Central Garden & Pet Co (CENT) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Central Garden & Pet Second Quarter Fiscal Year 2018 Financial Results Conference Call.

My name is Sherri, and I will be your conference operator today.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to Steven Zenker, Vice President of Investor Relations and Communications.

Please go ahead.

Thank you, Sherri.

Good afternoon, everyone.

Thank you for joining us.

With me on the call today are George Roeth, Central's President and Chief Executive Officer; Niko Lahanas, Chief Financial Officer; Howard Machek, Senior Vice President, Finance and Chief Accounting Officer; J.D. Walker, President, Garden Branded Business; and Rodolfo Spielmann, President, Pet Consumer Products.

Our press release providing results for our second quarter ended March 31, 2018, is available on our website at www.central.com and contains the GAAP to non-GAAP reconciliations to the non-GAAP measures discussed on this call.

Before I turn the call over to George, I would like to remind you that statements made during this conference call, which are not historical facts, including adjusted EPS guidance for 2018, expectations for new product introductions, future acquisitions and future revenue and profitability as well as the expected impacts of the recent tax reform act, are forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements.

These risks and others are described in Central's Securities and Exchange Commission filings, including our annual report on Form 10-K filed on November 29, 2017.

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

Now I'll turn the call over to our CEO, George Roeth.

George?

Thank you, Steve.

Good afternoon, everybody.

I'm happy to report that our second quarter was a solid one, and we are very pleased with our growth trajectory.

Most significantly, in the second quarter, we had strong organic revenue growth from both our Garden and Pet segments.

Overall, company revenues rose 8% with organic sales up 6%.

Our focus on investing behind and executing against our organic growth as a top priority continues to pay dividends.

We have said in the past that we expected our sales and profit growth metrics would be bumpy, and we've seen this play out over the past 2 quarters.

Top line comparisons versus the prior year this quarter were easier than last quarter.

Also acquisitions are expected to continue to add to our overall growth, although the contribution from acquisitions can vary significantly from quarter to quarter.

A case in point would be our newly acquired Bell Nursery business, which is highly seasonal in nature.

So I guess what I'm saying is, you shouldn't extrapolate one quarter's growth over the entire year.

You would be best served to focus on what we are saying about our full -- our view for the full year.

We believe that we had superior organic growth in Q2 because we are clear on our strategies for both our segments, and our execution has been strong.

Specifically, our Garden group continues to drive competitive advantage and execute with excellence with our retail partners.

To start the current garden season, we gained distribution, including a launch of our new AMDRO Quick Kill mosquito line, increased share of our shelf behind existing items, both branded and private label, and secured the promotion and display support to position Central for share gains when the season hits its stride.

We are sensitive to the fact that POS for the category is running behind a year ago due to poor weather, and we are managing spending accordingly.

More significantly, we continue to make progress against our long-term strategic efforts to enhance and leverage our lowest-cost producer status.

For example, in grass seed, we continued to make progress by improving our production efficiencies by bringing more of our seed enhancement process in-house.

In short, in Q2, we were pleased with our results against the variables that we control, and the sales and profit figures reflect that success.

What we can't control is weather and the timing of the breaking of the garden season across the country.

We're seeing strong consumption when the weather is favorable with signals that demand is there.

We're told by retailers that we continue to outperform the category.

So we're gaining share and are strengthening our competitive advantage and financial position.

How POS plays out for the rest of the year will ultimately determine how much of the gain from Q2 we retain.

In the Pet segment, we grew strongly ahead of what we believe our categories are growing, our organic strength and e-commerce, club and mass, including our store within a store concept for pet distribution business within a large grocery chain.

We have also leveraged our increased capacity in our dog and cat business to introduce new private label chew products and a new line of products for the pet specialty channel, while also growing distribution behind new items for our Cadet dog treat brand.

Similarly, leveraging our new capabilities on small animal bedding, we continue to expand the Kaytee Clean & Cozy line behind new features and are gaining share.

In our DMC pet bedding business, we tested a new Sealy branded bed line directly with consumers with very positive response, which we'll now expand with key customers.

We continue to be focused on upgrading our products and innovating behind new items, receiving 3 innovation awards at the Global Pet Expo, the largest pet show in the U.S.

Finally, M&A is an important part of our growth strategy and financial algorithm.

In the quarter, acquisitions added $9 million in revenue, including a full quarter of K&H and a small contribution from one of our newest purchases, Bell Nursery.

A few things about Bell.

This acquisition brings us into the live garden goods space, an area in which we did not participate before.

The category is growing faster than the overall lawn and garden industry.

And it is a fragmented category, where opportunities to grow are plentiful.

A leader in the Mid-Atlantic region, Bell is known for its quality products and skilled merchandising force.

For Central, adding Bell gives us a best-in-class plant and flower grower that complements our garden business.

We also plan to leverage the business and its formidable merchandising force to help gain synergies with our existing products in store.

The other acquisition we announced since our last call is General Pet.

This was a strategically important acquisition, as it enables Central pet distribution to obtain a missing piece of its now largely national footprint.

The Midwest was an area where we didn't have facilities, and this enables us to offer nationwide solutions to our vendor partners, expand the store within a store concept more easily and even explore the veterinary channel for additional growth opportunities.

We've had a strong relationship with the Merar Brothers, who run General Pet, for a number of years.

They and other senior management will be staying with the business.

The acquisition closed on April 2, so there's no impact from General Pet in our Q2 financials.

From an operating income perspective for Q2, both the Garden and Pet businesses performed as well or better than expected, with Garden driving the growth as compared to the prior year.

We expected Pet operating income to be down versus last year, due in part to timing issues and mix.

This is consistent with our message that results by quarter could be bumpy and to stay focused on the total year estimates and results.

As we have said in the past, we are looking to sustainably grow the company and drive top line organic growth with an eye towards overall -- increasing overall profits.

So while we seek to improve margin over time, we will make trade-offs to win more market share or support lower margin units to leverage market opportunities.

We will also invest in cost savings growth ahead of the benefit, even if it means we might -- it might result in a lower overall margin for the company or a particular segment for the short term.

For example, integrating facilities on businesses can lead to an increase in short-term costs.

Additionally, it may also be a lag to the expected savings from the initiative due to working through issues like older, higher-valued inventory, which we saw in our dog and cat business in the quarter.

Another specific example of short-term fluctuations was the expansion of our pet distribution business, where onetime expenses have depressed margins in the near term, but are expected to expand over time.

Another specific example is integration of acquisitions.

Right now, we are readying plans to invest in moving part of our K&H and DMC businesses to a new facility in the Phoenix area.

By doing so, we expect to enjoy lower logistics and operating costs going forward, while positioning the business to handle the growth that we expect in the future.

Now to be clear, we fully expect margins to continue to expand over time, when looked at on a full year total company basis.

While there are gives and takes, the overall bottom line EPS growth was strong.

The company's EPS of $0.86 for the quarter increased 28%, aided by higher volumes as well as a lower tax rate due to change in the Federal tax laws and recent changes in accounting standards around noncash equity compensation expense as well as the increase in income from the company's joint venture investments.

The positive impact of these changes more than offset increase in interest expense.

Combined with 6% organic growth, we are pleased, overall, with the quarter and are on track for the fiscal year.

Now I'll turn over to Niko to go over the financials in more detail.

Thank you, George.

Good afternoon, everyone.

We issued our second quarter press release with our financial results earlier today.

I'll dive in some of the details and give you some color on what transpired during the quarter.

Central's earnings per share was $0.86 for our second quarter, up 28% from $0.67 over the same period a year ago.

Our second quarter sales rose 8% versus the prior year to $613 million with organic growth up 6% being the primary driver.

Both Garden and Pet had relatively easy top line comparisons versus the prior year.

I should point out that much like the statements we made on our last call, when we said first quarter organic sales growth was not indicative of the entire year, neither is the 8% growth of this quarter indicative of what we expect in the second half of the year.

Comparisons are a bit more challenging for organic growth going into quarters 3 and 4. Of course, our total revenue growth will benefit in the second half, due to inclusion of our 2 newest acquisitions, Bell Nursery and General Pet.

Consolidated gross profit rose $11 million, and our gross margin decreased 50 basis points to 31.7%, impacted by a number of factors, including mix in our Pet segment, timing and higher material and transportation costs.

SG&A expense for the quarter increased 8% or $9 million versus a year ago and, as a percent of sales, was flat at 21%.

Company operating income for the quarter increased 3% to $66 million.

Operating margin declined 50 basis points to 10.7% due to the lower gross margin.

Turning now to the Pet segment.

Pet segment sales for the quarter increased 8% or $23 million to $322 million, with organic sales rising 6%.

The increase was driven by organic growth in a number of different businesses, offset, to some degree, by lower sales in our animal health business.

The weakness in this business was principally timing related, in part due to unfavorable weather, which impacted our fly and mosquito control businesses.

This mix change had an unfavorable impact on Pet operating income and margins, as these higher-margin areas had less volumes to offset fixed cost, and the mix of business during the quarter shifted more towards wild bird feed, aquatics and the sales of other manufacturers products.

These areas typically carry a lower margin in our animal health business.

So in total, Pet segment operating income for the quarter decreased by $2 million or 5% compared to the prior year to $33 million.

Pet operating margin decreased 140 basis points to 10.2%.

In addition to the mix issues and lower volumes in the animal health business, expenses related to our continued rollout of our pet feed store-within-a-store concept at one large customer as well as higher material and transportation costs were also dragged on margin.

Turning now to Garden.

For the quarter, Garden segment sales increased 7% or $20 million to $291 million with organic growth of 6%, and was driven by the strong sell-in to the season that George mentioned earlier.

Most major Garden categories experienced growth with several up double digits.

Garden's operating income rose to $51 million from $46 million in the second quarter of last year, and operating margin increased 50 basis points to 17.4%, in large part from cost-reduction initiatives, which more than offset higher raw material costs.

Mix was a positive factor for Garden margin, as the company sold a higher percentage of products it produced versus sales of other manufacturers' products compared to a year ago.

One other thing to mention is that Bell had a negative impact on operating profit and margin for the second quarter, but is expected to have a meaningful positive impact on Garden's third quarter revenue and profitability.

Moving back to our consolidated results.

In the second quarter, we had other income of $2 million compared to expense of $1 million a year ago.

The change is principally due to the seasonal nature of our largest investment, which typically has its highest earnings in our second fiscal quarter.

As of the end of fiscal Q2, we lapped the date that we acquired a stake in this company.

Net interest expense increased $3 million to $10 million, primarily due to incremental interest expense on our new notes that we issued in December of 2017.

Our tax rate for the quarter was 20.3%, as compared to 37.1% in the second quarter a year ago.

The decrease includes the reduction in the federal tax rate and the favorable impact from the changes in the recent accounting standard around noncash equity compensation expense.

The impact of the latter is likely to vary quarter to quarter depending on, among other things, the market price of our stock and employee option exercise activity.

Turning to our balance sheet and cash flow statement.

Cash at the end of the second quarter was $132 million, up from $6 million at the end of the second quarter last year.

The increase reflects the inclusion of the proceeds of the debt offering we closed in December of last year, partially offset by our Bell Nursery acquisition at the end of the quarter.

Keep in mind that seasonally this is typically the peak of cash needs for inventory buildup for the garden season.

Total debt was $691 million versus $496 million last year, up due to the December 2017 debt offering.

Our leverage ratio at the end of the quarter was 3.2x compared to 2.5x a year ago, well within our target range.

We also have $354 million of availability on our credit lines at the end of the quarter.

For the quarter, cash flow used by operations was $70 million, down from $83 million in the second quarter a year ago.

CapEx was $9 million versus $14 million in the second quarter of 2017.

The decrease is really timing versus a year ago.

And we expect CapEx activity to pick up in the second half of the year and is expected to total $40 million to $45 million for the year.

Depreciation and amortization for the quarter was $11 million, up from $10 million a year ago, primarily due to recent acquisitions.

During the quarter, we did not repurchase any of our outstanding stock, and approximately $35 million remains available under the board-approved stock repurchase program.

Now I'll turn it back over to George.

Thank you, Niko.

Looking at all the factors, including the additions of Bell and General Pet, we are changing our adjusted EPS guidance for the year, raising it to $1.90 or higher, up $0.05 from the previous estimate of $1.85.

It should be noted that the guidance reflects inclusion of our new Bell acquisition around its peak earnings period, without containing almost 2 full off-season quarters where the business typically incurs a loss.

It also reflects uncertainty around how the late start to the spring season will ultimately affect our Garden and animal health businesses.

So while we can't control weather, we can control how we execute our plans to grow revenues and market share over time.

We feel good about the successes we've achieved in getting on shelf and our plans to promote our products to drive consumer takeaway.

As POS hopefully catches up in the upcoming weeks, we remain confident in our ability to continue to drive sustainable growth across the entire company.

Now let's open up the line for questions.

(Operator Instructions) Our first question is from Bill Chappell with SunTrust Robinson Humphrey.

A couple of questions just trying to understand the guidance and how weather plays into that.

Had the weather been normal, would the numbers be even higher?

Or in terms of looking at the guidance, are you assuming that it comes back in as a normal season in terms of the outlook for the rest of the year?

Just trying to understand kind of how much because it certainly was an unusual past 3 months for what we've seen from Scotts and from Spectrum and others.

I'm just trying to understand what impact it did actually have on your numbers.

Yes.

Bill, I'm not going to break it down by pieces.

I'll speak in generality.

So we managed for risks across a number of variables, the garden season being one part of it.

So as we think about our guidance, we think about scenarios on what would go right, what could go wrong because we tend to be conservative.

And I would say that's one factor that we consider among a number of factors.

Okay.

So there could be further upside, if it normalizes, I guess, over the next 1 month, 1.5 month?

I'm not going to jump in on that, sorry.

Okay.

How about switching to the other products on the Pet side?

Should we look at this quarter as kind of a full realization of the grocery chain initiatives in terms of being the category manager there?

Is that a nice run rate going forward?

Or is there still more to come, as we kind of hit the full ramp in the second quarter -- I'm sorry, in the fiscal third quarter?

Bill, this is Rodolfo.

I'll take that one.

We still have at least 3 quarters to go on that one, while we're finalizing the work to integrate that customer with the store within the store concept.

Then we need to lap that growth year-over-year.

So you will see us mentioning that for at least 3 more quarters.

Okay, great.

And then last one for me.

Just in terms of -- you talked about CapEx being more back-end loaded.

Did we see meaningful benefits from some of the CapEx last year in terms of margins?

Or is that also kind of some of the synergies' margin improvement from some of the last year and the year before's acquisitions.

Is that still to come?

I guess, in particular, I thought this is the year we should see some pretty meaningful synergies out of Segrest.

I don't know if we -- it's tough to tell whether we saw that this quarter or whether that's still to come?

Segrest speaks to acquisitions -- I thought you were asking about CapEx.

But if I'm thinking about CapEx, so let me speak to CapEx for a second.

If you look at fiscal year to date, our margins are up.

We believe our lost-cost producer activities are generating benefits.

Some of those lost-cost -- low-cost producer activities, as I said, some of the benefits are delayed as we work through older inventory, for example.

So it's going to be bumpy, but we would expect margin to expand over time, driven by our low-cost producer activities.

The other thing that CapEx allowed us to do is increase capacity.

So a lot of the growth we're having right now in dog and cat is due to the CapEx and the ability to take on more volume.

Got it.

But -- and again you said CapEx should be still up this year versus last year?

Yes.

It's going to be in that $40 million to $45 million range.

And I think last year, we were about $45 million.

So flattish.

And last one for me.

You might have said this, but effective tax rate for the full year now?

Bill, this is Howard.

The effective tax rate that we're expecting is about 27%, before we start doing the discrete items.

Remember that we have the revaluation of our deferreds, and we have the impact of the adoption of the stock compensation.

So with those probably all in, we're looking at something closer to 11%, probably in that range.

Our next question is from Brian Nagel of Oppenheimer.

So the first question I had, maybe just further clarification on the gross margin in the Pet category in the quarter.

You discussed in your prepared comments, but my question there is, how much -- if we look at that, the decline, which has been rare on any historical analysis, your numbers, how much of that was onetime in nature, isolated to the current quarter, versus what we should expect to see maybe in coming quarters?

Brian, this is Rodolfo.

We expect the margin in Pet to be down year-over-year in this quarter.

And in fact, we did a bit better than our plan.

As George mentioned before, this is absolutely not indicative of the year.

By far the largest driver for us was mix among the units and not margins.

Let me give you a few clear examples on that.

Pet distribution, which is as a normal distribution business, will carry lower margin than our third line, delivered strong growth behind the store-within-a-store concept we mentioned in the last call.

And while very accretive to Pet distribution, it does affect mix negatively in the whole business.

We also mentioned our animal health business that got affected by the late arrival of the summer, affecting the mosquito and also the tick -- the timing of the flea and tick season.

We also mentioned about our timing issue with equine, which creates absolutely no challenge for the year.

So all in all, as I mentioned, vast majority priority was mix, and it was expected.

Got it.

That's helpful.

You have another one?

Go ahead.

Yes, I was going to slip one in.

I didn't want to interrupt there.

My second question I had, just with regard to the savings from the now lower tax rate?

And how should we think about what Central is doing with that savings versus redistribution falling into bottom line, potential share buybacks, that type of thing?

The way we're thinking about deploying our capital is first and foremost against our core business to drive organic growth and then M&A.

We think those are the ways we're going to spend the capital going forward.

So I wouldn't be looking for any share buybacks in the near term.

Number two, the way I would think about how we're going to invest our money is we are looking at spending in the core business, opportunities to do that versus necessarily taking all the bottom line.

We also may invest back in our employees.

Those are 2 areas that we're looking hard and fast at.

And we have set aside money to invest back in the business and our people as part of our forecast going forward.

Our next question is from David Westenberg with CL King & Associates.

So Amazon announced they're doing store-branded dog food.

And I know dog food is a small portion of your business, but can you talk about the potential impact across the online channel of Amazon doing this?

And then, can you talk about some of the relationships that you have with online retailers generally in pet products, maybe outside of pet food?

Okay.

Sorry, this is Rodolfo, again, taking that one.

We won't comment specifically on any customer.

And as you mentioned, pet food is pretty small for us.

Having said that, now taking the more relevant question about the shift to e-commerce and how has that impacted the business.

We want to be where the consumer wants -- chooses to make the purchase.

And we are absolutely agnostic on which channel that is.

We have started to invest in e-commerce over a year ago, and our growth is very strong and ahead of the categories in which we compete.

Having said that, we're still supporting, and this is important season as we support all the channels where the consumers choose to buy.

That means, we're growing in club, we're growing in mass, we're growing in e-commerce.

And we are supporting the specialty customers who want to start driving growth -- sorry, bring some traffic to their stores.

So all in all, as I said, we will follow the consumer wherever they go, and we're ready for that.

Got it.

Well, can I ask -- may I can ask maybe a follow up to that then.

Can you talk about just on the online channel?

If you see more opportunity in the near term in brand door on the distributor product side?

We believe in both, to be very honest.

So we're seeing strong growth in our branded business across all the categories where we compete.

And same in brick-and-mortar.

Growth in private label does not mean that the growth in the branded will diminish.

So we actually see growth coming, and we were planning to participate in both.

Yes.

I'll just kind of speak to the whole company.

If you think about private label, we like to compete in private label where we are the low-cost producer and have excess capacity.

Consumer purchase behavior is a tailwind for private label.

It's clearly not the major leader in most categories.

But it is growing faster than branded business, and we're going to participate there.

Got it.

And then can you talk about what you're seeing in terms of acquisition multiples across the space.

I'm actually thinking more on the Pet side.

And just with the 2 acquisitions in the quarter, I know they weren't huge in terms of the amount you borrowed, but does it impact kind of what you're looking at on the acquisition side?

So as far as acquisitions, I mean, we're looking across both segments.

We still love both segments, both Pet and Garden, Bell obviously being in the Garden segment.

What you'll see is, there is just more fragmentation over on the Pet side.

So you've got more companies, more buyers, more sellers.

So there's more activity there.

You have a little better tailwind.

But the Garden side is still very attractive to us, in particular, if you look at how well our Garden business is executing.

The management team there is top-notch, and we want to support and augment that.

So we like those segments.

Multiples, as far as they go, they continue to be all over the map.

It all depends on what type of situation you're in, whether it's an auction, whether you have an exclusivity there, small, large, depends on the size, the growth, the margin profile.

So they're all over the map.

We continue to be value buyers of growth businesses.

I mean, if I were to characterize us, we are value buyers of growth businesses.

Our next question is from Jim Chartier with Monness, Crespi, Hardt.

First is, wondering if you could give us some ballpark size for the Bell Nursery acquisition and then the General Pet distributor as well in terms of revenues?

I can tell you what we paid for Bell, which we've disclosed, is the $62 million.

We have not given out the size of the business on General Pet or Bell nor do we typically for our stand-alone businesses.

I will tell you they're in the sweet spot of the $50 million to $100 million range that we've typically been buying.

Great.

And then any acquisition -- onetime-ish acquisition costs in second quarter that we should be aware of related to those deals?

Yes, there were.

There were some one-timers with respect to Bell.

There's always onetime costs around legal and travel and things like that.

But there was a fee involved with Bell.

Okay.

And then on the K&H, DMC transition to Phoenix.

When does that project start?

And then, how big is that project relative to the consolidation that you did in New Jersey?

Okay.

The Phoenix already started with K&H.

We already signed the leases in Phoenix, so we're moving and preparing the facilities.

Size-wise, the business is smaller than dog and cat.

So ultimately, the project will be smaller than the dog and cat one.

And how long will it take?

We're starting with K&H, then following with DMC.

I would assume that this is right between 3 and 4 quarters.

And then on the New Jersey consolidation, have you started to see leverage and improving margins from that consolidation?

I'd say a couple of things in that front.

First and foremost, we now have the capacity to produce to demand and chase new business and we are seeing that business go quite nicely.

We are seeing improvements in what I would call apples-to-apples, making the same items, lower operating costs.

However, as I noted in my introductory comments, in some cases, we're working through old inventories, and you're not seeing that flow through complete the P&L yet.

Will we start to see the lower-cost inventories next quarter?

Yes, I have to go back and check on that.

So I would say soon, I can't give you the precise date.

And then in the press release, it said that part of the lower Pet margin was related to higher costs in anticipation of higher volumes for the store-in-store rollout for Pet distribution.

So kind of related back to an earlier question.

Should we see that business ramp even more and so the distribution sales for Pet should actually accelerate over the next couple of quarters as that is rolled out to more and more stores?

I think Rodolfo said that the rollout will continue over the next 3 quarters.

And as we speak -- and we have already said some of that, but continue to put in the facilities in place to make sure that that's possible.

Our next question is from William Reuter, Bank of America Merrill Lynch.

I hopped on a little late, so I hope I didn't miss this.

But previously, you'd been talking about trying to reduce costs by about 2% annually.

I guess, in light of what we've been seeing with inflation of raw materials and freight, can you talk about where we are?

And I assume we're probably going to see a headwind this year.

What type of headwind we might see for those items?

So the way I would say it is, we do target 1% to 2% and really more like 2% of controllable cost reductions.

I would say, we're on track to do that.

When we talk about cost reductions, we talk about it in 3 buckets.

One bucket is to avoid pricing that our competition is not going to take.

Second bucket is to invest in growth of the business.

And the third bucket is to make sure, we're improving our margins and our margins are growing over time.

Obviously with headwinds, that makes that more challenging as a lot more of the cost savings need to go against making sure that you're covering your commodity costs.

I think that Garden group benefited from their low-cost producer efforts and hence we're able to still grow margins in the quarter.

Obviously, Pet had some mix challenges and also had some cost challenges as well.

I would say that we're probably going to have to take some pricing and actually have taken some pricing in some selective cases and cannot rely strictly on cost savings to make sure that our margins expand over time.

I guess, the cost savings that you expect to take or those which you were just referring to, will they be enough to offset the input cost increases that you've been seeing over the last period of time?

As I said, we want to do 3 things: Expand our margins, invest in growing our businesses and not take all the pricing that we potentially would have to take.

The cost savings -- we have our cost savings we have now, but we're -- this year, we probably are going to have to take pricing now on top of the cost savings in order to meet that goal.

And we've already taken some pricing and are in the process of taking additional pricing.

Okay.

And then in terms of your customers, can you talk about what you're seeing in terms of the growth of e-commerce versus brick-and-mortar?

I'll just say, in general, e-commerce is growing faster than brick-and-mortar, particularly if you look at the Pet side of the business.

The Pet special channels have been declining, and their declines have accelerated versus prior years, although are kind of stabilizing at a rate of decline now.

The e-commerce is very clearly growing faster on both the Garden and Pet side, although in the Garden business e-commerce is fairly de minimis at this point in time.

And then just lastly, if I missed this, I apologize.

But did you -- obviously, your Garden sales were pretty strong, particularly given the light start to the season.

Did you give an estimation of what the dollar amount of sales that may have been pushed back to later in the season?

Or any sort of a weather quantification?

William, this is J.D. I'll speak to that.

First of all, great question, because it's Garden related, and I finally get a chance to speak.

So the season has been delayed.

Typically, Q3 and 4 would represent about 60% of our consumption, our POS for the year.

This year, I expect that number to grow because it has been a delayed season.

I think that's been widely reported that from the middle of March through the end of April, that 6-week period, the weather was just not conducive.

It was unfavorable weather across all markets.

Every retailer has reported that to us as well as other people in our same space that have reported publicly.

We experienced the same thing.

The good thing is, that we've seen is, over the last couple of weeks, we've seen an uptick, and consumption has picked up significantly.

So we feel much better.

A few weeks ago, we would have been probably a little bit more concerned.

We're much more cautiously optimistic right now about the rest of the year.

(Operator Instructions) Our next question is from Hale Holden with Barclays.

I just had 2 questions.

As a lateral to Bill's question on garden season pickup, we've seen some of the mass channels move seasonal assortments faster than they would have in the past, if the sales aren't there.

Is there any risk that the garden season gets truncated by some of your customers?

Or is this just sort of an extension out in time?

From what we're hearing from the trade right now, and it's a concern of ours as well, we want to make sure that they're staying in the game.

They are committed -- what they're telling us, they are committed to staying in the game, particularly the big box stores.

So we haven't seen any knee-jerk reaction to the slow start.

And I believe all of them have expressed confidence that the season is still in front of us.

So if weather remains conducive, meaning if it doesn't get too hot too quickly in the summer months, we could have an extended season.

Got it.

And then in the opening scripts, you alluded to a new private label push in Pet specialty.

I was wondering if you could just give us a little bit more color on what that was.

Or a sense of the size?

Or even what the product was?

Yes.

I can't.

That's confidential information of a customer working with a specific item.

I'll just say, we're as interested in private label on the Pet side as we are on the Garden side.

We have reasonable-size businesses on both sides of the shop.

And again, we're a low-cost producer, and we've excess capacity, and our customers are working with us.

We'll continue to make private label items on both sides.

Our next question is from Bill Baker with GARP Research.

I have one small question, one bigger question.

I guess, the bigger question is, it was interesting to hear you talk about how weather had affected the mosquito and tick business downwards.

And I'm aware that the tick business is more of a Mid-Atlantic, Northeastern sort of thing.

And so then when you sort of jump over to the Garden side, you do sell a lot of grass seed and that sort of stuff in that region, and it performed relatively well.

And I'm wondering so -- just maybe I'll throw in a last sort of thought, just this last weekend, I decided I was going to go out and buy a couple of 40-ton bags of your patch product.

And I went to Walmart, and they're sold out.

There's nothing there.

I got to Lowe's, and there are stacks and stacks of Scotts as there was at Walmart.

And there was an empty bin for you guys with 1 broken bag that I got a 50% discount on, and somebody had thrown a Scotts seed bag in there.

And I'm thinking, either you have an incompetent manager in the Mid-Atlantic area or you can't sell in enough to meet demand and you're gaining market share.

Or maybe it just doesn't signify anything at all.

Maybe it's just some sort of regional discrepancy?

It's -- how am I to think about that Garden business?

And you talked about point-of-sale and maybe how the next quarter could be better.

I didn't see any point-of-sale displays, I'd like to know -- at any of those stores.

I'd like to know kind of like how -- it looks to me like you're probably getting a lot of demand, but you're having trouble satisfying it at least in my region.

So Bill, you gave me a lot of material to work with.

I'm sorry, I went on and on.

No, no, no.

It's okay.

It's all right.

First of all, thank you...

Very anecdotal and little localized stuff, but probably doesn't reflect the national situation.

Well, thank you for, first of all, being a consumer of our products.

We think -- we appreciate that.

I'd say that what you're experiencing in a more rapid sell-through of one brand than another is what we're seeing in the market share as well.

That's indicative of market share.

Off shelf locations is disappointing to me because I'd like to think that -- I know that coming into this year, we had our strongest support ever in terms of promotions and off-shelf display support from our key retailers.

But we are seeing high demand.

There is no doubt about it.

On any given weekend -- and there's pent-up demand.

So when you have a period of time when the weather is good for as we've had and then the weather breaks in markets, you're going to have incredible pent-up demand.

That's what we've seen.

And it's difficult to have enough holding power in any one store to satisfy all customers.

Having said that, we're constantly working with the retailers to gain additional locations, but rapid sell-through is going to show through in their computer reports, which will lead to replenishment orders for us, more secondary locations for us.

But I think what you're seeing on a very limited basis is what we're seeing across the country, not sell-through -- complete sell-through of inventory, but rapid sell-through of our products.

Yes, I concluded it was a positive, but I'd like to see closer ties to the stores and point-of-sale and all that.

So -- but it looked very positive, and it looks good to me for 3Q?

So -- yes.

I was just going to add to that point.

You have just across some of the bigger box stores, thousands of stores.

I would think that that's not indicative of the -- that's not pervasive across the entire chain.

Yes, I agree.

I visited other stores in the past, and they looked completely different from my local area.

The minor question then, if I can just follow up, the Garden distribution business was down.

Do you have any comments about that.

Yes, some of that is timing.

The Garden distribution business, for us, over the last few years has grown very rapidly.

We knew we had a pretty strong comp against the Garden distribution business from the same quarter of prior year.

It was off slightly.

I expect this next quarter to close ground on that.

So Garden distribution, without facing our branded business, we're pleased with really the mix right now with our branded business strengthening and the Garden distribution business kind of leveling off a bit.

(Operator Instructions) Our next question is from Carla Casella with JPMorgan.

Can you hear me now?

Yes, we can.

Sorry about that.

The rollout that you're doing with the Pet -- one major retailer on the Pet side.

Did you say where you are in the process, at what stage and how long that would be until you're fully rolled out?

So the way it works, we have been working with this retailer for several years.

So we had our percentage of the stores.

And then we go out, we go region by region, taking more stores over.

In the next quarter, in Q3, we'll finish most of the big regions.

Then it will be truly minor.

So as you can see this going forward, you will have, again, another big effect in Q3 and then there's a wraparound effect in the rest of the year.

Okay, great.

And then on the Pet specialty side, what percentage of your total Pet sales is going into that Pet specialty channel now?

And how do you see that transitioning over time?

We don't give the percentages by channels.

What I can still give you is that, our exposure is significantly lower today that of where it was 2 years ago, mainly because of our strong growth in the club, mass and e-commerce business.

But having said that, we still believe specialty would be critical for the health of our categories.

And we have shown with our decisions and our innovation how committed we're to continue driving that channel.

We have reached the end of our question-and-answer session.

I would like to turn the conference back over to George for closing remarks.

I just want to thank everybody for attending the call and have a great day.

Thank you.

This concludes today's conference.

You may disconnect your lines at this time.

And thank you for your participation.