The Scotts Miracle-Gro Company (SMG)

Analyst Day 2015

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Feb 18, 2015

All right. We're going to get started. I have not met everybody here. I know most of the folks. For those who have not had a chance to meet and for those who are listening online, my name is Jim King. I'm the Senior Vice President of Investor Relations and the Chief Communications Officer for Scottsdale and ProGro. So welcome to our Analyst and Investor Day this year. Normally we do this event in New York in December and decided this year that we wanted to move it to a point of the year where we can actually incorporate some store walks and see the business kind of coming to life in garden centers. So it's supposed to be 60 degrees I think and a little bit rainy this morning. So if anybody complains about the weather, there'll be an escort that leads you out of the building and takes you to Boston or some other place where it's been really nice lately. This is going to be a pretty low key event this morning. In past years, we would have spent the better part of a half a day going through presentations that were really focused on long term strategy. The discussions this morning I think you're going to be you'll find to be more about how we're executing the business right now. And then that will be culminated by what we do when we go out and do the store walks. That said, just so that we cover the legal disclosure, we will have forward looking statements this morning. So please be aware of that and familiarize yourself with the risk factors that are in the 10 All right. So the agenda this morning you see on the screen, let me just tell you a little bit about what to expect. Jim Hagedorn is going to start here in a few minutes and kind of walk you through a little bit of a journey in terms of where the business has been over the last 12 to 18 months. We told you back in 20 12 that we're going to start focusing on margin and cash flow and returning cash to shareholders and we have been doing that I think exceptionally well. One of the things that has been occurring during that period of time that we haven't talked as much about is the extent to which we have changed the organization. And Jim will walk you through a lot of the organizational changes that we've seen. That will manifest itself in some of the people you hear from this morning as well. And I think once you kind of understand what that looks like, you'll better appreciate the extent to which we've really reshaped this business over the last year and a half or 2 years. After Jim is done, Randy Coleman is going to come up. Brief presentation only about 15 minutes. We've already talked about what our guidance is, but he'll remind you and then share a little of time talking about our commodity outlook, the approach that we take to commodities and update you a little bit on how we're thinking about leverage and uses of cash. From there, Mike Lukmeier, we'll spend about 15 or 20 minutes with you. Mike is the new Chief Operating Officer of the company named to that role in December. Prior to that, he was running the North American business. He's been with Scotts for 20 years in various roles starting in supply chain, ultimately leading supply chain, IT, R and D then moved into a sales role and actually was down here in Florida as the 1st President of our South region. And then from there has ascended to the role that he's in now. Mike's going to spend some time really talking to you about the philosophy he brings to the new role and the approach that he's taking in running the North American businesses in particular. Mike will transition to 2 folks that I don't think any of you have met before, Adam Hampton and Penny Ziegler. Adam is a member of our Board. He's also we kind of like to think of him as the chief inspiration or chief creative thinker or officer of the company, but he's not in an official capacity that way. Adam's relationship with the company goes way back to the Horace Hagedorn days when he helped shape the some of the Miracle Gro advertising. And he has once again engaged with us to help us re examine what we're doing with the Miracle Grow brand and how we're positioning that in the marketplace and just get us thinking a little bit differently about how we approach the consumer in general. You'll be joined by Patty Ziegler. Patty has been with us for 3 years now 4 in April, she's counting, as VP of Marketing. She'll share with you some of our other between the 2 of them we're going to go through a lot of commercials and talk to you about some of the campaigns that we're running this year. Patty will also give you an update on some of the progress we've made, which I would say has been very significant in our approach to digital as well. Dave Swihart then we'll close really the formal part of the presentation. The last time any of you met Dave would have probably 2 years ago in New York when he was running supply chain. He now has responsibilities not only for supply chain, but IT and R and D, the same role that Mike Lukemeyer had several years ago. He's going to focus his remarks on what we've been doing in R and D some of the new products that are coming out of the pipeline and the philosophy and organizational changes that we've made there, so that innovation continues to be front and center in what we're doing. So at that point, which for you for those of you listening on the phone should be hopefully somewhere right around 10 We're going to shut down the webcast and we're going to prepare to go out on store walks. Mike Carbonara and Phil Jones will join us for a few minutes before we go on. Just to give you an overview of what we see in the retail space right now and what to expect on the store walks. And then we'll go out and we'll do the store walks all of you we'll get to the logistics later. But then we'll come back for those of you listening. We'll probably restart the webcast around 12:15, 12:30. I'll give you more of a better sense of that when we break at 10. And then we'll do Q and A from there and then close hopefully by 1:15 or 1:30. So that's the agenda for the day. And at this point, let's turn it over to Jim. Thank you. Got it. I think you almost told all of our stories already. Yes, exactly. Let's go look at stores. If we can go to the next slide. Thanks. I'll probably stick on this slide for a bit. If people wonder why I'm not like hugging you and everything, I'm on the good better side of ridiculously sick. So I was offshore and down at our house in the Virgin Islands with my son who just got back from Afghanistan and his wife, a couple of army buddies. And it sort of didn't matter if I was sick. You know what I mean? It was our first time away with my son in like 2 years. And so that was it was worth the sort of sickness, but it was some kind of Indian bug my wife who was 2 weeks in India gave me and you don't want it. So the business, actually like I've been doing this for a while with you all. Things are really good right now. And it is a whole bunch of things. I think mostly if Jim said we're kind of doing what we say we're going to do, I think it feels pretty good right now. We've been pretty bold in certain areas we're going to talk about. But I got a Board now. Also, we got 2 Board members here. My twin sister, Kate, who's up in Delray, is here as is Adam. But I'm like changing my Board and my Board is like is with me. And those of you who are probably what you think is it's really important to have a Board kind of supportive of the approach you're taking. And so I feel really blessed actually with that. I feel really blessed that my management team is and this is part of why we changed is I really want to be better stewards of our business. And that is that I look at this country and I can't believe this idiot running. It's like I don't even believe he's smart anymore. But what's clear is that no matter who's in charge and sort of how much money we put into politics, it doesn't really change anything. So I've sort of given up. But I think fixing this country is not that hard. But it's clear as the one thing we can do is work on this company and basically say to ourselves, it's our job to make it better, in a pretty shitty time. It is not like it's the world's most awesome place to do business these days. I mean, I think the issues with consumers and consumer demand are well known not just amongst us but through all of our peers. So learning how to make more money sort of flat sales, we're doing that. And we're managing around that. Chasing what growth there is, I think we're doing a really good job and we're going to talk about all this stuff today. So I think that the bottom line is that everything I'm going to do is sort of enable Mike to pick the pieces up of this conversation and then take it to the next level. But the company hasn't felt this good to me in a long time. And that doesn't mean I thought it was terrible before. It just means, remember, a lot of what I look at the world as is say, what happened in sort of 'eight through 'ten or 'seven through 'ten, what do you want to say? Hey, listen, we did pretty well in that period, okay? But it was an ugly period. The world was in crisis. And so I put it in sort of the terms of Central didn't do very well and I think has sort of been stuck there. Went into bankruptcy. We did pretty well out of that, but it was not like a Purdy win. It was kind of an ugly win. We made choices that were based on sort of keeping the equity valuable. And I think some choices that were very much focused on margin and other things that were about support of the P and L. And I think having done we did the right thing. Now it does appear we're in a period where we actually whether it's sort of organic growth or it which is low and conservative, plus kind of acquired growth, run the business better, make sure that every dollar we spend is going to things that drive value. I think we're really doing good there. So I don't know, we could probably get by weather this year. But even the weather forecast for like March, April, May looks really is what the weather sort of say equal chance, which means normal. And I'll take normal because it doesn't seem like we've had a normal spring in a while. And we've done well without normal springs. I think with normal springs, we've got retail programs. And that's all this slide really says is that kind of we don't have significant cost pressures at the moment. Our retail partners are like really positive about lawn and garden and we're getting set earlier. We got really good programs in place and I think the consumer is not in terrible shape. So that's more positive I think than you've heard from me in a long time, okay. And then take that beyond it that I think we have a sort of new management team that I'm really, really satisfied with. Remember you heard that here, Mike. How you could fuck it up in a year. Anyway, so we'll see if a year from now I'm saying that. But I feel really good about it. And I also feel really good about my Board. And part of what you're seeing is that I'm sort of going through this experiment at least in my own head where I want Board members to be much more sort of involved. Kate runs our finance committee and which is in a lot of ways is our sort of capital structure and M and A committee. And so she's very involved right now because there are opportunities right now. And so this is not an abandonment of shareholder friendly. I think it is how to balance shareholder friendly with if we can pick up an extra point or 2 of growth per year, add it to sort of another couple of points that we create ourselves, sharpen it through the P and L, all of a sudden we're looking at kind of double digit earning growth. And I think on what I would say is very safe top line numbers, okay? So Kate is very involved in looking at opportunities. She's got a great committee. Adam has effectively not only is the Board member, but he's picking up a role of really becoming almost and this is kind of like German, I think like German boards or some shit, like where Board members actually have kind of roles. I added Michelle Rhee to the Board who's fabulous. I had Brian Finn who I put down as kind of one of the I put him in the Investment Banking Hall of Fame. And Brian has been super helpful on the M and A side and sort of the financial side, Mistretto running my audit committee. It's just like I actually feel like the Board has like jobs to do and we're pushing shit to them. And it's and so everything about like what's going on right now, I feel pretty good about. If we can go to the next slide. This kind of just says we're doing what we said. There's not much cosmosity to it. I would say on the shareholder friendly side that's like $500,000,000 we've shipped out the door to our shareholders. So that's pretty good. And so everything is going pretty much the way we want. And that I should say because I know you all know that people who go out in the stores, this has not been on fabulous weather. So the last couple of years has not been fabulous spring weathers. So we've done like pretty good and we've jumped through our ass. I think Mike, it's probably not something we talk about, but I think you guys have heard this when we talk about last year is part of what we got to learn to do is this is a very violent business. I mean what saved our ass last year? Memorial Day, okay? Memorial Day in the Northeast or that weekend saved our ass. What it meant is shipping to the Northeast cost us a lot of money to keep the stores in stock. I think we had at least $10,000,000 of cost to move stuff that normally wouldn't in the system, okay? So part of where where's Swihart? Part of what Dave is doing is saying, what do we have to learn to sort of be able to operate in the sort of violence of the season and try to do it. So we've either pre positioned, we get the retailers take more inventory. I mean there's a lot of work, look at our own footprint and try to avoid that. So I think that if we can produce pretty reasonable numbers with plenty of screw ups, I think what it means to us is and this is part of what our mission is, it's just I don't need us to be screw up free because I don't think it's possible. If we can just screw up like half as much, that's worth a lot of money, okay? And I'm pretty sure we can screw up like half as much. Keep going. This just says that my family should be happy. Total shareholder return has been pretty good. So we like this slide and we're pretty proud of it actually. And my family are pretty severe meat eaters. If this slide looks like the green one was down here, they would be talking to us and so would some of our bigger long term shareholders. So we this is another thing. We have actually a pretty good shareholder base. So I guess we're blessed with that too. Next. King had all this like stuff in here he would he wants me to say with all this stuff. I'm sort of I don't really need to say it. Part of my view of our company is and you probably guys have heard this before that we really built this company as a growth business, okay? And I think in sort of prior to maybe 2008, we were and DIY was. And since then, these categories have seriously like been stressed. Flat to down, we're taking share. So we're not like no growth, but the categories generally have been and people at Scotts try to spend a lot of time trying to figure out what it means. And I got to say, I'm not sure I buy any of the bullshit, only because I think the numbers are pretty corrupted. I think if you look at the homeowners, you look at sort of how many people were getting thrown out of our houses, We got attacked by the EPA and I'm not blaming EPA for that. We had a period for like a year or 2 where Depot and Lowe's really couldn't sell anything but paint and lawn and garden because people weren't buying projects. That helped us. They were putting more money into advertising than we were. Things started recovering. We've had like 3 bad weather years in a row. I'm just if you try to take like even 5 years numbers and say what does it mean, I'm not really sure what it says, okay. I think you could jump to a lot of conclusions by looking at the numbers. I think what we have said is we're going to kind of embrace the reality that it's low growth. It seems like the safe thing to do. I'm not sure I believe it. In 2012, we said we're going to bump advertising by 50%, okay? And we built just because it was somewhat suicidal to the P and L, but I thought it was an important thing. And everybody supported me. It was one of those things where they supported me. And it looked great at first, okay. It just turned out to be more expensive than we could pay for. But we did pick up like in 1 year like our branded business was up like 6%. Our market share was up like 200 basis points. I mean we will have to ask. It was just real expensive. A lot of what we're doing now and it gets back to this slide is we're resizing to not only make the business more agile, so that Mike and I can run the business and sort of we don't have to like it's really cool what he's doing. Like he has like a decision time or something like some bullshit. I don't know what he calls it. He can tell you. Like 8 o'clock in the morning, you want a decision? You can make it yourself or come in. He's got this big conference from his called the Arena. And you come in there and decisions get made. So we're trying to get to this point of like size down so we can actually control the business and run a war because that's what we do. And let's get our costs under control, so we can invest behind the brands properly. Because so it wasn't the 12% except we just didn't cut anything. We just spent 50% more without cutting things and figured the sales would happen. Not really. But it was good, but just not good enough to sort of cover it. So we're really sort of dealing with sort of run the business properly and then we'll staff around that. And I think as we I mean, because what is all there's like 3 slides here in a row. What does it really say? We've cut our management team by 50%, just a little longer, okay? Easier or harder to run the company? Easier. It's unbelievable. It's a much cooler place to be, okay. And so there's a bunch of slides that are going to say, oh, it's really deep and everything was siloed up. That's kind of what it says. But the bottom line is a lot of this is being done to say, look, let's be able to look in the mirror and say we're running the business properly. We have these sort of advertising to sales ratios. We have a lot of targets we say we want to do. And when we advertise business, it works pretty well. When we don't advertise our brands, not so much. We're not the most awesome competitors when it comes to sort of pricing and all the other things because we like I think you all know this. It's a pretty high cost business model what we do, okay. Going in there and operating with thousands of people in season in a store and owning the concrete, having the relationships with the retailers, I mean, it's expensive. I mean, you can't do what we do unless you have like 1,000,000,000 of dollars of sales in the U. S. In lawn and garden. If you don't have that, you cannot put that kind of force out. So it's also a limitation. We can't operate like low margin that well. So we've got to look at the things that we can do better because when it comes to just pricing down, if we don't advertise, there are plenty of good competitors. Speck is one of them who can operate pretty well at a lower margin. They don't advertise. They're pretty aggressive. Their labels are good. They've got good relationships with the retailer. And it's like I'm not afraid of them and everything. I mean we're seriously have declared war on those guys and we're taking it to them. But they're a reasonable competitor. And so we've got to do the things that we do right or all of a sudden our model starts to look a little more fragile. And I think we're going to talk a little bit about that as we go through. But being overstaffed, listen, remember what we do, we sell dirt and seed and shit. There's a lot of people in this room that make 1,000,000 of dollars, okay? So if we're going to be in the lawn and garden and pay good people good money, we cannot be too deep. Because at that point, I don't want to be a big Pentagon and kind of like my son 82nd Airborne. You don't want him like worrying about how many like he's got a new weapon system. He went from being a machine gun team leader to now he's a grenadier. I mean, I've heard the name before, but his specialty is like this crazy HK grenade launcher, okay? You know when he wants like major bandoliers full of grenades when he goes into battle, right? I mean, you don't want him going in there with 3 grenades because like back in the Pentagon they're having a party. No, you want him like that's where the money should be with him and his grenade launcher. So to me this is just that. This is no Pentagon, lots of grenades for the people who are going to be the street fighters. So what this says is that slide, this is next. I think it gets the point across, way fewer layers. Okay, next. And it's not just on the operating side of the business. Throughout corporate, we are pulling layers out. So this just is an example of within Randy's organization, fewer layers. Corporate functions, fewer layers. Okay, next. So this is what we got. And it's like no joke here. So to me when I'm looking at all these slides this morning, this is the one slide that I would sort of say it matters because the levelness, the flatness of that, that's not bullshit. That's for real, okay? I got an awesome team. Mike can talk about his team. But only thing that's new is right there and that's what we call a soft team. So as we structured down, we probably eliminated more than half the positions. But we had some good people. We said, now what do we do? I mean, we could get rid of the people, but are we better off? And part of what Barry and I had been working on for a while just didn't get done. And the crazy part is after Barry left, we instantly got it up and running, is what we call our special operations force. We use a lot of military sort of expressions. We're I'm trying to explain it to my Board at the that. So trying to explain it to my Board at the last Board meeting, I said, look, it's like my strategic team, okay. So don't get all worried about like what I call it. But our soft team includes our strategic planning consultancy. So we're running the teams like all of our teams run pretty thin. So in order to say how do we deal with it when people are becoming overwhelmed, we have an internal group of people who go out and reinforce. But their job is not to run things for anybody. It's to go help out on a project basis, come back and run it. And then within it, we have a sort of intel group that's kind of financial and competitive Intel that runs within that group too. So that's new. Everything else is pretty normal. And then Mike can talk about his team. If Rhee was here, she would be moaning and groaning at me about diversity. So it's a pretty white group and pretty male. But it's actually made it into my objectives for pay with the Board. So I have to deal with everybody just do your job and you're safe. But I think lower in the organization we actually are much more diverse outfit than it looks there. But Jim and I sort of like this idea of shattering the paradigm, because I think in a lot of ways we have at Scotts. I think people are being conservative. I think the number is bigger than that. But these are things that we said have got to be done better. So I'm not sure I'm super in love with all these, because I think we'll kind of get into them. But what this says is our products have got to be the real deal. We're not selling the crap products out here. We're selling the real products. So I could like look at a whole bunch of our products and say, really, really proud of that? And the answer is now listen, and again, this is not so that I found like a maniac. In that period, sort of 'seven because the world went the crap for us in like 'seven. Ag commodities went crazy, we couldn't price for it. That's when the world went bad for okay. So in that period, let's say, 'seven to 'ten, we were in survival mode, okay, for real. Remember, we've done this big recap, the giant dividend, you know what I'm talking about. Yes. And so we're up at like 5 times leverage. It was like we were in like get through it mode. You can sort of see that maybe we should be we were really focused on margin. But there's an end to that, which is saying at some point you look at your products and say, are these really the best products in the field? I mean, if it's a Scotts product, a Miracle Gro product, an ortho product, a Roundup product, they've got to be good products. So we'll talk a lot at this a little bit. Increased marketing, this basically says can we really look ourselves in the mirror and say the ADAS is where it should be, not some crazy number, but compared to other consumer marketing companies, is our A2S in a reasonable place? And for our new product launches, because when you tend to run the stuff real tight, you do a product launch, it sucks money out of something else. And I think this is like a Dirk Jaeger Procter thing, which is you're pulling money out of your core brands to support like new product launches and that's sorry for my bad language, I'm just I'm sick, blame it on my sickness. That's a bunch of bullshit, okay. So I don't think this is so much increased advertising spend. It's an appropriate spend on quality creative and disperse it to the consumer community efficiently. And I think that we think there's more than this it's going to take to get that done. And then Hawthorne, you can just call that our craft beer company. Okay. Craft beers in lawn and garden are not a joke. They're for real, okay. Indoor, urban, hydroponic, I I could go on and on. It's a completely different consumer and they're buying stuff. And particularly in the West Coast, you see it big, big. Like they got there's a lot of these crafty stuff. They got as much space as we do. And like seriously, anybody who wants to travel with me to the West Coast, we should probably do this trip like this to the West Coast sometime, okay? You go out to California, Oregon, Washington, Colorado, you will see what I'm talking about. So there's really interesting stuff happening and we've got to be have the money and the desire to say if there's growth that's way faster than ours with much higher margins, we should be playing there. We know how to do this, okay. So really a lot of what we're focusing on and remember we have this sort of side benefit of the company is way easier now. So with a much thinner crew, it's not like everybody is saying, oh, I'm so overworked. It's like, god, this is easy. We're a lot less arguing amongst ourselves today. Is that fair? Okay. Next slide. This has been like my 12 month misery, okay. Mike Carbonara runs he's American Sales based out of New York. And bonus S, look we had this DuPont product, this MAT-twenty eight everybody remembers. It was the most cool active you've ever seen. We had exclusive to it and it turned out they launched it in ProFirst. My God, I don't know what they paid 1,000,000,000 of dollars in claims for pine trees that it turned out it killed. But it was a very, very active and we were seriously into it, okay. So we had probably spent half the money in R and D, but the whole molecule was us. So that blew up, thank God not in our face in DuPont's face. And we had to get up to speed and say, because here's the problem, atrazine, so BONUS S, is the biggest product in Florida 12 months a year. So you want to talk about the big dog down here, it's that product on the left. Atrazine is the weed killer in it. It's pretty much a commodity. It's an ag corn herbicide and it's really good on warm season grasses. Except between the NGOs and the EPA, they keep putting down less and less active you can actually legally put down to the point, the product doesn't work. I kid you not. Product has less than 50% control, okay? This is our old product, not our new product. So we had to pick up the pieces of the DuPont debacle And this is something that Scott does pretty good, come up with new sort of proprietary approach. We got a weed killer now that is kick ass, launched it down in we launched it as a test last year in Fort Myers in Jacksonville. Fabulous, okay. Consumers loved it. We pushed up the advertising and the launch. So it wasn't just the new product that did well. Even the old product did really well based on the advertising level it was getting, which is something that is sustainable. So we have a product here with Bonus S that is just a really, really effective product with a much more environmentally, if that makes sense to you which is just with a much lower load of sort of pounds per acre of active ingredient. So very sort of and it's proprietary to us. Everybody else is still in the old Atrazine product and you can't make it work based on the amounts that you can put down under EPA rules. So and this is not such a screwed up active like it's dangerous to you all, okay, because it's like the biggest corn active. So everything you eat with corn on it, you're it's atrazine. So it's not like it's a human health issue. But the way EPA does things with risk cups, meaning your total exposure over life, any way you could touch it, they just it's pretty hard on people like us because they'll view it as specialty homeowner stuff and we get more pain our way because the big ag chem companies will give us up before they'll give up their corn, okay? Turf Builder, which we used to call plus 2, it's the center bag there. You see the 2x up there? That means twice as effective on the herbicide package. So you guys know that back in the old days, we had a very light particle. It was sort of a coating of vermiculite. We went to a solid homogeneous product as we moved out of vermiculite. And with it, you had a much more sort of heavy denser product that didn't make leaf contact as well. What you like is a real light product that makes really nice contact with the leaf, transfers the weed dies. So this now we've moved back to a new proprietary particle, non vermiculite, but proprietary lightweight particle that gives us just tremendous increase in efficacy on the weed package. And so, again, these are the kind of changes where you say, can I look in the mirror and feel really good about the product? Because I would just say, at what percent control would you basically say, I can't look in the mirror on bonus S? Can you look in the mirror and say 50% control, half the weeds live? Can you look in the mirror? I don't think so. I think it's got to be something north of like 80% and because 100% is not possible. But I think it's got to be like virtually all of them die. Garden soil, this has been a major push. This is a core business for us. It's probably in dollars our biggest business. As far as margin, it's probably very tight with lawn fertilizer. But this is one where I just became really unhappy last year with the product quality. And it wasn't that it didn't work. I just didn't like the way it looked. And we were very much a mulch based product. So we're the biggest recycler of yard waste probably in the world. And that's a good story. But there's a lot of variables. If you're going to like put less peat in and more mulch, and I'm taking it from your backyard and your backyard and your backyard, there's a lot of stuff in there that's not supposed to be there. And we got to sort it out and make it look good and smell good. And it just got to the point where I don't think our it's like making gasoline yourself. If you're going to make gasoline yourself, you've got to make it right every time, okay? And so we've kind of reduced the variables, but we're upping the percentage for PEAT, and we'll talk a little bit about PEAT, I think, probably at some point. More sort of composted bark fines, especially down like down here, down south, where there's a large you get a lot of pine bark in it. It's a really nice active. So we're basically saying the product has to look like a Miracle Girl product, okay? You got to be able to look open it up and say it's better than anybody else. There's a reason why people spend more. A brand doesn't work if it's kind of a joke. You charge more, you open it up and it's not as good, okay? It's got to be better, okay? So we've made a lot of improvements in our products. And that these are just examples that are kind of easy to tell the story on, but it's really all over the place. Next. So both Mike's team on the brand side, Patty, who's down there on the end, Adam, myself, Mike has really given us a lot of ability to sort of up the push on creative. And so you're going to see some of our creative, our new creative today. But that's more like $15,000,000 And on this product, so the fall, if you're in like mouse and rat products, it's the fall is your business. And we had like, I don't know how many people have seen our I don't know if we're are we showing it today? Stuffed dead mice, dead mouse theater we call it. It's kind of crazy stuff, up 30% this fall, okay? So we're kind of pushing the limit. We kill so many mice like we don't know what to do with all the bodies, so we stuff them and have dead mouse there. That's kind of the concept. But it's a little crazy. The first time I took the creative and I would say we're just kind of getting going right now. Okay. And then, creative and I would say we're just kind of getting going right now. So next. We could spend a lot of time talking about it. I would just view Hawthorne as our craft beer business. Being run out of New York, my oldest son is in charge of it. He's got actually a really, really interesting team of pretty much urban young people with a little bit of mix of a lot of like little deals. And a lot of like little deals. And so little deals I view is like massive near death experiences. So he's had enough near death experiences like in the last, I don't know, year that it's really tempering him as a leader really well. So I'm really excited about this business and I like what they're doing. And it's kind of broken up into 2 pieces. There's kind of a conventional piece, although the young woman who's running the conventional side of the business said, I don't want to be called conventional. This is the kind of indoor urban kind of organic side. And then there's the less conventional, which is the hydroponic side. And that business will be run onto the West Coast for us and 99% sure by a Lieutenant Commander Steel Officer who's fabulous and he'll be running that for us out west. So, and all that reports in the Hawthorne. So really interesting stuff and I would say a lot of news to come and pretty exciting. This kind of looks at where do I want to spend money. I think hydroponic is just like crazy growth right now and I don't personally see it stopping. Really great margins, high growth and kind of in a place where there's a lot of opportunity to do deals there because there's a lot of generational changes. And the space is interesting because it's not a space that has was it Frank Blake's going away party and they had a Fed Governor or anything. You guys don't even really understand the world. Because I assume if you're in here, you're kind of a Fortune 1,000. So you all have no problem getting credit at like for free money. 99% of the world doesn't have access to capital. So if you look and say, we've got capital to put the use in the space, we're strategic, There's interest in a lot of these companies on the private equity side, but we're a lot of these people don't want to leave. They're they just look and just make a generational change within the business. And the idea of consolidation in the space is very attractive. So this is an area where we are going to be putting capital use is to be consolidating this space. 2 is PEAT. What did we discover in Pete? Remember, Jim doesn't like the quality of the Miracle Gro product. Go back to more peat. Right now, the harvest on peat has been pretty bad last couple of years. Peat supplies are super tight. I mean other than urea and bunch of other but after urea, peat. I don't think we've ever talked about peat before, except we did this Fafarod deal and Fafarod was one of those things that you said, I didn't really understand it that much. I'm not sure who the advocate for it was. I think it came out of a strategic group. But I was not like a big fan of the Fafard acquisition until I started learning about it and saying what does it do for us. So it gave us the Canadian brand. It was really helpful the competitive market up in Canada. Remember, we make more money in Canada than we make in all of Europe, okay? So it's no joke. So helped us there, really great peep supply, okay. And as a pro business that I think we can end up putting into Hawthorne and giving us really high end kind of greenhouse quality like growing mediafeed. And so all of a sudden we start saying, wow, is there something happening here? And should we be so I've challenged group to say, shouldn't we sort of control and this doesn't have to mean we have to own it, but shouldn't we control through either long term agreements or ownership of the actual supply itself like 50% of our pizza supply, just 50%. And I think we're sort of putting our head around that and believe that if we don't move in that direction, there's risk for us. So and this is not huge dollars. But I think this says that I can actually see it as part of strategy. And if you look at this, you can see it's very much North American, okay? And then opportunistic bolt ons, which are just like Comcast, just stuff that we can easily integrate, branded, get involved. Because it's just that right now I would say it's one of those periods in people's lives where there's a lot of stuff you could buy and we don't want to abandon shareholder friendly. So the question is then what's our priorities? And what I'm trying to tell you is those are Mike and I sat down and said the space is interesting and we want to play there. Pete just talked about and then maybe some other little deals that but the deals are very much focused on kind of North American bolt on. Okay. So I think this is sort of the last slide. And what it says is, here's kind of how we're building the numbers up. If somebody says to me there's kind of 1% or 2% organic growth, I have no beef with that. I think that's a conservative number that we should be able to achieve kind of all day. Okay. Say, if we can go back one, I know there's a rush to move. Let's say you pick up another like 1% or 2% from acquired growth. So I think that if we said, do you think you can get sort of 4% -ish percent top line growth? I think the answer is yes, we do. Lever that through the P and L, mindful of cash flow and I think you can put numbers together that you say are kind of super interesting from our point of view. Without us having like swing for the fences and be crazy, without us having to abandon shareholder friendly. And so this kind of goes to where I started. Feel pretty good about the business. I think we have a very sort of easy approach to the business that builds on our strengths. I think we've got our business under control. I think that the team we have now is pretty much no drama, let's just get the stuff done. I got a Board who is supportive. We got financials that without struggling too hard are I think very attractive. And we got retailers who don't hate us. We got shareholders who don't hate us. It's a pretty nice place to be right now in a world that looks a little more friendly than it has in a while. So I think that that's kind of my view of the world and it's very honest, is from my point anyway. So you're up. All right. Thank you, Jim. Good morning, everyone. So looking out on the audience, I see a lot of here here in Lubbock, Florida. I know a lot of people travel from the Northeast, so appreciate you making it down here. As Jim pointed out, we have a seasoned experienced team. So I've only been in this role for about 10 months, but I've been with the company for going on 16 years now. And most of those years, we had really good years, but I have seen some ups and downs, which makes you appreciate when things are going well. And when you look at not only the internal alignment we have right now on the operating side, but also more of the macroeconomic factors, whether it's consumer confidence, whether you're talking about gasoline prices or disposable income, all that's looking really favorable right now. So it does make you appreciate, hopefully the good times as we look ahead to 2015. And also reflecting back on the last 2 years, it's not as easy as it used to be when brick and mortar stores were being put up in huge numbers year after year after year and 7% or 8% or 9% organic growth wouldn't be unusual in early 2000s. And at this point, we have to work a lot harder for results. But when we look at the last 2 years and what we've been able to do and the bullishness we have going into 2015 here, we feel really good about that. So it does make you appreciate the good times. So as King pointed out and as we talked about on the earnings call a couple of weeks ago, you're not going to hear anything revolutionary for me today. For the most part, I'm going to recap our guidance, talk a little bit about our commodity philosophy as well as interest rate philosophy. And then we'll talk a little bit about uses of cash and leverage as well. So I'm starting here with the same slide that Jim referenced earlier with the 2015 outlook numbers added on top of those. So as Jim referenced a lot of our progress over last 2 years whether we're talking about gross margin rate, which leads to EPS growth, due to a lot of collaboration by the team, it was due to a little bit of pricing, it was due to more effective trade programs by our sales force, more thoughtful work around the value equation by our marketers, more effective work by purchasing when it came to our supply arrangements. So as a result, we've been able to grow our gross margin rate a couple of 100 basis points over the last 2 years. And accordingly, EPS growth has come from $201,000,000 to $3.29 Again, we feel really good about that. When you think about 2015, however, we are taking a bit of a pause on our improvement in gross margin rate through a couple of reasons. We are taking price increases in certain categories. We have targeted price decreases in other categories that more or less get us to 2015. And while we do have important supply chain projects this year that are contributing to our margin for 2015, we also have some commodity headwinds, which seem a little bit unusual given the focus on oil right now. But we do have some specific headwinds as well as distribution headwinds that on a net basis we think gross margin rate should come in about flat for 20 15. Having said that, looking ahead to 2016, we still expect to make slow and steady improvement over time on our gross margin rate with an aspirational goal of 40% over time. Thinking about leverage, you can see how that number has dropped from 12% down to 14% as we generate a lot of operating flow and generate a lot more EBITDA over the last few years. Thinking about 2015, the number we have here on the slide is 2.5 times. That actually could be a little bit light based on some of the M and A activity that is currently in play. And that number could be as high as 2.6x or 2.7x by the end of the year. But again nothing of concern to us. And another reason why that is up year over year, when we reflect back on 2014, we had about $50,000,000 in cash return to shareholders whether it was through a special one time dividend that we executed in the Q4 as well share repurchases during the year. Again, on an aggregate number, it was about $250,000,000 more than a normal run rate. So when you look at 2014, that's the reason for the big spike up. Playing not to have similar return of cash in 2015 is why the numbers dropped back down. And that number essentially assumes our annual dividend as well as some share repurchase activity during the year. Just as an FYI, in the Q1, we bought back about 15 top line and the guidance of 4% to 5% for the year, 3% of that is from M and A, largely due to the 4 deals we've identified here on this page. And an EPS point of view, on a net basis again, and we've said this a couple of calls ago, we expect EPS to be essentially flat for the year. 3 of these will be accretive, 1 will be dilutive. So on a net basis for 2015, call it flat. However, there is positive cash flow and looking ahead to 20 16, these will be EPS accretive as well. In addition to these four deals, I want to point out we've also consummated a couple of smaller deals in the growing media space that were disclosed in our last Q. And looking ahead to the end of this next quarter, we expect to close a couple of more growing media deals. So call it 4 deals with an aggregate number of about $50,000,000 of capital. And we think these are really important for our business for a couple of reasons. In addition to the additional production capacity, it gives us more distribution points. More distribution points means we should be able to reduce our distribution expense and also provide better service to our retailers and our consumers. So we think that's really important and we're feeling very bullish about those deals that we've been able to identify and execute. The other one in the box I want to talk about specifically and this is one that Jim had I think and our opportunities in that particular space. So at this point, we do have a definitive agreement with a company in this space, indoor gardening and hydroponics. The purchase price is approximately $130,000,000 We think annual revenues will be around $40,000,000 a year. It should be gross margin accretive to our business. It will be EPS dilutive for the balance of 2015 and also 2016 will again be accretive in 2017. But from a cash flow perspective, it will be neutral in year 1. And again, given the fast growing business, the high margins, there are a lot of room or a lot of reasons to be optimistic about this business in the long run. So more to come. At this point, we don't think it's appropriate to go into any further detail, but we have a definitive agreement. We expect to close by the end of the quarter and we have our 2Q earnings call. We'll be able to fill in a lot more of the details around this particular deal. So predictability, Tim and I have gotten a lot of questions about commodities and the drop of oil over the last 6 months from over $100 to roughly $50 and what that can mean to our guidance and our plans for 2015. And while it may not be obvious to people not that familiar with our company, it really should not have a big impact on our current year results. Reason why is on both fuel and urea, we're typically about 70% hedged at the end of September going into the following year. And it's important to understand that on urea we have purchased not purchase accounting, we have hedge accounting. And as a result of that, it does minimize some of the earnings volatility within a year as you plan ahead to the next one. On diesel and gasoline, we do not have hedge accounting. So it could create a little more earnings volatility in the current year as we look ahead. So one reason why we're a little bit reluctant to get too far ahead until we get towards the end of the fiscal year. And the other reason is it's difficult to predict price is going to go up prices are going to go down. So we like being about 70% hedged on both of those inputs by the time we get to the end of the fiscal year. However, given the drop in oil and impact on diesel and gasoline, we are being a bit more aggressive than we have been in a typical year. We're about 33% locked on our 20 16 fuel purchases at this point and our plan is to follow glide path over the balance of 2015. So we'll still be about 70% hedged by the time we get to the end of the fiscal year. The other reason to put this slide up here is I'll give you a little more insight in what our commodity inputs look like. We get a lot of questions around urea and I think it's because it's somewhat of a unique input to us that it's easily tracked. But urea really is only about 3% to 4% of our total cost to get sold at this point. So given that, I think sometimes it's a little bit overblown the expectations about what changes in urea prices might mean for our business. But I think it's also important to point out that bark, peat and other which are really our growing media and mulch inputs are about twice the size of urea. And when Jim talked about looking at peat acquisitions or extending excuse me, extending partnerships or expanding into other long term supply agreements. That's one reason why we're really focused on these particular inputs is it's a growing piece of our business and there have been some supply and demand challenges over the last couple of key input for us, not to minimize urea and not to minimize fuel, but just to highlight that that is something that you might be a little bit less familiar with. The other thing I wanted to point out is when we think about our hedging philosophy, it's not just about commodities. It also includes our interest rate environment and it would include our FX environment as well, although it really has a very minimal impact on our P and L, FX that is. So on interest rates in particular, we're about 70% hedged on a fixed to floating basis. And we think that's again a very appropriate place to be interest rates at or near historic lows. And again you can see there's a theme here that we like the predictability. We like to be about 70% hedged at any particular commodity or interest rate. And that also gives us the ability environment improves. The other thing I'd point out is our environment improves. The other thing I'd point out is our interest rates are down about 0.5 point this year versus in January 2014 a $200,000,000 tranche of bonds that were priced at about 7.25%. Similarly, we have another $200,000,000 tranche of bonds that are callable early in December 2015 and those are priced at 6.5.8. If those were to be called early, we would expect to see an earnings benefit of a slight amount again heading into fiscal 2016. So switching to balance sheet and cash flow and leverage, we've often talked over the last couple of years about a philosophy of 1 third, 2 thirds. So 1 third investment back in the business whether it's CapEx or M and A and 2 thirds of our cash being returned to shareholders through either share repurchases or dividends, whether annual dividends or special dividends. Our philosophy has evolved largely because the market for acquisitions has improved and we're really interested in a lot of unique opportunities especially in the hydroponic right now. This slide says our average annual M and A is $100,000,000 to $125,000,000 That is really more of a long term planning assumption. When you look back at 2014, the money that we spent on Tomcat and Fafard was about $125,000,000 But when you look at 2015, the M and A that we will spend this year is more so in a range that's approaching $200,000,000 So more on a long term thought process, I think $100,000,000 to $125,000,000 is more so where we plan to be. And a fifty-fifty split between internal uses of cash and returning cash to shareholders. Final page, just to reiterate our guidance that we've provided previously. So not any new numbers here, but for a little more context. So sales again up 4% to 5%, 3% from acquisitions. We do have a drag a bit from FX, which will be about a 1% drag on our sales, but we feel confident again at our 4% to 5% because we're feeling more bullish about our U. S. Business as well as the impact from the acquisition that outlined earlier. So 4% to 5% still seems like a very nice range for us. Gross margin rate I talked about earlier. Just to point out again, we did have a mark market adjustment from fuel in the Q1 of about $8,000,000 and that should normalize itself by the end of Q3 as we really ramp up shipments here in Q2 and Q3. SG and A, the 3% to 4% is largely acquisitive, are based on acquired SG and A. So not based on our existing but more so from the businesses that we're acquiring. Interest expense will be a bit favorable because of the bonds we called earlier that I mentioned. And then share count, we said 61.9 here. That could evolve again a bit based on our uses of cash over the balance of the year. So EPS $3.40 to $3.60 still feel confident in that range. We do get some questions about whether we're being overly conservative. And again, being in the shop for 10 months, I don't think there's a lot of glory in February to try to overpromise and potentially under deliver. I don't expect that to be the case. But I think until we have really good visibility on POS as we get to the next earnings call and even to Memorial Day, I think at that point that's usually the time of the year that we can re evaluate where we are. Until that point, I think we're feeling comfortable with $340,000,000 to $360,000,000 Having said that, I'm going to introduce Mike Lukemire in a minute who just like you don't want an aggressive CFO, I don't think you want a conservative business leader or sales leader and Mike certainly isn't that. So a couple of words about Mike before I have him come to the stage. Mike's been here for a long time. I've been here 16 years and I can tell you that the operating team at this point is more engaged and more focused and more open and transparent with each other. The dialogue is better. People are feeling empowered and Mike is holding the team accountable. So I'm really encouraged by what I've seen. I actually really debate with Luke sometimes. I think we end up at a better place. I think sometimes Jim Foster that makes a lot of fun too. But I think you should be very encouraged by Mike's leadership. And I think at this point, I'll ask him to come to stage and I'll look forward to seeing you on the store walk shortly. Thank you. Thank you, Randy. I think he said that because on every one of my slides, they got the word don't over promise. So I've been here 20 years. I love this company. And I'm not going to take a whole lot of time because I really want to hear you to hear from my team. I'm an Immersion guy. My philosophy is to get the right people in the right job, engage in the business and hold them accountable. And so I've been doing that with North America. When I was in sales, this is my old stomping ground here down in Florida. And I was a non sales guy. So I came down and said, oh, you don't know anything about sales. I said, okay. So I had 65 territories. I walked them off. I worked in every territory. I counseled and I learned a lot. And I think the philosophy of the company as being COO is I want people to immerse in the business, get engaged. And so all these layers that we had were allowing people not to engage in the business. And I think what we're finding now is now you're understanding the business, you understand how it all works together. And if we said we were developing general managers, then that happens because understand distribution, you understand sales, you understand marketing and you make better decisions as an organization. So my first slide here is about our team. Lots of direct reports. When you have the right people, we've had success in North America. It's the team that I'm expanding on. So now I've added Hawthorne Group, International and SLS. And so today we're going to talk about North America, which is really 80% of our sales and profit. But there's not a whole lot I can do in 2015 because the team is on it and they're going to tell you about it and you're going to see it. I'm going to go immerse with and it follows the same philosophy with SLS International and Hawthorne. So you're going to see common themes. But my role as a leader is to enable people. I'll call myself a Serbian leader. It's to enable people, give them processes and let them go. And then with Jim and I, interacting and the entire leadership team, we're very quick on decisions. 8 o'clock you make yourself available. Whoever wants to come, go. If you have good plans, you make decisions and you move on. And so we are so much faster than we've been and I've been here 20 years and I was good at the bureaucracy. I created my own little kingdom. All of that is gone. And so it's an opportunity for us to get there a lot faster and it's much more enjoyable and there's a lot of trust. So there is a lot of debate and banter. So I want to say we're all Pollyanna holding hands. But when we decide, we go. And I think this is probably the most enjoyable portion and being here 20 years and I'm looking forward. The conservative side, I'm pretty optimistic about where we're going. We started a process and I want to get you familiar with the process because it applies to all of our businesses as we go forward. We started working with Doctor. Porter who was on our Board and a strategy leader from Harvard looking at our business. And we're really looking at it through 3 lenses: grow the core and extend our reach and re event. So grow the core the 1%, 2%. So when we look at every business, we'd say how do we make it better. And so I'm going to take you through those and I'm going to focus here on North America. We're going to grow the core. Traditionally, we would talk to you about 3 businesses and those three businesses would be like lawns, controls. Well, fundamentally, we're in 14 businesses. We're going back to basics and fundamentals and say, do we really understand each of those businesses well enough then leverage up on brands, supply chain and relationships and take those synergies and drive value. So we're comparing a lawns fertilizer to a growable, growables gets us into new categories, attracts new consumers. Do we really understand who we're competing with? And so that is fundamentally different than how we been doing it. And I want to stress that because you'll see those themes come out today. As we look to growing the core, we broke it down into 5 areas: quality and innovation, channel diversity, design products for value, effective messaging and customer relationships. I want to talk a little bit about each of them and you'll see examples today of those. Jim elaborated on quality, everything starts with quality. One of our core convictions about being good stewards of our brand, everything that we do has to start with that foundation. We lost sight of that. And so that promise cannot be broken. We're putting things in place. Dave with the marketers we love Home Depot, Lowe's, Walmart, we love all these guys. It's really not like we're going to different channels. It's really how do we grow the category. There are consumers that shop in different channels. Do we have products that are relevant for those consumers? And so we need to grow those categories. We need to expand. Robles is a great example on selling it on e commerce, Internet and for all retailers to grow and not just say we're designing products for the Home Depot, Lowe's and Walmart only for that consumer. We have to be outside of that. So thinking differently is very key for us. Design for value. Jim talked about spectrum look at our ortho brands, we lost sight of what is designed for value. What is the consumer willing to pay for? And it's not like going, we'll drop the price, but make sure that the value is there. We put too much expensive stuff that the consumer wasn't willing to pay for. So we were going to design it right. When I was in supply chain, I used to say I love when marketing would come out with a new product it would be the next supply chain savings. How about designing it right, getting the value right, meeting the consumer promise and doing it right the first time. Again, Dave Swihart, leading R and D and the marketers working together to get the right value. Effective messaging. There's 2 things that I think about. Jim talked about when we spent a lot of money. I actually think we failed in supporting spending more advertising because the relevancy of the message, which I think we're you'll see today from Patty and Adam on how much better we are on that is improved, but also the complete campaign. You can't advertise and not have it on the shelf. You can't advertise that the promotion doesn't follow or the tagging or you cannot work with the retailers to get it off the shelf. And so we didn't do a really good job with that. And I think what you're going to see is by immersion and complete campaigns, this team is going to get greater lift. Comcast is a great example, advertised a lot, got a lot more placement, 30% lift. It's pretty basic. We have brands that are over 100 years old. We also have got to continually make sure the message is irrelevant. The old picket fence and I think Adam will talk about that versus today's consumer. I think you're going to see some of those changes. Consumer partnerships. When I went into sales, it was everything was about the line review. We meet with the retailers at the beginning of the year and we would talk about the products for the year get ready for the season. And so we just really were reacting. Today, we're going 2 to 3 years out, strategic partnerships, bringing them in on R and D, bringing them in on supply chain, collaborating. And these are all activities and the team will talk a little bit more about this, but very key to changing how we go to market. Exactly. And it's all there. But if you're siloed, we weren't picking those up. The enemy was us. We weren't operating with 1 team. And I can't stress that and I'm looking forward to actually after you go out and experience today if you see that difference. His behavior is better than words. So I'm a more of a behavior guy. So Jim says a year from now, well, if I'm not here then the behaviors didn't really work. So but I've been here 20 years and I know this works. I've seen it in this company. And when we're focused, we do and we're working together, we can do a lot of things. The other way to get some extra points is extend our reach. Comcast is a prime example of that, where we talked about the growth, leveraging the advertising, leveraging the store presence. We also are going to see and if you've been out there looking at the cleaner outdoor cleaner products partnership with Church and Delight using the OxiClean. You're going to see that in the marketplace this year in the Pacific Northwest. You should see that in Florida. So we're going to see that in the stores today, Mike. So we're looking at those. There's other extensions that we're looking at and partnerships. Dave will talk about some relationships with our key suppliers to get more R and D and more innovation. And then What if you could have a device that would tell you when to water, when to feed? What if from that you would have Scotts Lawn Service come in and service that or take care of that for you. That technology which you're seeing with Nested and all them exists today. Why not for lawn and garden? And I'm going to tease you a little bit. We have a team that's working on those type of concepts of reinventing, how we communicate with consumer, how we're going to change our paradigm. And it's certainly more than just dirt and grass seed and fur. And finally, can't forget we can also reinvent our product experience. New grass seed which could actually be less mowing, less pesticides on the ground. Those are all possible opportunities for us. Again, gone are the old days. I see and I reiterated what Randy has promised on the slides here. I'm really excited about where we're going. I'm more optimistic than this slide. I hope you see that today. I'll be interested in your feedback as you go out and visit that and see what's happening. But I think better days are ahead for Scotts Miracle Gro. And now I want to turn the podium over to Adam Hanff, which Jim King elaborately introduced as our inspiration, creative guru and Patty Ziegler, who leads our marketing efforts. Without Adam, I think a lot of these things wouldn't be happening now. Thank you, Mike. Thank you. I think we'll do it from down here. Hello, everybody. When Jim asked me to take a more active role in the company beyond just the Board role. He's got me, Mike. I got it. I'll just say move the slide. So when Jim asked me to do that, it was really quite thrilling for me because as Jim pointed out, I go way back with the company, I worked with cars, probably more than 25 years actually. And a lot of things have changed since then, but there's a lot that hasn't been. Part of my role here is basically to connect the past, the present and the future. I'm going to stay on the slide for a minute and just talk about sort of what my role is here. When you look at consumer trends, which is what I do and consumer insights, which is where I spent my career, I think we're really at a place where this business should really grow and Jim started off by saying we're in a good place. And I think my role is to help us get in even to a better place because the trends are really positive for this business. If you look at the values that people have, if you look at what young people want, if you look at things that are happening experientially in other categories, like yoga so forth, all those things point in the right direction for us. When researchers ask people, would you rather spend money on product or on experience? And what do people remember when psychologists ask people? It's not the things they bought with the money. It's the trips and the experiences they had with the money. And we really need to move more from being just in the product business into the experience business. And I think we will see some of the work that we're doing and where we're and we're talking about really moving us to the experience business. And if we can evoke those emotions in people, when they look at our bags on the shelf, they think about the experiences and not the tomato and the relationships they had with the tomato and with the salad and with cooking, which we is a huge trend. And I think we could really move our brand to a much more emotional place in people's lives and a much less transactional place in people's lives. That's really a big part of what I think we can accomplish here. So if you can go to the next slide, Mike talked about reinventing lawn and garden. And what that really means is a lot of things. It means the emotional, the experiential piece, it means bringing technology into this as Mike teased you with a lot of the work I do is with advising startup companies. And I think bringing what's happening in technology and connectivity into the garden is really the future of what we're doing because that experience I talked about and the smartphone that we all have in our hands come together and clearly take this brand and this company to the next level. Grow the core, you heard that a lot today. The core is in one sense, let's call it the by agri generation. You watch 60 Minutes and that's our core, that's the baby boomer, that's the mature market. And we have grow the core and extend our reach as separate. But I think we can't forget the fact that the baby boomer generation, our core, shares many of the values with the millennial generation. I mean, if you look at craft beer as Jim talked about, that's not just a millennial phenomenon, it's the baby boomer generation, my generation that's buying a lot of those craft beers and driving that. If you look at the automotive business, more baby boomers, people 55 to 64 are buying cars today than millennials are and Detroit is really having existential crisis about young people not really being interested in cars and that's why looking at the connected car, but that's a separate conversation. But the point is King was saying when he looked at the Miracle Gro spots, you'll see them in admitted. There's not really a lot of our target in those spots. You don't see a lot of older baby boomers in those spots. But when you look at car advertising, you don't see a lot of baby boomers either. You see it in drug advertising because that's clearly the target. But baby booms don't want to self identify as being the people in the Viagra commercials. They want to self identify as being the people in the Mercedes and BMW commercials and the mini commercials. And that's why you see a much younger, intentionally, strategically younger pass literally and figuratively to our Americans who are advertising. In terms of millennials, I think we know what the values of millennials are. They want authenticity. When I talked a few minutes ago about the trends being positive for our brand, they want authenticity. They want to work with their hands. They want to work with companies that they could believe in. This is a company that they can't believe in. I mean, we're going to be 150 years old soon. As you know there's a big family stake in the business, millennials and all consumers want companies that are transparent, that are run by people who share their values. So when we have doubled down what we stand for, I think there's a big story that remains to be told about what this company does in terms of recycling, in terms of putting back into the community, in terms of what we're doing in water conservation and understanding how to deal with drought and innovations that we're working on like every drop that's going to maximize water usage. These are things that consumers care about and I think we can do a better job and one of reasons I'm here to help inspire the team to really think not just about the product but about the company's relationships with consumer on a higher level and I think we can do some great work there. So innovate to inspire, inspire is a key word here. We can't just be in the get out and garden again business. We got to be in a business that makes gardening a much more inspirational and meaningful and substantial consequential activity for people. And leverage for efficiencies, we're in a lot of categories. You saw all the categories that Luke Meyer had there. And we think of the business that way and it's an important rigor and discipline to think of the business in those granular ways, the atomic units of the business. But from the consumer point of view, we're in one business. We have stuff in the garage and they go to the garage and they spend 2 hours on the weekend working with all our products together. So we're going to take some steps to see how we could leverage our product, put some of those products together, make our advertising more efficient and have more bang for the buck because you talked about A2S. We can we make our advertising 25% more efficient, more creative, more memorable, more inspirational. Our A to S automatically goes up without spending any more money. And that's another reason that I'm here to really help us work with better partners, get not just more efficiencies in the advertising, but more creativity in the advertising, elevate the message and really kind of get out of our comfort zone in a good way and try some new And I think you'll see that in the advertising which I'm going to show you. Okay. When we say white picket fence is gone, what we're not saying is that the suburbs are gone. In fact, the latest data I saw so that after a period of decline the suburbs are actually growing faster than the cities. Everybody's talking about urbanization, urbanization, the Manhattanization of the world and of America. But the suburbs are growing faster. But when young people, when millennials move to the suburbs, they're going to create a different suburbs and different kind of suburb than their baby boomer parents did. They're going to see the world differently. They want more walkable suburbs, It can be very different. And we have to make our products and we are relevant, again, not just to the core, but to the baby to the millennials who are moving into the suburbs. So I guess a couple of years ago before I was involved, there was a campaign called Get Growing, what was that campaign that didn't work? It's Grow Time. It's Grow Time, that one. So King said to me, some of you might have remembered it's Grow Time and it didn't work. And how is this different, because it's kind broadly in the lifestyle category. I think there are some really fundamental differences and you'll see them in the advertising. Its growth time was sort of a brand telling you in a turn with the way go out and do something, but it kind of stayed in the Garden. It didn't really connect the Garden to broader and more relevant, more culturally exciting things that are happening. So what we've done in this Life Star Pure campaign, you'll see that here is a 15 second commercial, it's all tied to that theme, is really Tate Gardening and connect it to values and beliefs and things that are happening outside our category. You'll see commercial that takes place in a little bistro. You'll see commercial in a little urban area with a younger person and an older person. You'll see commercials that speak to things people care about. Don't buy it in the supermarket, grow it in your backyard. So we're widening our aperture and putting gardening in a much more contemporary and relevant and modern setting in a way that people haven't thought about before and why don't we feel this bond? It tastes better when you grow. It tastes even better when you share it. It's not hard. It's doable. It's growable. Get going with Growables. Miracle Growth, life starts here. Success starts with the right connections. Introducing Miracle Gro with the feed universal feeder. Turn any host connection into a clever feeding system for a well fed garden. Miracle Gro. Life starts here. This is Timothy. He's finally getting his own bedroom, and the first thing in it will be something that grows almost as fast as he does. Miracle growth, life starts here. Hey. Good. How are you? Finding common ground is more than a phrase. It's the way we share the world. Miracle growth. Life starts here. This is Jennifer. Grove, life starts here. He says she's an undisciplined overwaterer. She claims he's a cruel underwater. With Miracle Gro Moisture Control Potting Mix, plants only get water when they need it, fight ended or shifted. Miracle Gro. Life starts here. Hannah's recipe for a successful bistro. Feed the garden all year long. Feed people all year long. I don't know. Hire kid waiters. Miracle, bro. Life starts here. We product into a lot of these spots too. So it's not like it's an artificial distinction between selling the activity, selling the category and also selling product. I think we put those together nicely and you can see, I don't know when the last time was that if ever that we had an indoor plant, indoor gardening and a Miracle Gro spot and anything this urban in this kind of contemporary. So we feel pretty good about it. So you heard about Tomcat's Deadmau5 theater. So what we did here basically was to say that this is a pretty crowded category. People spend a lot of money and over the years have built reasonable brands with very serious kind of scary stuff about how horrible and ugly rodents are. And we decided that we're going to take a more modern and contemporary approach and use the idea of efficacy take the efficacy that we have and execute it in a creative way. I mean this is a very creative campaign, gotten a lot of notoriety in a positive way in the ad trade. But when you think about it, it comes from a very simple idea. We kill more stuff. We kill more of the things you hate. And then we have some problems with what we do with it once you kill them. It shows how you can take a very strong efficacy message and deliver it in a very creative way. And again, as part of what we're trying to do here working with Patty and the team to bring in new resources, is we hired a very, very hot successful New York agency that's been mid century, midsize agency of the year the last 3 or 4 years. Barton Graff, they did a couple of Super Bowl commercials and we let them go. And as Jim said, feel edgy and I think we're really happy with the creative and the results. And also this is an example of a very well integrated digital campaign. We did partnership with some really with The Onion and some other good media properties and we had Tumblr blog and we pushed it out through other channels. So our content reached a lot of people beyond just the advertising. So it's a good example also of really tight integration. So why don't we still talk? Tomcat made kills up to 12 mice faster than decod. What will we do with all of these dead mice? Tomcat presents Deadmau5 Theater. Hey, Laurent Frick. Hey, Ignon. What's up with you? Funny you asked. I'm actually here to fill out your town. Well, we went to summer camp All right, cool. Let's go on to how can you follow that up, but we are. So this is a really important step for us. It's the first move from our core category for Scotts into something adjacent as we call it and that's cleaners. We think it's a place we have the right to be. The teams have told us that they expect our brand to be there, they welcome our brand to be there. But we need to do this in a way that is consistent with who we are as a company and what the brand stands for. And the brand really stands for love of lawn. So when we go into the cleaner business, we make a cleaner that is safer plant, safer grass that you could use freely. It's not going to screw your clothes either. So that is not just, oh, we're going to be check the box in the cleaner business. We're going to be in the cleaner business in a way that's really righteous and based on who we are as a brand, what we stand for. And also because we don't have cleaning credentials, we have lawn and guard credentials, we as part of our Church and Dwight partnership, we work with OxiClean. It's a great example of co branding of pulling the best of 2 properties together. It's right there in a nice big way on the package. It's in the advertising as well. And we think that this is a really good example of how we could leverage into new category. We're not fighting for shelf space and cannibalizing within our own world. We're in a new category. And we've got some great POS and we took Scotty, who has awareness and a lot of exposure. And it's a good example of when you have a spokesperson, how you could leverage them into a new category and really give us a lot more awareness than we would have if we didn't have that property to pull through into this new category. Woah, mister, what is that? Cleaner powered by Oxiclean. It's chlorine bleach free, so it's safe to use around grass and plants and makes quick work of feeding outdoor ducts and moss beds. That's great. Hi, great. Get Scott's new outdoor cleaner plus OptiClean, clean your outdoor space. From a and I'll turn this over to Patty in a second, because I'm probably past my time. But I think we need a lot of tools in our toolkit as a brand. We need to be able to speak on an emotional level and that register frequency with Miracle Gro and really get people that way and inspire them. When we have something that's competitively advantaged, no chlorine bleach, we need to be able to be really tough and strong and muscular and do competitive advertising against either a direct competitor or against a generic competitor. You'll see also going forward, we're not afraid to take on competitors whose products are inferior to ours and let consumers know we're better when we have strong advantages. So there's a lot of different ways that we're going to get the growth that everybody here has been talking about. And I think we feel pretty good about what we've got going this year. Great. So I'm just going to hit some of the digital highlights. And one of the first things we've been working on for the past couple of years years is actually reinventing all of our dotcom presences. So all of the websites have now been converted as of February 3, I think. And so we have new websites for all of our products, which are Trying to ensure that we are working towards usability and content and getting our consumers to the right content and creating longer and stronger engagements. One example of that is the Prowler tool, which is part of the Tomcat new website that we put up in the fall. And it has a tool which helps you pick the right product for you out of our line of products. And we're pretty excited that to see a completion rate with that app, which we haven't seen before in our previous lawn garden tools. Moving ahead on the grassutainment area, so Adam made me put that word up there. The lawn care app, Scott's mobile app, which all of you I know have phones. And if you go to the proper place, you can go ahead and download the new lawn care app. And this is the 1st time we're going to launch an app and really support it with paid promotion. And this app simplifies the lawn and garden process. And it also lets you pick the right experience for you. So you can have the best lawn on the block or one that's good enough. And this will tailor a use plan for you to help you improve your lawn and garden. So we're pretty excited to see this. And this has launched the promotion launch later this month. But so far, already with the downloads, we've seen a close to 50% engagement rate with consumers who, when you get to the first page, it asks you to build your lawn care plan. And we're seeing really strong pickup of that, which was our goal. And I'd just say it's obvious though to point out that this gives us a direct one to run relationship with consumers. This gives us the first party data that is really the Holy Grail in consumer marketing. We're not disintermediated by the retailer. The more people that download this app and the more we understand the behavior and the more we can connect with them and we get better data. So it's both an emotional commitment and it's also a big data play for us. So download the app, love it, make Patti look good, put in a review of how happy you are when you go ahead and see that later on today. Next thing we're going to talk about is how we're using influencers. So we're turning influencers in the marketplace into evangelists and helping drive stronger engagement with consumers. This woman here is Joy Cho. She is a design, interior and garden blogger, and we partnered and did a co owned page with her earlier at the end of last season. She's the most pinned human on Pinterest. She has over 14,000,000 followers. And what we've seen is a real strong conversion from consumers that engage through her portal into our brands, have longer engagement and more are more attracted to our content that is inspiration based, and we believe it's really converting in store. We also have done created our own talent. We promoted some of the homegrown talent like Jim Keneen, who's a lawn and garden architect in St. Petersburg, Florida, and his content is also popular within our consumers who are looking for more how to and deeper information. We also, of course, do Laurie March and some of our Major League Baseball players. But this year, the most exciting one we are adding to the mix is Gregg Biffle. So it's not just spring training season, it is NASCAR season with DAYTONA taking place later this weekend. And Greg Bissell is the partnership we have created with Roush Fenway Racing. And we're pretty excited about his on track performance, but also about what he can do for us digitally. So you go ahead and roll some of the footage about Craig. Hey, everyone. I'm so excited to be joining Scott's Miracle Gro team. It. It just looks fast. It just sticks here. So Greg is a DIY guy, and he's kind of known for that. So we're going to leverage his personality and his passionate fan base to drive deeper engagement, taking what we learned from the influencers and now trying it with a personality. So WhatsBuggingBiffle and drivebugsaway. Com are the places where that social media content will be resident. In my last slide and the most exciting thing you're going to see today when you get out in the stores is the bonus S product. And Dave, who comes up right at following us, is going to tell you all the magic of why this is fabulous. I'm going to tell you that it has a great new commercial and a pretty strong marketing plan, including some fabulous in store, which you will see today when you're out in the marketplace. So, bonus S, we're really proud of it. And go ahead and run that commercial so you can see what consumers in this market are going to see. We come on. The big day is here. Why are we here again? It's the first to get the new straws bonus. It's the most effective formula of a guarantee to clear a dollar weed, clover and dandelions while it be. It's the lawn care achievement of the century. And you're going to download the app and engage with some of our more relevant content. Look for some interesting promotion throughout the year. We're pretty proud of it. Thank you. Dave? Thanks, Matt. Good morning. I'm very excited to share with you all today a view of the current state of R and D and of innovation at Scotts Miracle Gro. My goals today are 1, My goals today are: 1, to provide you with a closer look at the changes we've made to the organization, to our approach to partnerships and to our approach to innovation number 2 is to highlight new and exciting product innovations and how these are core to us driving growth and number 3, to demonstrate how these improvements will not only help us grow the core, but also extend our reach. You've heard consistently throughout today's presentation that our product need to deliver against our brand promise. We like to say that and we truly believe that consumers should be delighted with every aspect of their experience with our products. And if they are, they'll be inspired to express themselves on their own piece of the earth. In order for us to deliver against this belief, I see there are 3 things that are absolutely critical. 1, we have to deepen collaboration One, we have to deepen collaboration within R and D, within R and D, marketing and sales and within R and D and our external partners. And I'm going to talk about those things today. We also feel like we have to continue to develop talent and the next generation of leadership and technical expertise to continue to be the market leader in our field. And finally, we need to develop the capability around finding a need and filling it. And finding a need and filling it is simply how we define innovation at SCOTT. We need to match needs with technologies, use that match to generate ideas, convert those ideas into concepts and use that to drive product innovation. So I'm going to share with you a little bit how we've reinvented the R and D organization structurally at Scotts Miracle Groove. We've gone from a structure on the left side with the team focused functionally on formulations in biology that are not directly accountable for product development to more focused, smaller product development teams who are directly aligned with our marketing team, who are also directly accountable for supporting those 14 business segments that Mike and Adam and Patty both referenced in their earlier presentations. And they're accountable to deliver results against creating concepts and product development in each of those 14 spaces, making sure that there's good alignment across the organization and using that to drive The structure that we put in place is sound and we're seeing results. We've also created frameworks to engage our key suppliers and leverage their know how as an extension of our know how Miracle Groove. We're greatly opening our aperture to these new to these suppliers and we're asking them to bring us their capability and their technology. We broadly shared with our suppliers over 250 set of our consumer needs and have encouraged them and actually are using this as part of our vendor scorecard to bring ideas to Scotts that will help us grow our business and their business. As one example, we're working with a partner who has over a $2,000,000,000 R and D spend and has over 12,000 scientists within their company. So clearly that's not something that we have at Scott's. But by leveraging partners like that, it brings a whole new book of know how into our company to help us meet needs and provide new products. We've also And lastly, we found great synergies through acquisitions and extensions of our know how. We've got excellent know how extensions through the preferred acquisition through their knowledge of PEAT, manufacturing PEAT, and how to build professional quality growing media products. Tomcat is another example where we're leveraging the technology and the capability at Tomcat to extend our know how in active ingredient formulations and in durable products that are co created with our partners that show up in our innovation process. We're also attaining different results through collaboration and focus. We've created a process to assure that new concepts are aligned with the leadership team of the Scotts Miracle Gro Company. We've created a process to assure that the most valuable projects are funded and prioritized. And we've created a process to assure we are thoughtful and productive and not pet projects focused. We've also moved from a shoot to a team aligned funnel as we approach new product development. And we're delivering a sustainable process in the works. So by having this discipline, we've developed a broader outlook on how we look at new product development. We're looking out over 5 years. We have an ability to look at each of our 14 business segments that we discussed with thoughtful innovation concepts and make sure we're populating each of those 14 segments with meaningful innovation that's going to help us grow and extend ourselves in each of those segments. And we brought in an ability now to plan and support these products because we have a good strategic 5 year plan with aligned media and optimized product launch sequencing. We feel really good about the 5 year outlook that we're creating. We've got a lot of work to do to build those segments out over the next 5 years, but we feel like we're providing a foundation to grow the core and extend our reach with this work. We're launching products in 2015 that will grow the core and extend our reach. Jim mentioned this that 4 years ago, we highlighted our plans to launch MAT 28, which was going to be the largest innovation in Wean Feed history. MAT 28 didn't pan out, but we persisted in our efforts to enhance the Weed and Feed category and we've got 2 excellent new innovations and product enhancements in BoneAssets and in Turf Builder Weed and Feed. Today, we'll see firsthand the power of our focus on brand stewardship and product performance improvement in the Weed and Feed category. We've also extended our reach to new categories with the Scotch Cleaners and to reach new consumers with Scotts Nature's Care, which we'll talk more about and you'll see in the stores today. First product I want to talk about in more detail is Scotch Bono Set. We're growing the core by bringing new innovation to the Southern Weed and Feed segment that hasn't seen innovation in over 50 years. Our exclusive technology improved dollar weed efficacy by over 50%. Our exclusive technology controls 80 percent. Our exclusive technology controls 82% more weed than the competition in our prior product. And our exclusive technology clears out weeds for a full 2 months. This is a national launch in 2015 as we ran 2 pest markets in 2014 and saw double digit POS growth in each of those markets. This is going to be a big deal. You'll see how big in the stores today. I also want to talk about Scott's Weed and Feed. Scott's invented the Weed and Feed category in 1947. This product is one of our largest gross margin contributors we have in our portfolio. This product was not delivering against the brand promise and the delightful experience that our consumers expect because it was not efficacious. In 2015, we're launching new technology in 2 test markets and we'll follow that with a national launch in 2016. This new exclusive technology delivers 2 times the efficacy on dandelion and clover and this new exclusive technology grips and kills even the smallest weed. I'm going to show a video today to demonstrate to you how effective this product is and now I'd like to roll that clip. These are applied at the same rate, but just notice the amount of particles in our new technology compared to the and our prior products at the same application rate. This is the power of small particles, lightweight particles sticking to every leaf of the and every small leaf of every weed and clearing out weeds providing 2x more efficacy. We think it's we know it's very powerful. We're super excited to get this launched and we believe that this will further delight the consumer with every aspect of their experience with our Weed and Feed portfolio. Other examples of how we're growing the core include LiquiFeed Universal where you saw a spot with Patty and Adam's presentation. LiquiFeed Universal allows the consumer to use LiquiFeed in their garden, in their lawn, on their plants and while continuing to use the water devices they love. LiquiFeed Universal, although it's small and compact, has a very unique design that meters Liquofeed fertilizer into the water stream independent of water pressure and water flow. So we adjust our flow of our nutrients directly with water pressure and water flow so that the consumer always gets the exact mix of feeding that's needed to provide the best growth for their plant. You'll see this prominently displayed in stores today and we're really excited about this as a new launch in 20 15. In 2016, we're completely relaunching the garden soil category. This will be one of our largest launches in recent history. We're very excited about the new launch of garden soil and bringing new value into this category. We've also in 2015 are launching an extendable wand on Roundup. This extendable wand allows consumers to use Roundup in their gardens around plants safely without causing damage to their plants because it has a cone that protects from over spray as well as the extendable wand allows you to apply the product directly at ground level onto the weed. You'll see this out in the hallway and you'll also see it in stores today. We've got new and aggressive claims on BugBee Gone, which you'll notice on the wall to my left. These claims are aggressive. They call out things that we typically hadn't called out before and we're really leveraging the fact that we have the best actives that allow us to make these claims, but we're now just being aggressive on how we make claims and drive value. In addition to that, we've taken aggressive pricing on BugBeeGone and we expect big results in 2015. We're launching a new ready to spray for St. Augustine grass in 2015 and we're adding new extensions to continue to grow our SNAP business. Other example of how we're extending our reach is our national launch of Nature's Care in 2015. You'll see this today in stores. Nature's Care extends Miracle Gro brand relevance with core and existing consumers. Nature's Care test markets in 2014 significantly outperformed non organic grown food. You'll see this unique packaging prominently displayed in stores today. You'll see how well it stands out. You'll see the simple messaging on each of the packages and you'll see how we're really targeting a new segment of our consumer with this product. Other examples of how we're extending our reach include Growables. Growables allows us to reach younger consumers with simple steps to growing vegetables and herbs with proven results. You saw Growables in one of the shots that we saw in Patty and Adam's presentation. Tomcat, we mentioned that the or we saw the advertising of Tomcat. Tomcat POS has been up double digits not only in the fall, but every week of this fiscal year, Tomcat's been up double digits over prior year. We're very excited about the benefit we're seeing and the growth opportunity this spring. Indoor aerosols, we're targeting the indoor insect category in a big way and indoor aerosols are our first foray to really get aggressive in indoor insects. You'll see that today. You'll see that out in the hallway. We're very excited about that launch. Indoor Plant Foods, we mentioned earlier, we're targeting indoor and urban gardening. Indoor Plant Food was a new launch in 2014 and we're extending it in 2015 to be more and more aggressive in indoor and urban gardening and to attract more consumers. And lastly, we're bringing efficacious and simple solutions to the animal So I hope you've seen today how we're reinventing R and D and innovation at Scotts Miracle Gro. As I stated before, we believe that consumers should be delighted with every aspect of their experience with our products. And if they are, they'll be inspired to express themselves on their own piece of the earth. And we believe that delivering against this vision will help us grow the core and extend our reach. And with that, I'd like to conclude and turn it over to Jim King. Thanks, Dave. We're going to go out and visit the stores in just a few moments. I'll explain the logistics on that in a moment. In terms of the logistics for the people who are on the webcast, we're going to discontinue the webcast at this point. Our goal is to be back up to do a Q and A session at 12:15. If we're running behind, we'll post message on the website and give you an update on what that time might be. It shouldn't be any later than 12:30, but our goal is to get up and running at 12:15. So at this point, we're disconnecting the webcast. We're done with that. Okay. So before we go out into this All right. We're going to start a Q and A session. If you have a question, let's give the mic to you because we're back on a webcast live and I know there's a couple dozen people dialed in for that. So I guess I'll ask a question based on what we were hearing from people on the bus and turn it over to Jim and Randy to elaborate just a little bit. Should we all just sit there and like We could. Because no otherwise we have to stand here like looking like a bunch of numskull. Kind of goofy chairs. If you can elaborate just a little bit, we had some questions on our bus about the transaction Randy that you talked about this morning, the economics of that a little bit more in terms of multiple paid and the payback on when that deal becomes accretive and why? Sure. So we're still finalizing numbers. We have a definitive agreement, but again nothing's been closed. The anticipated timeline for that is probably in the next 4 to 6 weeks. At this point based on the anticipated purchase price and the current earnings of that business, we're paying about 12 times EBITDA. Once we integrate the deal, get past the deal costs and you go forward about 18 months at that point, it would probably be about 10 times where we expect earnings to be at that point in time. So that clarifies a little bit based on Well, we talked about it in sort of my bus. The way we're doing the deal is and I'm not sure what we'll have to disclose, but there's a contingent payment that I think deals with this. So I don't think that actually multiple is that high. But because if the earnings aren't there in the 1st year, then there's a contingent payment that won't get paid. That's significant. Sure. Hi. I have a couple of questions. First of all, you actually call the bonds at the end of the year, how much would that go the savings from that offset dilution you see from this pending acquisition? Well, if we call the bonds early would be December 15. Relative breakeven price on that right now is about 6.1%. I think the current market right now is about 5.5. So at this point, we're continuing to monitor. Our plans would likely be to call it once we get to that point, but we don't feel need to do that right now. When we do that, we'll probably issue another bond to replace it with a much longer tenure. But also not a need to do that right now, particularly enough borrowing capacity in our line of credit that that wouldn't be immediately necessary. So that I think Connie addresses your question about the bond. Your question about dilution related to that maybe if you could clarify for me? Well, if the acquisition in 2016 is the one you're making now, if it's dilutive to 20 16 earnings and you've got the savings if you call bonds for next year do they Do they wash more or less? Yes. When we say dilutive, we're not talking about enormous numbers. We're talking about a few pennies for next year. So when we come up with some of that material I would basically say in regard to what we're talking about in dilution on that deal. While it is true and what he just said, a couple of pennies is true, you're for sure trying to be more precise than I think. What we deal with every day on $5,000,000 issues, this is like a lot, opportunities with retailers to get some stuff done. I just think that in the context of that, if all we knew we had an issue was with a $0.02 issue, I think we'd say happy days. Because just remember, we sort of have a hierarchy with under promise, where we've got our own internal numbers. We then have sort of our performance numbers, which are somewhat more lower than our so our highest numbers are our internal numbers. And these aren't stretch numbers. This is actually our budget. But our then we below that is our performance numbers, which we agree with the Board, okay? And then below that is the numbers that we talked to you all about. So we're trying to do is not get over excited about things. So I think in the context of a couple of sense of dilution, I just view it as kind of I also had a question and a comment made at the beginning of the presentation was all the management now is on a common pay structure. So what's changed? And what are the incentives based on, I guess? So the historical approach has been to be much more siloed in approach for the way incentive plans are designed. What we've moved to this year or actually end of last year, Luke's prompting was just let's just socialize everyone in North America on one plan for the most part rather than having everybody fight over resources. And that's gone so well that now we said, well, let's just combine everybody in Marysville, whether it's a total company type of plan or North America plan and make it a lot more simple and collaborative. So I think that must be what we talked about. I think we continue to try to innovate. And Michelle chairs our comp and org committee, Denise, who's our Head of Global HR, I think we try to spend a lot of time. We have a much bigger piece of sort of qualitative discretionary and incentive today than we've ever had, which puts the onus on us to actually evaluate people and see how they're contributing to the organization, what we think of them for the future, etcetera. But I think we continue to try to innovate to drive performance. I think we are still in the, my view, baby steps in incentive. I think that but I have a Chairman of I think the way the Street thinks about it makes me nervous as hell, largely because this is a business where when we have these multi year incentive plans where performance is a part which we have today, one bad year can take you out of money in a way that almost can be impossible to get back to. So this is something that I believe in pay for performance. But we, I think, still have a pretty simple pay plan. And I think we play with a lot of stuff. It's kind of one of those things where Denise and Dave and I used to kind of come up with every year with changes to the incentive plan. I think that to some extent it became a little bit disorienting to the associate base where we're changing the kind of components of pay every year. So I think we're trying to be consistent, but we're also trying to drive performance into it. We just have to figure out what that criteria is. So I'm a believer in it. It's just in a highly seasonal weather dependent business, it is very easy. And having been there, where people figure they've lost their entire like especially long term. When you look in the eyes of somebody and they actually don't believe they can get there, it loses all incentive value. You know what I mean? Once they believe it's blown, then they're not going to really chase it anymore. And so I think we saw that back after the financial crisis where we had that $2 bet that Dave had. So they're talking about everybody's on the same plan. I know Mike likes that. I like it less, to be honest. But I think management team is happy. People seem to be motivated off of it. I think about it as I'm holding them accountable for the process. I want to move money to invest on growth. We have it broken out on their sales growth. But when we move money around to do the right thing for the business, we don't want to get hung up because it affects somebody's incentive plan. We wanted to actually is paying for it. And so everybody is on the same team. So it's performance driven, but it's more so that where are we going to move the money to invest. When Jim put $40,000,000 up or $50,000,000 if something's not working, I'll move it somewhere else, make the investment, get to the growth quicker versus waiting for an incentive plan to pay out, waste money, have bureaucracy in our process. So how we think about that is how we're actually internally managing that we know what's going on basically every day. I mean Mike's probably been the best guy that I've seen at Scott's on sort of team management from his days in supply chain, GTO, the global technology and ops side and then in sales. So I'm more than happy to sort of give them runway on this. I do think Michelle and I would like to and Denise to try to build more long term multiyear performance in. Okay. Two questions. I guess the first on organic. So during the tours we saw soil, the planting mix as well. Can you just talk about the opportunities to grow into other categories as well? What your thoughts are? Other categories of I mean within fertilizer or just within the categories that you're in right now, I think organics is maybe 2% to 3% of sales, but where do you see that potentially growing? Maybe somebody can be more specific on that. I have no idea. I think that what we know is it's a off a small base, it's a relatively faster growing category. Where we see that growth, it's not so much in pesticides, it's much more in nutrients and soils. I think there's a craft element to that. And in Hawthorne, there's a whole non Miracle Gro, not Scotts crap labels they're using. In addition, the Miracle Gro line is both the organic choice and the Nature's Care are important. Pest, I don't think people have really figured it out yet to be honest. So this is I think it's something you go to like the depot we were in, but it's the same in all the main stores. They're probably dedicating more space to it than it would deserve to be based on just POS and margin for them. I mean, I don't know, Phil, I think you've got to say that's true. Because I think people believe that it's something that's going to happen. And I think in some areas, it is really is happening. I think that tends to be where you see the big the pallets, where you see pallet displays of something or freestanding displays. They believe and it's if it didn't have the POS you wouldn't get them. On the pest control products, it's an open question. I think people continue to try. But in a market like this, you've got to have pest control. Because if you don't use pest control, if you don't have either you're doing it yourself or a professional coming in, you're going to have a cockroach problem here. And so, I'm just not sure there's a ton people using natural products for cockroach control in the state of Florida. And then the other questions maybe talk a little bit Mike, anything you'd add on that? I think you've not just used that right. You talked about channel diversity. So I was just wondering if you can elaborate more on the e commerce kind of opportunity over, let's say, the next few years in terms of does this encompass all different categories? Are you talking about lower weight categories? And how does that in terms of cannibalizing from the in store presence where that seems be where you get that incremental purchase when you get the customer into the Home Depot, Lowe's or Walmart that we saw today? Well, on the in store presence, you and I were having this conversation. You get the balance of both because some cases you bring in the consumer to the store when they're doing their research to buy the product and they may have to get there. So actually you end up with more shelf space. For us, we're doing about $5,000,000 of e commerce. We should be doing about 100,000,000 dollars And so and we have plans to move in that direction. And that's with all retailers, Amazon and looking at opportunities for ourselves. So whatever channel we can pursue with that, we will certainly look at ways of tying that in. And then ultimately look at even tying in Scotts Lawn Service at some point. So, but there's more news to be made there. Randy, understanding that you're hedged this year for most commodities, not seeing the full benefit. Is there any idea you can give us on as we look to 2016 based on the hedges you have now, based on everything you're saying is spot rate, what kind of tailwind you would have going to be seen from a cost perspective? Sure. So again, this isn't a realistic number because we couldn't lock everything today even if we wanted to. But if we did, the number would be in the range of $10,000,000 or $15,000,000 if we could lock everything today with oil at $50 or so. And for the commodities are correlated to that. But this is also something that when you look at our basket of commodities correlated to oil, even natural gas, it's not nearly what it used to be. So of course, there's some resin, but you can't go out more than about 3 months at a time on resin. But you take it all together and at this point, it would be somewhere in that $10,000,000 to $15,000,000 range if we could do it right now. And on that same line, is there as we go to June and you kind of go for listings for next year, do you think you'll be able to get pricing? Or do you think that kind of across the board view as well, Mike? Well, let me maybe we as a group, because this is something we talk about a lot. The issues we had with heat and what we saw in the marketplace, now we were fairly well protected because we had multiyear contracts and we were able to use Fafard to get more peat. But peat was almost on an allocation basis for this year. We were prepared to bring product in from the Baltic States to sort of stay there. And we ended up taking pricing because and I'm talking mid season really, which we did. Randy beats his chest all the time on this one because he was a primary advocate for saying we've got to do this. We know one thing. Margin is like jet fuel for us and we cannot continue we can't live in a world where margin is declining. It just it makes business so much harder. Then it's we can do things right and get 1% to 2% more, we lose it all in 0.5 point of margin decline. So I think we understand that pricing matters. I think the what we did with ortho was important. So I think overall we feel pretty good about margin. I do. I think ortho, we had to do what we had to do. We were just kind of losing our ability to compete. And I think we have made a stand both on the labels, our cost of goods. Everything about ortho is we're at war and we intend to compete hard and win. But I think generally, I am a believer in sort of getting our maintaining our cost of goods. And if we can get it up, we get it up. I think we took a break this year. I think Randy fought hard for a midyear pricing which is pretty rare in the space and got it. And I don't know, I'd say for history comparison back in 2012, we didn't take pricing. That was a conscious decision that we made. 2013 2014, we took 1 point or 1.5 of pricing. And I think there's maybe a misunderstanding about 2015. We did take pricing in certain categories. Our Snap spreader, we consciously have targeted lower everyday price. On our SNAP spreader, we consciously have targeted lower everyday price on that, which is offsetting some of the increases that we did take. So going forward, our plan still is to take 1 point, 1.5 on an annual basis and help us get to that 40% gross margin over time. I agree. Go back a second. In terms of your long term sales growth outlook, I think it's 3% to 5%, about half of that M and A, half of that organic. I want to drill down on the organic side. Guys done a very good job on the pricing front, which you just talked about. I think mix has been positive. You've been able to trade people up, but volumes have obviously been elusive, specifically. So I'm curious, number 1, what do you guys have to do or see to get consistent volume growth even if it's low, very low single digits in this category? And then number 2, as we think about that organic piece, call it 2% is probably a baseline. And I think you guys have said that weather is about 1 or 2 points either way. So if we think longer term, is 2% organic a baseline in a bad weather year were flattish to slightly down in a good year or up 4% or is it a little more complicated than that? I don't think it's more complicated than that one. I think a lot of what Adam was talking about is relevancy in a time sort of crunch period where gardening is important and it's not about selling chemicals or dirt, it's about selling kind of lifestyle. And I mean, I seriously believe that. But also remember what I said, which is I don't know that I believe in any numbers right now. And it's just because it's been so long since we've had any kind of people will use all these CAGRs and say it says something. I have no idea what it says. All I know is we go into these years sometimes and we're up 30%, 40% And then we have like 4 bed weekends. And it's like the last couple of years, we're just eating shit on like crappy weather. So I think your weather number is probably a reasonable number. And I think if you basically said, do I think notionally we can do 2% and then if we can do a little better than that, which is a lot of what we're talking about here about what's happening in the company is I don't know what your impression is sort of what we showed you and what we talked about. But the idea is can we get another 1% or 2% if we just do things a lot more, maybe not perfectly right, but just more right. And I think we believe in that. So do I believe that if the weather is reasonable and we're doing things more right that it could be 4 or more on the core? I do. I don't think it's that hard. You just you've heard our numbers and you probably pulled your hair out sometimes if you're trying to make sense of it all, but it's such a violent business based on the weather and program setting and all this stuff that I just would like to have a good weather year or 2 and we're doing things right and we're not like just think about last year. It's not a joke because it's like a minimum number. We spent at least 10 $1,000,000 moving product around to keep stores in stock in the Northeast on Memorial Day weekend last year. If we can make mistakes like that, all of a sudden you start adding to that and say that's pretty good. And it's not like we have to be hitting home runs. This is like singles, not even singles. This just don't strike out as much. So I don't know what the numbers I think your weather number is probably more or less accurate. And I think if we mind our P and L and treat it carefully, then I think we can kind of live even in a bad weather year, we can still make our numbers to you if we don't overpromise. Then I think it's a matter of if we start adding up the things we do right and the acquisitions are reasonable, all of a sudden, I think it's could just consistently produce a net income that's growing double digits? I think that's a and we're mindful of cash flow. I don't think there's anything to complain about. I think we have a higher stock price that sort of thing. So I don't know. Thinking about 15% to 1% to 2% U. S. Or fully total company volume are really driven by the U. S. Now the way I've been thinking about it is a little bit of share growth, a little bit of category growth whether from weather or from more broad economic factors. And we haven't really talked about loan service much today, but we expect it to grow a little bit faster than the total company average as well. And then when you think out beyond 2015, there are a lot of new product introductions as well, a little bit of pricing, little bit of category bounce back with a lot of investments we're making. 1% to 2% to 3% seems like a very reasonable place to be to me. And law firm retention is good. Their customer count going into the year is good. So reason to be optimistic there. And Europe by the way is like much as we don't talk about it and want to act like they're the ugly duckling, not only produced a good number last year, but the year to date looking good and are ahead of plan. You got a view on Mike is openly optimistic of the team. I mean, I think our plans are double that number. And so and if we can eliminate the factors, I'm pretty confident in that. I mean, if you talk to the retailer and said 2%, let's just say, I think they'd be very disappointed if we sat around and said let's develop a plan and get a 2% growth. I think all the major retailers would say not acceptable. So part of what we're building is a plug, because I think we have every time we expect things to be better, it just something happens. So I think right now we're just trying to keep expectations low, manage the P and L well. And it's worked for 2 kind of crappy weather years. It's produced a decent result with excellent cash flow, burn a bunch of the shareholders, people are happy. Question? Let's see. How much greater profit bars do the hydroponic product have? And what's the reason for that? And maybe you could Well, I would say, I'll call it mid-50s. That's a gross margin. Why? I think because you're dealing with products that are expected to perform. And if they do, people are willing to pay for them. I think this tends not to be a big DIY category. It's almost all independent space or through its own separate channel of distribution. So I think that the people will pay for performance. I think this is one where we cannot be posers in the space. And I view this as a real opportunity for Scott, to be honest. I mean, I think we had this conversation before we left in the bus or whatever, but people say, what are you buying into? Remember, this is fertilizer and this is nutrients and growing media. That's what we're talking about. So hydroponics to us is a category, not just a soilless growing system, okay? It is nutrients and growing media sold through a channel really hydroponics, which is mostly independent Scott can add a lot, management systems, financial controls. A lot of this is like old school miracle grow back in the old days, 800 Port Washington Boulevard. There is some disciplines that are useful here. There is purchasing capacity that we can offer up, R and D that we can offer up, that's capital that can be invested that is that this is what we do. If there's a growth opportunity and the IRR is high enough, we want to participate. So this is one where I think it's actually a pretty good marriage. But for sure, people in that category are not going to pay for non performance. So I think that there's going to have to be an expectation of quality in that space that is different from consumer. Thanks. Any others? Okay. So we're going to wrap up. Our presentation slides that we use today are going to be posted on the website the day today. Yes, by the end of the day today, they're not up yet because they're being webcast as we speak. If you all have follow-up questions, most of you have my cell phone number. That's the easiest way to reach me for the balance of the week. If you don't have it, you'll see me after this. I don't tell the world what it is. And I'll give it to you. Other than that, thanks for Well, I'm going to throw in there. Basically, I think it's pretty much how Randy started. I think I know everybody here, friends. So thank you for coming. I would say that it's good to do this. I know King tends to try to police my time and my voice a little bit, so that's okay. But I think that the West Coast is an important part of our business on a go forward basis. And so those people who would like to kind of group up and team and go see sort of later this year when we get this deal closed up, what we're talking about, I would welcome the opportunity to introduce you to that team and kind of what we're up to. But it's very exciting. All right. Thank you, guys. Appreciate it.

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