SMG - Earnings call transcript Q4 2017 | The Scotts Miracle-Gro Company

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Operator

Please stand by. Good day, and welcome to the Scotts Miracle-Gro Fourth Quarter and Year-End Earnings Call. Today's conference is being recorded. And at this time, I'd like to turn things over to Jim King. Please go ahead.

Jim King

good thanks and joining. Kayla, you, morning for everybody, Thank and morning Marysville, Hagedorn, Coleman, With and Officer; in this Operating our Lukemire, is Officer. Chief Financial Randy me here CEO; Ohio Jim President and our Chief Mike Chairman moment started by Jim prepared get respectively. We'll with Randy comments a in and And to we'll call point, at your that open questions. that this queue try we'll through the morning, as many as to you other have of know so I calls meetings possible. quickly or move one manage primary us To our follow-up. just ask and time question help please one If there unanswered, left tomorrow. the questions with many I'm follow-up are day glad of in to you later or One bit housekeeping to in our IR of month ahead. the related activities years, in Day will we sponsoring be this other December. an year Analyst Unlike not in-person City Instead California, ahead Randy and New are and to I you the Denver, in in going Kansas be of York. weeks many visiting

visit Our include Tuesday move Markets call. the Consumer Hotel KeyBanc X. at in on With Capital participation on the that, let's Intercontinental today's December New Conference York with will

expect archived over Form website. those an to I'll we to and our say this our themselves to differ version Commission. with our our let's on of remind be things XX-K, which call factors what from always later that is caution the that, want today of morning, recorded; is the Jim Exchange I get materially everyone range actual call Investors in and turn results could As also should filed Securities and being that available that full With to want today's make results with Hagedorn. started will here. familiarize you we are risk I filed could so statements the impact forward-looking

James Hagedorn

happen. needed significant pointing the change says strategy a and morning, begin out want to we the change we cultural morning. years it press laid lot It's my Good release that remarks out by Jim. our to the about to change make this issued I commitments two in a everyone. year-end Thanks, ago, a

For flow was turbulence the business the improved shows middle first fiscal year-end cash focused for The That long time core as of press release season. even in our operating And for the recall, as when we us we than effort of June. to XXXX it cash some the unexpected million. in can $XXX that record cash a our year guidance with cash all statement. well headlined the hit in communicated from revised stayed organization driving original guidance on reported adjusted earnings that more flow I exceed flow allowed flow

and consistent reconfiguring on a when like operating investment double-digit basis. drive smart major be said flow Two, the the and goods. going priority returns flow would community live invest were like the hydroponics we we per That years strategy. later, executing that business could a shareholder getting margin cash most just growth When are our of it environment. operated serious our then have helps in higher cash low-growth have ago, willing company shareholders on and significant we decision three, out for about a said Project a U.S. weren't of strategy maximize business forward. explain will assets businesses how allocation our reinforce And two should non-core International, and we we in operate business but enjoy to at make. we for SLS to margins, where the we things. Randy And were skeptics the our a earnings expense Consumer of emerging we with capital employing cash would One, focused higher Focus announced three the it's As come flow. trade value There in a and on share, the but focus

wasn't cash achievable that of Some flow a chase suffer as would you worried and were result. would that growth that we

we overhauled based XXXX basis plan, of in our on pay the So flow. cash which line. short-term XX% own on incentive free and pay-out annual our on for was an the put pays plans our cash bonuses

And incentive Next not the it. in thirds we're five drives or to tied number priorities, to years. value. performance it's emphasis XX%. It's tied of and year, of be believe EPS want over our cumulative But that is to long-term plan free I two I of cash terms flow flow don't criteria dismissive is important that committed cash to EPS. improving equity

cash Our and shareholders for focus management. paying our flow for on off is

about free that that cash As number number, I want flow XXX%. and of a in our focusing remarks to XX%. on dead group sure $XXX my year, do plenty productivity morning the wanted call to peer by And make with lot was nearly reason started many flow, looks be had companies. XXXX, as drive this as didn't the flow than I income, translates flow responsible, a a they I supply to products metric Last is of leadership cash earlier, cash said to consumer and ourselves people chain other operating goods million us don't companies. dozen are start this are cash we naming are flow in them consumer cash it net than like forced of last adopted less but is against top what of but goal divided cause. to by we we flow, quartile things stay into The million productivity there. I believers so are out Right free compared compare when talk of because the cash There true had and a well. result were this I $XXX in who them we'll products other of this performance there it other branded a we saw. now, year, fiscal want to we organization, of that's whole more In helped like team

growth owned segment acquisitions, with are would you if you our so complements that XXX% Can-Filters, volume few continued filtration the that but movement half fourth can this reported to Hawthorne, of Gavita air assume the XXXX. which its Hawthorne for begin first half with we Hawthorne Agrolux, lighting to industry the I'll And this over-deliver. year. supply have In systems. own nutrient European acquired the the quarter, and XX% brand. reporting a we we on. brand we hydroponic see by last those In quarter XX% began liquid hydroponic second company year, within already and a acquired move year added we we weeks, in the in offerings leading ago, business the year, and supplement the portfolio Obviously the me entire let had We a So the Botanicare, year compared top driven percentages company. business grew as of

We of XX% acquired didn't also we already Gavita own. the

We have quickly created the best in the hydroponic world. portfolio

overly Hawthorne the in more continue exploring Hawthorne to greater top-line that M&A not bigger, seeing will can to a to add believe make We're I if business. will growth detail, more XXXX. vertically-integrated get specific don't business. just in same be enable end not we our than reach As I Randy say the more in want we're stronger this importantly but the morning to ways will we that core further of investments I rate but to profitability to of strong it expect to explain close process, but continue and

me again channels growth and that. and X% saw earlier But most We in changed. really to line mid-teens the our was mass saw pretty never guidance was were Randy retail garden the story revised overcome talk expected sales briefly our with and what there with centers. we expectations original we consistent Consumer that centers, Let much leaving full to summer, business, this home decline we way U.S. of hardware for the year details down in no about we with in The the when

out we we launch was of When consumer real saw of the spring the rest saw even of retail product mulch, terms a about the which Bonnie portfolio a then back sales of story of of had engagement, challenging the Lawns, million. weather potential the growth mass roughly had Miracle-Gro. and with about In successful new X%. And POS $XX the same. For We season, the you planting and Roundup through though combination had

in took weather While rest and the peak Bonnie the rest outpaced of the of in it same the saw as of off the our season business. portfolio, the the the challenges some back year of half of

and heard that why why live big You've gardening. space times specialty make we'll we hard next Bonnie opportunities say me several like long-term again in another edible with the season. push goods the we're in investing like growth That's categories

is category exploring this we other to in why growers. traction specialty invest to opportunities continue Our

themes. operating In in performance terms several of XXXX, planned recurring we our expect

the of be New mix. products part will a key

channels. on nursery tier expect center, names retailer retail to support recovery. our We we environment a for mention. see At not retail, those whose we mass some won't home second third and strong planning are like in major with evolve hardware mass the brands competitors owned more by of focus tier The continues continued and to

this spontaneous to lawn remember been activity, and of big garden in brands a successfully do. every getting a season to fortune mass Understandably, of about that retail. planned makes year strategy. overanalyze with of this a continue in Of brands the retailers have provide mass activity, consumers not course, to choose shop, important what be they careful it mix we've the it's space. garden owning at consumers we market and we've Frankly, experienced programs not millions destination products and is they continue a with to a part their engage in it. I'd of where ours execute to destination which at lot We don't be of leading good lawn like the to retail. Tens need category them activity we retail and this work in channel and questions It's

is it's In decision, job twofold. fact, that impact our job our not instead to

And with about garden programs to creating to beautiful marketplace. in maintaining channels. categories, consumers don't brick-and-mortar First, Frankly, these substantially? continues controlling or that second, a it healthy and retail. retail Unlike In partners that's support to Will all time? the XXXX, garden Will other of I'm participating Probably. consumer help change came succeed help I'm our a online pests. not so. projects, think must – trade of lawn, lawn many in I the XX% our with garden unwanted provide with really and change whether frankly, win. traditional through not channels okay rely we lawn them sales aggressively on over and

my As a significant and make personal love it of purchases online. I percentage consumer,

our organizational consumer some direct-to-consumer two. sales the that the the are, But where As industry, no to not and helped CEO if his like or get efforts going made our way board, their us ignoring our investments who've the marketplace that said, would of retail loyalty right and what sake a of matters. changes I partners. and Across retailers structure and not team fact. of business, of improve for the changing products business the a you chase past kinds sales, a we matter know we're of business ours, less undermines fan. making In levers the are our margin to I Mike we're our That I'm We're company, outcome core performance right been most the in the year we're to the We've that that now. all of believe significant has over is just pulling expect. dedicated

innovation have great We a pipeline.

Even morning. in provide continue doing extremely the believe The marketing net this. several way model basic strategic over on our executing cash provided how to the so. extremely business every we the but the out confident We with this to core look the business challenges next some grow saw past focusing And we we're years, a and see will planning ability guidance that the pleased specifics, our takeaway to new low-single with realistic I'm our plan. the our framework guide lays XXXX you'll digits. campaigns we're continue this against team. season, created like we're running this. We've efforts of terrific. something in remain Randy in will member for flow is the And the I Our and of

any in years. to years, circle, acquisitions we one the We given over repurchase Hawthorne giving us important. operating point benefit or income flow will couple most in forward digit benefit grow double-digits going Margins may several plan continue that's expect And to we another modestly in points as improvement of over becomes most come improve to would full shares, growth will years. of to we In get two to year, the XXXX. – add We may in cash adding bolt-on which mid-single growth. our another points next using company-wide why to EPS cash so

takes, Whatever each XX% believe shareholder our past pay what now, our extremely the returning I'm We that of special to basis annually. XX% a strategy raise We've year to – once our for modestly combination return shareholders obviously XXXX, range executing that and shareholders in will I even over we confident that may to year to returning achieved of result. do. we've pleased be course choose dividend can takes to able goal dividends. the we is efforts with goal cash on the year. stay that We also the fiscal from focused If in again done to committed these report we I'm drive the

patient been stayed in mark out milestone on remarkable. we over Before with of truly our our This ventures. want that new to our XXXth business anniversary, reconfigured most a and the thank as helped They business. drive core will us have They turning getting Randy, growth year I focused things is the our to associates.

While goes our kind I I and switch had, each better. Randy? in of the credit people know should I shareholders more real and meet. get most those senior as success ours With let's to CEOs a for who often teams to gears some dig them a like of and And know never that, and will to shareholders get company has longevity chance to the our the management want of The well. of numbers. thank credit

Thomas Randal Coleman

morning. the full results and year fourth and Jim, this on top the morning, quarter know good thing are mind not everyone. I you, everyone's Thank

So shift XXXX gears provide our and and I'll briefly on touch the highlights commentary detailed more then on a guidance.

European everyone businesses that Before eliminating remind to I results. moved and we them and to our historical XXXX start, I operations our want from discontinued quarter, during Australian the

of couple may a non-GAAP have X-K weeks not our you updated yet. filed with we some your ago models historical fully updated While of numbers,

that probably So if not do you hear is you follow that why. number reason a comparable the

from and thing other reporting. Consumer we've of U.S. a very of channels. completed operation now our and business. to is been of Other Canada, as changed challenging several item segment as the our note were well have you numbers ago our recognized a related have now reconfiguring at sale in segments slightly the within products mostly company pretty that to have are our business professional other. sold two craft retail China, Hawthorne years. The consists the small include Consumer and that Mexico, These over I changes U.S. we horticulture noticed the revenue times following previously supply in through agreement been One part has gardening the as Hawthorne self-explanatory. years of know The traditional therefore our results past

results far I their we XXXX minor forget moving few But tax tweaks the track that to over We reporting These years well. Thanks P&L and have with pay of everyone later. I'll through folks pieces. earned teams in as patience our past should a it to be have to explain as your I all worked going thank for easier And before two for changes. really want the external the these forward. our

internal if came been you So all on from on owned all $XXX the the year, we had would be plans if volume businesses on. but do didn't better. XX%. quarter in assumptions Hawthorne, full-year. organic in the is year, we line the The But organic would told let's Hawthorne million growth move double-digit we disappointed you approximately rate low percentage acquired for news $XXX the growth portfolio the XXX% the million about up for We have our assume big year, for increase Of and XX% top we growth. the obviously the

much Jim us is guidance it for with decline levels the earlier results a board. As stores planned different June. down back volume retail in else. finishing high seeing X% change year. with X% and sell-in for growth was the line said, year. into in year gives What's going no in retail in of the that support clean lot We The next quarter year. a story to our the assumptions than early year next we're were pretty percentage mid-teen inventory our U.S. the in made We're for season the a was the the of encouraging were season with after and the declined is The in saw And mass pretty year. optimism level everywhere of across line first we the for Consumer calendar

mix rate here, fact product not following From lower pre-build following historical expense could me we Let and on points for did about Jim's potentially year. done We flow. consistently better reflecting where trade higher did as basis prioritizing quickly for up targets the have to season reinforces XX the sales move commodities. the Favorable helped but margin comments margin, adjusted gross inventory we've the growth program cash the perspective, previous a for was year.

while made environment that we've on-hand emphasis to levels Given step expectations. significant us to meet selling reduce the supply investments capabilities flow, also in closer service made our We've vertical levels, will couple growth and continue to low cash and to inventory new chain a customer over season. past our reduce continuing the our on production and years produce our change of to inventory allow

line In from of I the long-term were from Expenses with in of increased the Hawthorne believe with necessary came are we the be original remainder at Half investments success. terms our acquisitions. that of for X% SG&A, X% and in to came increase extremely up continue quarter guidance. efforts. the pleased for Half our year,

led in reinforce a managing from income about loss that The achieved number a of sales and challenges timing in-full. to had TruGreen from XXXX expected talk guidance. XXXX. have job The and $X.X SG&A when expected. deal some the great top-line and lower than of been season I'll a the that So, we equity synergies we was here, on-time we're earnings doing Non-GAAP million all a point we

of discussing of deal So pleased million of the well. own expense at XX% $XX fact is as the we worth Interest already combined this with enterprise. year-ago. still we $XXX year compared We we've pulled with remain out finished the and given overall, approximately especially the million, a cash the $XX business, briefly million that

the of of debt was the leverage X average billion. with at ratio Our end at times year $X.X

We X.X and the from deals TruGreen the proceeds few as level the than a that during in ratio remain of More times hit divestitures, us our X.X in expected year, I required us times the well We to hit that borrow expect and I anticipated. going to but distribution XXXX. timing leverage well. less to as as would to on comfortable minutes

$X.XX of due and on continuing final the working to dilution and all price course. Europe divestiture, calculation. fiscal the sale earnings be from where gain of the compared GAAP non-GAAP the the The June. with per of with on diluted when year-ago. that last of basis, result were share came $X.XX of includes buyer share the per amounts $X.XX in about will basis we this $X.XX the we're Australia. Finally, And per non-GAAP may purchase non-GAAP in XXXX adjusted a in $X.XX, capital SLS with year. $X.XX finalized compares completion impact adjustment lowered guidance this share, our share per we With a work On expected Note, EPS EPS final in to a regard EPS

loss largely net forward which addition, related may This versus carry non-GAAP XX.X% AeroGrow, is our the previous benefits to were to expectations. guidance. of note rate effective earlier you a operating and accelerated difference tax In due between

federal return before point, to this time Congress. changes at cash tax potential by year, higher talking of Jim rate lot we the next expect tax to flow. considering effective a a spent level about For rate

say I I I with the a embraced to perform can has there are not we be won't metric. continue do in and share on optimistic this Jim did that of or Q&A most So, been business in follow-up calls remain throughout financial that session redundant. quickly important future. is I'm lot at that later items view his I will the today. our and this so the glad cover Obviously, level to It I

guidance For now year. my headline next is focus The our to though, shift I P&L want for to this.

to $X.XX sales expect X% adjusted non-GAAP share. and of to of We $X.XX growth earnings X% per

that bridge mass channel. our change. retail Now, for let the business, not we're in me planning big In rebound explained core a Jim the

performance expect in we a home channel XXXX We year. level of center hardware in the similar as and saw this

products mulch more new our business. strong next And that some recovery extensions precise. see we brand believe, have Roundup year, be also a also to we'll in introducing we're We two

you're of believe our believe guidance entering Many business Consumer that at the So conservative we hope a this if of I the is U.S. the a past will look may grow to and realistic target decade, assumes over year. the the you X% I this is But business assumption X%. performance correct.

to growth double-digit points expect We growth. approximately growth expect will sales to and see volume Hawthorne X point little more continue add the company-wide will a it of X calculation. than add to Acquisitions

like feels as where rate the growth sales The X% margin to gross year. X% sit next most I today. here see stress a reasonable is So you'll assumption

trade points, in guidance Our basis be will points here's benefits saw the unbudgeted to rate basis from program down benefit of lower XXXX expense. and margin a XXX assumes We why. XX rate

news While margin this reason top the be trade down it's a were retailer down dollars line. was because from perspective, good The that too. volume news was may bad to

in trade be we XXXX headwind as So likely Commodities direction should sales our well. core, targets XXXX. to for a if reverse hit saw benefits in the program we the in U.S. are slight

well. as share. nearly would next $X.XX a million While headwind roughly there's modest for on be dollars two probably year, both locked a pressure commodities each diesel I we're urea past seeing worth and XXXX, to pressure negative on we or been are months XX% a over the expect and on few resin

rate will Finally, in acquisitions gross to be the segment the margin Hawthorne XXXX as dilutive in well.

business mulch in those would to will areas. I been years. believe I'd most in offsetting increases And pricing to XXXX. in neutral in remain that gross tool in many However, specific, number a while planned about we that have years, you've future I on our opportunities me has more positive expect XXXX Without start pricing it small will nice an being heard be say core reduction Hawthorne. the pricing due just margin say other important in rate times materializing some

think So margin gross I positive in see longer once rate turning you'll term, again. a direction

on great Moving we're earlier expenses here. doing to managing SG&A, said a I job of that around

operating relates As increase, continue. strong around from rate Acquisitions XX% up I and XXXX year, into from it rate Note to that rolled the levels. from this; that earned will as until with to is our headwinds interest X% alone a confidence we our now, next restructuring gross X% of way potential change in fiscal outlook. provide XXXX Up margin has the about given Bonnie, rate XX% we've to around SG&A to be decline the fourth assumes should that TruGreen translates expect income the this X% quarter guidance P&L. our $X account for in charges as to so booked million other a $X similar-sized well income of P&L margin performance the The a geography. combined, benefits to million line

margin, operating Since basis other of affects will new our goal. below present falls divestiture the new income P&L as the long-term points. EBIT, on receivable our costing line about interest income non-operating XX in us international this called this of in along included a not earned into loan we'll Next our None with with this year, income. income Exponent a line part be

XXXX from continue XX% get hold an we results believe back our expected although getting We there. to may to extra operating us year can margin, an

be our income investment, primarily the small in as equity now in is which line. slightly made TruGreen the will included acquisition P&L, likely Regarding XXXX in a includes line year-over-year late this up

of costs. by investment, increase repurchase XXXX, refinancing and increased for activity. will operating million pace synergy share and earnings on For restructuring that offset and appears Interest expense be costs million $X amortization, likely potentially $XX the interest, our to will depending it deals TruGreen future

I continue ratio leverage earlier, As we said times. a of target to X.X

XX%, roughly to of working be Also, gains million achieved And in on precise we improve that our that $XX want to even believe in require capital increase provided the business $X.XX with million Cash repeat upon I for $X.XX view. And of That tax don't working the the assuming within I've rate. for the XX can range which flow plan allows overly Finally, return. per of confident count would a U.S. growth be obviously upon perhaps most fluctuations us. adjusted would on that But a a and improve his mid-single to we right shares. now. to XX XX%. roughly would capital to for all reduction the gross non-GAAP rate rate a Jim into I EPS not us digit range does Pulling translating team drive U.S. This U.S. is the shareholder up of challenge. a basis. help for our share share to allows I'm line we've year-over-year, will X% an calculate in expect part you the midpoint range and number I to in of margin XX% right The million philosophy would guidance a outlined our this non-GAAP us remain together, falls $XXX I board, across pronounced story. in earlier XXXX. that anniversary XXXX. the I million be business. reported Consumer critical to double-digit about ranges That high-end are a expect Congress would the

a ahead, any given issue as control, year? our we would assume in then is X% yield you we If shared But could just beyond I again achieve disrupt dividend once know that that today, can of that I target. we rhythm achieve to optimistic drive plans. the outlined. pleased double-digit ability I'm to I and optimism to guidance execute by with results continue we the our we against just Overall, Jim's announced returns continuing I'm that shareholder the that about look

So with call questions. you. the for that, Thank open let's your

Operator

to William We'll Blair. Andersen, go Jon first

Jon R. Andersen

Good everybody. evening,

James Hagedorn

Jon. Hi,

Jon R. Andersen

the would anticipate that a would negative strategy I that of the winning expecting, category implementing the in to given and it's that X broader Tier if year, into or characterize and you ask they're experienced wanted and positive garden XXXX. you're relative aggregate channel not market? Tier proposition mass in not about own? share do merchandising why guess, strategy performance you of X Thanks. the And you persist this channel to your they and change in brands really would I would that how out lawn more this the – instead the from I a of channel perspective, lean that mean, mass XXXX than much in

Thomas Randal Coleman

Sure, is want start, Randy. strategy some Jim color. we different. then bit label, private to the more more at was much later into Jon. This cash mass season I on imagine, a point, the was But I bit out don't Why and on at this look when flow, add to you getting focus focused earlier. a much flow, cash getting a on It it

for they're So each in months year any ago, again executing hasn't a retailer changed strategy has the mass. but many that particular on story I focused think in

is top but would the again and the category I retailer largest and with our retailer pleased probably XXXX. for that of mass goal the going I this the was the say the compared key that into to results channel think I think So year. results of don't was lagged, mind rest

James Hagedorn

I add. don't me. reflects agree at ask I'm think will to but to And it our are. and it not with work, I I don't think that they I who customers other retailers. I don't say, basically the sure And repeated their see some approach, I much extent being didn't have would

lawn yes this those can is, strategy. that ask, their I have and me And to to and we I fit we'll we the the are if if But Mike's other their now. offer for they partner and at it's stuff going best I on continue right voice And my really to you'd I it, really and answer But answer terrible But Mike trade lot more But view don't; upmarket. ask are. if data again losing share the be that products is market and exciting don't for with new, you we'll them and – think exciting of I guys. but we're Mike us me moving think He's channels tea. I you think, drinking the is So, I is support point just be to agree customer that. think hell, that. they and enthusiastically that's a shows the in is, they people there's just anything to offer think of been you best garden, mass ones think ask so if working, add – honey-fied but can

Michael C. Lukemire

on. straight Jim had No, this you

sorry. So

covering me. You're for

James Hagedorn

you'd Mike. But add anything

Michael C. Lukemire

No.

to – customer I think we'll do. whatever they're support it's participate with and strategies trying we

James Hagedorn

We'll again try ask to not Mike to that's listen to. to because talk brutal

Michael C. Lukemire

fun me. Making of

James Hagedorn

bad. pretty he He said just he sounds feels good,

Jon R. Andersen

quick for just is Mike. a Well, follow-up not The one.

XX%, pull So, based you out again this low guidance or helpful? planning you conservative some year, is like that latest seems it been be in about assumptions, Thanks. some this – Xx looking you're fourth grew on comment would consider? double-digit the we think that this Hawthorne, just but Any forward Has year quarter. north forma this or growth quarter the for should for I there there of XXXX, of pro has hydro at grew been Xx there

Thomas Randal Coleman

feel pull I'd all. is planning forward lumpy pointed This think year Yes, conservative changing like it at Randy. do on come There's but fundamentally characterize no out at I'd that us we in just I marketplace the say point. this nothing going as that the hopefully over the nothing and there's..... sales Sure. in do make quarter-to-quarter,

James Hagedorn

– I say in look, – they Conference Investor California, the in would last the expectations holding and they in And as to to use. in of are that what think I you're were market. regard rec it's regard Randy to largest been in understand the numbers professional And the and not overpromising think, I I clear and changes in fire our our It's like growers think process. budgeting operating on regard I last implementing are talked year people seeing at businesses rules rules the different have the say, a so pretty America's too year, adult to year. think that guys. QX, is we're call. Hawthorne I overpromise do new until in that just to same of you California to to do not of I half Yeah. on because the we're I know the we wouldn't seeing are it's the second sort I things hard don't the this the year. think middle about company

in So is of I expansion the California unknown changes that think we're market – seeing some instability rules a are actually major in this or Remember, regard to California. to changes good. to

need news. get rules good it's what But understand that. they make that are sure don't with crossways to the and So people

Yes. numbers So are think do the conservative. – so I

Our expectations Hawthorne is the like is, California not rules the January we lumpiness to haven't below would market news, as regard But out what news. good which confuse you the bad to changed discouraging to view said and we really shouldn't people. as X. numbers are XX%, in

adding just a of fluctuation. So little I it's to bit market think

Jon R. Andersen

Thanks a lot.

Operator

question with Merrill next We'll America Lynch. Bank of from take Reuter our William

William Michael Reuter

Good morning, guys. My is... question

James Hagedorn

morning. Good

William Michael Reuter

pricing. ...around

commodity increased top are guys that prices are assume certain you I increased of seeing be you decision a the I your categories, are at should some prices? have guess guess, making and that other that strong group guys you why ones neutral many the and Given where have some you products as are there I brands guys

Thomas Randal Coleman

Yes.

really So we bit this we quite when covered about quarter talked a last mulch.

price So, a ended some in much increase mulch for We margin we pretty lost our dollars XXXX. took up volume, neutral.

that partner of with effort in just one retailers to plan and XXXX. footsteps more particular, an expect in we drive in reverse to So, the

offset to an There's increases So nothing in impact small other it's having brands. dramatic.

pricing, manage the a quite trade a we're we're as of not the year-over-year. years for improved and we bit think going rate our down good it's how couple a last in XXXX, impact to of a margin place. making flow programs just of decisions So the of it's reflection well around reflection in being the We've as pretty just we're cash

William Michael Reuter

one And just Okay. then follow-up.

Can last felt pipeline, pipeline you you about terms with? rolled year this compares how mentioned of pretty the you it's products out to of feel talk the this you you that strong year. innovation In that the year happy when guys couple a

Thomas Randal Coleman

brands. So Roundup launch XXXX the we the was had largest under in selective

of year say million it we almost and product year million, terrific So Roundup that, I'd have so for got year performance. had $XX first high sales almost For is a there, but reached Lawns and first $XX a really expectations

will out. performance introductions on, there we and they're So, a marketplace continued the addition, near some new next want coming year that And other don't I is flagship related focused have under categories specific we in about Roundup to brand. but couple other products next to what interesting be be that too expect year.

Michael C. Lukemire

Yeah. in say, I strong as it's the is this what almost launched would portfolio total we twice as year.

James Hagedorn

I he said? don't you could what – hear

William Michael Reuter

barely. could, I

Michael C. Lukemire

Sorry.

William Michael Reuter

you. Thank Okay.

Operator

question from we take Jason Markets. our And next Capital KeyBanc Gere, will

Jason M. Gere

Okay.

I So, lot Mike of in asking a be won't mean questions.

James Hagedorn

No. Please, do.

Michael C. Lukemire

Jason. you, Thank

me. helped You

Jason M. Gere

the included of okay. go So, EPS you exits, $X.XX about I has guidance know to clear want next that when So, offsets with think all be going think all that the for first. with guess of didn't in you offset you when have I'm question is you – there? the has I has that Just the the everything year, on guidance, housekeeping $X.XX about anything dilution the and in there, that. there? to changed maybe or

Thomas Randal Coleman

apples-to-apples. is year next guidance our yeah So,

So...

Jason M. Gere

did the terms and other pretty you that's I factors level about were the like case in of you're could that, in I make and were buybacks the of sure just still buybacks, dilution. anything talking $X.XX – that confident to offset I But there that think there? or change you know want

Thomas Randal Coleman

is share pieces, on we of but repurchases. there to a just want lot moving focus Again,

year number $X.XX and out our be We P&L that to we are expect next equivalent of Australia. the related taking to that to Europe

Jason M. Gere

Okay.

Thomas Randal Coleman

that, we On top of acquisitions as have well.

up lot for story. that in to just the apples-to-apples changed now has and follow we're everybody and it's hopefully nothing It's clearing So a easier numbers now.

Jason M. Gere

Texas, have is in and see any, might of the like cetera. that California, going X% and, optimism there. just seeing question months, might mean, from the about consumers last that in anything rebuild that hearing a when bit this little lawns a you of guess been a that Can yeah, was to states I lot their whether whether what other certainly hurricanes, maybe – think then talk or fires Okay. business wild the year boost there to you a that regarding Florida, affected it's volatility what consumer you more California gives kind impact X% six it's there catastrophes little of the terms is you about of bit – some I to I more you ask, you're there to you're And the execution see seen of we over et have lot

type anything there kind wondering, is any rhetoric? or seeing that anything built into Just if you're there, or of of

Thomas Randal Coleman

Houston to quantify area in both We're Sure. trying Florida. impact the and

a So that to-date just of POS have out missed done during time. on probably a dollars work few period we the as million we of

a change next engaged, be will would dramatic as of that nothing little there were year. outlook So an to bit impact year-over-year for or require but our consumers guidance us

James Hagedorn

But there I'll operating the X% to in X% the unit. that really to and just down – pushed I throw Randy I'll

issue Mike guys. with better would to to for a can that. Mike that's so, that take deliver. then could be we I the than crazy good that's I over we're wouldn't private dynamic on say, he'd trying say What I think I is do he'd bad X% internally. I And pushing and this and think of true along you that don't not okay wouldn't that we we to so of fact what down hope to out like I commit. a – have this and internally, loud and croaking thrown do I if was think sort that's X%, was dynamic I overpromise us would but have think, get we're And going out over is us, a he think Randy you and better debate I than I that argue to

which if he get so the that our was not involves in that of creates of that that and let is half I overoptimistic is, I'm here year, we a I'm work is. a second think kind saying of of painful. process And around lot lot when saying gyrations Mike into What the budgeting

Thomas Randal Coleman

once to that to hit we And through flow to gets on try well, a again. just build work to have is cash half puts of we inventory it then the and flow just for well, lot of as a the as to want cash stress which the managing more number back don't in higher business lot so back of year do a what

way a conservative in trying need more to. thoughtful if So, ramp can to always and we we're just up production manage we

that. to to of We do capacity be have able plenty

Jason M. Gere

of your is And squeeze about issues gross in. up sensitivity worse if expense, you run come tough year sensitivity Where weather guidance talking is kind you're last that I'm type you sensitivity that have the I here, X%, Okay. one if expense and of say program year there is if that better, the have to margin? the I'll to think you to X%. there the based better The What on kind trade – side? another seeing do that than the or and sales of X% X% bracketed mass program that does just we reversal in on still a vary end if cooperates if or huge within

James Hagedorn

negative. It's probably than more is positive it

don't some programs like next is our you're upside, doesn't incentive we little where make the numbers, had pay the where out. we've it on like big This if And years see just surprises. incentive, certain out, budgeted think back year in. a to internal don't the I pay going not you our own bit

is work. Don't happened means the out or pays really that comparison challenging, zero. it numbers was less when Just supposed worked that thing the to exactly the it make way your I looks think and program the only

is And so, that's much there's if it I challenging risk year how there was to think work. and supposed upside and don't on the it's benefit a probably

Thomas Randal Coleman

I and agree Yeah that. with

Jason M. Gere

Great. Thank you, guys.

Operator

America. to Chris next go of Bank Carey, We'll

Christopher M. Carey

Good Hi. morning.

confidence POS note that around up So, was of I'm next retail you correct going midpoint wrong. in X% acceleration, on were year? that me just case, channels the to really guess excluding the next level on I you of year you and organic growth obviously improve X% inventory to next home guide, this into which mulch, year, and If the year did that's that mass hardware level the maybe sales retail can don't U.S. hit of implies at you mentioned down, your levels Consumer to if comment expect

Thomas Randal Coleman

Yeah.

Chris. story, the captured you've think I

that bounce and we starting look a stores So, business. the really with clean year mulch back on into next expect heading

growth of year. couple of So points that cost us a this

of channel confidence we see the in back engaged. only home us and very gives centers, not that there bounce hardware the that see do So lot but we'll some a

just more expect really it to same. down And the of we is to comes how going perform. mass So,

for this year point. So like a at out way next this our lot year expectation look the things played

Christopher M. Carey

Okay.

Excluding normalized that the mulch guess? or I for impact

Thomas Randal Coleman

Somewhere in the middle.

Christopher M. Carey

Okay.

Thomas Randal Coleman

We expect a return probably.

James Hagedorn

additive. additive, Mulch of new products is a also for much this deeper and I year think is line

Christopher M. Carey

it. Got was support okay. operating other Hawthorne planned some that functions. you Helpful. Okay, there the mentioned release comment investments And can then In the you in just margins? on technology and

to more So of sales a hiring to perspective on or maybe that Thanks. to in Just drive people you are you could demand provide trying sense of the business allocation unit? some get the underlying. donated amount corporate that's

Thomas Randal Coleman

Sure.

are whether we start me with investment a There let question. dollars allocated, in What support in allocation technology XXXX that million big was a systems, technology. few it's saw R&D, So services. people is some the

quite As bit. businesses, so all some have help in will operating investments in other common SAP it we put other platform, acquired the forward had we going And a areas. we've for

XXXX, reflects bought in a we've the of to also we acquire landed are included where year, is the cost businesses as last the some costs in as double-digits and those deal low that So quite businesses few well.

The line. while be on dilutive operating growth. that acquisitions year, So, the some the margin of on margin margin when done, line, you some next will get unwind we gross accretive we've

all that number get no year You the outlook XX% and that a our for to plus in so, that be feel confident next at change next in we we'll really we or mid-teens still year, should up all. add and

James Hagedorn

Yeah. throw to I just Hawthorne. there in out regard to want

go Randy. which and They've Mike outperformed their they've basis deal basis XXX the There First, which and short-term. outperformed forward on us the are budgets, in a to cases, and least to is at their improvement points board. myself is

systems think of stubbing have probably the outperforming systems had on we are far. are either, businesses putting no sure and as work. big and sort like support any think they've as hasn't to of further as these kind when investments whether don't they hydro disparate on I inside, SAP, which been side the and it's major up to we of and a issue That it's that think of on integrate the the of boy deal as think of fall have integration them work you working major case of I them some is important put to sort on that of they important had budget these call so businesses some businesses bandwidth And which all as has opportunity businesses, screwed made help yes. are make that not these and hard. it lot there I toes is But I we down, these expenses answer of that

forward out. we're with going further those there think that's of a and and lot of are integrate expenses is go take lot I So opportunity a businesses a how basis so one-time pleased to really on those and expense

Christopher M. Carey

it. Got Okay. Thanks.

James Hagedorn

Yes.

Operator

next go We'll SunTrust. Bill Chappell with to

William B. Chappell

morning. still good Are you Yeah, there?

Michael C. Lukemire

we Yeah, here. are

James Hagedorn

Mike was him. hear just That didn't responding, you

William B. Chappell

digits. do I'm year, and Actually or double Mike, trying questions the we a channel, it being about helper go this well mass going time the it that? years, to growth. next being last for pretty as when thinking six to several flat because channel was even flattish how I'll of your to we a down be just remember just back don't contributor And understand five, was to forecast going year mass I sure, it I'm started back

even double if lower can next season, you it into was you more hold digits year? they're Walmart why shouldn't their confidence you flat, happy as said, it brands, with again leaning be gives what So down

Thomas Randal Coleman

expecting guidance with So, But maybe down with our next be again are year, wasn't to related offsets we clear and centers mass. to hardware. enough home sales

been hasn't again we're draw But to So, you're slight been we've if it at to for straight-line. But we've steady continuous year-over-year, been is you and decline And where time. what it look it XX consistent if a next it's not a for XXXX. what over planning slow call that seen growth. It's over, years years, expectation. there decline have our a seen going is X been

William B. Chappell

just not decline? slight digits, But a double necessarily

Michael C. Lukemire

is the season one out the because, and No, early. de-loading of of getting declines

itself. that will repeat So

So..

James Hagedorn

you that? copy Did

William B. Chappell

offsetting year the forward, And yes. actually, did had I going understand said second, just think the goal the costs trying to to higher commodity talking past in about every is do forward weakness pricing, pricing being and you're holding but price price if I Yes, by margin, going second hopefully the if know do which Randy, taking some you volume of is didn't in gross any if offset back, not and had guess I you look taking to that's going from you with And you the pricing? forward? back meaningful

Thomas Randal Coleman

make direct I on connection a just loss mulch. will be The one and pricing place volume where to

no. the should but and we I Aside last from years, this the say, We've I'd taken pricing. X last, positive back think, update And we've with XX looked. probably of analysis, that, net gone

up a Ortho we pricing were bit, a and year, places, that when think in the XXXX, we what XXXX, was down last ended flat. similar for to did year we took expect I flat we few in about take which

to we So it's similar XXXX, and that year good a well. year had as

on since So, the year. to improve year, hiatus with expect pricing even we've year more brief we able to of just every EPS next our been XXXX, a continue one for taking same

William B. Chappell

pricing be you a hiatus next is this right? on So taking year, will that

Thomas Randal Coleman

to be of Well, hiatus places in being meaning but the X it's neutral mulch and point going some overall, about decrease. increases

William B. Chappell

On pricing.

Thomas Randal Coleman

Yeah, for XXXX.

William B. Chappell

Got it.

much. so Thanks Okay.

Thomas Randal Coleman

Sure.

Operator

with Raymond Altobello James. next go Joe to We'll

Krisztina Katai

that for said to you guidance Hi. Krisztina it be This gross for call I to is ask you Good I Joe. about wanted about flattish. your last expected believe on morning. margin.

So expense just program? I'm just wondering largely it what trade changed, the was

Thomas Randal Coleman

So program a expense. trade couple of things. One, it's largely the

business further see sales the in fourth did our in for we year-over-year. U.S. So reduction quarter

expense, that look we creates that, into So year, plan we to headwind. fixed as And see and around costs. trade other next prices a more bigger the inventory year-over-year related our as reverses it – leveraging did more lower just and

were kind benefit cash to guidance year. margin we're last over of on we months everybody a flow that's an little gross for last bit more few next what the a cost been conservative call, As from not the since that's more for absorption recent our ago. a we driving And any expecting to earnings evolution is are fixed thinking bit we that see why quarter talked

Krisztina Katai

just... then Okay. Great.And

James Hagedorn

into is that but said that's sort quarter not I that were to that think in I low decisions discussions us our retail just this fourth But we people add with we're gets to a reduce not partners, And unilaterally, long I time. so made expense with both is that programs there understand on And of say happy a not that XXXX inventories just to chase that that think not at when were our season this made retail is would – that. with with I us made of we're that which sort and going into inventories they that the decision through was to especially are helping think of were for sort exceptionally one point, a going decision our we and and high clean and our back of partners. to in important context, and have for this are partners programs at was before, pretty sales. the our And been benefit was purposeful was they that

the I think it benefits decision next making it decision and I And of our was actually and that year. think sides equation both a with at So, ourselves. purposeful adult retailers was

Krisztina Katai

then M&A for about opportunities additional see you that And talk Thanks. any Hawthorne? you just Great. can

Thomas Randal Coleman

Sure.

or over last what we've the years. We with two done are consistent three

we pipeline the Hawthorne of We directly have where team Ohio. frequently, have with M&A our or lot either here a pretty staff ideas, with a we have conversations in

do So $XX And in million go do as a a of forward to range lot I'd a we're of we $XXX on $XX to continue continuing year. to to we're million to basis, the ideas. acquisitions million say long-term planning, at expecting look

that's So to year-to-year three just planning a for five-year on basis outlook.

to more come. say I'd So

Krisztina Katai

so you much. Thank Great.

Thomas Randal Coleman

you. Thank

Operator

from And Lakes we'll question final David take Great Review. our Stratton,

David M. Stratton

you that on regarding there Hawthorne thinking you're the Am I business. Good for last Thanks to the mentioned close of a you're is versus How M&A. culmination that process. you how the that that the about something to process reconcile do end earlier? of the the clearly, Is question the delineates said, M&A to to question. in was responding you follow-up morning. previous A taking – end question the

Thomas Randal Coleman

I end think say an the zero. the of when it's process we absolute never

if those make time. value, sense, and integrate that they're going we're to priced out there businesses there going we good we're and and right and So, create ideas fit for continue every and have lot a of do to good look to is they can and a strategic optimize

pipeline deals, last worked through changes portfolio large think you we've of when think about few over a the I years. big

we but we an So to think good come and ideas the there there if that's deals and we'll right I would price, do are largely can that. again end, say done never out get never, at

James Hagedorn

kind add sort to million I of just is that, little $XX million a we think filling which in. in per would $XXX that year, of tactical – that bit that, do just I as to maybe do

in, my sense. our that interest into we and areas of would for that's and what think, goods think interest was part saying be year talking we're live we make where those of lie into and I of, in done just acquisitions and I that done lies, we're strategic we're is think where that that we Randy move area clear view not but while I Hawthorne and yet, to were specialty this in kind – then discussions will that on of are looking we're tactical of just sort getting quickly pretty opportunities close being filling and that

David M. Stratton

All right. That's helpful. Thank you.

Operator

like presenters turn for it closing remarks. back to time, I'd this At our to

Jim King

the if so All free to to, Kayla. If you issues morning. don't us directly, with well. this would is I to Thanks that did are X be way have for York as me, organization there if see not reach Randy check XXX-XXX-XXXX said everybody I New and at me and feel KeyBanc thanks event right, to call joining get number the you the us event. for want as on we that I earlier, December Jason's would in

will we I comprised be Have our report of public mostly for great to at one-on-one and next when going be day. QX a everybody of meetings. joining January think us end Anyway, communication the results. that's thanks our for

Operator

today's We your conference. for thank you participation. conclude does That

now may disconnect. You

The Scotts Miracle-Gro Company (SMG) 7 Nov 172017 Q4 Earnings call transcript