we've learned a lesson, it is being sort of best little scuss company we can be, focusing on and being disciplined on our financials, working on the things that are sort of core and that is like essentially around what we do are kind of where we're at. If there were properly priced acquisitions that were core, right in the middle of what we do, we could run through our branded, run through our existing distributions, I think we'd look at those. But we have no major M and A activity going on at the moment. Okay, that's helpful. And then lastly, Dave, I know it's a year away, but can you give us some sort of estimate on what the refinancing will do to your average cost of debt? Well, yes, Doug. So remember that we're already we generally are hedged and about half of our interest is actually fixed on a longer term basis, okay. That's the base rate, which we'll call a LIBOR. What I would expect is that our the pricing we have today, which I told you just dropped down to the new facility. At the same time, part of our strategy on the credit side, at least today, is that we'd like to further diversify both the tenors and the sources of our liquidity. So while when we refinanced in February of 'seven, we had one facility with 1 bank group and 100% of it expired on one day. What we want to get to is a point where we have some bonds like we just did in January that are 8 years, maybe there will be some more bonds, it could be another 8 or 10 years, but they will be staggered and then a bank facility that would sit alongside with So, what you saw in our bonds is we sold those bonds at an effective yield of 7.75%. So, it's going to be a blend of all that. So it's hard to be much more precise than that Doug, other than to say it's going go up for those reasons. Right. But it still depends on the actual devices that you use to refinance that, which sounds like it's still to be determined at this point? It's to be determined, but I think what I'll tell you is, it's going to be more diversified than it's been in the past as you've seen with our first $200,000,000 bond offering. Right. Okay. Thanks. Alice Longley, Buckingham Research. Your line is open. Hi, good morning. Hi, Alice. Hi, to get you up and moved up. Yes. Well, it shows what your power is, right? No, it's weak. The $0.23 we got additional in this quarter from the calendar, what quarters is that going to come out of, if 3rd quarter versus 4th quarter? Could you split it out? Well, specific to the sales shift, Alice, what so it's a little hard to predict what the sales are going to be in the 1st week of June and I'm sorry, the 1st week of July. But directionally, what it appears to us is if the year to date March shift is order of magnitude $90,000,000 of sales. We'll probably see about 2 thirds of that lost in the 3rd quarter and then the remaining third lost in the 4th quarter. Okay. And will that be a comparable shift in the EPS too? Yes. We take 2 thirds of that $0.23 out of the 3rd quarter and the other third out of the 4th quarter? Yes. For this check calendar shift that would be probably a close approximation. Okay. And just an add question on private label, fertilizer up 6%. Your own private label fertilizer, was it up more or less than that 6%? I'm going to take a look at that, but I think it's about running about the same, David, isn't it? Yes, was a lot of stuff killed there, so that in the Southeast people are going to have to do an exceptional amount of replanting and feeding and nourishing and all that this year? Well, that's certainly our hope. We've seen big sales in Florida continuing on right now and the growing media that we're selling, plant foods are continuing to grow where typically Florida starts to lose a little bit of its traction as you get to summer, move more to the bug season. And we've seen in the Southeast, some of those areas that were strongly affected by frost and hard freezes are going to be, we believe, a significant replanting for the season to come. But still early to tell how much But I think the answer is, I mean, just from my own personal experience, we lost plant material at our house and just getting plant material, we're sort of having to wait for stuff that wasn't damaged to sort of get better. And so I think it's tight. So I think it's going to proceed and extend it out. Okay. And then on fiscal 2011 in your consumer business, how much did you say you think the consumer business might be up that year? I don't think we did say. Always said it's over there, David, you've given them bigger view on kind of a 3% to 5% over the coming period. We're not going to update guidance for 11 today in the middle of the 'ten season, but I think what we're reporting today is encouraging, but we also believe to some extent what we may be seeing is some acceleration of the benefits that we hope to derive this move to the consumer during operating model. It sounds like you're negotiating budget for next year. You sound like a businessman now. So sort of 3% to 5% is a good starting point? Yes, I would not change anything. I mean, we're not telling you anything different than it doesn't change anything. Right. And what you said that you're intending or hoping to put up prices in fiscal 'eleven. What kind of magnitude are you thinking of low single digit, mid single digit? It wasn't put it this way, it will be low single digit. But I would say not looking to pick a fight with our retail partners who I view is very important to our business model. That being said, I'll just repeat what I said before. The increased investment we put behind the business and the operating side of the business, this would be regional offices, increased marketing, increased selling, I think has paid off in spades. We believe that that will continue to drive higher levels of growth and partners that this increased level of spend, part of which will be funded by increased pricing, is worth it for everybody. And so that's kind of our story. We're sticking with it. It is not and it's the truth. And so Mark's already started those conversations as has Barry and the rest of the folks. And I think so far okay. There's still some cost and commodities. We're trying to understand what they're going to change and we're still early in our knowledge, but we feel confident that our brands and our service are unique enough that we'll get our recovery on that and make the necessary investments. And then my last question is, I think we've been given guidance after the last refinancing of interest expense of something like $75,000,000 in fiscal Alex, I'm not prepared to update that this morning. I think what we see from what we talked about today is some slight marginal improvement in that now we're down to LIBOR plus 100 rather than 125. I think we already assumed that at that point we'd be down at that leverage level by that time. So, I think the biggest thing is probably what's going to happen with the longer term LIBOR markets. And what we shared with you last time was simply looking at the forward rates at that time. I haven't gone back and updated how the forward rates have changed in the last 2, 3 months to update that $75,000,000 guidance. I don't think they've gotten worse. Yes. Okay. Thanks. That's it. Thanks. Mark Group, Longbow Research. Your line is open. Hey, guys. Congrats on the quarter. As it relates to the CapEx commentary, you said you'd queued up a long list of high return projects. Is there any chance you can give some more color on some of those projects? Yes, Mark. So some of the types of things that we're pulling forward are good examples in growing media. So we continue to see growth in that business, just extraordinary. And so as we see that growth, we need to add new sites more rapidly than we had earlier intended to add. So, we'll be moving some of those up. We continue to aggressively look at accelerating regionalization of our distribution network, so we may be able to move a little bit of that more forward. And then I think we've talked about from a regional manufacturing perspective, our longer term desire to add a second site on the liquid side and even a second site on the fertilizer blending. So these are all I think the point is they're all projects that are in the core consumer business in categories that are showing really strong growth right now that were merely accelerating from earlier plans. And historically, these are the the projects where we with high level confidence in the returns that they generate. And I'll throw out there that our dirt business probably was the business that was the most stressed from a capacity point of view. And there are clearly areas in the country, and I'll start with Long Island, and sort of Metro New York that could use more capacity. So these are the kinds of things that are relatively small beer, I would say extremely low risk. We totally understand how and what to do here and we'll take a lot of pressure off that business because part of what Dave said earlier is that Mark and I were pushing really hard to say, I don't care if you guys ship the stuff in California. You got to get the stuff into the stores. And so we gave up a little bit of margin upside this year in order to supply, especially the growing media side and the mulch side. So the NatureScapes business was insane this year. And this is the kind of thing that we can pull forward, again, relatively small beer as far as how much does it cost to one of these plants, very low risk, increased customer service, very sustainable in that we're talking less diesel to move our products and less freight and better customer support. So it's kind of most of our money we're talking about is sort of capacity issues. Got it. Thanks for the color on that. Just lastly, on the incremental distribution, particularly on the birdseed set, how important was that in the March quarter? I wouldn't dimensionalize it as very significant. We're excited about what it's going to bring to us full year, but it's pretty small. If wouldn't even round up to about 1% for instance for this quarter. We're excited about it going forward. Got it. Thank you. Eric Bosshard, Cleveland Research. Your line is open. Good morning. This is Mark stepping in for Eric. First question, in terms of the strong spring to this point, can you talk about how the retailers are maybe changing their outlook for the summer and fall programs? I mean, what kind of benefit you'll see from that? And then secondly, any comments from retailers on how 2011 may shake out versus this year in terms of earlier shipments, incremental support for the category, any color that you might have regarding their thinking for 2011? Eric, as we predicted and in fact came true that breeds success in this category. The retailers I think are enjoying the traffic that lawn and garden has brought uniquely to retailers. I think retail stores a little bit challenge in big tickets. And yet, I think there's some question whether they would ultimately shift away from lawn and garden as big tickets returned. Lawn and garden has become a really significant part of their solution to driving traffic. And as it has become very successful year on year, I feel very confident that the promotions which have doubled year over year from the first half will continue and the conversations we've had with every retailer and how we're going to drive summer business and get set for a very good fall is very well supported at every form of retail, not just big box, independents and garden centers as well. So we're seeing levels of support and conversation kind of unheard of in previous years. And I think it sets us well for a beginning of 2011. Certainly, we'd like to have whatever normal is in Florida or California or Texas support the business early on, it makes it easier and smoother rather than having weekends where we're up 75%. But the retailers saw that it worked, saw that Scotts can deliver, but I think that they will support building those Southern stores in a good way for our January business next year. So all green lights as far as retailer relationships, their confidence in the business. And then in terms of consumer purchases for fertilizer up 6%. Can you give us color on how that would compare to the industry overall? I know you gained, I think, 7 points of share last year. Just trying to get a sense for if you expect to gain further share in 2010? And if you can give us any sort of magnitude if the first half trends continue to the second half, how much share do you think you can win in 2010? Yes, I mean, first off, let's talk about fertilizers. There's been a kind of over the last 5 years to actually kind of be somewhat of a shrinking market, not very exciting growth. We came back in 2,009 with pricing that was relatively significant with some fear that the consumers might disengage it even at a faster level. In fact, that turned out not to be true with the promotions and the education the consumer is getting on lawn food. So I believe that we've gained share a couple of points this year, we're actually growing the category. I give some credits to the regionalization effort, we're talking to consumers at the right time, for instance, in the whole story or there's new product in the South called GreenMAX, it's really, really activating consumers. So I think we're significance next year. And the private label is doing well, around in unit growth of significance next year and the private label is doing well for us too. Thank you. Sam Yake, BGB Securities. Your line is open. Yes, good morning I'm just wondering on the EZ Seed product, I'm wondering if you have any capacity issues at all and what sales level would you get to where you might not be able to supply fully the demand? I just actually was in that new plant here in Marysville this week, it looks like they were running pretty hard when I was there. I think our folks are making some good overtime. I don't know, I think there is room to sort of finish that plant and run it harder, but it's also $100,000,000 anyway. So if you're looking at we're thinking $75,000,000 we probably don't hit significant capacity issues until we get to about $100,000,000 Until $100,000,000 Okay. And then on the bird food business, which I think is just a terrific category and you've done a great job penetrating that. Could you give some comment on what the margins are on that product and what kind of market share you think you can achieve over time? I'm going to just sort of put my own spin on it before I give it to Mark, because I'm partly sending a message to everybody here. Is cities. There's the commodity seed, which would be sunflower and all that kind of stuff. And then there's the sort of high value, more like potting soil kind of margins. What's clear to me is that it's first of all, it's a giant market. It's a market that is less seasonal, and I think to some extent less weather dependent than lawn and garden. So I mean I like it a lot. I think it's brandable, it feels a lot like what dirt felt like kind of a decade ago, is just a lot of kind of nasty commodity. The point is that I'm trying to get to is, I think the commodity business is important too. And where if you went back a decade ago and looked at our dirt business and it was kind of we called it top peat and cow, topsoil peat moss and cow manure and it was like 0 margin business. It was because we had a national distribution system on commodity that was the lowest landed cost really allowed us to fight with the commodity and in exchange for really excellent pricing on a commodity with our sort of efficiencies of our manufacturing to get the value added product. I do in both commodity and value added and that they both feed each other by allowing you to have the lowest land of cost. And if you have the lowest land of cost and the brands and your advertising with our sales force and our supply chain, I think it's a very virtuous circle. And so I think the margins vary from call it 0 to kind of potting soil like and I think we need percent share today and a lot of opportunity to grow. And I think with all the examples Jim used about being the best supplier to the retailer and in fact, create the the retailer and in fact create the best consumer proposition with our value added products and demonstrated facts of regionalizing those offers as well. I think we can grow this business. It is going to be a more of a margin challenge in some of the commodities and we'd like to be, but if we can get the whole mix and I think our retailers see the value and why Scotts can bring that service solution and consumer proposition together, we'll make a good we'll make okay margins on it and it's a lot of growth ahead. Okay. And one final thing, you mentioned how NatureScapes is performing so well. What kind of product sales do you see from that line this year? Are you just in round numbers? I mean, just to say that we'd be at over $150,000,000 in that range moving towards even bigger numbers, I think it's going to be close to 50,000,000 bags this year of NatureScapes this year from call it 30,000,000 just a year ago. Okay, fantastic. I really think you guys don't get enough credit on Wall Street. You have one of the great franchises I've ever seen and so I really support the idea of a stock buyback. I think it's terrific value and congratulations on the continued great job you're doing. Thank you. Connie Maniti, BMO Capital. Your line is open. Good morning. Hi, Connie. I have a couple of questions. First on the recording of variable compensation. Could you go through what your process is as it now looks like the year earnings are going to be ahead of original plan. Have you already been accruing or we can will it be like last year where there is a big crew up in the Q4? I mean, the answer is we're making estimates and trying to be as accurate as we can based on what we know as to what the year end will be in accruing at that rate. So I know Dave and the finance people have sort of taken the operators numbers and plugged them in and up the made the adjustments necessary. Yes, Connie, that's so we do typically in the Q1, we never change anything. In the Q2, this is the 2nd year we've actually gone and made adjustments. So we did make one this year based on our projections. And I think on a year to date basis, our variable comp is reasonably equivalent year over year. So as we head to the back half of the year, last year that is where we experienced some big charges to true that up. And this year we'll play that by year based on where the business looks at the 1st week of July. So, if I understand what you said, you've already been accruing, but since you don't know where the year will end up, there might be a little more of increase second half over first half? Yes. The way we accrue this is equally over 4 quarters. Okay. So but and then we updated every quarter end based on where we think the year will end. And so, we did make a slight adjustment into the first half to try to increase our accrual based on where we think it's going to be the payout at the end of the year. And that's why on a year over year basis for the first half, it's reasonably consistent. Yes, I just want to throw in there that we there is a lower opportunity than there has been there was last year based on the amount of risk that we felt there was coming out of sort of 'eight into 'nine. The opportunity was higher as a sort of percent of target. And the Board and the management team have lowered that opportunity so that there is a more limited upper limit than there was in the past, at least last than last year. Okay. Are urea and diesel still about the same percentage of cost of goods? Yes, I mean it kind of depends on what point you're asking because urea has gone up and down so much. But yes, I think to the historic average that would be a correct assumption. Okay. And as you move forward on the new distribution centers, is part of the purpose of this to lower the cost of transportation and freight and diesel exposure in in the improved service and the ability to replenish much quicker with smaller relative order sizes. So it's a win win both for the retailer and for Scotts from the service and inventory perspective. The long term notion with our whole regional distribution strategy is to migrate to on average higher average order for shipment sizes. So that is a benefit as well that we're seeing through this. But I also want to add just because I think it's important as far as where we're headed from sort of making sustainability important element of our strategic plan that the reduced freight not only is a benefit on the cost side, but it's a significant benefit on a sort of sustainability front. Okay. Because this you know, you talked a little bit about price increases for next year. And the only 2 really commodities that I track sort of in your business are diesel and urea and diesel is going up, urea is coming down. Which other ones are moving around that are having an impact? I start packaging is probably our most significant. So I think while there has been lately some positive benefit in petroleum, I think in the last like couple of weeks as the euro has cratered and just people are more concerned. I think petroleum is more expensive and we're seeing that reflected in basically polyethylene, which is whether it's bags or bottles or spreaders, it kind of shows up. So I would say the big drivers are urea is up diesel is definitely up from a year ago and just fuel in general as is plastic and paper. Costs have gone up. I don't know where they'll be because like Dave said, it's pretty crazy out there still and up and down and who knows if a lot of it's based on demand and people's willingness to put capacity on the line. Okay. And just two more short questions. The sales target from the regionalization program, I guess, is now for this year. What did they produce in the 2nd quarter? No, I think we said that was the benefit in the first half. That was a benefit in the first half? Okay. And then would you view the Snap Lon system to have the same kind of sales potential of Easy Seed or would it be sorry, higher than that? I got to say, I don't know. We have learned a lot. Scott's tends to sort of break out of the gates and do these national launches. And I think we really believe in Snap and we believe it's a significant innovation in sort of all kinds of ways, but starting with making it very easy and simple to apply product, how to store product, sustainability, it's proprietary. And so the idea of because I don't know, it's not maybe I'm throwing out stuff that I shouldn't, but I think everybody viewed this as something we put out in 2011. And Mark and I pushed pretty hard to have a test market in 2010, so we could kind of learn from what happened. And I think what did we learn? I mean, we kind of talked about it, which is we didn't have a pre emergent in the sort of integral container that fits snaps into the applicator. Would like to see a grass seed product. We tried to would like to see a grass seed product. We tried a whole lot of different ways of advertising it, I think, which we like, and a lot of ways of showing it in the shelf or in the store environment, some of which I think we feel like we can improve. So it will be a bigger launch next year. We do not want to screw it up. It's important. Do I think it can be as big? Yes, I do, but because it's a big category at launch, but who knows? Let me just on to a couple of thoughts, Jim. I think the early reads and they are early, it appears that the best success we're having is either lapsed users or female, the place where they're selling purchasing. So it could really be a really nice incremental growth to our current business as well, but we just need to understand more about how we reach that consumer, where the best channels and how do we move up the test size. Great. Thank you. Andrew Kaplin, Oppenheimer. Your line is open. Hi, great. Thanks for taking my questions. Just wanted to talk about you talked about the euro cratering and wanted to see if you had an opinion on or to what extent foreign exchange factors into your guidance for this year on the top line? Let me answer the question a little differently. So, our business is primarily a a expense is not terribly significant. So, when I look at FX and look at the change in rates from our beginning of year assumptions, I think the net impact of the change we've seen in the euro could be kind of order of magnitude a nickel or so. So it is a factor, but it is a little bit of a drag on earnings, but it's not as significant as you may proceed. Got it. And then the other question I had was in terms of did you give an estimate for commodity costs inflation? I know you talked about urea and you talked about diesel, but did you give kind of some sort of order of magnitude of what next year? I mean is it like low mileage or is it like? I would say somewhere between 0.5% and 1%, I think is probably pretty reasonable, not I mean as cost of goods, as a percent of sales. Got it. So a 0.5% to 1% of cost of goods inflation? Yeah, on the tranche. Okay, got it. And then the last question was you talked about your retailers increasing promotional support for the category and your products in particular, are they pressuring you to increase your promotional support as well or is that primarily on their end to drive the traffic? I would say it's us pressuring us to do it. I think what the good news is last year Home Depot spent mightily behind lawn and garden and it paid off big time. This year, I think we saw much more or not only from Depot, but from Lowe's and Walmart as well. And I think everybody's really happy they did that. And I think in part the number is a result of not only our support, but the retailer support. So we're trying to keep them excited about it. And we are definitely excited about spend, because we think it's an under penetrated categories that we operate in. Got it. Okay. Thank you very much. Jim Barrett, CL King and Associates. Your line is open. Good morning, everyone. Hey, Jim. Having heard Dave's comment about Europe, Jim, can you comment on your European consumer business? Has your long term outlook on that business changed over the last few years and into this spring? Is the business a keeper in your opinion? Well, I mean, I think that's some to some extent defined. Our deal with Monsanto effectively is a global deal. And as we've looked at this before, I think our view is that it just really doesn't make sense for anybody to sort of cleave off international. So I think we a couple of years ago, we reached a conclusion that said the international consumer business is a part of our business. It may not be the sort of the growth vehicle that the American business is, but it's still a part of the business and we have a lot of brands that would be very difficult, like for instance, the Miracle Gro brand. We're seeing I think at our sort of darkest days with Europe, we've seen very significant competitive and I mean this in a positive sense, work by our teams in France as we've taken share visavis compo. The British business has been doing really well and a lot of credit goes to those guys in driving our U. K. Business and really dealing with a lot of very competitive situation there and dealing with it in a positive way and making progress. So I think that it's probably not the growth vehicle in American businesses, but it is a keeper and infrastructure reasons as well. So I think intellectually it's kind of a keeper and structurally it'd be very difficult to deal with any other way. So, as you noticed, we're talking kind of global consumer, but I think we're going to have high expectations for Europe and they better deliver. And the American business is just on fire and that's kind of so that's I mean, I think that explains it pretty well. Okay. Thank you very much. You're welcome. And our last question is from John Anderson, William Blair. Sir, your line is open. Great. Thanks a lot. Good morning, everyone. I guess just sticking with regionalization for a minute, I'm wondering and you may have said this earlier, I apologize, but are you seeing Scott's market share moving more in markets where you've been historically under indexed, the South and the West? John, we've seen a tremendous pickup in share quality of 4% as Jim pointed out in the Southeast and the Southwest. And I think we'll see share pickup in the West as we kind of get called back to normalized weather in the West. It's still been was in Seattle on Friday, I call it a Yes, but the answer is Southeast, Southwest up 4 compared to nationally up 2 is roughly what we're seeing. So I think Good. Yes. And South and the West Coast will come. It's the Pacific Northwest has been cold and rainy, windy and as that market kicks in, we expect the market share to be similar to the others. Terrific. Just with strong sell in in the March quarter, perhaps retailers taking in maybe more inventory to support this traffic driver designation for the category. Could you characterize the inventory levels at retail sitting on levels this year than last or just characterize that for us? Yes, they're sitting on higher levels than last year, but obviously we're at sales level than last year and we are in our peak weeks. As we get through the 1st week of June, we've got our big weeks of POS sales in all forms of distribution kind of play ahead. And I think they are the right levels of inventory for the opportunity that exists. And I think there aren't any retailers uncomfortable with their inventories. Just last question, Jim you talked a lot about focus lately in investing in those parts of the business where the growth opportunity and the return profile is the strongest. Is that revealed any kind of new thinking with The answer is we're deeply involved in looking at the portfolio And we are for sure, we think that the opportunity in our consumer businesses is high and long term. The other businesses we continue to look at and this is not making an announcement of any kind. It basically just says that Dave is leading an effort at the Board level with footprint. And I would expect to see in time, at the street level, clarity on what that means. And I'm going to say relatively soon, but it's something we're working on. I really don't want to comment beyond that except to say that our consumer global business is core to us and we're looking at everything else we're doing with an eye to saying, which is it doesn't go against my it goes kind of against my nature to say, because what's becoming clear is we can focus, we have a lot of growth opportunities. This does not mean by focusing we become smaller, it means by focusing we still get bigger. We just do it around the things that we do best. And by being disciplined and sort of spending more time listening to my finance folks, we can make more money too. And so this is a good place for us to be and I think that the exercise we're dealing with and continue to discuss with our Board is a very profitable exercise for us, I think in regard to our business strategy. And so we're continuing that discussion and you'll know more as we're prepared to tell you more. And now I'll turn the meeting back over to Jim King. All right. Thanks, Rudy. Thanks everybody for joining us this morning. I think we may have had a couple of media folks in the queue earlier in the day. So if you want to talk further, just please call our Public Affairs office later today. As we said at the outset, we're planning to have an update on where we are for the year at a conference in Chicago on June 16. So we'll have more communications then. And if you have any other follow-up calls for IR, just call us directly 937-578-5622. Thanks everybody. Have a great day. Thank you for participating in today's conference call. You may disconnect at this time.