CENT - Earnings call transcript Q3 2019 | Central Garden & Pet Company

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Operator

Ladies and gentlemen thank you for standing by. Welcome to the Central Garden & Pet's Third Quarter Fiscal Year 2019 Financial Results Conference Call. My name is Kevin and I'll be your conference operator for today. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, instructions will be given at that time. reminder is a recorded. As Instructions] this being conference [Operator

ahead. call to Steven FP&A I go like the and over Please Relations would now Investor turn to President Zenker, Communications. Vice

Steven Zenker

you Branded Chief Thank Howard SVP for Garden the you, our Machek, and today Roeth, Officer; our Chief George Accounting of Hanson, Walker, our President are afternoon President Chief Niko Kevin. everyone. Lahanas, call joining With our Officer; me John Good JD us. Business; President Products. on and Executive and Pet of Central's Finance Thank Financial Officer; new Consumer

Our third GAAP this XXXX at XXth, press non-GAAP non-GAAP results release our and call. www.central.com provided the for on to quarter ended website discussed on available our reconciliation June the contains for is measures

future differ George, and for call revenue could those would and introductions, historical new that long-term subject expectations actual forward-looking to call acquisitions, risks I by forward-looking you remind future implied and from organic this guidance the not to cost results product profitability which made uncertainties are cause to to EPS XXXX, Before that statements are materially goals, statements. statements adjusted turn growth savings like during facts for including conference I over

to events, Central's information, update These XX-K new annual obligation Commission report Central these risks filed XXXX. reflect Securities on forward-looking otherwise. to subsequent on described and publicly others filings are no in undertakes Form Exchange statements and including our or November XX,

will our George I CEO Roeth. George? Now, the call turn to over

George Roeth

everybody. Thank Good afternoon you, Steve.

off Rodolfo of month. our to Hanson responsibilities last I a my to & QX results, want do Products departed to who our more Pet Spielmann, on of Pet Garden introduce minute who the the Board formally begin President I Central assume John former Consumer comments has stepped Before take business

has change Rodolfo the to our acquisitions XX capabilities, wish who led helped are have well and we fortunate our Pet focus, in endeavors. Rodolfo consumer to and products consumer future in strategic in experience segment. increased to build John all step his drive years and of We digital key continue

previously held of at role, almost for Conagra. sales in leadership organically Frozen from roles Conagra was In four approximately over President marketing, Foods billion business management to has spent John of years. in XX division John both grew and a years most and general its number through and $X.X billion at notably John growing acquisitions. sales, the $X.X that

After leaving consulting, Conagra, products John in industry. including is the operational and on consumer focused strategic M&A

range Pet the capabilities over fact, year, a businesses been including issues, has on we last In know and our for of John his Central consulting well.

Importantly, will leaders and running. he the position role officially hit assume will category be [ph] of ground on our to who continue Pet individual supported August to run employee is become businesses. a a in by and full-time strong the his new John X

Now, segment turning XX% sales and of year company around business Garden third Garden's overall QX healthy with third acquisition I'm up organic and quarter the the and businesses a from growth our point-of-sale the quarter the driven our increase was XX% X% by announce year-to-date gains line both results. our rose a ago. led operating remainder weather. by challenging in sales increases in is despite of Arden This Garden X% X%. to income and that quarter our were The pleased sales third over to

were up bullish surpassing growth that organic X%. Bell business for was organic a sales Overall, year a this little acquired a standout our this ago. company already expectations Nursery quarter we over

in gain was XX% driven company which segment Garden by total increase operating of XX%. income the posted year-over-year The a

say gains trend with once in sequential actions our cost should and XX year-over-year expanded points the quarterly of company's basis savings, tandem ongoing year-over-year took I the Importantly, margin pricing overall gains. our operating continuing effect sequential

our by our tempered our were X%. ago year Health XX%, business Animal a driven operating where professional off was businesses, Pet versus sales headwinds. faced down largely were Net which by also down business, and severe results unexpectedly particularly income financial Our significant

of Plains, tariff from pressure up major usage a of strength to Kansas market, Historically, which impacted the uncertainty. and rates Great their dairy bad inventory weather challenged on negatively economic our all and the levels across because regions customer exports

truly agricultural the a It's unique time sector. in

year impacted which production. fly On [ph] have largely front, weather being abatement Compounding cattle is and is both and insect grain and this carry company margins. we eclipsed, most above which average records situation the XXX-plus protection livestock segment, seen livestock, annual impacted negatively which swine products grain rainfall the

the not are company-specific are While they industry-wide nevertheless. painful issues and

that, not said both an norms. we perspective this attractive expect the a growth been next rebound fully historically we margin has This do and to from long-term Having believe year. and are business over these business

largely timing X%. business and an our While year had were our sales increased Pet note to Health X% Animal Animal down pet sales Bedding base should Health impact organic of on our Pet issues due profitability, business. has branded up outside weakness X% the a a our I in ago that versus

Pet already Net-net, two-thirds to continue expect we our the strong orders solid organic on Bedding of the a business, quarter. growth books. Reassuringly, in our fourth sales for roughly QX in are

bird we Pet wild the of in under just player beginning the market, C&S in On the overall QX. contributed at Products, growth purchased front, June, sales acquisition suet the point which segment a of leading

Suet seeded unique leading bolsters manufacture C&S portfolio modest, by as wild of of product The relatively birds. wild that wafer types a of feed certain didn't like bird products and is our previously while purchase suet. favored a bird feed is we looks

as the our reported continue will Pet be team business and management current segment. of part C&S will run to The

us, XXXX. report C&S the would for to of expect year. for accretive to fiscal as is first inorganic their We expect all we typical sales As in be year

admittedly fiscal it’s pleased on closed this assure I of disappointed While acquisition, transactions lack we effort or target. possible are the not can not are you at with we larger C&S year-to-date. having that for

on the it's out. road down gotten some, worked not have just but We

successful you imperative And unfortunately, strategic remain situation the focused are not are. opportunities of the We efforts you the worthy believe on continue to are this patience. is and that a and until where

more it turn to Niko the over to the like results I'd for deeply Niko? financial to talk Now, quarter. about

Niko Lahanas

Thank afternoon, you, Good everyone. George.

company Third $XXX million to quarter total quarter year. from third or $XXX of million last in million increased sales $XX X% the

to quarter. of for a lesser acquisitions the of Arden were recent the accounting Our C&S million extent and $XX the gain much drivers revenues of in sales

Organic Consolidated driven a quarter our benefiting for Organic or sales growing gross growth increased profit Garden by XX by up. margin the points Arden. contributor margin XX%, was also inclusion the $XX gross million million was also basis in increased $X a positive to gain segment. our X%, gross and of

for million acquisitions. due a rose $X or quarter the year expense X% SG&A ago, versus primarily to

XX percent a SG&A As sales, declined of points XX.X%. to basis

year. want Our items to I corporate call included two Corporate SG&A. atypical to was however, prior out, expense flat in do the

Together, is we other One CEO EPS do in the is fourth to expense search. legal search CEO to matter, our related have related an resolution further items well. impacted quarter to cost $X.XX. QX our our unanticipated expect reported negatively to expenses these a And over by as

XX% in basis X.X%, Arden operating margin Central the to for part increased due large income increased the XX $XX acquisition. million to both points to operating and quarter

well. savings $XX million. as XX% year impact organic were the and an aided up cost earlier quarter results. On the initiatives however, to increases for in Price of both basis, taken EBITDA the increased

quarter were $XXX both to X% decreased Turning our for challenges our Sales sales Pet and year in results Health basis. million million X% organic ago, dog quarter impacted on of in the segment treat timing of which Pet now more the the of Animal $X and and were by or stronger margins aquatics promotions mix to business versus down businesses. negatively continued the than and sales segment, a an the in also impacted and offset

record businesses certainly challenges economic and to agricultural the George comp challenges weather-related when by be earlier, The these comparing environment a impacted late-breaking difficult on even conditions last a touched rainfalls year. made but continue challenging Animal to for for modest some of markets. season, Health

the sales Lower products operating prior factored the manufacturers to pet quarter. segment million. also declined XX% for compared XXX operating to Pet year margin million sales by the basis for XX%. $X to income of quarter And decreased decline points or $XX other in was

dynamics were for Net same decreased were decline business. million timing the in earlier, As the Health Animal I $XX the and operating for to the X% as quarter stated mix reasons the in EBITDA factors income. as

Turning $XXX million, stronger other to products. now $XX to in organic higher Garden, due our growth for or the in business sales and or quarter led Garden manufacturers' the part of by million segment increased Arden of million sales growth Bell X%. to well was large XX% as sales The organic nursery $XX as acquisition

weather as that results were strength benefited manufacturers' new aided Sales control in products. and categories. Bell markets has some insect gains. by been other Offsetting of weaker were of Controls products the unfavorable for home category center distribution from

operating compared $XX points operating million $XX Bell's increased the of to million year. inclusion the quarter Garden in was the Garden's The quarter in XXX quarter increased to drove margin and XX.X%. of Arden income of much volume game. basis the for last

of The the both strongest third for these businesses. typically quarter is

last quarter about joint part year. words of to Arden, few as Arden A versus venture holding impact be the the owning XXX% of proved the for favorable of XX%

showed recall, venture As joint income in income may last up year. the other you line

it owning fourth favorability and Arden's Garden absorbed income XX% the Garden should losses this be line. XXX% we of for in other when in year of only our versus Some reporting in reversed quarter, segment last

on a negative impact from a gains. to million -- Pottery margins Products income EBITDA businesses ago. Garden's exiting margin operating of income and year and and The business still and $XX up operating offset the weaker basis. revenue million we both of some controls Garden increased Wood are $XX XX% were versus organic an But

In million, of of we to The numbers. versus $XXXXXX income decline back due decreased $X.X primarily to of cash to primarily to higher results. interest getting Arden balance compared other year other a the to this million absence year ago. earned was $X.X our quarter, the due on Now the in a income had third ago. consolidated $X.X Net year our million expense interest

a earned We cash higher on rate that interest balance. also from benefited

third XX.X% XX.X% year rate quarter ago. tax for quarter the Our was in compared a as to the

the sheet as August from The flow cash inclusion million last stronger balance million third statements. Cash $XXX end during at our the the the in flow from of quarter operations was of XXXX we the reflects proceeds of year. of end the offering increase to as at well quarter. of up $XXX the equity and Turning quarter closed cash the

$XXX million was in the third relatively the stronger million, from million unchanged management. ago, to year of primarily $X CapEx generated million operations by the in working XXXX. cash $XXX a debt Total quarter $X year. and due $XXX higher last earnings For down million quarter quarter was was from third versus capital

and ago the at of year quarter range. ratio that times the well end X our at leverage target the within as – gross same remained Our times X.X is a

We a in line also ago. of availability at had the $XX and quarter. credit line our million amortization end year the quarter with for of the on million $XXX Depreciation was

shares During we've $XX.X direct to the is these compensation of the offset repurchased the stock purchases XXX,XXX $XX result share goal is quarter, creeps authorized of under or programs. million The our repurchase share was program. approximately previously remaining approximately equity under board's of authorization. million the There common that that

over George. back it turn to I'll Now,

George Roeth

I'd programs remain and close cost accelerate a to and we drive to committed strong to fund and drive saying capabilities capabilities growing deploy fundamental value. company plan M&A overall growth our shareholder like organic consistent of reduction and to growth. to our We flow strategy to by cash systematic

professional expanding us. pleased and fully we as margins program issues action some cost very to an our to savings expect growth consumer return pet acceleration going we effect were brands' forward see took and of industry in to our organic see put our We our once top the Health behind challenges on the of Animal pricing timing

to seasonal of losses a our our In our in on this are to short-term has included expenses few $X.XX previous the with dilution not name of August is a related with highly a an two to terms Health historic matter inclusion raise, just costs estimate The and of the business results, estimated from CEO or by businesses bumpy EPS year's from the higher. transition Animal associated admittedly legal disruption administrative not and driven issues. quarters reduction a the agricultural guidance, resolution in last of non-recurring in guidance. equity been we lowering $X.XX year our Well, challenges markets a and

expect I a team our has intended. operating no environment weathered we And storm the am immensely proud normal how forward. fortunately, of pun more going

grow. We were had income, provided We continue XX% a in in X% up to increase significant by operations. in and sales, cash operating

set-up sheet have balance a accelerated We market growth. and leading for positions

cash at working shareholder in we that approximately are assured hard a ready to Importantly, Rest make $X to the M&A increased to we drive have happen. share that, deploy in value.

the over turn questions With that, audience. from said now to it I'll

Operator

Thank Humphrey. Bill first from Our you from coming is [Operator Robinson question Instructions] Chappell SunTrust today

now Your line is live.

Bill Chappell

afternoon. Good Thanks.

George Roeth

Hey, Bill.

Niko Lahanas

Bill. Hey,

Bill Chappell

just give that me other color don't being CEO there of we legal kind could Can transition, – of the fully business? – especially transition CEO I and unexpected going Can kind be? you especially that's understand of the kind a big normal – back of of called why costs. how out more on little kind And the than CEO

George Roeth

include issues. Bill, guidance you frankly not know gave end transition up also in pay when on costs, at of we the we the because compensation obviously all there, CEO we recruiting the consulting, in potential didn't estimates that beginning charges what but the only didn't year could

include call the date, it by the we've our final degree, low, of We the numbers get so widely variable, out. and date, affect admittedly. to some number to didn't recruiting that which So, But identified hit it we've we were costs the in hence is highly we as pretty To conclusion clear we still guidance. until wanted been was fairly variable. this,

That's of you It wasn't felt expected settlement. the was we the that. need that out. above was our where It pretty call something a guidance. case terms to reserves when In we a was it gave hence normal we there the unusual issue, had and legal for

Bill Chappell

especially it fourth But look the modeling far, smaller or majority is quarter? that, $X.XX do on XX-XX? the just that How I legal I guess so at of is it and

George Roeth

It's than nonrecurring. And more would legal we both consider not.

Bill Chappell

the – with And XQ that in CEO comment assume really will continue we're not I but transition to close that should a expenses that finding replacement?

George Roeth

that at wouldn't I all. say Actually,

but – leave. replace me progress. met. looked are XXX% which Canada, a terrific we're on I We've promise never for I've we to say of that, track before would And can we someone I good to we're sure, So, some in at making slate have of seat,

Bill Chappell

And then, business it's commercial than it I'm I'm because PETCO. switching buying at that the to -- sounds stuff more trying -- to just understand more the like it's PetSmart, Animal just Health, broader typical

you there? So, a give more me can little color maybe

George Roeth

Yeah. very you different business. kind through I'll walk of Niko a let it. It's

Niko Lahanas

Yeah.

bit the professional the that. -- and it's give about when background comes on we've So, And BXB talking margins, side. not business professional a I'll first really just got a everyone the the consumer a so And side consumer professional to, the we're it's little it we of of side. business, all. Really, side

control ticks. operate bottom-line primarily and Secondly, is and flies, flea insects Three dealing we sell ranchers, six and really, we things centric that active ag farmers, very of in with ingredients markets. are nature. of It that sort mosquitoes, distinct

to technology the side are them other verticals taking three really just and selling the then actives of And the business, and our our other other businesses.

imagine, can incredibly you has market hit As the been ag hard.

This the year, Midwest. flooding all you in had the

are not million or issues trade tariffs, die the the calves of die a helping. X,XXX got calves record bankruptcies, this year, and number You

exposure so, have what's that's going that there. and on market And we've we been to --

that so mix hasn't -- of standpoint, in some business that just just from that ag vertical, happens a it our in very been And higher-margin favorable.

And business the pro suffered. business along from standpoint. pet the pro consequently, suffers mix So, with that business has a then

George Roeth

And not the thing call I -- is, this circumstances, year. would normative any only a add would we under we've

normal is we full expectation our return more rates. will to So,

about certainly, highly this optimistic bounce seen state the we're affairs the that unusual. of we've overly Going I don't are think forward, being back. But season

Bill Chappell

-- the I in And talked know kind the kind grass is seem I look Garden stronger up they core board terms then XX%, particular numbers, competitors' of of your across being your key at consumer seed of it. key numbers, market. which your about Got in actually in just than if they

or some at I you look Should market all back this share really in weather. as this did -- give quarter we do just

JD Walker

Bill, its J.D. I'll take that question.

in seed, as -- a make compete some you wild in to think goods competition. don't, which difficult pottery, it's it's our bird We direct they we’re to of categories. I in know lot categories a comparison

Rodenticide with their quarter POS, growth numbers strong I've well. They like had strong line don't. things our organic We have They very X% it's which quarter. that. But the sales outpacing had actually and on we heard and a sales. mulch a as

you XX% a that, I them. only represented categories, year-over-year. grass of asked there's they've In we said few Having a couple comp overlap categories a with seed, specifically think where about plus

but is not as Ours positive that. positive as

I some think we have back given share there.

And this. – say would yeah, I

are our We the every going share. to with season growing intention of holding

we that, some having However, won't that said promotions there’s chase.

particularly opening point where not dilutive. So, to type margin promotions elected after go the this it we -- price was year,

in a market. category back have So mature some very that still We in get we high a did share very share.

The in comps to our compare we is them competition. POS favorably where other our where overlap with fertilizers,

So, look competitor. at it, general, share in say, overlap very particular we're would aggregate in I little that with holding as with you

Bill Chappell

you. thank it, Got

Operator

Thanks.

question coming from Bank America. next Our Carey from is Chris of

now is line Your live.

Chris Carey

Hi. Good afternoon.

JD Walker

Hi, Chris.

Chris Carey

you? Hi. How are

JD Walker

Chris. Great,

Chris Carey

Good.

I think in right? business, So think And change addressed, I you these headwinds like in needs discussed. the besides a guess, leadership do to is heard What that Pet there you've right? weather external I be

thought And QX. I I Pet the you expected in comment growth that in heard

So correctly? case? And would did the I guess I why that I'm to comfort be that just hear on trying get

George Roeth

Well a things. number of

which kind end consumer short that. we our if oriented look X%. lower all, were you That's measure. on business, growth of up branded But X% it we about to the area seen We've say part of First Pet is its of at typically think difficult of the the you X%. to category probably the

roughly So we X% is and X%. say growing up we're category the

business and a which largely behavior is been That's attributed down. are modification of. We portion Health our big of to Wellness

immediately the be issues supplier in we to remember go fact If us. used of new response a our entrant major didn't there that was our as well. a product then which that to And products you hurts they of had matter

new we a this on of last launched kind and been That's quarter. product going

taking able through It's But expect and to of the the while we to been products the significantly dialed old we'd in way next haven't to in be we a year. inventories like. work QX that aggressive as it that up do

company North In the Pet business, America. of leading Betting we in Bedding the Pet are terms least

We have our Dallas manufacturing.

We is a bedding. seasons. you we're QX to fantastic with have so in that fall K&H pet going up mix will set holiday have well tell I

those on We be have aggressive our on for growth already of should an books QX. in the what two-thirds orders businesses

growing of we quarter. in So business fourth amount fair Pet our confidence the have a around

Chris Carey

structurally, just in which of business, quarter occurred two Animal I guess for you're I get have the another And would or the Health outside which the lapped? is where comfortable it dynamics, fully business, until assume those continue

George Roeth

Yeah. I we're mean would say I never satisfied.

I So that company structural mature aggressive it but if to capabilities continue would don't we there's a know need I as be and to call on.

and e-commerce being first the business. The digital driving

a from a built where have We fairly of significant couple were ago. years we capability

us a can I As changes the need what -- situations, of have for us make Amazon get that tell their we will how we are and about buyback of artificial with we information increase example. up fact talk to matter order where the in presenting in terms on to for intelligence example, products

supplier. that. is pet pet our businesses the we replicate can deploy of company be beauty like them them Therefore, multiple difficult we're smaller to across companies The and would largest buy that leverage and technologies where

emphasis and to we area that's area continue So been big of develop. that's that need to a an

The quite innovation. is other frankly around one

across of like are for our them we So be mature I innovation as to businesses. all don't would think as our capabilities

that. I'll the is pretty you size quality think organization. are we're forward. people John's think going tell And behavior I good, looking improve innovation, changes bringing strongly on and the on challenges the be output I to example at our not an just right going focused appropriate to but Those that of the product I that of also areas in pretty are which modification of and only Our the think

Chris Carey

Okay.

that So patterns that relative your that's a a outpacing it just in seen to -- heard sales and of I Garden, different other you purchasing the top I competitor divergence? So quite bit, have POS organic I year where outpacing is POS interesting is than bit a I there sales find such think changing years? organic right? this quite your retailers are

JD Walker

sell-in it's address are that. I'll couple again. of won't complete exactly going which beginning right we're now I POS good I what We're that know some customers, seeing. us But from the about seeing heard with We XXXX. they've into JD QX where our positioning and feel time-to-time. well it's a feel we say our That's outpacing in-store Chris, a we and what that's it's with of unprecedented. yesterday. Yes. destocking done departure our inventories. large is from F our you

Chris Carey

So that, imply the guess I would destocking, results just opposite. competitors' the your on

specific? that category So retailer is that is specific,

JD Walker

I a of combination it's think both.

can talking I'm there's as expect. think I I'm sure about well. But going category their some -- said deviation having by be well. impacting be the that of as sell-in that it that are to retailers I some would that

George Roeth

that about only thing retail ago is online where to a add our year them. with good are The we inventories I'll felt

POS inventory into So sell-ins the organic into the necessarily year. in get sales you and a hangover write-downs and our about of are with place And fairly the to next for slowdowns when going be equivalent. and good talking is year end not

we're very where with we're at. happy So

Chris Carey

all until the And or to Does in or CEO? do without then M&A new question place? step that new think back. a M&A the does Okay, Does Thanks. sheet, without do have pace take a you balance can that back it then of move wait any move to make the use happening? I'll intent leader Or last you sense more that you step a right.

George Roeth

continue team the view forward move at M&A can sport. to We we really like feel absolutely we the CEO No a new helm. without as

We direction into everyone to company, strategic work that active bought continue we a and of have that. pipeline the

So up the really not transition is us any. slowing

something continue something. months, do What not going just anticipating. and rush flagship people doing to misses won't had few we plug that XX think four we've the call into of We a But to along. sake have are done I last in most deals is deal it for just we're the

right very disciplined along. So and continue the will we're to going and thoughtful deal our in approach and be come methodical to

Chris Carey

you. Thank

Operator

you. Thank

Capital is Thomas Our KeyBanc next coming Markets. Brad from from question

Your now live. is line

Brad Thomas

good my for questions. taking afternoon. Hi Thanks

I us little more on color and the touched on Pet evolving? wondering you from the different what explicit little if follow-up channels more you that's how to could you're Just been segment. some seeing but on a color, bit was give maybe this of a

George Roeth

of news Not new front. a on that lot

As and there's say of that box declining. would What the have those would some declines particularly been of Costco. I I has continue. you just very know But is big and have focused ameliorated big call label. box been any independent say much channel the of specialty although has private been been somewhat in has they I one customers wouldn't consistent been on pet advantage those growing trends been change trajectory. taking in the we've particular mass and And

successful charges and one couple our It's truly growing to obviously and last of continue is Pet them robust businesses growing soon. for for forward. And with Costco been drive and highest great continues I feel anytime a years. it's then number that one And good there a been with are even the strategic the relationship. the John's partner a on going quite We to we customer of see very that don't been that we ameliorating be us us that focus business. is partner Pet have It now e-commerce, to harder. we channel have and think about

smaller across capabilities million mainly companies. doing not million $XX a $XXX be believe advantage scale $X business earlier or others billion we can it pet food are And as for worth around Pet of competitors, is Pet to I technologies where us, big and companies, against supply talked have I because compete we competitive leverage the

Brad Thomas

making help up more impact the or That's helpful. that those George. decor operations? is bit to exiting how able follow-up to you help going from revenue on operating the might EBITDA Could a income be changes maybe just making maybe from little business. you, Thank those to size And be changes. what in you're the much And

George Roeth

a It's and a Planter time. give sourced on independent we're little the the Lays Most is but been Wooden we've And challenging long revenue, as you stores to about with What were specifics big our well exiting supply business. here the I different It's a Brad, I'll a business time. were long sourcing XX these from Pottery are business. in provider bit a we tell product. this I can't as think we for overseas, major chain products centers. box garden a of countries lead --

portfolio so a oftentimes It's fashion on just that assortment we a a you're mentioned which is really years segment decor residual it we business basis. And more for few annual turnover wasn't there's amount left management. of did a bit -- that our a with And profitable category, this high It's happens, holiday. inventory. with of we to similar was what when of a it seasonal was Ultimately, a ago GKI nothing decor than that business. exited

this the decor business. We exited portion was that a the -- few years ago is to have profit challenge like just of

look to change business important it pottery very it and year-to-year. segments these M&A Importantly, of for replace a us to and that. the we -- our focus by business in where But little it's of piece the our gives profitable and over exiting there's still And Terracotta on stay profitable us more unprofitable segments will portfolio. allows

Unidentified Company Representative

And out roughly got and this we decor not tell was is half about can't what you business of we profitable. the

Brad Thomas

Got you.

like squeeze last of been you you've Okay. could azure And managing in if around a I could just getting X any list tariff on looks XX% exposure that you list have the how And here us Maybe the additional just now on us that it's tariffs. XX% we X? the little color color give a tariff? on one you to give one here topic can had

George Roeth

Yes.

of from China. goods So our about is what coming tell you I XX% can

not it's a huge for So exposure company. the

changing we do lower to passing bringing working have it vendor partners our tariff point we're house transparent production our to the some through some to the way. ultimately have cases We partners, with successful been very -- cost. In we if not cases, a and retail in us of

So as it we'll price increase. away, price comes it through, goes the retract we increase. take the And if

successful, unanticipated. round This that. We've fairly was I'd successful largely not doing next been say

could We are be this aware to happening.

on through worked and same be how We just deal that to scenarios much as described. very I we've the with it have

Brad Thomas

list the XX% terms in terms of for X sizing, size compared how to that And X of from in China? coming of list does you

George Roeth

I the and at terms dramatic what know there's out a it's number I it top say we're don't from giving seen major of difference. change don't first think tell I best point. of I round. this to can that wouldn't the you don't date my think in off That's head. degree of we've the I a

Brad Thomas

much so and you Thank you. good luck. Got

Operator

Thank you.

is coming today from Brathwaite Our next question Christina JPMorgan from Chase.

now is line live. Your

Christina Brathwaite

want Chris everyone. pick afternoon was first on something asking side Hi, up about the business. to Garden of on I good the just that

the competitors' seeing given you're space. to key from priced different premium was that them has at a shifted you're in if all Just premiumize any product their conversation? seeing why your wondering lately? been I that more maybe focus if And to space? in has are they retailers with conversation that your the Or destocking having

J.D. Walker

not seeing think more competitor Christine, that I it's that fully product here has that we're understand with here. allows this So a I'm think going, promotions flow the that And is sure stores. them you're to I much let year J.D. just aggressive been before that into me say but more I what

our than with know It's display -- maintained we've floor. couple in the don't always going more it over equate space Yes, and I years pretty more but terms not And intend on retailers, so it discussion in been of In it's terms and different always -- additional store. store discussions it's in that our promotional to forward. the a the this the to space of in doesn't we've shipments, past. year been that always what we that do last space of the

George Roeth

of the season, the towards higher at customers the of to much I consumption you in those whack, trends the the leads the selling end challenges with tell want having would than sales write-down would beginning next I lot be challenges very in much out season. of Yes. to of and of inventory terms a season

sales robust terms we're fairly like seeing I'll year -- where So growth. X% sales point which to back line with inventories we're organic in were to of at and come with equivalent what we increases ago at in being of retail our

Christina Brathwaite

That's fair. Thanks. Okay.

Okay.

on haven't was what's that going about surprised Maybe within side there? then organic to I about just comp it side of yet. So performance apply Is general business, that Pet Can we talked X%. of that's that surprised on distribution bit was a what's the down But see I more you the base? about driving little there? the the declines now talk types just

George Roeth

of Yes new on loss vendors. the was the the two distribution really decline side,

So they many was larger case the to direct that that predominantly up going happens here. And customers. because end in cases

as our has also gone focus expanding a profit. What you I a and as of lot changes business around will distribution far tell is through

So nice what profit this a are business. in distribution uptick with really quarter pleased that we was on

So we're it. actually quite pleased with

Christina Brathwaite

Okay.

food that there you you So two kind of and -- be for would -- next the -- rest continue until if to then to going are that's asked quarter pressure out the the year? would venders happened right expect until so that during you results

George Roeth

is division And even is profit Pet that a on No, reemphasize focus fairly business. margins had driven of I I on contribution all relative products. business manufactured we've focus than significantly distribution operating because small, say less not wouldn't terms of would sales a what that of the the volume in are Nico the first the said, to distribution the profit

broad portfolio We've have the and on times lower profitability we've despite the Pet volume. fees, made improvements actually across operating major pricing multiple taken efficiency improved that fairly sales the significantly

good feel about quarter's the we at. So where

sales for high But you differences margins would make the sometime bumpy very and on Health And and say I difference. Animal the will near has and you thing pro also this big get sales and I small you what happened this is vendors other a example, in come do business. no if have think go you tell would impact do

difference, Here don't bottom-line the that it's in big sales a actually make differences terms of profitability.

Christina Brathwaite

temporary, I but Animal issues like to and that from all the the guess you the thing expecting challenges better the the earlier in business only the Okay. animal sounds need bit on the that's get then Pet your tariffs. answers little -- that it's like specifically, you're bankruptcies last it Health a

headwind the of year. at going least be So forward there rest should sounds it like a the for

idea can that you in better give So you just of get things can what QX? makes us comfortable an

Niko Lahanas

Yes.

the wouldn't it's trends we've been recent improved. recent I and sales have our seen say, rebound. So trends complete a sales

about Mainly going that in best wouldn't the even forward. next average, seen base So year, a hence an about our we ever guidance would think to would year, I low those being talking say this cautious we're next as in we or year. rebound words expect expect year to we've but we over improvement such

XXX really -- highest seen. years I rainfall we've unusual record a pretty that circumstances, was are These think mean weather whether the the for the there I highest particularly

George Roeth

of full the months six Yes year.

Niko Lahanas

happening caused were while, I literally, planted that see wheat it the and matter same just X field dying don't the months. cattle havoc. that again in may and some was again to degree. in And not places major And

Christina Brathwaite

related now. majority increase that I step last in And in more question XQ of me. just It on is definitely that should the from Okay. to but -- reverse back wanted the including make margins. the take XQ? Arden, to like a Yes sense sounds

challenges you're the is to pretty a some in showing XQ the healthy guidance? in in items level then but And that Animal diluted your business, of which Health expansion

you what there? we the there that any get that you be And about? the that gives thinking can acquisitions in baking you're So is should from confidence benefit

Niko Lahanas

the we Arden on feel actually in were in really acquisition As that. will QX. year. down as up that's result about margins weigh direct the organic of go a margins we good the And overall side, took earlier really far the pricing But us

cost our really continuous is And part which initiatives improvement our program. of savings

the as mix continuing cost was the are expansion. to real So to And see unfavorable. well I margin as the think we savings initiatives. that's really And estimate pricing a

Christina Brathwaite

Okay. Thanks.

Operator

Our Jim coming next & question from Hardt. today from is Chartier Monness [Operator Instructions] Crespi

now is line Your live.

Jim Chartier

question. thanks for my Hi, taking

up the the following of business. on of pro kind weather discussion Just about the impact on

that acres anywhere at So that levels. to what from acres four seeing? those kind we've being times planted? not previous that crops with be and that Is number the normal for that business Does heard levels could in Is planting your are are -- of -- program, the to kind of does fix prevented of you times correlate X times there? record guys correlate with X trends the

George Roeth

I'm question. completely sure I the not understand

it used more they're planted did earlier a when crack bad the let So cases, field's take weather some or late, grain. prevent The a -- at here. try you planted planted late. me and our are If products store in

our opportunity So potentially grain there's use less the product. to store and

that's product The economic I without and say, other issue, so ranchers basically year? or this come live folks the business hey, increasing cash becomes have take farmers phenomenon can -- yes, funding pressure happening also Or and happened livestock skip in this protection our an discretionary flow it. just under as

So putting by the wasn't weather of what described. sure times you two circumstances, to unusual the others along the meant is part it question. four times and we factor I with a that this

Jim Chartier

pay not see understanding million crops. million to to in year, XX that that acres programs million is million. was could of insurance crops acres from plant the government normal that previous not the to this you order my is So farmers and two X planted X And receive record anywhere and

George Roeth

It's and planting we've our of distributors. mainly conditions. and heard say late not wet customers That's because been can't our -- happening. the and not from not I feedback the around loved fields that's planting but

Jim Chartier

Okay.

Niko Lahanas

and farm war. rancher to the And margins tariffs due at level have really and trade the the being challenged

Jim Chartier

And Okay. then…

George Roeth

it's have learned and interesting. a And farming lot about -- dairies at they

Jim Chartier

on a you share kind the of in previous recapture the impact expected? and quarters that drag. calls, you as previous Are mentioned seeing How that you've relaunch behavior so, And market the did modification relaunch go?

George Roeth

work the was What gone than retail have we've relaunch products. that. liked. before to we on the the we was time. light tunnel we're ready seeing aggressive with the dealing sure product No, against old of would shifting seen at the on trial way through to I the of think the inventories driving new product is going is have We're we're we do spending has and make slower transparent our that product The that end that spending on some the

expect the able our we switch fully We that will on in marketing be QX to flip support.

category that penetration you, aggressively that's thing about But all us 'XX the We to happened. than I'll has win. tell is and area. household modification do behavior the X% spending is the it's a news our believe less we're the committed category. a well plans we'll unfortunately quite long-term need is in and things anticipate to and potential do good And high-need And to we fiscal this

Jim Chartier

of And quarter Pet how that on shift, the sales? Great. an impact Bedding on then third was much

George Roeth

were hindrance we've a in about. particularly leader kind is sales grown our growth rates, our a describe as just them. we Bedding during challenges The Pet on would call I in the winter. feel still business challenges by this there way so far business last quickly The operational quarter. But had a way business the some is and great put some I'll That's of

The is in lot a good kind of fall season. of and is, the news done business the holiday

everything You get from key that. early gotten for expected bookings We've our we customers.

orders few feel early. about. had business we're pretends As books excited days growth least quarter good on you, already the ago, a we great our of matter tell robust booked the of fairly more a for Bedding business. new which will -- fact, profitable that -- predicts I news of at those in the as we quite customers And orders is, Pet had some the QX quite they've about. And two-thirds

Jim Chartier

July, and of a the strong business mentioned very then to the POS of the July? XX a years I July in And of Garden continuation into strong strongest. have finally, be think recent you seen competitor continue you POS one guys

JD Walker

July Yes, consumption and strong you we J.D. sell-in of consumption our would have with strong well given during sell-in Jim. gap the seen We've It's between as remained month -- expect numbers. and very which the

Jim Chartier

of Thanks. luck Best

Operator

or reached back over comments. the closing our any session. question-and-answer to turn floor We've you. like I'd end to Thank management further for of

George Roeth

have attending for evening. want to the great everybody call just thank and today a afternoon or I

Operator

today's That you. conclude Thank does teleconference.

You participation at this lines wonderful may We your thank time you today. for and disconnect your have a day.

Central Garden & Pet (CENT) 2 Aug 192019 Q3 Earnings call transcript