Scotts Miracle-Gro Co (SMG) 2009 Q2 法說會逐字稿

Welcome, and thank you for standing by. I'd like to say good morning, and welcome to the Scotts Miracle-Gro Company's second quarter 2009 earnings conference call. All parties will be in a listen-only mode throughout the duration of today's conference. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn today's meeting over to Jim King, Vice President of Investor Relations of Corporate Affairs.

Thanks, Caroline. Good morning, everyone, and welcome to the Scotts Miracle-Gro second quarter conference call. With me today are Jim Hagedorn, our Chairman and Chief Executive Officer, Mark Baker, our President and Chief Operating Officer, and Dave Evans, our Chief Financial Officer. Jim will start the discussion this morning with a strategic overview of the category, and then Mark will follow with a detailed discussion of what we've been seeing in each business. Dave, who by the way is celebrating his birthday today -- so no hard questions for him -- will walk you through the financials and update you on our full-year outlook.

Before we get started, I want to remind everyone that our comments this morning will, in fact, contain forward-looking statements. As such, actual results may differ materially. Due to that risk, Scotts Miracle-Gro encourages investors to review the risk factors outlined in our Form 10-K which is filed with the Securities and Exchange Commission or our most recent 10-Q. If you did not receive a copy of today's press release, you can find it on the Investor Relations portion of our website at Scotts.com. As Caroline just mentioned, this call is being recorded and an archived version of the call will be available on the website as well. If we make any comments related to non-GAAP financial measures not covered in today's press release, we will provide those items on the website as well. With that, let me turn the call over to Jim Hagedorn to discuss the business.

Thanks, Jim. Good morning, everyone. Happy birthday, Dave.

Thanks, Jim.

How does it feel to be halfway to fertilizer? Anyway, good morning. It's with good reason that you'll hear optimism in our voices. Our core consumer businesses are off to a great start. Consumer purchases of our branded products in the United States were up 18% in the second quarter, and as of the past weekend, are up 10% for the full year. In fact, each of the last two weekends were the largest POS weekends in the history of the company. Together, the past two weeks accounted for nearly a quarter of a billion dollars of consumer product sales of our product. And that's just at our largest retailers. Every category has seen strong improvement, even lawn fertilizer, where we had projected double digit unit volume declines after a very major price increase, has remained strong. Fertilizer units increased during March and are only slightly down on a year-to-date basis through this past weekend.

What's more, the consumer is engaged across the United States and Europe. Point of sale data shows more than a 35% improvement year-to-date in the United Kingdom and approximately 15% growth in France. Part of the strong start is due to the support we've been seeing from our retailers. I'll elaborate on this in a few minutes, but in some cases the level of support has been unprecedented. So, our belief that lawn and garden is resistant to recession has proven true. While lousy weather led to a difficult season in both '07 and '08, this year is shaping up well. The weather hasn't been perfect, but it's been pretty good. And pretty good weather usually results in a strong consumer demand for our brands. So if Mother Nature cooperates over the next six weeks or so, we should have a very good year in the global consumer segment of the business.

Those facts, combined with the current commodity market, now give us confidence that earnings for the year will be in the upper half of our range. While there could be upside to that projection if current trends continue, I'll remind you that 50% of the consumer activity is still ahead of us, and as you can see in our press release, some of the smaller businesses are trending behind expectations. I'll let Mark comment on various performance metrics, and what we're seeing in the field. First, though, I'd like to give you my sense of the broader lawn and garden marketplace now that the season is well underway.

Before I do, I'd like it acknowledge the team. I'm proud of the efforts we're seeing across the organization. There is no doubt they exited 2008 with plenty of scars. It was a tough year. So tough, it could have had a long-term effect on our people and on our culture. But I'm convinced that the challenges and lessons from 2008 made us even stronger. The team jelled over the past 12 months and is working together better than at any time I can remember. I want to publicly thank all 6,000 of our associates for their hard work, and ask them to remain focused for the rest of the season. Okay. So now let's get down to business.

I want to dig a little deeper into what's driving the results of the consumer business right now. Honestly, there's nothing magical about what's happening here. We're doing a good job of executing, and we're succeeding by rediscovering five simple lessons we've learned a long time ago. Here they are.

One, advertising matters. Two, feet on the street matter. Three, retail partnerships matter. Four, innovation matters and, five, margin matters. Let's take a look at them one at a time starting with advertising. Those of you who followed us for any length of time know that we believe that, one, advertising not only matters, but it works. And, two, our advertising-to-sales ratio must further increase. In each of the past two seasons, it's been difficult to increase our A to S ratio. This year, we've been able to do it. Not only is the amount of advertising to sales improving this year, but the other thing that has happened is we've returned to our roots. Our commercials this season did not focus on the emotional element of our products. Instead, they focus on results. They focus on quality, and they clearly demonstrate why our products are better. We are helping consumers better understand why our products are worth a couple of bucks more. And in this environment, talking about the value proposition is critical.

What's also critical is we find more ways to communicate. Hopefully all of you have seen our TV commercials that are airing nationally right now, but depending on where you live, you may be seeing our regional TV spots or perhaps outdoor advertising. You should also be hearing our local weather-triggered radio spots. In other words, you should be seeing and hearing a lot more from us this spring. Regional advertising will constitute about 40% of our advertising spend this year. This is allowing us to locally target messages much more effectively. Throughout the spring, we're seeing an immediate lift in just about every product as soon as we begin supporting it with advertising. The challenge longer term is to continue to find more dollars to support the brands, and I'll come back to this point as I wrap things up.

Let me move to my second point, feet on the street matter. One of our clear competitive advantages is our salesforce. And for about eight years we've been steadily growing the investment in our US salesforce to provide more support to our retail partners. Going into the season, we restructured the salesforce and decreased our investment in fixed labor. However, we significantly increased our seasonal workforce, allowing us to increase our in-store hours by more than 30%. As a result, we're providing better in-store support to our retail partners. We've also allocated more time to counseling consumers, answering their questions at the store shelf. There's no one else in lawn and garden even close to providing this level of service. Not only does the investment pay dividends, but it also strengthens the relationship with both of these key audiences.

That leads me to my third point, retail partnerships matter. Entering the season, many of you were concerned about trade-down to private label. We were confident, though, that this wouldn't occur. Our sense was that our retailers focused on using our brands to drive foot traffic into the stores. And that's exactly what happened. Not only are retailers proactively closing the gap between our brands and private label, but they are actively promoting our products. We're seeing price promotions, increased space in newspaper circulars, and improved displays in the store. And for the first time in a long time, maybe ever, some of our retailers are actually using national TV advertising that not only shows our products, but mentions them by name and promotes the price. As a result, market share of our branded products appears to have improved by several percentage points from this time a year ago.

Since we have so much of the season still in front of us, I don't want to get carried away. However, the trend is really encouraging. For the first time in years, we're seeing a real benefit from a coordinated effort between Scotts Miracle-Gro and our retailers. Timely messages, promotions, indoor displays are working in sync. Whether it's a DIY, mass retail, or the independent accounts, we're seeing the best results when we're working in concert with our retail partners. I believe the success we've seen in the area this year provides a model for the future. A point that Mark will discuss shortly.

Fourth point, innovation matters. Even in this economy we're seeing consumers trade up to products that are simple to understand and provide them with improved results. We believe we've hit another home run with our new Easy Seed product. It's a combination of grass seed, starter fertilizer, and a proprietary growing media that helps homeowners patch bare spots on their lawn. Once the product is wet, it expands and holds water around the seed. This keeps the seed moist and enhances germination rates. Consumer demand for the product even before the advertising started has been excellent. And now that the advertising has hit, more retailers want the product. So much so, that we're running all out just to cover the demand.

The same holds true for Wild Bird seed. We've created new bird food that blends -- new bird food blends this year, as well as better packaging and merchandising. And for the first time in the history of the category, we're running national TV commercials for bird food. So far, POS is up more than 20%. We continue to remain bullish in the category, believing it has many of the same dynamics that our growing media business did a decade ago. We continue to believe we can grow our share of the bird food market and improve the margin structure along the way.

We also continue to see great success with Roundup. Last year, our new Pump 'N Go product, which allowed for up to five minutes of continuous spraying became our best-selling, new product ever. This year, we applied the Pump 'N Go device to our Roundup Extended Control product. We've seen an 8% increase in consumer purchase in the entire Roundup business through -- compared to last year. Given strong sales in the Roundup last year, we're extremely pleased with the outcome this year. In each of these examples, consumers continue to trade up to higher priced and higher margin products. The ability to invest in innovation that creates a constant stream of high margin products continues to bring me to my final point.

Margin matters. Everything I've said so far comes back to this point. There was a lot of speculation that we would give back pricing this season. We didn't. And we don't intend to next year either. That's a point Mark will elaborate on in a few minutes. We remain focused on returning to the historical margins in this business. The point is to use margin to invest in the business and help drive the overall category. Then take the lion's share of that growth. It's a time-tested model that is clearly working again in 2009.

The four previous points I've made -- advertising, feet on the street, working with our retailers, and driving innovation, all require continued investment. We can't make those investments without being disciplined about our margins. We've succeeded against that goal so far this year and plan to continue with this momentum in 2010 as well. As you can tell, I'm pretty energized with what we're seeing in the core consumer business right now. While we feel comfortable with the upper half of the guidance, I caution you about getting too far ahead of the game. We've got a long way to go. May alone constitutes almost 20% of the full-year. But we're off to a great start, and, of course, every bit helps. So by all means, why don't you guys do your part. Spend the upcoming weekend out in the garden getting your hands a little bit dirty. With that, let me turn things over to Mark to share some of the POS data and talk about the other operating units.

Thanks, Jim. My first season at Scotts Miracle-Gro has been a busy one. I've been out on the road quite a bit and walking stores around the country with our salesforce. I have much better appreciation of how strong this team is, and why they are such a competitive advantage for us. Another thing that's obvious, this category is a star for our retailers. The big boxes to the regional chains to the independents, those retail partners that were properly positioned entering this season are seeing the benefit from the high level of consumer activity. Many of them have also been putting significant advertising and promotional efforts behind our products, which has helped them further drive the category. I would expect the level of support among those retailers to likely remain in place throughout the season and into next year, as the category is planning a major role driving consumer traffic. With that as a background, I'll spend the next ten minutes walking you through the data related to the US and European consumer business, as well as the key headlines for Smith and Hawken, Global Pro, and Scotts LawnService.

Discussing consumer trends in the US, I'll provide three sets of numbers. These are not the P&L, rather they reflect consumer sell-through of our products as measured by point of sale data or POS at our largest retail partners. Dave will discuss the actual sell-end to all our retailers, which is reflected on the P&L. Here are the three data points. First, POS on a fiscal year-to-date basis through March. Second, POS for the second quarter itself, the third set of data is fiscal year-to-date POS through this past weekend. Even though April is outside of the reporting period, we wanted to share a real-time look at the business.

Exiting the second quarter, we were in a strong position. Fiscal year-to-date POS was up 11% in the US, and POS increased 18% in the second quarter. Through this past weekend, fiscal year-to-date POS was up 10% as we continue to see strong consumer and retailer support at the midway point of the season. Consumer sell-through of our branded lawn fertilizer products was up 20% on a year-to-date basis through the end of March and up 29% in the second quarter. Through last week, POS of lawn fertilizer is up 14% from last year. While it's too early to declare success, we are clearly seeing the impact of strong retailer support, and as Jim mentioned, good weather at the start of the lawn care season has also helped.

Growing media is a business which we had high hopes entering the year. For the first six months, POS of our branded soils and mulches was up more than 13%, and we saw an 18% improvement in the quarter. Through last week, POS of growing media was up 16%. In our plant food business, POS was up 13% in the first half of the year, and it was up 17% in the quarter. The trend continued into April through last week. POS plant food was up 15%.

Consumer excitement about gardening is clearly helping to drive both growing media and plant food. We have seen a significant increase in the number of phone calls to our consumer hotline related to vegetable gardening this season, and we are seeing the same kind of increased interest on our website. We're not alone in encouraging consumers to grow their own vegetables. We're seeing the whole industry step up to promote this activity. In fact, even some of the live good companies are using TV advertising this year. I don't ever remember seeing that in the past. In addition, the news media continues to report on the benefits of growing your own vegetables. And of course, the creation of a vegetable garden at the White House was a great plug for our category. While we are optimistic, May is the biggest month of the year for gardening activities. So the peak is still a few weeks off, but if we can maintain this momentum, we should be in good shape.

In our Ortho business, we saw a 2% increase of POS through the first six months, and a 15% increase in the quarter. Through last week, consumer purchases were up 1%. Remember, the peak of this season in the Ortho comes closer to June, so we still have time to drive this category. Over the next several weeks, you'll see more advertising promotions related to Ortho and our Ortho advertising is brand new. And I believe, the best campaign we've ever had.

A couple of final points about the US business before I move on. Clearly, our retail partners are enjoying higher gross margin return on investment this season, due to the strong consumer demand. To help them maintain this momentum going forward, we'll work proactively with them to lower their year-end inventories. This will help make the stores clean for the following season. But this effort along with the slower traffic with independent retailers could mean a de-linking between POS and sell-end for the full-year. Jim has already talked in detail about the support we've seen from our retailers, so I won't go down that path. But I do want to elaborate on the question of pricing and programs.

Not only do we intend to hold on to pricing for 2010, but we'll seek small price increases again next year on select products. While those instances will be limited, they are necessary. Anticipating the questions about this, let me tell you that I won't elaborate on the products in question or the price increases we are seeking. As Jim firmly stated, our goal is to get back our lost margin, and reinvest in the business to drive long-term growth. This will benefit us, as well as our retail partners.

More broadly, I'm hopeful that our model for working with our retail partners will continue to evolve. There is no doubt that the focus they are putting behind our brands has helped drive early season results. We will begin exploring ways to re-engineer our trade programs for 2010 to provide incentives that continue to drive the productivity of our business as well as theirs.

One final point related to the core US business. I want to share with you, in February, that we were also working on the implement a more regionally focused business model. If we want to grow in places like Florida, Texas, California, and other important markets, then we have to have a structure that supports that strategy. Since then, we have set up a dedicated team focusing on executing this plan. We have been making great progress, and I'm hoping we can share more details in July about the implications of this effort for 2010.

Okay. We spent a lot of time talk being the US consumer business. Let me give you a quick sense of what is foreseen in Europe. Jim mentioned that the POS numbers are just as strong in Europe as they are in the US. Here's a bit more detail.

The story is actually quite similar. We have seen strong growth from both lawns and growing media business in Europe. And the retail partners are putting significant support behind the category. We have a number of new listings, especially in our larger accounts. Interest in vegetable gardening, which has always been popular in Europe, continues to increase. As a result, we're seeing a strong growth in our Organics Choice growing products and especially growing media. In Germany, we're seeing solid growth behind new products as well. This is a market in which pest control products are sold behind the counter. So the introduction of a new slug control product there, which is sold on-shelf, has really generated strong consumer interest. All in all, the consumer marketplace feels pretty good to us right now no matter where we look. In fact, I think we're showing that the consumer business is more than just recession-resistant. In this environment as people are spending more time at their home, focused on low-cost home improvements, I believe the economy might actually be working in our favor.

With that, let me change things up and give you an update on Smith & Hawken. It's clear that this is a category that is struggling in the current environment. While sales are off sharply, we've taken dramatic steps to lower our cost structure for this business. As you know, we don't disclose the profitability of Smith & Hawken or any of our individual categories, but I will tell you that we expect the losses here to be higher this year. And our broad view of the business has not changed. We are operating Smith & Hawken as efficiently as possible and continue to evaluate other strategic options.

Before I turn things over to Dave, I want to spend a minute and talk about Global Pro and then Scotts LawnService. In the Pro, the challenge has primarily been confined to the US professional business. Remember, a large part of the revenue comes from professional horticulture, the growers and distributors who supply live goods to retail industry. There has been an interesting twist in this business year-over-year. This time a year ago, many professional customers were buying earlier in the season, trying to get ahead of expected price increases as commodities rose. This year, the opposite is occurring. We believe many are delaying their purchases, hoping that prices will decline. In Europe and emerging markets, we're seeing stronger results. Of course, part of the challenge in these business is the impact of the stronger dollar. I'll let Dave elaborate on this. Clearly, Pro is a bit behind our plan, but we expect improvement in the second half.

I'll finish up with Scotts LawnService. First of all, I want to say that the performance of this business has been pretty impressive, given the current economic environment. However, the trends are beginning to catch up with us, which is what we expected. Remember, we said we expect sales in this business to decline 5% to 10% this year. Now that we're past the peak of our marketing efforts, entering the lawn care season, we can see that our custom account will be lower than last year, but consistent with our budget. The good news is the lawn service team accurately anticipated the environment and created an appropriate cost structure. In addition, we've been seeing higher retention rates among our service technicians, which is helping us keep our labor costs in check. As a result, profitability of this business should remain relatively flat.

All in all, I am pretty pleased with the overall operations of the business right now. Clearly, some groups are performing belter than others. But the consumer business, which drives the results of this Company are right where we want them to be. For the past weekend, I was visiting stores near my home in Minnesota where the season is just breaking. The stores are full, our products look great, and our in-store teams were on overdrive. As we continue through the biggest months of the year, I'm hopeful that our momentum will continue -- that we'll have another good story to report the next time we all talk. David?

Thanks, Mark. Good morning, everyone. I'll now provide an overview of the financial results and an update on our full-year outlook. The strong start to the season has allowed us to reaffirm our guidance, though more likely than not, at the top half of our range. We're encouraged with momentum in the consumer businesses and have the opportunity to exceed our range if we continue to see strong POS leading to sales growth for Scotts. Having said that, it's still too early in the season to commit to any upside. I'll elaborate on this shortly, but first I'll walk through our financial results.

Reported net income for the second quarter was $77.4 million, as compared to $58 million for the prior year. Reported net income for the first six months was $20.4 million, as compared to $1.2 million for the prior year. Reported earnings include financial implications of product registration and recall matters. I'll provide an update on this shortly, but I want to point out that my comments which follow will focus on adjusted earnings, which exclude the impact of registration and recall matters and provide a better indication of ongoing operating performance.

Adjusted net income for the second quarter was $82.5 million, this compared to $77.7 million for the prior year. Earnings per share for the second quarter were $1.25, compared to $1.19 in the prior year. Adjusted net income for the first half was $30.4 million or $0.46 per share, as compared to $20.9 million or $0.32 per share for the prior year.

Starting with the top line, reported sales for the quarter were flat to prior year, but declined 1.7% when adjusted to exclude the impact of 2008 product recalls. Adjusted sales were down less than 1%, or only $7 million for the first half. Foreign currency changes, which have been unprecedented, reduced sales growth by nearly 5 percentage points for the first half. As a result, sales increased 4.3% year-to-date when excluding prior year product recalls and FX. FX was a $0.05 per share headwind to earnings in the first half and could have a similar impact on the second half.

For our largest segment global consumer, adjusted sales increased $29 million, or 3% year-to-date. Year-to-date growth was 7%, excluding the impact of foreign exchange, with North America sales up 10% and reasonably in line with first half POS growth. And international sales lagging, more an outcome of retailer de-load than POS.

Many of you have inquired about pricing, and Mark touched on this briefly. Within our consumer business, pricing presented at the trade last fall has remained unchanged. While marginal declines and commodity costs since our last disclosure have been reinvested in consumer-directed promotions to drive momentum, product level invoice prices have stayed constant. We foresee no pricing change for the second half.

While global consumer sales increased $29 million year-to-date, this improvement was offset by declines of $22 million and $15 million for Global Professional and Smith & Hawken, respectively. Foreign currency drove the entire decline in Professional where more than two thirds of our business is in non-US-denominated currencies. Smith & Hawken declines were in the context of an extremely challenging retail environment. Not unexpected, but slightly worse than the bottom end of our projections. Sales in Scotts LawnService were relatively flat to prior year, increasing $1 million.

While the pace of first half sales grew for the Company as a whole, it was slightly behind our full-year projections. We saw good progress toward increasing gross margin rates. Excluding the impact of registration and recall activity, margin rates increased 150 basis points for the second quarter and 190 basis points year-to-date. This year-to-date improvement is at the high end of our guidance. Cost productivity projects account for about 75% of the improvement, remaining on track to produce about $40 million of annualized savings. Pricing, net of commodity costs increases, delivered the remaining 40 basis point improvement. Mix and other changes were net neutral. With regard to commodity cost, we've seen a stable environment with only marginal improvements from our earlier forecast. We have now locked in 85% of our full-year purchases of market-sensitive commodities, and we are currently exploring whether to take advantage of the current environment to lock in 2010 costs more aggressively.

SG&A costs were up 4% for the quarter and 5% year-to-date. Growth was driven primarily by increased accruals for variable compensation and retention. Investments in R&D and technology and increased regulatory compliance and pension costs. Interest expense declined $7.6 million for the quarter and $10.3 million year-to-date. Two thirds of the benefit was driven by lower rates, with the remaining one third resulting from FX and reduction in average debt. We remain well within our credit facility covenants at the March quarter-end, with nearly a half a turn of cushion and continue to enjoy the benefits of a favorable credit facility, borrowing at LIBOR plus 125. As a reminder, our credit facility extends through February 2012. Assuming an ongoing, historically consistent cash flow, including an expected $150 million to $170 million for this fiscal year, modest growth in EBITDA, and declining costs for product registration and recall matters. We will see significant deleveraging over the next 24 to 30 months prior to the negotiation of our next credit facility.

Our effective tax rate remains at 36% and diluted share count was flat to prior year. As an aside, we expect some accretion in share count in the latter two quarters as our higher share price expands the population of dilutive options and other equity instruments.

Let me now touch on our one adjustment to reported earnings, product recalls and registration matters. By way of update to previous disclosures, QAI has now completed a review of substantially all of the Company's US registrations, advertising and related promotional support for our registered pesticide products. We have treated the financial implications of these product recall and registration matters as an adjustment to reported GAAP earnings, as we consider them to be nonrecurring in nature. We incurred $15.6 million in pre-tax costs for these matters in the first half of fiscal 2009, and forecast an additional $10 million to $15 million prior to reaching closure. Charges going forward will be progressively driven by cost to rework restricted inventories to return them to salable condition. We have approximately $40 million of inventory on hold as a result of this process. As with prior quarters, our cost estimates exclude any potential fines or penalties.

Moving on to the balance sheet, receivables declined 3%, a marginal improvement on flat sales for the quarter. Inventories climbed $43 million, primarily due to inventory help for registration issues and new private label businesses. Benefits of currency rates on inventory were largely offset by increased average costs. Debt, net of cash, declined $107 million from a year ago.

I'll now transition briefly to our full-year outlook. As I mentioned at the outset, we are reaffirming our guidance of $2.10 to $2.30 adjusted earnings per share, with greater confidence that we'll be at the top half of that range. For the global consumer business, we have several critical weeks just around the corner, with more than 50% of POS activity remaining. As I stated earlier, adjusted sales for the segment have increased 3% for the first half. We expect POS to pull through stronger sales growth in the back half leading to full-year top line growth at the high end or slightly ahead of our original guidance of 2% to 4%.

Scotts LawnService started the first half with good momentum. However, based on current knowledge of customer count, cancellation trends, and revenue production per customer, we expect the top line to decline year-over-year in the back half. With full-year sales landing near the bottom end of our annual sales guidance, which is a decline of 5% to 10%. Our remaining two businesses, Global Pro and Smith & Hawken are both behind plan right now and will likely finish the year with results lower than originally expected. While we believe Pro will improve in the back half, we now expect full-year sales to decline. Similarly, we're hard-pressed to see a change in direction at Smith & Hawken. As Mark said, the loss at Smith & Hawken is likely to be a few million more than a year ago, representing an incremental drag to earnings of about $0.05 per share.

In aggregate, we expect Company-wide sales to be at the bottom half of our earlier guidance of flat plus 2%. But we also expect full-year gross margin rates to be at the high end or up to 200 basis points improved from prior year. You will recall that we said expected gross margin improvement to be back half-loaded as a result of the commodity environment. Let me explain why we now expect the improvement in gross margin to be relatively stable throughout the year.

First of all, accounting conventions average those costs over the year, somewhat diluting what would intuitively be a larger benefit in the back half. In addition, pricing will become less impactful in the back half of 2009, as the professional business anniversary all of their increases by the fourth quarter, as will a small portion of the consumer business. Our expectation for SG&A continues to be growth in the range of 4% to 9%. Based on current trends, SG&A is likely to be at the higher end of that range, with the primary drivers influencing the range being variable pay for both management and field associates such as sales and lawn service technicians as well as incremental marketing and selling costs drive sales momentum.

As a result, financial results at the high end of our earning guidance will result in SG&A growth at the high end. While the variable pay is a headwind for 2009, this reverses and becomes a tailwind for 2010. Interest expense should be at the lower end of the range of $60 million to $65 million based on current rates. Our estimates also assume an effective tax rate of 36% and about 66 million shares outstanding. With that, I'll turn the call back over to the Operator, so we can take your questions.

Thank you. (Operator Instructions) Our first question comes from Olivia Tong. Your line is open, and please state your company name.

Good morning. Bank of America-Merrill Lynch. Just wanted to get a sense of what kind of EPS could you see if current trends continue? Maybe if you could give us a sense of how much will fall to the bottom line? Or how much would you increase investment on some if the things that you'd like to do, but kind of pulled back on at the beginning of the year?

Well, hi, Olivia, this is the benefit of being first up is the benefit of sneaking into our call. The -- I think where we are because we spent a lot of time -- and, you know, if you hear anything from the team sort of halfway through the year, it's a real reluctance to jump out ahead of where our guidance has been. And so we -- we've spent a lot of time on what's it take to jump out of the top end. And effectively, what it takes is more than flat unit increases, which we have been seeing up until now. But, again, we're just trying to be careful here. And so, you know, as we got into it, it's about 8% in dollars, call it roughly, in line with our pricing and about flat on units. So an increase in units above flat, I think, puts pressure on -- positively on the top end of the range. And that's pretty much what we're seeing. And, I know our orders are good right now. Everybody is happy. The supply chain is working their buns off to get product out the door. The salesforce is happy. The POS numbers that I've seen, including through yesterday look really fine. And so, it's -- while the team, I think, halfway through is correctly positioned to say, let's see how it goes. That's what it takes. It takes more than flat volume. And I don't know, Dave, if you want to add to that.

No, I think that captures it.

I don't know what the rest of the question was. I'm sorry, we were so pumped up on that one, that -- .

I'm just trying to get a better sense for, if conditions continue as they are and you see upside to EPS. Are you -- how much do you think you're going to flow to the bottom line? And how much are you going to say, oh, there were these projects -- .

Well, you know, I'm not sure exactly we're looking at it that way.

Okay.

And probably, besides me, and maybe the team for it later, but what I would say is right now the consumer business both here and in Europe is doing really well. We are doing our best to keep that fire burning. And so. it backs into it, although I would say that you might say, well, you're not sensitive enough to bottom line earnings. I think what we're showing is that we can hold on to our margin, and if we can drive top line while holding on to that margin, it will ultimately flow to the bottom line. And, therefore, as we are meeting with our retailers, I think they also are seeing great results. And they're -- especially in the consumable lawn and garden part of their seasonal business -- and I think, are pretty intent on continuing to push and -- well, maybe to pull customers into the stores to buy our products and other seasonal consumable products and whatever else they put in the basket through the summer and into the fall. And so I would say, we're continuing to try to throw gasoline on the fire, and keep the thing going. And that retailers, I think, are also looking to bring customers into the stores. Nobody, I think, expected to see this kind of result, and everybody is really happy with it. Barry, you want to add anything to your approach to the business for the rest of the season?

Well, part of it is a management decision, but we will continue to work with our retailers to invest in advertising dollars, network TV and radio, as well as promotions to drive traffic into the store. And so I think it will be a decision based on what we see through May on how much we invest in the summer and in the fall. And I think that's primarily a management decision. But I would agree, investing in the business has worked so far and we will continue to do that.

Barry is being a really good soldier. I think advertising like two weeks ago, got really angry about it, I'm glad you're so interested in senior management.

Right.

Another question I had is, just you guys mentioned the importance of renovation which, of course, is very important as far as your market share. Overall, are your branded market shares increasing? I know it's a little difficult to measure at this point, but just wondering if you had a sense on where your branded market shares are going right now?

They're going really well. How is that?

Okay. Fair enough. And then did you get any benefit from the private label sales this quarter?

Definitely. Now, when we talk POS, we don't include those private labels into the POS, so I don't -- Dave?

Olivia, the way the private label, the incremental volumes can flow through -- excuse me, about 40% of it will flow through the first half of the year, and about 60% will flow through the back half. But as Jim said, I think it's important to note that the POS numbers that we are disclosing do not include that incremental private label in the growth.

Got it. Great. Thanks very much.

You bet.

Thank you, our next question or comment comes from Bill Chappell. Your line open. Please state your company name.

Good morning, SunTrust. First, Dave, help me understand again the inventory, and how it's recognized as we go through quarters. For the March quarter, were we seeing the $700, $800 urea you bought back in August, or is that averaged throughout the year?

Bill, it's really -- it's more averaged than specific identification. So, it's not as if when -- in our accounting system, the first slug of urea we purchased -- well, physically, it's the first urea that's going out the door. From an accounting convention perspective, it's more or less averaged. And we look at how much inventory do we have at the end of the period relative to everything that -- to the activity that was produced during the course of the year. So we are seeing -- it's more of an averaging function than specific identification. And it's just going to take a while for that to be averaged throughout the entire year, and, in fact, some of that will actually dribble into next year as well because some of what we'll have at the end of this fiscal year and our balance sheet will reflect those higher costs still that will then get finely pulled through next year.

Okay. And then in terms of the price increases you've taken. I'll just focus in on lawn fertilizer. You had said POS was, I think, up 14% year-to-date, and I think you had passed off a 25% to 30% price increase. Does that mean the retailer is eating 10%? Or you're seeing a volume decline of 10%? Or how should we look at that?

Dan, you want to talk on -- .

Dan always looks surprised when I call on him, even though it's on the -- .

Yes, I'll take it. They're passing it through, and what we're seeing is up in sales POS consistent with the price increase and basically flat in units, which is better than we thought it would be.

Okay. And -- I think that answers it. And then the final is, is there any way to break out -- I mean certainly the POS has been impressive March and early April, but how much of that was just easier year-over-year comparisons? And how much of that was just a good season? When I say that, I know you had actually upped POS from, I guess, late April to -- .

You are just trying to dump on the parade, aren't you?

I was just trying to be realistic.

Okay. Let's be realistic. The last two -- April of last year was a sweet month. It basically pulled the year out for us last April, okay? And so, we saw increases of the data that I've seen -- I'm not sure it's complete yet, from last weekend, of way over 30%. So, I don't know, call it roughly 35% increase last week, which is probably the biggest single weekend of the lawn and garden season was definitely more than plus 30%. And so -- and the weekend before that was an almost as good number. So, where you might be able to say, well, listen, March was easy, that's true. The reason you're seeing so many year-to-date POS numbers decline is because April was so good last year. So -- and May was not as crazy a month as April was last year. So we have -- I'm not going to say easy comps, but we have not as big a mountain up against -- .

So, Bill, I think when we look at it, looking at the period through this last weekend, it's actually a pretty good year-over-year index because now you've neutralized the bad or good weather last year. You've got Easter in both periods, and it's a reasonably good comparison.

So, Jim, should I model plus 25% for the rest of the year?

No. Here's the thing. It goes back to -- no, seriously. It goes back -- who knows. This is not one of these normal times. I'd say, so far so good. It goes back to what Dave said, which is if we can show better than flat unit volume for the rest of the year, it's good for Scotts and our shareholders, okay? So far it looks pretty good. I would say once we get through April, the numbers become less scary-looking and -- not that April was scary, but it was -- April of last year was really good. So I don't know. And that's the problem. We're halfway through. More than flat unit growth is good for the Company.

Got it. Thanks.

You're welcome.

Thank you. Our next question or comment comes from Alice Longley. Your line is open and please state your company name.

Hi, Alice -- . One at a time. One question at a time, okay? I just can't remember

Alright. First of all, I'm having trouble with just a couple of these numbers. What was the 8% you were talking about with -- that was composed of zero volume and 8% pricing?

Okay.

Because I thought your -- ?

Our average pricing -- it's a good point. Average pricing was about 8% last year, going into this year, okay? So, if you saw 8% unit increase or 8% dollar increase, it's about flat on units. So 10% means there's been a unit increase, okay? So one was pricing, and one was units, okay? Zero was units, 8% -- 0% units equal 8% in dollars, based on the pricing we took last year.

Based on that mix.

Well, I still don't know what the 8% is. Your US sales were up 10% in this quarter. And so, let's stick with that in the second quarter, how much of that is volume and how much of that is pricing?

Well, okay, Dave.

Yes. So, Alice, on our consumer business, you're right, excluding FX, is up around 10% year-to-date. So I'd say that over the course of the year, you're going to see about 8% growth come from pricing. So what you're seeing is a couple percent coming from private label and reasonably flat on unit volume.

So far.

So far.

Okay. Another question is shipments versus sell-throughs. As we go into this third quarter, should we expect your shipments to be up about even with the increase in your sales at retail?

Well, first of all, let me bridge a little bit, POS to our shipments out. So when we're talking about POS, recall that is really for our three largest retailers in the US. Okay. So -- and they represent, you know, a large share, but there are other retailers out there as well that are important to us. And we're seeing their sales lag a bit and that's -- so you see some moderation there. Going forward, we would expect inventories at the end of the quarter are in good shape. So we would expect this POS that we're describing in April and the strong POS at the end of March to drive through slightly stronger shipments out in the back half. So from the first half, we're up in totals, global consumer business, about 3%. The back half, we'd expect to be up more than 3% because we expect the full-year to be closer to 4% or slightly greater than 4%.

And that's global consumer up 4% through the year in local currencies?

No. At reported currency. So remember, Alice, at the beginning of the year, we said our expectation for global consumer reported was to be up 2% to 4%. That included about a 5% FX impact. We've been really close on our FX impact. So excluding FX, you're talking about being up 7% to 9%, okay? Excluding FX for the first six months, global consumer is up 7%. Okay. So what I'm saying is excluding FX, we ought to be up greater than 9% in the back half, because for the full year we'd expect to be up about 9%.

Okay. And does -- and I guess this means in Europe, your local currency shipments should match the growth at retail? Or even be faster than the growth at retail because you basically undershipped in the first half?

Yes. In the back half in Europe we're going to see -- we expect to see a faster growth because POS outpaced shipments by a wider margin in Europe than we saw in the US. And the retailers and distributors in Europe ended the quarters fairly lean on their inventories. So we see that being replenished, and we actually saw that in our shipments in Europe in the month of April.

So again, to -- in Europe for consumer in the second half, if sales at retail are up 5%, your shipments will be up more than that; is that correct?

That's correct.

In the US, if sell-throughs are up 5%, your shipments will be up 5%?

Shipments will be closer to POS in the US, and in Europe we're going to see shipments exceed POS.

Okay. And then, again, on this inventory issue, for Global Professional, will we -- where there seem to be some inventory destocking, will we also see shipments better than sell-throughs for Global Professional in the second half?

Well, we expect to see some. So if you look at Global Pro down 14% for the first six months. First of all, FX impact on Global Pro, it's behaving as we thought it would in our original guidance. FX has about a 14% impact on Global Pro. So on a constant currency basis, Pro sales are about flat. We do expect the back half of the year to be stronger than the first half. But on a full-year basis, we still think we're going to see sales less than our original expectations for that segment.

But in the second half in local currencies, Global Professional shipments should be up?

Yes.

Okay. I guess that's all for now. Thank you.

Thank you, Alice.

Thank you. Our next question or comment comes from Doug Lane. Your line is open, and please state your company name.

Thank you. Jefferies & Company. Can we talk a little bit about the -- this Smith & Hawken and other segment, and what's going on with the profitability there? I thought part of the deal was getting the cost structure in better shape there, and it looks like the segment profits are down some, $14 million or so, $15 million year-over-year. Granted the sales decline was 22%. But a year ago, it was down 18%, and your losses were actually cut. So just more granularity on that other profitability if you don't mind.

Well, I'll start out with that, and Dave can finish up. A couple of things that have changed in the Smith & Hawken business. Primarily the trade business where we had enjoyed pretty good sales to companies like Starbucks. Those businesses have kind of dried up and have really wreaked havoc on some of the profitability that we got out of the trade side. Actually the retail stores are coming closer and closer to improving and comping, but the trade business has been the biggest gap. As well as some of the direct to customer businesses have slowed significantly. They have made significant reductions in the headcount in California, at the headquarters. And also at the headquarters taken a pretty significant reduction in base pay. So they've gotten their hands around the variable costs as best they can and I think we've eliminated four leases that basically expired over the last six months and reduced the stores so that the four wall contributions of the stores are all either break-even or slightly better than that, but overhead costs -- .

So, Doug, as Mark said, had we not gotten extremely aggressive in controlling costs, we would have seen more of a headwind from Smith & Hawken the first half. Having done that proactively, we were able to mitigate much of the impact of the sales decline, but we still saw a $3 million to $4 million increase in the loss in the first half. The balance of the increased loss -- or the cost is coming from the corporate segment, which is derived from a whole variety of things. Including things like variable pay, but as well, increased investments in technology, so some IS costs. It's increased pension expense. It's increased regulatory and compliance costs. So it's a combination of both Smith & Hawken, call it $3 million to $4 million. And the balance driven from the corporate group.

Is the corporate group have those recall expenses that you back out of the P&L in one of your schedules there?

Yes. But what you're seeing -- I think what we've reported was on an adjusted basis. So when I say regulatory and compliance, there's incremental costs that we're seeing. Remember, everything we're putting in the adjustment is all looking backwards, okay? When we look forward, the cost of regulatory and compliance is going up because we're making some fairly significant changes that are driving costs to improve this group. So the go-forward cost you're seeing show up, some of it is showing up -- a lot of it is showing up in the WHQ segment. Some of it is showing up in North America as well.

Okay. So just simplistically, I've got roughly a $25 million increased loss in that segment year-to-date. Should we also build in $25 million more of losses in the second half of this year for that segment?

Just hold on, Doug, he's pulling paper out.

I mean there's no reason for that to improve in the second half that I can see based on what we've talked about so far.

No, it's going to be reasonably similar first half and second half.

Okay. And then on the LawnService. With the first half, can you just give a little bit more color on why really the first half was as good as it was, and why you see a reversal there in the second half?

Okay. Hi, this is Barry Sanders. The first half -- the team did an excellent job on productivity improvements. They've taken significant costs out of the business model. And so that is fundamentally what's driving the improvement in the first half. What will happen in the second half is purely a function of customer count. And so, like Mark said, you know, we're going to be on the lower end of acquiring the consumers that we want, and so it will be an exercise of customer count and the revenue that we generate based on that model. And so significant improvement of first half, lower customer count in the second half, but the group should be right about where we had forecasted that their budget was going to be.

Which I think, from my point of view, is a -- shows really how excellent the team is doing managing in their tough environment.

Right.

Because this is one of those businesses where it's probably the most -- this and Smith & Hawken are probably the most sensitive to people having no money in their wallet, and I think the consumer business actually is benefiting from that.

Well, I guess there's a trade-down going on there. Are you still gaining share in LawnService?

We think so. It's hard to get data on this because there's not a real data source to go to. But based on the field information we get, we think we're gaining slight share in the markets.

Okay. And lastly and just in North America, and in your core lawn and garden categories, can you give us some color on which categories you're particularly gaining market share? Which other categories are you mainly holding market share? If, in aggregate, your [av] is better than you were last year?

Yes, the two categories that are really driving improvement. We're seeing double -- close to double digit increases right now in ferts. And we're seeing pretty good market share gain in growing media as well.

What about grass seed?

You know, most of the grass seed business is done in the second half. So, we're going to -- that will be in the last half of the year. But right now, we are seeing, we're seeing 2% to 3% market share gain in the first half of the year.

Okay. Thank you.

You bet.

Thank you. Our next question or comment comes from Joe Altobello. Your line is open, and please state your company name.

Thanks, good morning. Oppenheimer. First question, I guess for Jim. I'm surprised to hear you talk about price increases for next year here in April. And so I was hoping you would give us context around that. It sounds like it would be relatively small, but I just wanted to get some numbers if you could. I also would be curious to hear, has there been a change in the dynamic between you and the retailers in terms of pricing given the, what seems to be inelastic demand we've seen this year. Are retailers becoming more and more receptive to price increases and think this is a good way they can raise their same store sales, given that the consumer seems to be coming back year after year despite the fact that prices were up so significantly this year?

I get the question. I didn't mention it. Baker did. So we're going to get the fire bomb on that one. I know Barry was happy he did. Here's the point, and this is kind of where I get to on margins. It's been -- it seems to me it's been a rough couple of years, and I think we're seeing good things happen here, largely because we are the unexpected recipient of the fact that we took pricing and our cost of goods went down. And we're using that business, I think, not only are we helping the P&L, but we're also investing heavily in driving the business. And I think it's working. And this gets back to those lessons that you said I knew -- my father taught me that lesson. Advertising works. Feet on the street work. I would say you go back to the old spec days where David Pratt taught us -- in-store execution works. And so we know that, and I think we, to some extent, can look back and say we cannot let margins decline, half a point per year over kind of an extended period. We cannot do that. And I don't think we see a lot of cost increases coming this year. But the cost of the business is not going down, and what we want to do is not going down. And so I just think we've got to keep up with sort of inflation a little bit, and that causes us to say -- it's not a, like, crazy price increase. But it is us making sure that we are really disciplined in our margin because we know now, again, learning something we should have known. Is that we actually can drive the business by doing the right thing. And that when we don't do it, all bets are off. And so, if you can drive the business -- and this is the part that I think is so incredible, to be honest, about this year. Is that who would have thought we'd see these kind of increases in March and April? Definitely not us, especially after taking the kind of pricing we took on lawn fertilizers, which is going like gangbusters and taking share. So, I think that that's really what this is about, is making sure we don't again lose sight of margin and we keep tight to it. I do think that the retailers have a sort of political problem, which is, you -- it's really hard to tell a retailer you should be happy about pricing. Even though, I think it actually has been good for them and their [gimroys], and we've been doing a great job with their inventories. So I think actually their gross margin return on investment is up generally, but I just never have seen a retailer say, oh, sure, take pricing. Even when it is, I think, good for the environment, and part of what we have to do with our retail partners is explain that for us to drive the business, we must have jet fuel. And, therefore, it is not about being abusive, it's about driving the categories and for the benefit of everyone including the American economy and the US consumer and overseas.

Okay. It sounds like their thinking has evolved, I guess, for lack of a better term?

You know, Baker, has retailer tattoos, so -- .

The DNA has not changed that much. There's always a resistance to think about price, but I think at the very core of most retailers, they want to be treated at least fairly and know that they're not disadvantaged in the marketplace. And Scotts upholds a very fair treatment to all the trades so that they can go and get the brands that we believe drive consumer traffic into their stores. And then, get the trade-up in their stores for all the other baskets they want to sell. As long as we are aggressively promoting, aggressively training the consumer at retail, and we've got the best value in the category, they'll support us and we'll support them.

And then just one last question, it's a bit of a small one. But the Easter shift, any impact in the quarter? It was end of March last year, it was April this year.

Well, when we reported POS, it had no impact. It's in both periods through April. From a shipment perspective, a pretty marginal impact quarter-over-quarter.

Okay. Perfect. Thank you.

Does that conclude your question?

Yes.

Thank you. Our next question or comment comes from Jim Barrett. Your line is open, and please state your company name.

CL King and Associates.

Hi, Jim.

Hi, everybody. Jim, can you talk a bit about advertising? You -- what kind of savings are you seeing to reach the same number of eyeballs this year versus last? And I may have missed what the trends are in advertising spending overall?

Alright. I'm -- I'm going to hand off, I think, to Barry and his team. Whoever he wants to call on. This is a really interesting question for us because, remember, it's not like for like and what I mean by that is that we're buying a lot more local. We're buying a lot more radio, and so we're giving up a little bit of efficiency when we go local in order to get the messages we want. Get the markets we want, and to some extent the same is true with radio. But, remember, when we talk weather-triggered, make sure you understand what that is. Weather-triggered is we look today at the weekend weather maps and say, not so good, we yank that. Either redeploy it, or we hold it to the following weekend. So -- and again, that's not all about saving money on the ad itself. Although I think basically media costs are down. Jan runs our media, and I think she's going to help with us this.

Yes, we're seeing about 8% efficiencies. Actually, quite a few increased eyeballs are watching network television. So, network and cable are actually terrific for us. So we got a great value, and we're getting more than what we originally bargained for. As Jim mentioned, the weather-triggered radio isn't necessarily a cost savings, but it certainly is an efficiency metric for us because we can time our marketing messages when the weather is great and when the consumer is in the mindset to listen and respond.

Okay. Thanks, Jan.

We're seeing about an 8% efficiency gain, and we're making an incremental 10% investment on top of that. So, we think that, however you want to calculate the GRPs or whatever, we're seeing a significant increase this year in what we're doing.

So, Barry, you got an 8% efficiency gain, and you're spending 10% on top of that? Does that mean the advertising is going up a couple percentage points?

It will. Not quite that much, but it will -- you'll see, roughly, a 7$ million to $8 million increase in advertising over last year in North America.

Okay. And then on the whole question of market share -- branded lawn fertilizer, is Vigoro and Stay Green in that universe, or do you define that as private label?

We would define it within market share. I would just be careful on it because you had a discontinuity in season when spec abandoned the business, and we picked up the Vigoro business, I think -- .

November.

Who picked up the Stay Green business?

Central.

Central picked up that business. I think everybody had to get that business under their belts. So that the market share private label to national brand where -- the numbers look really good. Part of that gain is due to the fact there was a discontinuity in season as the production transferred from one vendor to another.

Okay.

Does that make sense?

I believe it does.

Okay.

And overall, is private label growing faster in your largest retailer versus your second largest?

No. Branded business is, what -- they don't want to say. They almost stuffed a rag in my mouth.

Okay. Okay. Well, thank you anyway.

That's okay.

Not sure for what, but thanks.

Alright. It's good.

Okay. Thank you.

Thank you. Our next question or comment comes from Connie Maneaty. Your line is open, and please state your company name.

Good morning, Connie Maneaty at BMO Capital.

Hi, Connie.

Hi. Two questions, just back to the accounting for the accounting impact on the gross margin from raw materials. If you have to average these raw material costs through the quarters and the second -- well, anyway, was the second quarter overstated because of this averaging? Second quarter gross margin expansion?

No. It wasn't overstated. It's just -- I think, Connie, that the thrust of this is that -- I think we've had some earlier discussions that -- I believe back on February 3rd. Where there's an inference that there's more of a kind of specific identification with regard to how these costs float through our P&L. And I think what we're trying to do is correct that interpretation on this call to say the way it actually flows through our P&L is more of an averaging convention. And so, we're not going to see as dramatic of a fluctuation from first half to second half since we are using an average. So the first half was up 190 basis points. I think the second half might be pretty similar to that given some of the other noise which is why we kind of guided to a full-year at the top end of our 100 basis point to 200 basis point range.

Okay. Then, secondly, I think you have some charges coming around the consolidation of European -- to European headquarters and things like that? Could you just talk a little bit about the projects you're undertaking that these charges relate to, and give us a timeframe of when you might be making some announcements about them?

Yes. I just got to be careful in the -- because of our labor unions in Europe. I don't want to get ahead of where we're at. And so let me just be clear is that my view this year to the team is what I view success is. Is, start with that we can show -- we can grow unit volume in a really difficult external environment. And I think we're on track to do that. Second, that we can -- we can grow our margins and hold on to that. And I think we're on track to do that. Third would be, that we can overachieve on cash flows without starving the business. So this is not a a big time -- there's no weasel words here. That we can show we can do a good job on cash flow and use that money to pay down debt. And then the last part is -- and so I'll use uncharacteristically nice language, don't mess with the banks. And I think we're on track to do those things. Now, I really want to pay down debt. So we're looking at all of our significant capital projects that, I think, we had looked at as being something we were going to do in this fiscal year. And we're looking at them with a tougher magnifying glass. And I'm not sure that we're really ready to announce to you what decisions we have made on there. Except. let's just say that, I want to pay down as much debt as we can as quickly as we can. And I want to sort of refocus our capital needs for the Company on the things we really must do. Do those, and the ones that I think are less important and the team agrees with, that we can put off, we do that with the idea of increasing our cash flow.

Does that suggest, then, that you'll be -- I mean do you pay off enough debt in fiscal '09? Or will you pay off an equal amount in fiscal 2010. And then you can start looking at some of these other projects?

I think the answer is yes.

Okay. That's all I had, thank you.

You bet.

Thank you. And our next question comes from Eric Bosshard. Your line is open, and please state your company name.

Hi, Eric.

Cleveland Research. First of all, Jim, you've talked a lot -- or all of you have talked pretty optimistically about how well sales are going. Yet, the full-year sales -- basically, you are saying that it's going to be in the range. Can you just help corroborate, or connect those two statements?

It's pretty hard, I admit. But it's mostly because the team is just not willing to -- and I agree with it. So this is not like there's a difference between me and Mark and the operators on how to do this. But it's just so much we don't know, we feel very lucky so far. And like I said, the question I have to Dave and Mark is, what's it take to drive out of the range? It takes real unit increases compared to year before for the rest of the year. And they're not willing to call that yet. And I don't think there's a discontinuity, I think it's a willingness -- it's a complete lack of desire to get out ahead of anybody. Me, the board, or you. And so I think that there's no discontinuity there other than people being safe.

Eric, just let me add a little bit more. I think, we're talking about the strength of the consumer. We're talking about our consumer segment, and I think what I said and what the team is saying is that the consumer segment will perform at the high end. And perhaps even a bit higher than the high end of our guidance. I think what you're seeing is in the other segments going through Global Pro, Global Pro is going to miss it. They're going to fall below that range. SLS is going to be toward the back half, the bottom end of their range. And Smith & Hawken is going to, if not touch the bottom end, perhaps slightly be a bit worse than the bottom end. So I think that's a little bit of the discontinuity that you're hearing is that our core consumer business is behaving very well. It's strong. We're encouraged. We're excited. But we're seeing some other headwinds in the peripheral segments of our business.

Secondly, the additional advertising that is taking place, it sounds like the retailers are doing a lot of this promotion. But it also seemed like you indicated a stronger partnership with the retailers on this. As you're spending more ad money, where is that showing up on the financial statement?

Eric, this is Barry. It shows up in two areas. It will show up in the median advertising. And you'll also see it -- where we classify promotions and the things we do with specific retailers. It's discounts and allowances. So you're going to see a year-over-year, call it roughly $30 million in promotional activity and an extra $6 million, $7 million, $8 million in advertising.

And those are both SG&A items?

No, no.

The two things -- so I'll just add on to that. The media is going to show up on our SG&A. And so within the consumer business, we're seeing order of magnitude 12% or so growth in our media. Now, as a total Company, that's going to be somewhat offset because I think we're being sharper with our media spend in LawnService and Smith & Hawken. The other half of what Barry was talking about is going to show up as an offset to sales. So, where we're working in promotions with the trade, they're showing up as an offset to sales, Eric.

Okay. And then the last question, how big is the difference in performance of the big retailers who you're quoting their POS numbers and everybody else?

Let me take a shot at that, Eric. We've got a lot of retailers that give us POS, and a lot of the mid-sized, regional guys are doing very, very well as well. Some of the hardware guys are doing very well. Some of the people that just didn't buy the inventory I think either from a conservative nature going into the season. Some of the smaller independents are off more than we wish they were. But that was just a lack of commitment to the category early on. But generally, most of our retailers are up, across the board.

Thank you.

Thank you. And our next question or comment comes from Sam Darkatsh. Your line is open, and please state your company name.

Raymond James. Good morning. Long call, obviously. I'm just going to ask a quick question because most of my others have been asked and answered. If you're looking to lock in your material cost -- if you were to lock them in, what's the quantification of the year on year delta for 2010 versus 2009?

Dave, you can -- Dave is shaking his head no. I'm not sure what that means, either don't go there or -- ?

Sam, yes, we're not -- I'm not going to throw out a number on that right now. It's something that I'm working closely with Mike Lukemire, who leads our DTO group, so our treasury and purchasing groups are all working together closely. We're look at the markets every day, and we're seeing some things that are lock of looking at the markets every day, and we're seeing some things that are favorable to us. But we're very early in the process at this point, and it would be premature to start throwing out -- .

I'll just throw out my point of view on this. again. Which is first of all, I think Dave and the team in finance and treasury have done a super job of de-risking interest. And he deserves a lot of credit for that. If you view money as a cost of goods, and we have a great deal right now with our credit facility. I think Dave's made it better by buying forward protection on interest that goes beyond our credit facility, and I think that's -- it's historically low rates, and he deserves a ton of credit for that. The supply chain folks are looking at opportunities based on where the market thinks nutrients are going to be, and where they are actually in the market today. I think people believe there's opportunity there. But again, we're taking a look at where our cash flows are. Where we want to end the year, and how much -- what the return is on investment and nutrients now. And clearly we're buying forward. But the question is, do we want to accelerate and buy more in now because we think the market is going to go somewhere. The nutrient market is looking really good right now from a purchasing point of view.

So if I could rephrase the question, I guess you're looking for -- are you looking for a favorable spread in the pricing versus cost inflation, or cost situation for next year? Is that what you're getting at when you're talking about selected price increases? And trying to return to more normalized margins, you're looking for a favorable spread between selling price and input cost?

The answer has to be yes.

I just wanted to make sure I understood that because there could be other issues with mix as well. Thank you.

Sam, just to be clear. One follow-up. There's really two things going on when you think about next year's costs. One is, as I said, you have the snake moving through the python here, in terms of this year's cost increases. Flowing through the P&L, using this kind of average convention that I've talked about a couple of times. So you're going to have the balance of that falling out next year, which is going to create a headwind next year. Then, we're evaluating the markets in terms of how we want to buy forward for what we actually purchase for next year's production now. And we'd see that as an offsetting tailwind. What we don't know yet is what the net of those two numbers is going to look like. You have to have the context of both threads here.

We have said one thing clear. We want to move back to historical margin rates, and we're not fully there yet.

Thanks much.

Caroline, listen, in the interest of time, we're going to take two more questions if we've got people who are still in the queue who can't get to us, we'll take those later. So, let's just do two more.

Okay. Thank you. Our next question comes from John Anderson. Your line is open, and please state your company name.

Good morning, John Anderson, William Blair.

Hi, John.

Hi. Mark, I was just wondering if you could talk a little bit about the regionalization efforts? If there's an update there on progress and opportunities, both from a sales and cost savings standpoint? Thank you, and I'll listen.

Thanks, John. On the regionalization effort, the team has been in place for a couple of months now. Making sure we can identify the opportunity and exactly, the how we would get this thing rolled out some time in 2009 to be somewhat effective in 2010. I think what our plans are is to more fully discuss this in the summertime after we firm up things. But we are very excited about what appears to be a market share opportunity. And, frankly, a tactical activity to do a lot better activating consumers and grow the market in some of these extreme markets like California or the West Coast or Florida, as we identify it. So I think the Company as a whole is very excited about how we're going to grow the business over the next several years through that activity. And we just want to make sure we do it well, and don't unwire something that's working right. So lots of excitement. More to say later, but we feel good about the opportunity.

Thanks.

Thank you. And our last question comes from Sam Yake. Your line is open, and please state your company name.

The company is BGB Securities. I was just wondering real fast -- you talked about gains you have made with the retailers. Can you quantify shelf space gains, and how do you measure that?

Barry, you can have that. He doesn't want to answer it. I can tell you just looking at his face.

I think the best way is just overall market share. Because, quite frankly, it's really -- it's the same skews that's on the floor that's on the shelf. And I would venture to say that we sell as much stuff off of display units that are on the floor and stacked out in the garden center as we do off the shelf. And so I think we've had some decent market share gains, quite frankly, at all of our retailers. But probably this year more so than any, the stack out programs, the display units and so forth are up. And I think a large part of that is the dollars that we're spending on promotion to drive those activities. And so, we don't really measure floor space as much as we measure just market share overall. But I think we're in pretty good shape at all of our retailers.

Okay. And then one final. I have a big picture question. I think this year your results highlight what I was thinking. And that, is your core global consumer business is a terrific consumer franchise. In fact, I think it's one of the great franchises in the world. And then I look at your other businesses as little lesser lights really. And I'm wondering, do you ever give thought to just divesting -- you've talked about divesting Smith & Hawken. I'm wondering if you just divest the LawnService, the Global Pro. Anything else that's not in that core global -- consumer franchise, and just focus on the terrific strength you have there and become a very focused company. And let all the other stuff drift away?

Well, I feel like I was reading an editorial. Look, for sure -- I have a bet that -- I have a bet that the first year every business unit makes their numbers, we're going to Necker Island to do our strategic planning. It seems like the more businesses we have, the less likely it is we'll ever get to Necker Island. And I was commenting to Barry as we were walking down the hall that, if it was just the North American consumer business, we'd go to Necker almost every year. And so, I think that gets back to your point, which is that clearly this is a consumer business. Where we do best with things is where they're easy to bolt on to our existing distribution system. Where we can use the power of our entity -- call it, our force, to move products with our retailers and the North American business is clearly a big deal. International, we look at our business as a global consumer business, and the international business, it, you know what, I got to say something. Claude is listening. It's a compliment to his entire group. One thing we've never seen over there, good weather, good sales. It's like, they have good weather, sales are on budget. No matter what. In America, you see great weather, you see great sales. They're seeing for the first time -- great weather, great sales. And that is a compliment to the team over there, and so I think the consumer business is the core of our business. And I think as we look at our big picture future, everything is based on the fact that our core of our business -- and that's -- this is not exclusive to anybody and nobody should feel bad that's listening. That's part of the Scotts team, and that is the core of our business is our consumer business. It's mostly based in North America, a little bit in Europe and Canada and Australia, but -- so, what you said was more of an editorial, I think, but it's not wrong.

Okay. Thanks so much. I really appreciate it.

You bet.

Alright, Caroline, we're going to wrap things up at this point. I think there are some folks that we probably weren't able to get to. You can feel free to give me a call directly later in the day. 937-578-5622. Otherwise, thanks everybody for joining us this morning, and we will be reporting our Q3 results near the end of July. And we'll be back in touch with you then. Thanks, have a great day.

Thank you. That concludes today's conference call. Thank you for your participation. You may disconnect at this time.