Central Garden & Pet Co (CENT) 2003 Q2 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to the Central Garden & Pet Second quarter earnings conference call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the call, please press the star followed by the zero on your touch-tone phone.

As a reminder, ladies and gentlemen this conference is being recorded.

I would now like to introduce your host for today's conference Mr. Drew Tammen, Director of Capital Markets and Investor Relations for Central Garden & Pet.

Please go ahead sir.

Thank you operator.

Good afternoon everyone and thank you for joining us today to discuss Central's finance results for the second fiscal quarter of 2003 ended March 29.

I expect that you've all seen our press release, which we put out earlier today.

With me on the call today are Bill Brown, Central's Chairman and Chief Executive Officer, Glenn Novotny, our President, and Stuart Booth, our Chief Financial Officer.

Before I review the fiscal second quarter 2003 results and turning the call over to Bill, I would like to remind you of the Safe Harbor provision of the Private Securities Litigation Act of 1995.

The statements made during this conference call, which are not historical facts, including future earnings guidance are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or are implied by forward-looking statements.

These risks are described in the company's Form 10-K for the fiscal year ended September 28, 2002 and other Securities and Exchange Commission filing.

Today we reported net sales for the second quarter of $331m compared with $291m in the like fiscal 2002 period.

The company recorded net income for the quarter of $13.5m or $0.68 per diluted share compared with net income of $10.9m or $0.53 per diluted share in the comparable year ago period.

Income from operations was $28.2m versus 21.3m last year.

On the call today, Bill will provide an overview, Stu will discuss the details of the finance results.

Glenn will report on the Pet and Garden operations and then we will open the call to take your questions.

And now here's Bill Brown.

Bill.

Thank you Drew.

Ladies and gentlemen, thank you for joining our call today.

We are very pleased with the progress we've made so far this year and remain very optimistic about the future.

Our strategy of building our company into a leading marketer and producer of branded products has continued to pay off.

Today, we are a leader in the premium branded US pet supplies industry and one of the largest companies in the lawn and garden supplies industry.

We continue to experience strong organic sales growth of our branded products.

In January of this year we successfully refinanced our convertible debt that was coming due this November with 10-year senior subordinated notes.

This refinancing provides us with a solid capital structure to pursue additional growth opportunities and potential acquisitions.

Looking at the remainder of this year to this point we are on track with our previously announced 2003 guidance of a $1.70 to $1.80 per diluted share.

This guidance includes the impact of the higher interest expense associated with our $150m senior subordinated note offering.

On our last call we said that we expected stronger results in 2003 and while that was the case the first half of the year would be adversely impacted by higher grain costs for our wild bird and pet bird products.

We are pleased to be able to report, we were able to negotiate improved pricing for the wild bird seed products in mid March.

Additionally we continue to be pleased with the sales of our branded products in both garden and pet and we remain confident about the remainder of the year.

At the time of our annual meeting in February we announced that Glenn Novotny will become the Chief Executive Officer of Central, effective June 1st and I will remain as the Chairman of the company.

Glenn and I have worked closely together for over a dozen years, so this is a very smooth and orderly transition.

I'm truly delighted that Glenn will be leading the company into the future.

And now I would like to turn the conference call over to Stuart Booth, our Chief Financial Officer to take you through the financial in some detail.

Stu.

Thank you Bill.

Net sales for the second quarter of fiscal 2003 were $331m, a $40m or 14% increase from last year.

This was a result of a $42.7 m or 20% increase in our branded product sales, partially offset by the decrease in the sales of other manufactured products.

All branded products sales growth was organic.

Gross profit for the quarter increased by $8.2m and as a percentage of net sales were 30% compared to 31.3% last year.

Branded product margins were negatively impacted by higher than normal gains prices caused by the drought in the plains state last year.

These higher expenses were partially recovered through price increases for our wild and pet birdseed products, which were not fully implemented until mid March.

As Bill mentioned, these price increases were necessary to cover higher gain cost.

We do not anticipate any substantial adverse impact from higher grain prices in the foreseeable future.

Selling, general, and administrative expenses increased $1.3m or 1.9% from $69.6m for the quarter ended March 30, 2002 to $70.9m in the current quarter.

In terms of the SG&A components, selling and delivery expenses increased in line with our increased sales.

Administrative costs were lower, due primary to reduced legal expenses.

Operating income for the second fiscal quarter of 2003 improved 32% to $28.2m from $21.3m in the year ago period.

Net interest expense for the quarter was $6.3m, a $2.6m increase from last year, of which $1.4m is a one-time charge in connection with the retirement of our $115m of 6% convertible subordinated notes due November 2003.

The remainder is due primarily to higher interest expense associated with our offering in January of $150m of 9 1/8% senior subordinated notes due in 2013.

The company's affective income tax rate for 2003 quarter was 40% compared with 41% for the 2002 quarter.

Net income for the quarter was $13.5m or $0.68 per diluted share versus net income of $10.9m or $0.53 per diluted share in the comparable year ago period.

Depreciation and amortization for the most recent quarter totaled $4.3m, the same in the prior year.

Unusual expenses consisting primarily of litigation expenses were $1.3m and $8.8m in the second fiscal quarters of 2003 and 2002, respectively.

Net sales for the first half of fiscal 2003 were $542m compared with $501m in the comparable 2002 period.

Net income for the first half of 2003 was $12.8m or $0.64 per diluted share compared with $9.4m or $0.51 per diluted share in the comparable period last year, before the effect of adopting SFAS 142 on September 30th 2001.

In the first half of 2002, including the effect of a non-cash SFAS No. 142 accounting charge of $146.7m or $112.2m after tax, the company reported a net loss of $102m or $4.44 per diluted share.

Turning to the balance sheet, we accomplished improved working capital management.

Although, our sales were up approximately 14%, working capital grew at a much lower rate.

Comparing the March 29, 2003 balances to the March 30, 2002 balances, accounts receivable increased by $8.3m or 4% over year and inventories increased $13.1m or 6%, while accounts payable declined by $3.5m.

We also continue to reduce our debt.

On March 29, 2003, total debt was $249.2m versus $293.4m last year.

We are currently in the market for a new $200m senior secured credit facility to replace our existing $175m asset-based credit facility.

We anticipate that this facility will consist of a five year $100m revolving credit facility and a 6-year, $100m Term B loan.

Our undertaking this refinancing should increase our financial flexibility by putting a layer of medium term capital and increase our access to additional lenders.

We believe that this increased financial flexibility will allow us to more effectively pursue growth opportunities and protect our acquisitions on a prudent basis.

Glenn Novotny, our president and incoming CEO, will now review the operational results for the pet products and garden product statement.

Glenn.

Thank you Stu.

First of all, our pet products segment turned in a strong second quarter.

Our pet brands consist of Kaytee, TFH, Nylabone, Four Paws, Wellmark, Zodiac, All-Glass, Oceanic Systems and Island Aquarium.

This segment reported second quarter sales of $128.6m, an increase of $11.0m or 9.3% compared to last year, all of which was organic.

Our branded product sales increased by $10.9m or 12.3% and sales of other manufacturer's products were essentially flat, compared to last year.

Operating income for the second quarter was $13m compared to $10.5m last year.

This improvement was due to increased sales of higher margin branded products across all of our brands and significant cost reduction.

We continued to be a leading innovator of products and packaging in the pet industry.

This year, we were pleased to win three new product awards and one packaging award at the annual American Pet Products Manufacturing Association tradeshow in February.

I'll now review the highlights of the pet brands.

Kaytee, the market leader of innovation in birds, [unintelligible], foods and treats, continues to perform very well.

During the quarter, Kaytee won an APPMA award for our recently launched birdcage line, and introduced numerous new products including extensions to our supporting line of outdoor pond products and Kaytee healthy talkings pet bird food.

In addition, the consolidation of Kaytee's manufacturing facilities is on track for completion in the fall.

This should substantially reduce Kaytee's operating cost and increase its manufacturing capacity going forward.

We are the leader in the aquarium industry through our three aquarium brands that target different market segments.

Our All-Glass, mini-bowl 5 and 2.5-gallons kits continued to have widespread consumer acceptance and have grown the market.

Our goal is to make sure the consumers first aquarium hobby experience is affordable and successful.

In response to the increased demand for mid-sized aquariums at moderate prices, All-Glass also recently launched it's award winning Geneva line of aquarium stands which offer contemporary high-end style at reasonable prices.

These stands coupled with All-Glass's mid-sized bowl front aquarium kits are attractive, reasonably priced products that encourage consumers to increase their investment in the hobby.

Wellmark is a leading marketer and producer of flea, tick mosquito and other insect controlled products under the brand names Zodiac, Alphacid, Extinguish, Pre-Strike and others.

Our profitability in this segment was up due to higher sales and improved mix of higher margin products.

The continued concern about the West Nile Virus has led to strong sales of Alphacid which is our professional mosquito larvae site product line, which is sold to mosquito abatement districts across the country.

Pre-Strike, our recently introduced brand of mosquito-controlled products for consumers has also secured substantial refiller listings for this year.

Our Nylabone brands of premium dog chews and edible bones continue to sell well and gain additional listings with retailers.

Nylabone also won two awards at the tradeshow in February: The Best New Product, The Best New Dog Product award for its patented chew and edible bones and its point of sale display for big chews for big dogs.

Our TFH's book business, which recently outsourced its premium binding operations to improve quality and reduce cost has made a dramatic improvement in customer acceptance and profitability.

Our pet sales in logistics network continued to concentrate on increasing sales for our branded products achieving a 7% increase in the quarter.

Let's now turn to our Garden product segment, which consists the following brands: Pennington, AMDRO, Grant's, Lilly Miller, Norcal Pottery Products and Matthews Four Seasons.

This segment reported second quarter sales of 201.9m compared to 173.1m in the same quarter of last year, an increase of 16.7%.

Sales of our branded products were up 31.8m or 25% all organic, while sales of other manufacturer's products were down 2.9m or 6%.

Garden products reported income from operations for the quarter of 23.9m compared to 21.3m in the same period of last year.

While this is an improvement, higher grain prices for our wild bird feed products adversely impacted the quarter.

Pennington produced a strong increase in sales across all lines.

Wild bird seed sales were strong due to the unusually cold weather in the North during the quarter, but again, profitability was adversely impacted by the higher than normal grain prices.

Our Pennington grass seed continues to be an innovation and quality leader in the category.

Our new 2003 product introductions under the Masterturf tournament quality Pennington select brands are all doing extremely well this season.

Pennington chemical sales were also up significantly over last year as we saw strong, eliminator private label sales to Wal-Mart.

Our recently introduced eliminator weed and grass killer products performed exceptionally well as did our Maxide chemical and Pennington fertilizer products.

And we are also pleased to report that Pennington was recently awarded Lowe’s 2002 nursery division supplier of the year.

AMDRO, which is the number one consumer fire ant bait brand in the country experienced significant increases in sales due to new products in the increased listings.

We are pleased with the sales of our new AMDRO broadcast [Inaudible] treatment.

As this new product in addition to AMDRO's [Inaudible] treatment product solves fire ant problems throughout the entire yard.

In addition, our Norcal Pottery, Grant's, and Lilly Miller also produced asolid performance in the quarter.

Our Garden sales and logistics network continues to strategically support our Garden brands to retail shelf positioning, in-store merchandizing, cost effective store door deliveries and significantly expanding our own proprietary brands to more customers and expanded listings.

The cost we have taken out of this network over the last two years continue to be reflected positively in Garden products overall results.

Looking to the future, our Garden and pet brands are well positioned for a strong finish to the year and beyond.

Our pipeline of new products, coupled with strong retail relationships, and consumer demographics should continue to drive sales and profits.

We now have six months of solid progress behind us in 2003 and we will remain on track with our full year guidance of a $1.70 to $1.80 per diluted share.

This is despite the higher grain cost for birdseed, and increased interest expense associated with the senior subordinate notes offering in January.

We also have repositioned the company for future growth by reducing debts, and successfully re-capitalizing our balance sheet.

We will continue to execute against our five key strategies.

They are, growing our brands, developing and monitoring new innovative products, leveraging our cost structures, positioning our company to support controlled growth, and pursuing and completing prudent acquisitions in our industries.

We indeed are fortunate to be an industry leader with a portfolio of number one brands in our two core businesses, Pet supplies and lawn garden supplies.

Both of these industries are growing, recession resistant industry for favorable demographics.

Thank you for your attention and participation in this call and operator we will now take questions from the audience.

Operator?

Thank you gentlemen.

The floor is opened for questions.

If you do have a question or comment, please press the numbers one followed by the four on your touchtone telephone at this time.

If at any point your question has been answered, you may remove yourself from queue by pressing the pound key.

Questions will be taken in the order received, we do ask all participants to utilize the handset for optimum sound quality.

Please hold as we poll for questions.

Again that's one followed by four on your touchtone telephone at this time.

Our first question is coming from Alexis Gold of CIBC World Markets.

Please go ahead.

Good evening.

Congratulations on the quarter.

Thank you, Alexis.

Just had a couple of questions, actually related to the new credit facility.

I'm just wondering, I mean is it going to be a traditional facility with financial covenants.

I am wondering, if I can get a little color on acquisition baskets or is there any more information you can give us there?

It's a traditional credit revolving credit facility and Term Loan B facility with the traditional covenants you would expect.

There are acquisition buckets and there is also an investment bucket.

The deal has not been closed yet, so it's probably little premature to go through all that details of the loan agreement right now.

Do you plan to file the credit agreement with the cat -- with the Q?

Not with the queue.

We expect the credit agreement completed in May.

Okay.

I think, I was actually just sort of a housekeeping question.

Can you tell us what EBITDA was for the quarter?

Well with reg FG, we can't any more.

Okay, so you said G&A was 4.3m?

Yeah the amortization was 4.3m all through the quarter.

Okay.

That's great.

Well congratulations again.

Actually, I'm sorry, can I ask one more question?

Sure.

It is about the grain prices, I understand that you were able to pass through price increases and that's great.

And do you expect those to continue and how are grain prices, do you think going forward?

We achieved the last of our wild bird seed increases in mid March as we announced.

We think, we have those prices now to cover.

Going forward, we do not expect any adverse impact going forward now.

And grain prices, we have crops in the plain state (ph) right now are.

They are down somewhat.

Okay, great thanks again.

Thank you.

Next question operator.

Thank you.

Our next question is coming from Ron Silis of Banc of America.

Please go ahead.

Hi guys, I was wondering if you can give us an update on, where you stand in the acquisition process.

I know you are very interested in finding something attractive, are you close, not close, big, small, pet, garden, etcetera.

These are all the stuff you can tell me?

All the above.

We have several discussions going that aren’t too small and that's about as far as we can go right now.

Got you.

I think, commitments were due on the bank deal today, any sense for how that's kind of going?

I would imagine that's probably going very well?

It's going, we are pleased with the progress.

Okay.

Now we've heard -- all of us in the public side have heard through a couple of sources, I think there was an S&P report that came out on Bloomberg a little while ago that indicated, looks like some -- there is some pretty significant room for leveraging.

Wondering if you could talk to us little bit about where you guys get uncomfortable in terms of leverage on the business.

Sure.

You may have got the S&P press release.

First, I think, they stepped back.

You know, our ratings have increased several notches by both Moody's and Standard & Poor's over the last year.

Reflecting our improved financial performance and improved cap structure.

The new facility we are working on right now does have some covenants that give us a fair amount of room to leverage the company but as I've said before we built in a lot of flexibility into the agreement.

It doesn't mean we are going to use it all.

I'm kind of one for structuring for a rainy day if I need it but first and foremost kind of our house policy again if you will is that we talked about debt-to-EBITDA ratio is somewhere around 3 times on steady state and this facility will allow us to spike above that, but we, as I've said before, will do that if we have a plan to get it back down to somewhere around that 3 times.

Yeah sure.

Another thing on the competitive front I guess.

The Scotts folks have talked in the last conference call on their conference as you know about their entry in the pottery business.

It seems like a fairly different type of business for them.

Wondering if you could give us some feedback on how that would compete against Norcal and what you might think about their ability to succeed or what type of problem they might have with a business of that sort?

Well, I refuse to talk bad about any competitor, Ron, but I think what we'd say is that we are comfortable with our position.

They will do some things.

There is no question about that.

We are not concerned with what we are doing.

We'll continue doing what we are doing which we do, I think, very well.

Okay -- on the house keeping front, 150 of debt and much of other stuff we'll call other, the revolver, I'm plugging at 53.9.

What period?

You need to be a little more specific, Ron.

You know those all are dogs and cats all those different mortgages that we've all lumped together historically and the converts are obviously going to leave you $150 a bond.

I'm just backing into a -- can you just give us what your revolver is at the end of the quarter?

That would be helpful.

Okay.

Well it's on the press release.

Is it?

Our notes – our revolver is our notes payable.

Is it?

Yeah.

Thank you very much I appreciate it.

Operator can we have a question from someone else?

Ron, we can come back to you if you have others.

Thank you gentlemen.

Our next question is coming from Bill Chappell of SunTrust Robinson Humphrey.

Yeah good afternoon.

Just a couple of questions on the top line growth.

Trying to understand, obviously very strong growth in the quarter and I've forgotten if you've quantified before how much was grass seed shipments that were pushed out of last quarter to this quarter and maybe with that kind of, what your outlook is for the year, you didn't really talk about top line guidance.

I thought you had said something in prior conference calls.

What we had said earlier is the grass seed about $6m moved from December to January.

So that will occur in this quarter.

As far as the top line, we'll stay with the guidance that we gave you the last time.

$1.1b to $1.15b for the year.

Was there anything else going on in the pet business that had such a faster growth did you cycle out of a distribution contract this quarter or anything?

Just the absolute number was pasture growth.

Just the absolute number was --

Yeah.

There's no excitement over the quarter kind of things going on.

And then housekeeping wise, both looking a kind of, your interest expense for the quarter and share count for the quarter, and how I should be looking at that going forward?

I guess a month of the quarter included interest from the old notes and shares.

How should I be looking at those two numbers going forward?

Well from an interest expense standpoint what you said is the way to look at it for the quarter and from a share count standpoint, the dilution calculation -- are you talking about the same quarter or are you talking about going forward?

Second quarter and how I should compare to going forward?

Okay.

The second quarter did include diluted shares for one month of the three months for the quarter.

So would like 19,250 be a correct number to be using going forward?

Is it a share count or --

Pretty darn close .

Okay great.

And then one last question, any effects or as you look out on kind of energy cost and how that looks as far as the packing margins going forward?

We really don't view energy cost as a big impact on this in any material way.

Next question please.

Thank you gentlemen.

Our next question is coming from Jan Loeb of Jeffries & Company.

Hi, good afternoon.

Hi Jan.

Two questions please.

Firstly, what did you say about the three times EBITDA, I missed that about the total debt you are willing to take on?

Okay, generally it's sort of a house rule, we are trying to maintain our capital structure on an ongoing basis.

So, about three times EBITDA.

And that's interest expense?

That's total debt.

Total debt to EBITDA?

Right.

So, if you have, let's say right now your -- call EBITDA is somewhere between 90, 95, between $90m and $95m, so three times that would be $270m or there about and you have $150m of notes and now you are trying to negotiate a $200m revolver that would mean the EBITDA should be substantially higher?

No, that's not impacting the EBITDA.

No, I am saying is to get it.

That means, you are looking to put up about $350m of total debt.

The $150m plus the $200m revolver?

That would equate if it --?

Revolver is not going to drawn and closed.

We are basically recapitalizing the company, so we had $250m give or take outstanding at the end of the quarter.

When we are done with this quarter, we will be somewhere around there.

And so, again we are building a new cap structure with this new facility that will gives us, surge capacity with a revolver and then access to the term loan B market on a more permanent basis, if we need to fill something out more permanently.

Okay, so basically you would only pull down the $200m, if you would be making acquisition that would add some significant amount of EBITDA?

Right.

That is correct.

Okay, secondly, a month ago we had an issue where the estimates had to be adjusted down because the company doesn't really give a view on quarterly break down of estimates.

But analyst -- since this company is really a reborn new company, one can't really look at next, last year's numbers as any type of guide post with this year's numbers.

Is there anyway you can avoid that from happening in the future?

Jan we are working on it.

I think that's the best way to do.

Just like you, we're feeling our way through the new business too as we’ve transformed from the traditional distributor to a branded products company.

And as we continue to grow our brands, it really depends on much traction we are going to get on those things.

And then as we've mentioned the third aspect always there is seasonality on the garden side.

So it's just a business, it's hard to forecast quarter-over-quarter.

One week of strong garden sales in the end of March can have a dramatic impact on the quarter.

So you foresee that's something similar that happened the month ago, so it could happen again where, you know you have the market has some trembling as you, kind of, readjust things.

We hope not.

We hope not.

We've been on the road for a couple of weeks as you know Jan and one thing we've been again just trying to get people within the Ball park here and we've said that approximately 50% of our earnings for the year will earned in the third quarter and that's approximately, because there is a fair amount of swing right now in the garden season and then when it's actually booked.

Now we look at the year and we are pretty comfortable when it’s going to happen but we can't get it with precision on the quarters especially in the second and third quarter but again 50%, kind of, our stake out there.

Jan, I want to make a comment, this is Bill.

The year is performing much as we have anticipated and we are largely on our plan and while it is true because of weather moving garden either two weeks sooner or two weeks later there are some bubbles such as Glenn talked about the $6m that grass seed moved from first quarter to second quarter.

We are largely tracking, I think the significant problem is because of FD and the way things unfold, it's more difficult to talk to the market and we really emphathize with the analysts as they pick up the coverage and are getting with it.

But people should have a lot of comfort and confidence in the guidance that we've given and our belief about it and the color that we've given around it.

Okay.

And my last question is from your comments it would seem that, birdseed grain prices kind of have peaked in mid March and now seem to be declining, while your ability to get higher prices only started to happen in mid March.

I'd not emphasize declining has stabilized, it might have softened from a peak we had, but we aren't expecting a significant decline in wild bird's pricing, we will need to see what happens to the crop and how it shapes out come the fall.

We don't expect that to happen right now.

Next question please.

Thank you.

Our next question is coming from Bill Gill of Banc of America.

Thanks.

Good afternoon.

I have got a few questions, feel free to cut me off at any point.

First of all, the Garden business in April, how did that start, how the quarter start off for you?

We are comfortable right now with the way this April started off.

Okay.

The pricing that you took in March, how much benefit does it have in gross margin in the quarter?

We’re not going to disclose that, I won't cut you off Bill, but I don't want to disclose that is, it was a -

Okay.

Never hurts to ask.

I can either attack it from a top line or bottom line.

Okay then, how about advertising being a consumer guy, would you venture a numbers to how much is pending you guys are doing behind the brand in order to describe that strong organic growth?

As Bill as we discussed a year before, a lot of our brands really you can't justify to a lot of advertising such as television, obviously some of them we can.

We do like radio spot advertising for our fire ant control, we will do somethings like that for some of our mosquito items as well.

We do a lot of co-op advertising with our retailers, we do fliers, we do things like that.

We will continue to increase that as we move forward but again for us it's not that significant number as compared to some other typical consumer products company.

You know Glenn, if you look at it from, I willuse Colgate’s term a 360 degree view, I agree with you.

In terms of merchandising in the store, price promotion fliers coupons, media advertising, any sort of general percentage that you might be able to roll up using all those?

If you roll all them up the answer is going to 1 and 3%, probably an average to about 2.

Okay.

Thanks, that's helpful.

And then Stu what was the cash flow from operations from the quarter?

Do you have it yet?

I don't have the number in front of me, Bill.

Hang on a second.

We've got [unintelligible] controller here.

And the last question, which is kind of similar to that one.

What's your cash flow from ops target for '03?

We don't have them right now.

They’ll all be in the Q.

How about the full year?

You looking for flat with '02 or probably down?

It should be pretty flat.

Flat?

Perfect, thank you very much.

Thank you Bill.

Our next question is coming from Joe Altobello of CIBC World Markets.

Just a couple of quick questions.

First on gross margins, how much did the grain price increase cost you in gross margin?

I guess the question I'm trying to ask you, would gross margins have been up if not for the increased grain prices?

Second, what was CAPEX in the quarter?

It did impact us.

We did answer on our road show, several million dollars.

Several million?

Yes.

Okay, so would gross margin have been up, were not for that?

Yes.

Okay and CAPEX?

CAPEX for the quarter was 4.3, year-to-date it was 6.8, look at the answer at the board.

Okay.

6.8 and we are still guesstimating 18-20 for the year.

18-20.

We'd thought you would ask that question eventually.

Okay.

Thanks.

I appreciate it.

Okay.

Thank you, Joe.

Can we get a share count adjustment?

Yeah.

We didn't get the share count adjustment for the year.

[Inaudible] say 21.2?

Is that what you told them?

Yes.

We need to correct, I think --

Some were asking for the fully diluted shares.

Is that--?

Quarter by quarter is the answer that was given for the next two quarters with the weighted average for the year.

Bill Chappel, you asked a question about diluted shares.

I want to make sure that we got that correctly.

For the full year, it is going to be what guys?

For the full year, about $21.2m.

Each of us is looking at quarterly EPS and I'm right.

These are the 20m shares.

That is for quarters three and four.

That is a question he is asking.

So Bill, I assume you heard that.

Mr. Chappel, your line is live.

Yes.

I heard that.

So it is $20m a quarter and then $21.2m for the full year fully diluted.

That is right.

Because we added the full effect in the first quarter and one month in the second.

Of the converts.

Okay.

Thank you.

Bill, we want to make sure we got that correct for you.

Next question please.

Thank you gentlemen.

Our next question is coming from Jim Barrett of CL King.

Please go ahead.

Hi everyone.

Glenn, could you tell us given your brand mix and your customer mix, is there any reason for your Garden business to vary dramatically from overall industry trends – I mean how should we look at that?

Well, remember our largest customer is Wal-Mart and as they grow, we grow with them.

We -- our three largest customers in the Garden side.

Guess what, Wal-Mart, Home Depot and Lowe's as they continue to grow, we will grow with them.

We've had a good start here for the first six months with good organic growth and we've had a real good success with some [Inaudible] they are at Wal-Mart.

So we are happy right now with what we are looking at.

And are you -- how about the status of retail inventories at this point in fact?

It is too early to say right now.

Typically, the retailers will, as the spring moves along on the garden side may say want to take them down, but it's too early right now to look at that and [Inaudible].

Okay.

Okay, well, thank you very much.

Thank you.

Next question please.

Our next question is coming from Bill Brady of Presidia .

Hello.

A couple of questions.

Litigation was $1.2m in the March quarter.

What should we expect it to be in the ongoing quarters?

It's $1.3m for the quarter.

$2.3m year to date.

Our guidance is $4m for the year.

Would you expect it to go down next year then?

Oh, yeah.

We hope so.

That's our plan.

We're on homestretch I hope.

Yeah.

Okay, then, on the - I got the figures of $128.6m for pet and the $201.9m for garden, but I didn't get the break down in each category between branded and other.

Can you give that to me?

We, one sec, you got another question.

I am just going to dig into my script for a second here.

I'll let someone else ask you a question.

I'll give that.

I'll just answer that in just a second.

Okay.

Thank you.

Our next question is coming from Phil Shernon of Shernon Company.

Good afternoon everybody.

First of all, congratulations on the sales increase in very tough economic times.

It's good work.

I'll make it easy for you with just one question.

If you factor out the decline in litigation costs this quarter to the quarter last year of $7.5m, operating profit remained about the same.

How do you expect to get the operating profit to increase consistent with the sales percentage increase?

Well, the biggest contributing factor to that bad effect was our higher grain prices and we've got that under control now with the price increases with our retailers.

That's the biggest contributing factor.

There are some other factors that offset that a little bit which is kind of a cost of doing business today and that is, things like increased insurance cost where all companies are experiencing increased costs, across the board for all types of insurance and we’re not alone from that.

The branded product sales ?

For pet (it was -- branded products sales increased by $10.9m with 12.3% and garden with 31.8 or 25%.

Bill, that was the answer for your question.

And y the way Bill Brady welcome to our investors club.

Bill do you have other questions for us?

Mr. Brady your line is live again.

I just heard the answers.

Okay.

Thanks, thank you.

You are welcome.

Next question please.

Thank you.

Our next question is coming from Aaron Brown of Willow Creek Capital Capital.

Good Afternoon, congratulations on the year so far.

Who are all these new guy's on the call?

It's taken a little longer than our normal calls 10 or 15 minutes.

I don't know if you want to go back, Aaron we will.

No, it is okay I like it this way better.

So do we.

I understand the reason for the earnings adjustment five weeks ago that Janet talked about.

Given the outlook going forward in your reaffirming the guidance, is there any issue that you see with the current street estimates.

That would be one question and then kind of dove tailing into that, are there any internet issues out there, that you could see that would potentially provide some upside to the current range specifically the seed issue that you’ve talked extensively about or just a general pickup in the consumer and retailing environment in general?

Aaron I can't comment on the street’s estimates out there.

We are pleased with our guidance.

In terms of upsides [Inaudible].

—upsides, if the commodity prices dropped significantly on the grain price, it will be a plus.

It's too early to say whether that's going to happen yet or not, and if the, of course, if the weather just stays very good especially in the northern half of the country, that would be an upside, but we are going to stick right now Aaron with our $0.70-0.80 range.

Okay.

Any new products with nice profit margins that could be a sleeper item for you either to the balance of this year or in the next year?

As we said the Pre-Strike right now is listed in some of our retailers.

We now, as we enter the spring markets and more the moisture we should see those sales take off POS, sales out the doors.

We are hoping to see that, that would be nice one.

That AMDRO broadcast yard treatment that we talked about earlier.

We have been very pleased with that one, that's a kind of new solution for consumers in the southern half of the markets where fireants are big problems.

We are seeing a lot of a success with that one, which [inaudible] is the direction we want to go.

Great.

Well, as it's been pointed out it's a pretty tough environment, you guys just slugging away.

So, keep it up.

Thank you.

We really are blessed to be in too good industries that do good in any economy and thank God for that.

And thanks for taking the time go on the road and generate some Street awareness and some investor interest.

We do appreciate it.

You are more than welcome.

Another question please.

Thank you.

Our next question is coming from David Codell of Bromen.

Yes.

I just want to, dovetail off one of the other questions asked about the guidance for the rest of the year if I could just to kind of get it straight.

Did you say that the third quarter should account for roughly half of the 1.70 to 1.80 of the EPS we should expect through the year?

Yes.

Yes.

And is there anything in the September quarter where we are expecting a nice lift year-over-year?

Is there anything there that we should be aware of that would kind of perhaps make the September quarter a very easy compare because that would be on a percentage basis the easiest compare the year ago, looks like – or the biggest one?

Again this is part of that the guidance trick that we are all trying to maneuver through here is that, traditionally in our fourth quarter in the past when we were going through our transition, we would write-off discontinued operations at the end of the garden season and that is behind us.

So, that's one thing that's in the prior year that we hope not to experience this year.

Another one is that pet sales are much stronger and that's pretty even throughout the year.

So that will bode well for the fourth quarter as well.

Okay.

So, we can expect something, reading off First Call for the time being, First Call is looking at something like 17 versus 4 for the fourth quarter.

Okay, one last thing if I could, when are you printing -- your Q is coming out any day now, so we will get results from, if you happen to have the allowances the allowances for doubtful accounts for the quarter.

We'll look that up, but just a general, the Q will be out next week.

Next week, great.

Just a second, we will give you your answer.

Okay $8m.

Great.

That's it for me, thank you very much.

Thank you David.

Next question.

Once again ladies and gentlemen, if you do have question or a comment please press the numbers 1, followed by 4 on your touch tone telephone, at this time.

Jan Loeb we want to make sure, we didn't cut you off.

If you had any other questions, we would be pleased to take those.

Gentlemen, I'm showing no further questions in queue at this time.

Jan, I hope we answered all your questions.

Well ladies and gentlemen we thank you very much for your participation in the call day and we would echo Aaron Brown's sentiments that it's nice to have a lot of new investors here with us.

We hope we can all do very well on your behalf.

If you win we win and vice versa, and thank you very much for the call and good bye.

Thank you ladies and gentlemen, this does conclude today's tele-conference, you may disconnect your lines and have a wonderful evening.