Central Garden & Pet Co (CENT) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, welcome to the Central Garden & Pet's fiscal fourth quarter results.

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 0 on your touch-tone telephone.

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

I would now like to introduce Mr. Paul Warburg, Vice President of Investor Relations for Central Garden & Pet.

Please go ahead, sir.

Thank you, Operator.

Good afternoon, everyone.

And thank you for joining us.

With me on the call today are Glenn Novotny, Central's President and Chief Executive Officer, Stu Booth, our Chief Financial Officer, Jim Heim, President of Pet Products, and Neil Pincus President of our Garden brands.

Before I turn the call over to Glenn, I would like to remind you of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The statements made during this conference call, which are not historical facts include 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 or implied by forward-looking statements.

These risks are described in the Company's earnings Press Release and Form 10-K for the FY ended September 27th, 2003 and other securities and exchange commission filings.

And now, here's Glenn Novotny.

Glenn?

Thank you, Paul.

And thank you everyone for joining us this afternoon.

Today's agenda is as follows -- First, I'll provide an overview of the fiscal fourth quarter, Jim and Neil will discuss the Pet and Garden segment respectively, Stu will review the Operating and Financial results, and then I'll provide a brief recap of the year and 2005 outlook before opening the call for Q&A.

As we indicated to investors last month on our fiscal 2005 guidance call, we experienced a strong fourth quarter.

Sales for the quarter increased approximately 21% to $311 million when compared to the fourth quarter last year.

Operating income increased approximately 29% to 12 million.

Net income increased 13% to 5 million for the quarter.

These results translate into earnings for fully diluted share of 25 cents compared to 23 cents a year ago, an increase of 9%.

Organic sales increased approximately 6% while the 5 key acquisitions completed in fiscal 2004 contributed to approximately $39 million to topline performance in the quarter.

Acquisitions also added approximately 5 million to operating income.

There were several factors driving this performance for the quarter.

In the Garden segment, sales increased more than 22%.

Operating income, improved to 2 million, an increase of 4 million compared to a loss of 2 million last year.

These increases are due largely to contributions from the GKI/Bethlehem Lighting, our seasonal lighting operations, as well as greater operating efficiencies in our Garden distribution operations.

Equally important, as we had planned, we have effectively managed inventories particularly in our grass seed operations.

At quarter's end, seed inventories were approximately $11 million lower than year-end fiscal of 2003.

I am pleased with our results in Garden's traditionally slowest quarter.

The Pet segment continued a strong performance.

Sales in the quarter increased by approximately 19% and operating income by nearly 18%.

Organic sales increased 11% in the quarter.

As previously indicated, we did experience strong demand for mosquito control products in the wake of the hurricanes that struck Florida and the surrounding areas in September.

Furthermore, our Nylabone Quest NutriDent Edible Bones for Dogs continued to experience heavy demand in both the pet speciality and math retail outlets.

The balance of the Pet portfolio performed well in the quarter and the outlook remains positive.

In the quarter we completed our fifth key acquisition for fiscal 2004.

We purchased Energy Savers Unlimited or as we call it ESU.

ESU is a leading brand in high-end speciality lighting systems and other supplies for aquariums, terrariums, reptariums, and avian.

It has a strong history of producing premium brands, featuring innovation, quality, and technology, and ESU further strengthens our position in the aquatics market place adding another premium consumable and accessory supplier to our aquatics portfolio.

In summary, we are pleased with the quarter.

Our Garden operations did a good job of streamlining operations, Pet continued its overall strong performance, our acquisitions continue to perform as expected, and we augmented our portfolio with the addition of ESU.

I'll now turn the call over to Jim Heim, President of Pet to provide additional insight into the Pet operations.

Jim?

Thanks, Glenn.

As Glenn mentioned Pet continues to perform very well and the outlook remains strong.

The Pet segment sales for the quarter increased 19% to approximately $149 million.

Our operating income increased nearly 18% to approximately 15 million.

Acquisitions contributed slightly more than 1 million.

Now at the heart of the Pet Groups performance, is our dedication to invasion, our dedication to quality, and our dedication to service.

Our strengths really are twofold.

First of all, we combine our focus on unique innovative products that no one else has with exceptional packaging.

And secondly, our distribution platform enables us to get products to our customers faster and more efficiently than our competition.

Our retail customers have come to know and rely on Central.

Trusting us to keep their aisles fresh with leading-edge products for both the everyday user and the high-end enthusiast.

Now, included in the fourth quarter operating results is the completion of the closure and consolidation of our Island Aquarium Manufacturing Facility.

This initiative, which consolidates our aquarium manufacturing platform into 2 from 3 locations costs us approximately $1 million.

Now this quarter's performance reflects our strengths.

First of all, as Glenn noted, we experienced strong demand for our mosquito control products in the wake of the hurricane season in Florida and the surrounding areas.

We are the leading provider of products specifically designed to prevent the maturing of mosquitos before they reproduce and become a nuisance or health issue.

Now another example of Central delivering unique products is our patented Quest NutriDent Edible Dog Bone from Nylabone.

Now, we launched this product nearly a year ago.

And it has been easily one of the best new product introductions in Central's history.

It has been successful in every channel where it's been introduced.

And now we're going to build upon NutriDent's success in our launching of a brand new innovative dog health bar.

It is the patent pending, healthy, edible nutritionally-enhanced chew bar for dogs.

Now, it's similar to the NutriDent product and the chew bar for dogs will build upon the animal health-trend, providing nutritional enhancements for dogs.

This product represents a collaborate effort between our Kaytee and our Nylabone personnel.

Invented and designed by Nylabone, the manufacturing utilizes Kaytee's newly expanded manufacturing capability to produce a product that is packaged similar to a health bar.

We will begin shipments of this new product line in 4 flavors in mid January.

Now in the quarter, Central was recognized by several industry organizations for leadership and innovation, quality and service.

Pet Business Magazine gave its 2004 Best New Product Award to the following Central Pet brands -- Kaytee's "Fusion," a new innovative daily diet for pet birds;

Kaytee's Canopy Scientific "Avian Starter Kit," a complete kit of bird and environmental cleansing products, and nutritional and health supplements for birds;

ESU's "Fresh-Air Habitat," an open-air enclosure for small reptiles and animals.

And additionally, Central Pet won the Best Pet Supplies Distributor Award for the third consecutive year.

Our "Oceanic Natural Sea Salt Mix" won the Pet Product News Magazines Editors' Choice Award.

And finally Interpet, our subsidiary in the United Kingdom won the Best New Product Award in the aquatics sector with its new patented "Internal Power Filter" at the Glee International Trade Show in Birmingham, England.

Now, for the year, organic sales and operating income growth was in the 10% range.

Looking ahead to fiscal 2005, we anticipate organic sales growth to be in the 5 to 7% range, while organic operating income growth to be north of 10%.

Our commitment to innovation, quality and service, our new product introductions for 2005, and continued channel development lead me to project continued strength in our portfolio of leading Pet brands.

Now, I will turn the call over to Neil Pincus, President of Garden brands.

Thanks, Jim.

I will now review the performance of the Garden product segment.

Garden segment sales for the quarter increased 22% to $162 million, essentially due to our acquisitions.

Fourth quarter operating income increased to $2 million compared to an operating loss of nearly 2 million a year ago an improvement of $4 million.

Sales from acquisitions contributed approximately 29 million in the quarter.

This quarter's improvement is due primarily to contributions from acquisitions, most notably the GKI/Bethlehem Lighting portion of the New England Pottery acquisition.

These results also include the impact of the previously announced grass seed plant closure and the inventory reduction initiatives outlined to you back in July, which costs us approximately 3 million in the quarter.

As most of you know, our fiscal fourth quarter is the end of the summer gardening season.

The primary activities for the quarter were initiatives for 2005 Garden season, including line reviews with retailers, inventory management, and cost control.

We've recently completed a series of successful line reviews with most of our key retailers for the 2005 Garden season.

We were able to increase our presence through the introduction of new unique products exclusive to Central Garden & Pet;

AMDRO, the leading brand for fire ant bait control products in the country, is launching a new product for household ant control called "Ant Block."

AMDRO was also recognized during the quarter by a major retailer winning one of its key supplier awards.

Other examples of new listings include our new "Easy Melt De-Icer," from Pennington, which will be found in Lowe's and Wal-mart stores this season.

This new product is pet-safe and environmentally friendly, and should help drive more sales in the winter months.

We were also able to implement price increases almost across-the-board to help offset the higher cost environment we faced for 2005.

At Norcal and New England Pottery, we have combined our common platforms to streamline our supply chain, while presenting a unified face to our customers.

We continued our efforts to create greater operating efficiencies, improve margins, while providing better more focused service to our customers.

In conclusion, like Jim, we feel very confident heading into 2005 Garden season.

We have a strong lineup of new products for '05.

We are carrying less overhead and we are better aligned to serve the needs of our customers.

With that I'll turn the call over to Stu.

Thanks Neil.

Turning to consolidated results for the quarter, as Glenn mentioned, net sales for the fourth quarter of fiscal 2004 were $311 million, a $53 million or 21% increase from last year.

Sales from acquisitions contributed approximately $39 million in the quarter.

Gross profit for the quarter increased $21 million or 30% to $92 million.

Gross profit as a percentage of net sales increased 220 basis points to 29.7% from 27.5% in the year-ago period as both Garden products and Pet products margins improved.

Margin improvements were due primarily to contributions from acquisitions and sales of higher margin products most notably our Wellmark and T.F.H. subsidiaries.

Selling, general, and administrative expenses for the quarter were $80 million as a percentage of net sales SG&A expenses increased 190 basis points to 25.7%.

Acquisitions the shift to higher margin branded products and higher operating costs accounts for the bulk of the increase.

Operating income for the quarter increased 29% to $12 million.

Net interest expense for the quarter was $4.6 million, essentially flat compared to last year.

The tax rate for the quarter was 34.3% up from 17.8% in the year-ago period.

The tax rate for the fourth quarter of fiscal 2003, included benefits of a tax credit recovery project and fiscal 2004 we included the benefits of tax credits throughout all the quarters.

Net income for the quarter increased 13% to $5 million.

Earnings per fully diluted share were 25 cents up 2 cents or nearly 9% compared to last year.

Depreciation and amortization for the most recent quarter totalled $4.9 million up slightly from $4.6 million last year.

Capital expenditures for the quarter totalled $7 million.

For fiscal 2004 our capital expenditures totalled approximately $19 million.

In the fourth quarter we accelerated capital spending to meet increased operating demand for existing and new products for 2005.

Turning to our fiscal year 2004, net sales were $1.27 billion up $122 million or 11% over 2003.

Organic sales increased 4% and acquisitions contributed approximately $74 million.

Gross profit as a percentage of sales increased 120 basis points to 30.3%.

Operating income increased approximately 14% to $82 million.

Acquisitions contributed nearly $9 million in the fiscal year.

Net income for fiscal 2004 was $41 million, an increase of 19% over 2003.

Earnings per fully diluted share increased 15% to $1.99.

Turning to the balance sheet comparing the September 2004 balances to the September 2003 balances, accounts receivable increased $38 million or 26%.

Inventories increased $21 million or 10%.

The increases in accounts receivable and inventories are due to acquisitions completed within the past year.

As of September 2004, total debt stood at $306 million compared to $250 million last year.

The increase in debt over the last 12 months is due primarily to acquisition activity in 2004.

We are reiterating our fiscal 2005 guidance of approximately $2.47 per fully diluted share, which is the mid point of our $2.42 and $2.52 range based on an estimated sales of approximately $1.4 billion.

I will now turn the call back to Glenn for his insight into the full-year results and summary comments before Q&A.

Glenn?

Thank you, Stu.

First of all, fiscal 2004 was a solid year for Central Garden & Pet.

A year in which we accomplished a great deal and strengthened the Company for the future.

First, we completed 5 key acquisitions, 2 in Garden, 3 in Pet.

The New England Pottery acquisition, combined with our existing Norcal operation, now form the largest decorative Garden pottery operation in the country, and also entered us into the seasonal lighting business.

The Budd Seed acquisition [robbed] Central at premium grass seed brand, Rebel.

This acquisition is expediting our transition to more premium, higher margin varieties and expands our reach into the professional grass seed arena.

The additions of Kent Marine and Energy Savers Unlimited compliment our growing aquatics operations together with All-Glass, Oceanic, and recently acquired Interpet, we have the most complete aquatics offering in this high-growth segment of the Pet industry.

The Interpet acquisition, based in the United Kingdom and its portfolio of leading brands, gives Central a solid foothold in the UK enabling us to begin expanding our presence in the UK and Europe.

Aside from strengthening our products operations, Interpet also has several other key brands to support growth in the water gardening, dog, cat, and equine market segments both in Europe and in the United States.

Second, the Pet business produced solid organic growth.

Pet posted strong results growing sales and operating income by nearly 10%.

We are particularly proud of the industry recognition received throughout the year highlighting Central Pet's leadership in innovation, quality, and service.

We remain committed to innovation, quality, and service and making sure that at least 15% of our sales from products launched within the past 24 months.

We also made distinct progress in our Garden operations.

Our Lawn and Garden Chemicals Division experienced a solid year with strong single-digit sales growth and even better growth in operating income.

In particular, our private label brand from Wal-mart, "Eliminator," continues to sell at a one-to-one ratio with the national brands.

This is especially gratifying in light of the national brands having significantly more shelf space.

We continue to leverage our operating plant form to reduce cost.

We closed 4 manufacturing and distribution locations, and as Neil mentioned earlier, we have taken steps to combine our 2 Garden pottery operations, Norcal and New England Pottery, to reduce costs, achieve greater efficiencies, and improve our market effectiveness.

We also made our grass seed operations stronger.

I guess the silver lining of the grass seed issue is that we did make necessary structural changes to the operations, hastened our transitions to premium varietals, and we reduced inventories, which should position us to return to more normalized returns in 2005.

We continued our strong history of innovation in 2004 across the entire Company.

Products launched within the past 24 contributed approximately 15% of 2004 branded sales.

Finally, we made several strategic additions to our Management Team to support our future growth objectives.

We filled several key management positions, including a new President of Pet, a new Vice President of [MNA,] Vice President of Human Resources, and a new Vice President of Investor Relations.

We achieved nearly 11% topline growth and 15% growth in earnings per share.

As mentioned in our 2005 guidance call last month, and as Stu just reiterated, our objective is to deliver 10+% growth in sales to over 1.4 billion and over 24% growth in earnings per share in 2005.

We are comfortable with that guidance.

In summary, we accomplished a great deal in 2004.

We believe we are an even stronger operating company.

We broadened our portfolio of leading brands.

And we continue to build financial momentum to pursue strategic acquisitions that make sense and deliver superior returnings to shareholders.

Operator, we would now like to open the call to Q&A.

Ladies and gentlemen, [OPERATOR INSTRUCTIONS].

Bill Chappell, SunTrust Robinson Humphrey.

Congratulations, again.

A couple questions.

First, maybe on the New England Pottery Lighting Business.

Can you give us an update of how that's going?

I know this is the first time you've had that.

How that looks for the holidays?

We're actually very pleased with it.

The lighting business is very countercyclical particularly, up in the Northeast as it offsets pottery sales, which we have a much longer season out on the West Coast.

We are very pleased with just the premium quality products they have, the way they go to market, particularly with some of its customers on TV and showrooms around the country.

And we are busy right now finishing up all product development process for the '05 Christmas season.

And then, second, on the quarter -- on the margins, first in gross margin was that a -- and I would assume since it was a high concentration of the Altosid, that was a higher than normal gross margin then you would normally see?

It could be, yes.

We did sell more as we said in September, which is the high margin product.

And then in SG&A can you break out what cost litigation were in the quarter?

litigation was about $700,000 for the quarter.

And for the year, Bill, it's 4.4 million.

Just all added up.

Which is exactly what we did last year.

For the quarter and 4. -- for the year I think 4.2 last year.

Unfortunately.

Yes, I know.

And the other thing -- on the other income line, that seemed to drop pretty substantially on a year-over-year basis.

Can you maybe get a walk-through what's going on there, if anything?

We have one business in our investment portfolio that underperformed in 2004.

It was related to a Garden distribution investment.

So, nothing -- I mean that's probably going to be the same going forward?

We hope not.

We're working on it.

I guess final question.

I'll turn it over.

If I'm looking just on a metrics for 2005, can you remind me just what you're expecting both for the average diluted share count and also what you're expecting I guess from the other income line?

Other income is expected to be -- I'm turning on my cheat-sheet here, it is $1.7 million for 2005 and share count is at 21.6.

So you're expecting it -- like the stock price it should jump back up on the fully diluted count?

I didn't understand your question, Bill.

We were 20.9 million in September, but I assume that was because the share price was --?

It's share creep from options.

Joe Altobello, CIBC World Markets.

A couple of questions.

One, you mentioned the price increases you took in the Garden segment.

Do you expect this to completely cover the cost increases?

And also on a similar vein anecdotely we're hearing from pet retailers they're actually looking to take up pricing pretty soon.

Are there opportunities in that business for you guys as well to take pricing?

Well, certainly in the area of price increases -- in Garden, we certainly have been able to pass some of those increases along.

We do expect it to help offset a lot of the other additional cost increases that we're experiencing in other areas like freight and just internal benefits and so forth.

So we are very pleased with the line reduced at this point.

In a lot of cases have gotten those increases.

Joe, this is Jim Heim on the Pet side.

Very much the same case as Neil just stated.

What's really going on with the retailers, the retailers are now increasing their prices based on the manufacturer's price increases.

So you are now starting to see those come back at retail.

And I'm not sure if you guys mentioned this in the quarter -- sorry, in the remarks.

But what was the additional hurricane-related sales to [indiscernible] in the quarter?

(Laughter) we didn't say.

But they were low-single digit million.

Okay.

That's close enough.

And I guess the last question I had.

The SG&A number was a little bit higher than we were looking for.

When do you think we start to see some of the SG&A leverage kick in with the acquisition integration?

Part of the thing that Neil talked about as far as the Norcal and New England Pottery, those will kick in really in the 2005 year, we're coming on to some of that.

We're also taking -- Jim is doing a lot of stuff right now especially in the aquatics segment as we now have what we call a "strategic pod."

More than actual -- the units buy themselves we're doing lots of things there as well.

Ron Phillis, Banc of America Securities.

Actually this is Reed on for Ron.

We were just curious, I'm sure nothing much has happened in the last month or so, but if you could just give us your typical update on the MNA environment?

And whether you're close to anything on either side of the business?

Thanks.

Well, let's see.

We still have the pipeline we talked about.

Our objective is to bring them in almost in a controlled flight pattern to bring them in and we have several discussions going.

And we'll just have to keep you informed as they move along.

Maybe just one other question, if you have any updates you can give us?

I know that you have been trying to expand distribution or penetration especially on the Pet side, I think in some of the other channels; namely, supermarkets, I was just wondering if there is anything as we are out in stores, anything that we should look at in terms of progress on that front?

Yes, Reed, this is Jim Heim.

I think you'll start seeing in Kroger Stores and some other major supermarkets in the country new distribution of our products soon.

So we have made great strides in that area.

And we'll continue to do so in the future.

So it's a huge opportunity for us.

We also saw some in Fred Meyer, which is a big chain out here on the West Coast.

But as we're doing that we're being very careful to make sure that we change the packaging, change the products so that there's not a one-to-one comparison.

We want to protect the Pet specialty channel as well.

We definitely have a channel strategy that is different for food and mass and drug than it would be for Pet specialty and independent.

Doug Lane, Avondale Partners.

Staying on the pricing, It sounds like the pricing is pretty broad-based across your portfolios.

Can you give us some feel for the magnitude of the pricing?

Is it low single-digit?

Mid single-digit?

Low single-digit.

And it sounds like you characterize it as helping to offset additional costs, pass some costs along.

Stu, do you expect gross margins to be up in fiscal '05 flat or maybe down a little bit with the cost pressures?

We're projecting our gross margins to be 31 to 32.5% for the year.

So that will be another increase of 100 [bips] mostly.

And what's driving that?

Is that going to be as much mix as anything else?

Mix and new product introductions.

Can you give us an update on grain costs?

We haven't talked about that in a couple of quarters.

How is that doing?

That's good news.

We don't want to talk about grain costs.

It's about as we expected.

Is that going to be favorable year-over-year or neutral?

We think it will be neutral.

And then have you given us a forecast as to what you think the tax rate will be next year?

I think it's --

38%, basically 38%, Doug.

That was in the -- okay.

Now, lastly, with the Garden business, you know the margins have been coming down, and the returns there are pretty poor.

What do you think the probability is of something strategic there either an asset write-down or just an outright divestiture?

Well, we don't see any need for an asset write-down by any stretch of the imagination.

We're always working on optimizing our platform.

That's something that Neil mentioned we've had under way for at least 3 years now.

So we're going to continue that trend and hopefully accelerate in a couple of various issues in the next year or so.

We have no plans to, I guess your question is actually in the Garden business.

We have no plans for that.

We like the 2 legs of growth that we have.

We're making good progress in both segments.

Well, maybe not the whole business but parts of it?

I'm sorry say that again.

On the Garden side, maybe not the whole business, but other parts of it that may not make sense in your portfolio?

Oh, well we're always -- we look at that in both Garden and in Pet.

We actually go through our portfolio analysis and as usual you take a look and you feed the winners and starve the losers.

I mean that's a discipline we go through all the time.

We did a couple of those in 2004.

You'll see us probably do a couple more in 2005 with businesses that don't perform.

We either close them, sell them or turn them around and merge them together.

Fair enough.

Last question, on free cash flow.

Focus next year more on debt pay down or stock repurchase?

Neither.

Acquisitions.

Acquisitions.

Okay.

Absent the acquisitions, it would be a debt pay down.

Tom [Molleder,] Wachovia Securities.

Just trying to understand the impact of the acquisition of Energy Savers here in the fourth quarter.

Can you give us some insight -- looking at the debt sequentially from the end of June to the send of September, what was the impact of the Energy Savers' acquisition had on the working capital accounts?

Well, Energy Savers was a late fourth quarter acquisition.

So, it really didn't have much impact on the Company in 2004.

We only had it for one month in the quarter.

Right.

No not on a P&L basis, more in terms of just a working capital accounts?

In other words, were the net assets a net use of cash?

Did you have debt balances that went up or down as a result of adding in those accounts?

Not material.

Just one other question.

If I understood correctly, it sounds like the operating income contribution from acquisitions in the quarter was $5 million, which if I look at that correctly, it sounds like there was probably a small decrease in sort of organic operating income.

And is that attributable primarily to this margin pressure on the Garden side?

Yes, most of it is because we did shutdown the grass seed operation, we said which cost us about $3 million in the quarter, as well as Jim said, on the Island we really completed that in about 1 million.

So if you take out those 2 things, which you find is the I guess apples-to-apples operating income would be up to close -- what is 18%?

About, between 15 and 20%.

So if you take away those 2 things that we got behind us on purpose in 2004, the operating income would have been up between 15 to 20%.

Then just a follow-up on the acquisition question, and that is, do you have a target, cap structure, or leverage multiple that you wouldn't want to exceed as you look at your acquisition strategy?

And is stock a -- have you thought about using stock as acquisition currency?

Okay, well, that's a lot of questions.

But here just to recap what our capital structure and financing strategy is.

On a stage state we would like to maintain a cap structure of about 3 times the debt of EBITDA.

Right now if you look at our books at year end, on a book basis we're about 2.9 times on a Pro Forma kind of bank basis, we're about 2.5 times debt to EBITDA after you factor in the acquisitions.

Our cap structure debt to equity is about 40%, well, it's 39% debt total cap.

In terms of where we'll go for financing acquisitions, we'll spike above that to kind of a house limit of 3 times somewhere into the 4s if we need be.

How we cash flow that back down will be dependent on the acquisition.

If we feel we can cash flow down pretty quickly we'll stay with the additional leverage.

If it looks like there is going to be a little bit higher leverage for a period of time we'll consider doing some small secondary stock offering rebalance.

George Chalhoub, Deutsche Bank.

From a strategic perspective, as you look at the acquisitions, do you have a set of criteria in terms of whether you want to concentrate more in Garden versus Pet or do you want to keep both, so that they stay close to compatible?

Obviously, the Pet business has grown, it's becoming closer for the Garden business over the course of the fiscal '04 year.

Should we look at that balance to stay close or you don't have that kind of criteria?

Or just focus on opportunities whenever they come?

We really focus on leading brands is what we try to do, whether they are in Garden or Pet.

We do have certain areas that we are looking of course to exploit, which I won't say on this phone call here.

But we look at brands in either Pet or Garden.

We want to make sure that we can buy them at the right price, that they are really within the multiples that we want to pay.

We call that our "string of pearls" strategy.

As some of those bigger ones come along we always look at them and those depend on the price and how strategic they are.

We also pay a lot of attention to the management of those businesses.

Because our practice has been, and will continue to be bring in good companies with good brands, with good management who can take us to the next level.

And we'll just keep looking at those.

I will tell you we have conversations going right now in both Garden and in Pet.

And you'll see us do both.

Can you comment what kind of -- is there any multiple inflation going on because of this -- these are lucrative activities that you are in and there are probably other people maybe bidding on that stuff too or you don't see that a problem for your targets?

We did see that happen in 2004 in a couple of the very large businesses sold for higher than we thought made sense to go.

But at the same time if you look at the acquisitions we did, all 5 of those key ones were right within our sweet spot of what we wanted to pay.

Okay, last question is; can you give us the availability on your [indiscernible] at the year end, please, except for the housekeeping items?

Pardon me.

What was the question again?

We didn't hear you, say it again.

Availability on the revolver?

It's about $60+ million at the moment.

That's end of September or right now?

End of September.

End of September.

Now, it's about the same.

Follow-up from Bill Chappell, SunTrust Robinson Humphrey.

I know you're not giving quarterly guidance with the acquisitions.

Maybe you can give a little bit of help on -- when you look at this year would it be the March or June quarter where you expect the highest revenue or EPS?

In years past it had always been the June quarter.

It's kind of tough to figure out how we should model going forward.

Well, Bill, it's Paul.

I think from a percentage increase, you're going to see the largest percentage increase in the first quarter, in our fiscal first quarter because we're going to go from a loss to a gain to actual earnings.

We will be having an anniversary of 5 investments in that quarter as well.

I'm looking on a sales base, would the biggest quarter be the March quarter or the June quarter or would they be equal?

It's pretty close.

I don't have anything in front of me Bill, but it's pretty close on the increase.

Just a second Paul will take a --.

I think Stu is right.

I will stick with that.

(Laughter) good answer.

Stu's right.

You never argue with the boss.

[OPERATOR INSTRUCTIONS].

You have no further questions in queue at this time gentlemen.

I'll turn it back to you for any closing remarks.

Thank you Operator.

Well, first of all for everybody on the call thank you for your questions and participating today.

As we look forward to 2005 and beyond, we will continue to execute against our key strategies and that is to grow and extend our brands to make them stronger.

We want to develop and launch new innovative products and packaging.

And we see some real good opportunities for that that we moved on faster in even this quarter to get those launched, leveraging our cost structure, strengthening our Company and our balance sheet to support control growth, and in pursuing and completing the strategic acquisitions that make sense for us.

So I'd like to thank you for joining the call.

We do look forward to updating you on our progress and seeing many of you throughout the quarter and into the new year at the various scheduled investor conferences.

And as usual, I'll close with my pitch, which is as the holiday season is fast approaching, may we provide you with some shopping suggestions.

Yes, and they are kicking me here around the table.

First of all, since so many people enjoy gardening may we suggest a gardening item, such as a beautiful indoor or outdoor pot would make an excellent gift for those garden lovers.

And since we know over 50% of pet owners purchase gifts for their pets, don't forget to do the same for your pets.

If you don't have a pet, get one.

And then third, finally, I guess for people like me who often make weight-related New Year's resolutions, and yes, I have done that already.

Might I make one final suggestion?

Treat your dog to a walk and a healthy nutritional chew bar for dogs on a regular basis.

They will be available in stores for you very soon.

And both of you will be better for it.

And with that, we want to thank you.

Have a great afternoon.

Happy Holidays to all of you.

Thank you.

Ladies and gentlemen, this concludes your conference for today.

We thank you for your participation.

You may disconnect at anytime.

Good day.