Central Garden & Pet Co (CENT) 2009 Q4 法說會逐字稿

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  • Operator

  • Good afternoon, ladies and gentlemen, and welcome to Central Garden & Pet's fiscal fourth-quarter 2009 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.

  • (Operator instructions).

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

  • I would now like to introduce Paul Warburg, Vice President and Treasurer, for Central Garden & Pet.

  • Please go ahead, sir.

  • Paul Warburg - VP, Assistant Secretary

  • Good afternoon, everyone, and thank you for joining us.

  • With me on the call today are Bill Brown, Central's Chairman and Chief Executive Officer; and Jeff Blade, our Chief Financial Officer.

  • Before I turn the call over to Bill 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, including expected further margin and capital efficiency improvements, are forward-looking statements.

  • Central undertakes no obligation to publicly update forward-looking statements to reflect new information, subsequent events or otherwise.

  • These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements.

  • These risks are described in the Company's earnings press release, Form 10-K for the fiscal year ended September 26, 2009, filed on November 20, 2009, and in other Securities and Exchange Commission filings.

  • Additionally, the discussion on this call may include the use of non-GAAP financial measures.

  • We have provided a reconciliation of the measures to the nearest comparable GAAP measure in our earnings press release, which is available on the investor relations portion of our new website at www.central.com.

  • Today's agenda is as follows.

  • Bill will provide a business update and Jeff will review the financial results for the quarter and for the year.

  • We will then open the call up for Q&A.

  • Our plan is to keep the call to approximately one hour.

  • I will now turn the call over to Bill Brown.

  • Bill?

  • Bill Brown - Chairman, CEO

  • Thank you, Paul, and thank you for joining us this afternoon.

  • My plan today is to share our perspectives in fiscal 2009.

  • I'll also discuss our strategic initiatives for fiscal 2010, then I'll turn the call over to Jeff, who will recap the quarter and the year.

  • During fiscal 2009 we showed improved performance as a result of dedicated hard work by the entire organization.

  • We improved our financial position, and our business is stronger as a result.

  • We achieved our improved performance by maintaining a strict focus on our core operating activities.

  • Those are reducing our investment in working capital, lowering expenses and improving gross margins.

  • Measuring our progress against each objective, first, in fiscal 2009 we reduced our investment in working capital by $82 million.

  • Most of our balance sheet metrics improved as we reduced inventories and collected receivables more efficiently.

  • Second, we lowered operating expenses by approximately $15 million for the year.

  • And, when you exclude the gain on building sales and legal settlements from last year's results, we reduced, on an apples to apples basis, operating expenses by $29 million.

  • As a percent of sales SG&A declined 35 basis points.

  • Across both segments we increased efficiencies through a variety of measures, including the consolidation of certain facilities and functions.

  • Third, we improved gross margins by 210 basis points in fiscal 2009.

  • The improvement was due primarily to a greater contribution of higher-margin garden control products and a combination of lower input cost and improved pricing for several of our product lines, including wild bird feed.

  • In short, we effectively managed the key controllable aspects of our business.

  • Several other factors contributed to the strong performance for the year.

  • While we were not immune from the adverse macroeconomic conditions, our portfolio demonstrated its resiliency.

  • Garden and Pet Products continued to be a part of the consumers' budget choices as they spent more time at home.

  • In garden our POS at our major retailers increased nearly double digits as every category showed year-over-year increases with the exception of garden decor, which is a more discretionary purchase.

  • In Pet, our POS at major retailers increased slightly year-over-year, led by the dog and cat category.

  • Wild bird and flea and tick control products also increased in fiscal 2009.

  • During the year we also benefited from improved weather conditions.

  • Drought conditions eased throughout most of the country.

  • While water restrictions were not lifted until late in the summer season in portions of the south and southeast, the improved conditions contributed to increased sales of our high-margin insecticide, pesticide and herbicide products.

  • Further contributing to our overall performance was a decline in input cost, especially those related to our wild bird feed products.

  • When you sum it up, both the controllable and the external factors, we produced solid results.

  • Earnings per fully diluted share nearly doubled to $0.94, up from $0.49 a year ago after you exclude the one-time items from the prior year.

  • We were more profitable.

  • Operating margins increased to 7.8%.

  • Our balance sheet improved during the year.

  • We reduced our debt by approximately $115 million, and our leverage ratio per our bank credit agreement is 2.9 times compared to 3.9 times a year ago.

  • As of today, we are holding at approximately $100 million of cash.

  • In summary, 2009 we established a solid foundation on which to continue to build a great company.

  • As we look forward to the future, we believe there are many opportunities for improvement as we further streamline our operations and improve our capital efficiency.

  • For example, there is additional room for improving our working capital.

  • We are still carrying too many SKUs.

  • This year our SKU rationalization program impacted the top line by $23 million.

  • We expect these efforts will continue for the foreseeable future.

  • We intend to continue to extract capital and redeploy it into parts of the business that we believe will drive superior returns over time.

  • There's also further room for continued expense improvement.

  • We are taking a fresh look at our operations, scrutinizing every process in order to drive out incremental savings and efficiencies.

  • We are utilizing a combination of outside resources and improved internal collaboration supported with enhanced business intelligence tools to identify and execute initiatives to drive additional improvement.

  • We are now also directing our attention to formulation of a new growth strategy for our business and the Company.

  • We are focused on the next phase of growth, and we'll be making investments in terms of time, talent and additional resources to this end.

  • We expect to have meaningful returns on this initiative.

  • However, it will take some time.

  • At the heart of our growth strategies for our brands are innovation and a strong commitment to quality.

  • Additionally, we are focusing on the key leverage points around each brand.

  • This includes renewed focus on each brand in order to determine the best way to move forward and grow.

  • We have tremendous competitive strengths including our position in the marketplace, our relationship with our key retailers and our distribution network.

  • It's about harnessing this energy to move forward in a delivered, sustainable way for many years to come.

  • Finally, we are also exploring acquisition opportunities that complement our internal growth initiatives.

  • As we have in the past, we will continue to be disciplined in terms of strategic fit and price.

  • After a nearly three-year break, we have started rebuilding an acquisition pipeline.

  • We have the balance sheet to support a variety of opportunities.

  • As I reflect on the past two years and I look to the future, I am pleased with the progress that we've made and believe the outlook is bright.

  • A great deal of my enthusiasm has to do with the efforts of our employees and management team.

  • Mike Reed and the entire garden team produced an outstanding year.

  • The group worked hard, grew its presence at retail, managed expenses, reduced inventories and is poised for continued success.

  • I want to thank them all.

  • Throughout the year we had some talented new executives join our team.

  • We continued to add capabilities in marketing, research and development, supply chain and logistics across both the Garden and Pet organizations.

  • In January, Glenn Fleischer joined us to oversee the Pet group.

  • Glenn is a talented executive who brings deep consumer packaged good experience.

  • In September, Sherry Perley joined Central to oversee our human resources efforts.

  • She will help us ensure that we have the right people in the right places throughout the organization.

  • And now I would like to introduce to you Jeff Blade, who joined us in early September as our chief financial officer.

  • Jeff is an important addition to Central's management team.

  • He has already participated in many of our planning sessions for fiscal 2010, and he is playing a key leadership role as we further improve our business intelligence capabilities and drive additional operation improvements.

  • We are glad to have him on board.

  • And now I'll turn the call over to Jeff to review the results for the quarter and the year, and then we'll take your questions.

  • Jeff?

  • Jeff Blade - CFO, Secretary

  • First, let me start by saying that I'm glad to be part of the Central organization.

  • I think there's tremendous potential for the Company, and I look forward to helping the organization achieve new heights.

  • In addition, I look forward to working with the analyst and shareholder community.

  • Turning to fiscal fourth-quarter results, we performed well, controlling expenses, improving margins and further strengthening our balance sheet.

  • Top-line performance continued to be impacted by a number of factors including macroeconomic challenges, retailer initiatives and company-specific initiatives.

  • Turning to reported financial results, net sales for the fourth quarter of fiscal 2009 were $363 million compared to sales of $414 million a year ago, a decline of 12%.

  • Branded product sales were $311 million, a decline of 12%.

  • Sales of other manufacturers' products were $52 million, a decline of 14%.

  • We estimate that, of the total sales decline, approximately half was due to macroeconomic conditions including price concessions related to input cost deflation.

  • The balance was due to further tightening of inventories at retail and to company-specific initiatives, including SKU and customer rationalization initiatives.

  • Garden segment sales decreased approximately $28 million or 15% to $188 million compared to the fourth quarter of fiscal 2008.

  • Garden branded product sales decreased approximately 15% to $142 million.

  • Sales of other manufacturers' products were $18 million, a decline of 14%.

  • The decline in sales is due primarily to lower sales of more discretionary products in Garden Decor, including pottery and holiday lighting, lower sales in grass seed to the professional market and further tightening on inventories at retail.

  • Pet segment sales were $204 million, a decline of 10% from $226 million a year ago.

  • Pet branded product sales decreased 9% to $169 million.

  • Sales of other manufacturers' products decreased 14% to $35 million.

  • The decline in Pet sales was due primarily to macroeconomic factors, mainly continued softness of pet products that sell into the professional and animal health channels as well as a decline of 900 billable locations in our pet distribution operations.

  • Inventory reduction initiatives at retail and price reductions in our wild bird seed products also continued to adversely impact sales.

  • The Company's gross profit for the fourth quarter was $116 million, an increase of 2% compared to a year ago.

  • The increase was due primarily to the combination of increased sales of higher-margin garden control products and improved margins in wild bird feed, partially offset by lower sales and margins in Pet.

  • Gross profit as a percent of net sales increased 440 basis points to 32%.

  • Selling, general and administrative expenses for the fourth quarter were approximately $96 million compared to $99 million a year ago, a decline of $3 million.

  • The improvement is due primarily to the consolidation within our garden distribution operations, lower freight and fuel cost and Company-wide cost of management.

  • Operating income for the quarter was $19.9 million compared to an operating loss of $12.3 million a year ago.

  • Included in the results from a year ago is a non-cash charge of $27.8 million for the impairment of goodwill, other intangibles and long-lived assets.

  • Operating income for the year-ago period was $13.8 million after adjusting for these items.

  • Garden operating income for the quarter was $4.7 million compared to a loss of $30.8 million a year ago.

  • Included in last year's Garden results is a non-cash impairment charge of $29.5 million.

  • Net operating income for the quarter was $27.6 million compared to $31.6 million a year ago.

  • Included in last year's Pet results is a non-cash $1.8 million impairment credit.

  • Net interest expense for the quarter was $4.8 million compared to $7.6 million in the year-ago period.

  • The lower interest expense is due to lower debt balances and lower borrowing rates.

  • Our borrowing rate for the quarter was approximately 4.5% and 5.2% a year ago.

  • Our effective tax rate was 45.6% for the quarter, which was higher than our statutory rate, due primarily to tax credits that were no longer applicable, resulting from the exit of certain locations and facilities and expiration of certain state tax credits.

  • Year-to-date we have recognized approximately $0.04 per fully diluted share in tax benefits.

  • Net income for the quarter was $8 million, or $0.12 per fully diluted share.

  • This compares to a net loss of $13.9 million or $0.20 per fully diluted share in the same period last year.

  • Net income for the prior-year period was $4 million, or $0.06 per fully diluted share after adjusting for goodwill impairment and other asset impairments.

  • Capital expenditures for the quarter totaled approximately $6.1 million compared to $5 million last (technical difficulty).

  • Turning to the balance sheet, comparing the September 26, 2009 balances to September 27, 2008 balances, accounts receivable were $207 million, a decrease of approximately $54 million or 21% compared to last year.

  • Inventories were $285 million, a decrease of approximately $64 million or 18% compared to last year.

  • Accounts payable were $109 million, a decrease of $24 million or 18% compared to last year.

  • As of September 26, 2009, total debt stood at $408 million compared to $523 million at the end of last year.

  • Addressing our credit agreement, our current debt to EBITDA ratio as defined by our credit agreement is approximately 2.9 times compared to 3.9 times a year ago.

  • The maximum per the leverage covenant in our bank credit agreement is 4.5 times.

  • Finally, during the quarter we repurchased approximately 1.6 million shares of our common stock at an average price of $11.93 per share.

  • Briefly recapping the year, total Company sales were $1.61 billion, a decline of $91 million or 5% compared to fiscal 2008.

  • Operating earnings were $126 million compared to an operating loss of $324 million.

  • Included in the prior year's results is a non-cash, pre-tax charge of $430 million related to the impairment of goodwill, other intangibles and long-lived assets.

  • Also included in the results for the prior fiscal year is a pre-tax gain of approximately $11.1 million related to the sale of properties and legal settlement proceeds.

  • Absent these factors which we believe are not representative of the ongoing results of operations, operating income for fiscal 2008 was $90.6 million.

  • Net income and earnings per fully diluted share for the fiscal year were $65.9 million and $0.94, respectively.

  • Absent the factors described above which we believe are not representative of the ongoing results of operations, net income for fiscal 2008 was $34.6 million and earnings per fully diluted share were $0.49.

  • And with that, I would like to turn the call back over to Bill.

  • Bill Brown - Chairman, CEO

  • Thank you, Jeff.

  • Overall, I'm pleased with the results for the quarter and the year and the progress we continue to make.

  • We are doing a better job of controlling cost, managing working capital and driving our gross profit margin expansion.

  • While there are a number of factors that could conceivably adversely impact our results, including the economic environment and weather, we continue to be cautiously optimistic that the momentum that we have generated will continue.

  • Turning to another matter, it is with very mixed emotions that I tell you that Paul Warburg will be leaving Central to assume an executive position with another company on the east coast.

  • On the one hand, I and all of us at Central are excited for Paul about the new opportunity.

  • On the other hand, he has been a major contributor to our management team for nearly six years, and his shoes will be hard to fill.

  • We'll miss him very much.

  • During the period that we are searching for Paul's replacement, Jeff and the rest of the Treasury team will fill Paul's role.

  • Paul, thank you from all of us for all that you have done for Central, and we wish you every success.

  • With that, we'll now open the call up for your questions.

  • Operator

  • (Operator instructions) Bill Chappell, SunTrust Robinson Humphrey.

  • Bill Chappell - Analyst

  • I just wanted to dig in a little bit more on the Garden sales in the quarter, and just trying to understand, especially in light of what Scott's reported a couple of weeks ago and your results -- and I know they're different categories, and certainly on the holiday lighting and pottery it's completely different categories.

  • But on the ones that are more similar, be it grass seed or core lawn and garden, did you see any share losses?

  • Or does this have to do with just end of the season inventory cuts and excess returns?

  • How should we look at that?

  • Bill Brown - Chairman, CEO

  • I think the first thing is, we mentioned that our professional business is a different business, and that's a bigger part of the [sales-ness] in general, and it's just a place that we play differently.

  • The question as to share -- we talked about that earlier, and we don't believe we've lost share in any category, and in some categories we've had some expansion.

  • So, particularly on the consumer side, a good prospective situation.

  • Jeff Blade - CFO, Secretary

  • Bill, I would add to that, if you take a look at POS at our major retailers for the fourth quarter, our POS performance was fine.

  • Bill Chappell - Analyst

  • With the understanding that you don't give any guidance, how should we look at revenue trends for 2010?

  • Is this more of an end of the season type stuff, or should we see double-digit declines in part of 2010 for Garden?

  • Bill Brown - Chairman, CEO

  • My own thoughts is that we would think that sales in both Garden and the rest of the business would be up next year more likely than down.

  • The things that push the other way are too, and they don't have anything to do with unit volume were share.

  • One is the SKU rationalization program, where, as we take out lower-volume, underperforming SKUs, we'll drop some sales associated with those SKUs.

  • This year it was about $23 million in the aggregate, and we expect that to continue and perhaps accelerate.

  • The second point is that, just as oil hit $150 a barrel here a number of months ago and gasoline was at an all-time high, and then as the cost of crude came down, so did gasoline prices.

  • And the number of gallons sold could be equal, but the sales dollars would be lower.

  • We have that similar type situation in some of our input cost, particularly associated with the wild bird seed.

  • Bill Chappell - Analyst

  • That just leads to my last question.

  • Despite the lower sales, gross margin was off the charts, and I'm just trying to understand.

  • Is this as good as it gets in terms of you're seeing the full benefit of lower commodity costs, or is there -- can we really improve off of these levels going into 2010?

  • Bill Brown - Chairman, CEO

  • We were all talking about the questions that might get asked, and you hit the first one, and you hit the second one.

  • The good news is that we don't think we're done on margin expansion.

  • We see initiatives and activities going on that can cause us to improve margins.

  • And particularly when you think about the drop in the sales to the professional segments, which are the higher-margin products for us, to have had this kind of gross margin growth while not having had not had those sales in the mix, as those return, and we fully expect they will, the prospects are attractive.

  • Operator

  • Joe Altobello, Oppenheimer.

  • Joe Altobello - Analyst

  • I just wanted to follow up on Bill's question regarding the top-line growth in 2010.

  • Bill, you just said that you expect sales to be up for both Garden and Pet, and yet you cited a couple of examples in terms of the SKU rationalization program, which sounds like (inaudible) able to accelerate, at least in the early part of 2010, as well as the pass-through of lower input costs on the wild bird feed side, which doesn't seem like that's abating, either.

  • So it sounds like, if you do get any sales growth in 2010, it's going to be very back-end weighted.

  • Is that a fair statement?

  • Bill Brown - Chairman, CEO

  • Hadn't really thought about it.

  • Joe Altobello - Analyst

  • Okay.

  • You haven't thought about sales trends in 2010?

  • Bill Brown - Chairman, CEO

  • Thought about it in 2010; didn't think about them quarter to quarter.

  • Joe Altobello - Analyst

  • Yes; I'm just trying to see how much confidence we can have in that outlook, given that you're still going to have these two factors for at least another three, maybe six months.

  • Bill Brown - Chairman, CEO

  • Well, I think that's a fair statement.

  • Part of the question will be, what's the activity going to be on the professional piece that offsets that, plus the other initiatives we do to grow our business.

  • And those are a lot of moving parts, as you have properly identified.

  • Jeff Blade - CFO, Secretary

  • As you have properly identified.

  • Bill Brown - Chairman, CEO

  • And I would add one more thing, Joe, is that if you think about what inventory levels look like at our major retailers, particularly on the lawn and garden side, they're probably lighter today than they were even a year ago.

  • So some of it could depend on what the sell-in looks like and how that materializes.

  • So could it be back-end weighted?

  • Could be.

  • Could it not be?

  • It's very hard to tell.

  • I think, in this regard, we are not particularly helpful to you.

  • Joe Altobello - Analyst

  • That's okay.

  • Second, in terms of the comment you made earlier about investing in time, talent and resources to drive growth, I guess the first question I have there is, do you feel like that you have the people in place to drive growth?

  • Or are we going to see additional -- it sounds like we are going to see additional headcount build there, particularly on the marketing side, I would imagine.

  • And then, secondly, this is not something that happens overnight.

  • I would imagine that this is going to be a multi-quarter process.

  • So we are not going to probably see the benefit of this until fiscal '11, at the earliest.

  • Is that fair?

  • Bill Brown - Chairman, CEO

  • I think your statement is -- number one, big picture, you will see us adding additional talented people, particularly on the -- two areas that come to mind where we have open positions are in the marketing and brand management area and the product innovation area.

  • And the other is on the supply chain side.

  • So those areas will expand.

  • And, like any program, there are lead times both on when you get the talent in and when you get the payoff.

  • But we have a number of very capable internal people also working on things, and so it will be a blend over time.

  • I think the comment that we put into the script is, this will take some time.

  • Joe Altobello - Analyst

  • And, lastly, just a modeling question for Jeff.

  • The tax rate that we should be using for next year, it seems to be bouncing around a little bit.

  • Obviously, you had some catch-up in the fourth quarter.

  • But for next year, is it 38%, 38.5%?

  • Jeff Blade - CFO, Secretary

  • Yes, you should use 38.5%.

  • Operator

  • Mitch Kaiser, Piper Jaffray.

  • Mitch Kaiser - Analyst

  • I can appreciate no commentary by quarter, quarter by quarter.

  • But is there any flavor that we could take as we think about how things will progress throughout the year?

  • Bill, I'd have a hard time believing you haven't thought about it.

  • Bill Brown - Chairman, CEO

  • Well, a little sharing.

  • From a management perspective my whole focus is, what's the action you are going to take to make the business move forward?

  • We know where we want to get.

  • We have substantially lofty aspirations.

  • Whether we can achieve them all or not, we don't know.

  • But what are the action items that each person in the business is going to take to get from where we are to get there?

  • And I'm not so concerned about whether they hit at this date or that date, but that we get it done.

  • And so, whereas some companies are very obsessively focused on what result by what date in what quarter or what month, it's more about get the business moved to a much more elevated level.

  • That takes considerable work.

  • So, Jeff, anything you want to comment on this?

  • Jeff Blade - CFO, Secretary

  • No.

  • I think, just to reiterate, one, we don't give specific guidance.

  • So difficult for us to give you a quarter-by-quarter breakdown.

  • But I think you should think about it in terms of some of the operating initiatives that we have had in place we carry into this year.

  • And we are more focused on trying to continue to focus on all of those as well as turn our attention to some of the growth initiatives by making investments in the marketing infrastructure, etc., that will drive.

  • So it's hard to give you color by quarter, but the combination of what we are carrying in as well as some of the things that we are beginning to do, I think, lead us to be optimistic.

  • Mitch Kaiser - Analyst

  • Jeff, you've been with Central, I guess, for, what, a couple of months now?

  • Maybe just some of the observations and where do you see some of the opportunities?

  • Jeff Blade - CFO, Secretary

  • Sure.

  • I think -- I've been here about three months, and delighted to be a part of the organization because I think there is tremendous potential.

  • We have a storehouse of strong brands, we have great relationships at our retailers.

  • And a number of initiatives that have been undertaken in the last few years, which you have seen in the outstanding results for 2009.

  • So again, I think the opportunity to continue to evolve the organization, to build brands and to invest capital on a very disciplined basis leads us to be pretty optimistic.

  • Mitch Kaiser - Analyst

  • You talked about maybe the balance sheet is in shape enough where you might look at taking on acquisitions.

  • What should we be thinking about, just in terms of categories or things that you might be looking for?

  • Bill Brown - Chairman, CEO

  • Well, as always, things that complement our core businesses are the ones that make the most sense to us in terms of we well understand the businesses, understand the markets and we understand what it takes to be successful.

  • Sometimes we've had opportunities that are good adjacencies, and we'll move there.

  • But I would say that would be the core thrust of the things that we would focus on.

  • Operator

  • (Operator instructions) Doug Lane, Jefferies & Co.

  • Doug Lane - Analyst

  • On the Garden side, I understand the professional commentary.

  • And you obviously don't break it out, professional versus consumer.

  • But could you tell us, on just the consumer side, were those sales up for the fiscal year?

  • Jeff Blade - CFO, Secretary

  • I would say yes, they were, Doug.

  • How much?

  • Off the top of my head I can't think of it, but the answer is, I would suggest that they were up because certainly our POS dollars were up.

  • Doug Lane - Analyst

  • I was just going to ask about that.

  • It sounds like, you did say there was further inventory destocking going on during the year?

  • Jeff Blade - CFO, Secretary

  • Yes.

  • Doug Lane - Analyst

  • Okay.

  • What do the inventories look like out there?

  • Can you characterize it in some fashion?

  • Jeff Blade - CFO, Secretary

  • Very lean.

  • Doug Lane - Analyst

  • Leaner than -- I mean, you've been in this business a long time.

  • Have you seen them this lean before?

  • Bill Brown - Chairman, CEO

  • Not that I'm aware of.

  • Doug Lane - Analyst

  • Okay.

  • And then you also mentioned price actions in wild bird feed.

  • Can you give us more color on that?

  • Is that -- what the strategy there is going into the next season?

  • Is this across all brands and all channels, or is it targeted?

  • Just a little bit more color on what's going on there.

  • Bill Brown - Chairman, CEO

  • There's not a lot more color.

  • There's a marketplace out there, and there are different products within the wild bird seed mix and there are different kinds of grain ingredients that go in.

  • And as those move around and the marketplace moves around, you need to make appropriate adjustments, and our businesses do that.

  • Doug Lane - Analyst

  • So it's really in almost direct response to the commodities coming back in pretty substantially from the peak of a couple years ago?

  • Jeff Blade - CFO, Secretary

  • That's right.

  • That is right, number one.

  • And number two is, from a competitive standpoint, no one is behaving irrationally.

  • So what you are seeing from a sales decline in portions of the wild bird feed business is really represented by the commodity cost deflation, (multiple speakers) working with our retailers.

  • Doug Lane - Analyst

  • And lastly, on the Pet side, we've now had two straight quarters of double-digit organic growth declines, organic declines, I guess, and that looks unprecedented.

  • I'm looking back over my quarters, going back in my model here.

  • And we've been in recession for a couple of years now, and something just got a lot worse there, at least the appearance of getting a lot worse.

  • And so maybe if you could give a little bit more color of what's going on, on the Pet side, that might be helpful.

  • Bill Brown - Chairman, CEO

  • Sure.

  • It doesn't get talked about as much because our consumer business is so much bigger.

  • We do have a significant cattle and professional products profile and sales element.

  • And just as many businesses contracted their inventories and saw significant downturns, you can see very dramatic both downturn and like inventory contraction and, secondarily, volume consumption.

  • People who have economic animals just are not dealing with them in the same way because of the pricing that's deteriorated.

  • So it's an element that rolls up in the Pet segment, and properly does.

  • But when you are thinking of it with a consumer hat on, you are correct; you can't reconcile the two because we have good POS.

  • Doug Lane - Analyst

  • Is it almost more agricultural than Pet?

  • Jeff Blade - CFO, Secretary

  • It is.

  • Bill Brown - Chairman, CEO

  • Well, I don't know; I wouldn't call the cattle side agricultural.

  • But equine is impacted to somewhat on it.

  • You've got cattle, and then you've got people that are buying ingredients for a number of different things that they produce that all come into play.

  • Operator

  • Bill Chapell, SunTrust.

  • Bill Chappell - Analyst

  • Just wanted to follow up on the tax rate.

  • I think I missed it.

  • Why was there such a big catch-up in the fourth quarter?

  • Jeff Blade - CFO, Secretary

  • It was because, with our exiting certain facilities and such, we no longer -- we were no longer the beneficiaries of certain tax benefits.

  • And then you also combine that with the expiration of other state tax credits.

  • Bill Chappell - Analyst

  • And so you are expecting it to stay much higher on a go-forward basis?

  • Jeff Blade - CFO, Secretary

  • 38.5% for next year.

  • Bill Chappell - Analyst

  • And then -- I never know how to look at this line item, but on the other income line, how should I look at that on a go-forward basis?

  • Jeff Blade - CFO, Secretary

  • I'd basically model it flat, Bill, flat to this year.

  • Bill Chappell - Analyst

  • And the same with minority interest?

  • Jeff Blade - CFO, Secretary

  • Sure, yes, that's right.

  • Bill Brown - Chairman, CEO

  • Yes.

  • Operator

  • Alice Longley, Buckingham Research.

  • Alice Longley - Analyst

  • Congratulations on your new job, I guess, Paul.

  • Paul Warburg - VP, Assistant Secretary

  • Thank you very much, Alice, I appreciate that.

  • It's obviously been a great deal of fun working with you and all the analysts and the investors who cover Central.

  • It's been a great near six years.

  • So thank you very much.

  • Alice Longley - Analyst

  • Could you remind me what percentage of lawn and garden is professional?

  • Jeff Blade - CFO, Secretary

  • Alice, it's about 10% for the entire Company, and about 10% of that is in Lawn and Garden, and about 10% is in Pet.

  • It's pretty evenly divided.

  • Alice Longley - Analyst

  • In pet, I have been hearing from some people in the industry that one of the things that might be happening is that consumers come into these little independent pet stores and they get advice about what products to buy, particularly for the more expensive products, and, for instance, in aquatics.

  • They get all the advice, and then they go online and buy products at much cheaper prices than they can get in the small stores.

  • And if that's the case, that might threaten the existence of these smaller stores.

  • Is this an issue for you?

  • And also, as part of your answer, do you supply the Internet sources as well as the independent stores?

  • Bill Brown - Chairman, CEO

  • You know, it's a more granular question than I typically personally tend to look at.

  • We did announce that we had 900 billable locations, and I would interpret that to be pet retail stores that, on average, were buying around $11,000 a year from us, that are no longer there.

  • So you can see some washout that would -- we don't know whether that's an economic consequence or it's related to the phenomenon that you described.

  • I've not heard any talk to me about this being an issue of, prior to your question on the call.

  • I have heard it in other fields, particularly electronics.

  • But I really couldn't speak specifically to it.

  • Alice Longley - Analyst

  • Do you ship to the online sites?

  • Bill Brown - Chairman, CEO

  • Sure.

  • Alice Longley - Analyst

  • Okay.

  • Are you aware of a big disparity in prices of some of the more expensive, like aquatic things, between the Internet sites and at retail?

  • Bill Brown - Chairman, CEO

  • Personally, I'm not.

  • That doesn't mean it isn't there, it's just not one of those things that has bubbled up to me.

  • Usually when that happens, it's not an issue, but it could be.

  • Operator

  • And we have no further questions.

  • Bill Brown - Chairman, CEO

  • Okay.

  • Well, ladies and gentlemen, thank you so much for joining us on the call today and we'll look forward to talking with you again at the end of the first quarter.

  • And of course, happy holidays.

  • Jeff Blade - CFO, Secretary

  • Thank you.

  • Operator

  • Ladies and gentlemen, we thank you for your participation in today's conference.

  • This concludes the presentation.

  • You may now disconnect.

  • Have a good day.