Scotts Miracle-Gro Co (SMG) 2010 Q4 法說會逐字稿

Good morning, and welcome to the Scotts Miracle-Gro Company fourth quarter 2010 earnings conference call. All participants are in a listen-only mode. (Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this time. Now, I'd like to turn the meeting over to Mr. Jim King. Sir, you may begin

Thanks, Diane. Good morning, everyone, and thanks for joining us for Scotts Miracle-Gro year end conference call. With me here in Marysville this morning are three members of our executive leadership team, Jim Hagedorn, our Chairman and CEO, Barry Sanders, our newly named President and Dave Evans, our CFO. Jim will get started shortly with some brief remarks about our results that we reported today as well as our thoughts entering fiscal 2011, and Dave will give you a detailed walk through the financials. When we're done, we'll take your questions. But in advance of that in the interest of time, we're going to request that you ask a single question and a single followup. If we don't address all your questions, I'm glad to follow up with you after the call. And in fact, I believe we already have calls scheduled with several of you throughout the day.

One more important piece of housekeeping before we turn things over to Jim. I wanted to inform you that we will be holding our annual analyst day meeting this year in Boca Raton. The meeting is tentatively scheduled for Wednesday, February 23. And as we did last year, we will combine our meeting with a tour of local garden centers and have lunch with members of the senior management team. We're still working on the details, and will communicate more to you in the future. Okay, so let's move on with the call.

I want to remind everyone that our comments this morning will contain forward-looking statements and 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 10K, which is filed with the SEC. If you didn't receive a copy of today's press release, you can find one on the Investor Relations section of our website. And as a reminder, as Diane said, this call is being recorded, and an archived version of it also will be available on the website. If we make any comments this morning related to non-GAAP financial measures not covered in the press release, we will also provide those items on the site. With that, let me turn the call over to Jim Hagedorn to discuss our

Thanks, Jim. Good morning, everyone. It should be pretty obvious why our spirits here in Marysville are good this week. I'm extremely pleased with the results we announced today and with the strong momentum we saw in the closing weeks of the year. In fiscal year 2010, we benefited from our most successful product launch ever. We invested in a record level of advertising. We had an unprecedented level of support from our retailers, and our new regional operating model got off to an extremely strong start. As a result, the two peaks of our season, spring and fall, were extremely strong and resulted in a 5% increase of consumer purchases of our products for the full year. In turn, we had record sales volume in our core consumer business, up 7% to nearly $2.7 billion.

We did an outstanding job of managing SG&A with an increase of just 1% on a full year basis, even with double digit increase in advertising. We had record earnings per share of $3.41 and record free cash flow of $213 million. And don't forget that during our last conference call, we announced a $500 million share repurchase plan, a doubling of our dividend, a decision to explore our strategic alternatives for our Global Professional business. So, I'm feeling pretty good about the state of the business today. For the first time, we're focused solely on our consumer facing businesses. We're driving solid top line growth, we have developed a more disciplined approach to controlling SG&A and the cash flow we are generating is giving us significant financial flexibility. We believe we now have more than enough capacity to continue investing in organic growth, explore small tuck-in acquisitions around the globe and still return significant amount of cash to our shareholders.

Before I elaborate on our results, I want to address the press release that we issued last week regarding my decision to stay as CEO and Mark's decision to leave. I know many of you have been calling for some color. So, let me add to what Jim King has already said to some of you. This call has been the forum for many discussions about secession plannings since I announced in 2007 that I hoped to step aside from day-to-day CEO duties when I turned 55. Shortly afterward, the board named Mark President and Chief Operator, and we are moving ahead with the secession plan.

So what happened? Not that complicated. I changed my mind. While I have turned 55, I also realized I'm just 55. There's more work to do here. I feel like I can contribute, and I don't think it would be in anyone's best interest if I tried to work on some sort of part-time basis. This is not a sign of any trouble. It's not a sign I'm concerned about the business. It's not a reflection on Mark or any other member of the team. It's just I don't want to walk away yet.

Once I came to that conclusion, I met with the board, Mark and several other key leaders here at Scotts. We are in the midst of developing a new organizational structure that would limit layers of bureaucracy , but still create a seat at the table for each member of the senior team, including Mark. He simply decided that under the circumstances, it was time for him to step away. I understand his decision. He wants to run a business, and I respect that. I want to stress that Mark was not asked to resign, and he leaves us on good terms. He and I have communicated since he left, and I trust we will do so in the future. He's been a great friend of mine, and we share a number of common interests, and I hope that will remain the case for another 20 years. So, with that issue addressed, let's move on and spend more time talking about the business because I think there's a lot of positive news to share with you.

Overall, we gained more than a point of market share over the course of the year, with the largest increases coming from grass seed, up 710 basis points, and in growing media, up another 250 basis points. Geographically, we gained the most share in the southeast, up 230 basis points. When we look at the overall story, consumer purchases of our products finished up the year 5%, despite some incredible ups and downs over the course of the season. We finished the year with positive POS in 46 states. The only declines in the Midwest, were the summer months were just miserable.

Having said that, Michigan reported a 5% improvement in POS, which continues to show the challenges of the macro economy are not impacting our business. We also saw particular strength up and down both coasts. In our international markets, we saw the strongest results in Canada, up 20% and in the UK up 9%. The aspect of our POS that was especially encouraging in the US was the resilience of it. As many of you recall, the early spring was fantastic, and we entered May with POS up 11%. However, if the summer just downright sucked. Hot and dry conditions in most of the US caused many homeowners to simply give up.

Even though we were confident the consumer would return when the weather turned our favor, it still made us nervous to see week after week negative returns. But sure enough, once September came and the weather cooled down, our business heated up. Our fall season has been fantastic, up 11% so far, including a 24% increase in POS in October. Why? It's an easy answer. In addition to great weather, we significantly increased advertising and promotional support from last year, and we continued to receive high level support from our retail partners. So, our goal of extending the season and getting more consumers engaged in fall lawn care is clearly working. Our plan is to continue investigating more in our fall business and to remind consumers that fall, not spring, is actually the best time of year to feed or repair the lawn. We're hoping these efforts continue to get more people involved in the category and increase the usage rates amongst those consumers who already use our products.

With that, let's take a moment to break down each of our major consumer categories in the US. The grass seed business finished the fiscal year with POS up 13%, including a 57% increase in the fall season. EZ Seed continues to be a home run and finished the year with global sales approaching $80 million, easily making it our most successful new product launch ever. The model for EZ Seed is one that we must try to replicate again and again. We transformed a product category for providing the consumer with a better solution. And the solution was so strong that we're able to improve the profitability of the product for both us and our retail partners. In addition, it was the first time we launched a product simultaneously in both the US and the UK, and we're still not done with EZ Seed. We'll roll it out to the rest of Europe in 2011 using our full range of country-specific brands.

POS for the overall lawn fertilizer category was essentially flat for the fiscal year, as was our Turf Builder line. However, we're pleased that we held market share, even though the price gap between Turf Builder and private label increased in 2010, returning to historic norms of about 30% to 35%. We continue to expect a high level of support for Turf Builder from our retail partners. Although there continues to be speculation from some of you about a higher level of support for private label over Turf Builder in 2011, that is not our expectation.

Growing media had another outstanding year with total category up 9%. This was led by a 22% improvement in consumer purchases of Scotts Nature Scapes mulch and a 12% improvement in Miracle-Gro branded premium garden soils. While you might not think of this as a category -- of this category when you think of our fall business, grow media POS was up 13% over the last two months. Most of the increase driven by lawn soil, which makes sense, given the strength of our seed business.

POS of plant food was up 4% for the year as awe continue to see more and more consumers engaging in gardening activities, especially vegetable gardening. And while the weak economy helps that trend, we think it goes well beyond dollars and cents. Consumers are really getting pleasure out of growing their own vegetables, and they see clear benefits of doing so. We work with our retailer partners to promote vegetable gardening this past spring and have even more support planned for 2011. And by the way, this is not just a US activity. It's also increasingly popular in Europe and even China where we began selling Miracle-Gro plant food for the first time in 2011.

Our Ortho business has reported record sales and profits in 2010, led by a 10% increase in POS for Ortho Home Defense. Our Defend What's Yours advertising campaign is resonating with consumers, and we have continued support for home defense for next season as well. Consumer purchases of Ortho brand weed controls were up 5%, and Roundup easily had its best year ever with POS up nearly 11%.

Speaking of Roundup, there's one anecdote I want to share with you related to regionalization. For the full year, POS of Roundup in the Pacific Northwest was up 240%, our biggest increase in any region. All we did there was talk to the consumer. We simply changed the label on the Roundup that was sold in the region to specifically communicate the product killed wild blackberry brush. That's the local need there. Not poison ivy or kudzu or anything else. We gained significant market share as a result, and we still think there's room for more. These are the kinds of small wins that we were leaving behind in the past. By having more dedicated teams to each of our regions, we will continue to better understand the local needs of our gardeners and therefore, be better able to respond.

On the retail inventory front, we feel pretty good right now. As I said, the fall season has been extremely strong, and retail inventory levels have been coming down as well. So, we're confident we will finish the season in great shape for next year. As I look at the year in review, I'm encouraged by the products we have made with major initiatives. This year, more than half of our advertising spend was local, a huge departure to where we were just two years ago. And each of our first three regional offices had a good year, putting them in a position to make even more significant improvements next year.

I'm also encouraged by some of the smaller wins. Moving to vendor management inventory of one of our key accounts really helped drive the business for both us this year and puts us in solid footing for next year. Our partnership with Major League Baseball was also extremely visible and will be even more visible next year. The work we did to support edible garden will also continue to grow. So, as I look ahead and prepare for the 2011 season, I feel really good about it. We continue to have great discussions with our retail partners, we continue to expect high levels of support next year, and we're already in the process of getting our new promotions, commercials and point of sale materials finalized for the upcoming season. There's a lot of growth in the consumer -- in the core consumer business still out there, and I'm confident we're taking the right steps to capture it.

I want to briefly touch upon Scotts Lawn Service, which remains a great story for us, though I think it's under appreciated by too many people. After you adjust for having fewer days in a quarter, revenue grew for the second consecutive quarter. Remember that this business had reported several consecutive negative quarters as a result of consumers pulling back in the midst of recession. So, we're cautiously optimistic that 2011 will be a positive year for the business and that we'll build upon recent momentum.

I have got to commend and congratulate the entire SLS team. The ability to maintain our highest customer retention rates ever says a great deal about the way the business is being managed. We produced the overall cost structure of the business while improving the quality of our offering. As a result, SOS reported its most profitable year in fiscal '10. In fact, our profits in '10 were more than twice what they were in 2008, allowing us to report an operating margin of just under 11%. So, this business is in a great position to build upon that in 2011.

Before I close, I want to give credit where credit is due. Two years ago, the business hit a pretty big speed bump after back to back years that were impacted by lousy weather, high commodity costs, numerous product recalls and EPA registration problems. But since then, our associates have been working super hard to put Scotts Miracle-Gro back on the right trajectory. While the executive team may get the credit, the real credit should go to them. Our results this year are a reflection of the people in our supply chain and sales force who are able to respond to one of the most volatile lawn and garden seasons I have ever seen. It's a reflection of our marketeers and our R&D team who continue to succeed at connecting with our consumers and helping to drive market shares even higher. And it's also a reflection of our associates in functions like finance, legal and HR that people behind the scenes who support the business every day, even Jim King (laughter). To all of you, thanks.

I also want to take a moment to thank our retail partners, and I use the partner here quite literally. This year was a great example how we can work in a mutually beneficial way by focusing on what matters most to both of us. The consumer. I'm hopeful that the momentum we have leaving 2010 will continue to propel us and the overall Lawn and Garden category into 2011 and beyond.

Speaking of 2011, and as Dave will explain in more detail, we expect 2011 to be another record year of results across the board. Those of you who attended our analyst day meeting last February recall us talking what I called the CFO plan. We remain extremely confident in that plan.

Looking ahead to next year, we expect to see sales continue to grow mid-to single digits. We expect to see continued gross margin improvement. We plan to continue investing in our brands while continuing to get leverage from our SG&A. And we continue to expect to generate key -- free cash flow that allows us to maintain our financial flexibility. So, why am I staying? Because I still believe this is a damn good business, and I want to continue to be part of that, what we're doing here.

Before I turn the call over to Dave, I want to give the floor to Barry Sanders for a few moments. For those of you who don't know Barry, I view him as a smart and aggressive operator. He's touched several areas of this business over the past decade and has succeed almost every time. Mostly say that for Smith & Hawken (laughter). But he got a bloody nose there, and it's good for him. I'm glad to have him in the role of president, and I'm confident he will continue to drive the kind of results we've seen from him in the

Thanks, Jim, and good morning. I first came to know this Company as a consultant and then joined as an associate a decade ago. was thinking about the opportunity, and Jim asked me why I was interested in the job. I told him that the opportunity to grow this business and drive value was significant, and that I wanted to be part of that it going forward. That's still my answer today.

As well as I have done over the past couple years, I still think there's a lot of opportunity left for all of us. I know this business extremely well, having spent time in sales and supply chain and most recently, leading our consumer business. I think we have a great plan, and I know we have a great team. I'm confident that if we stay true to the path we're on, Scotts will continue to drive profitable growth as well as continue to drive shareholder value. I have had an opportunity to already meet with several of you listening today, and I look forward to getting to know more of you over the next several months. So, now let me turn the call over to Dave to discuss the financials

Thanks, Barry, and good morning, everyone. As Jim said, we're pleased at the results this year, and we're well positioned to build on this success in 2011. I'll start my comments with four headlines.

First, we grew adjusted earnings per share 30% to $3.41, exceeding our expectations as a result of lower SG&A spend, despite a double digit increase in media and costs associated with the establishment of five new regional offices. Second, we generated full year free cash flow of $213 million, which included over $80 million in capital expenditures with investments in increased manufacturing capacity for our growing media business, the acquisition of a second manufacturing facility for liquid production in the southeast US and new production technology to support the national launch of EZ Seed. Third, we significantly strengthened our balance sheet over the course of the year, lowering our year-over-year debt to EBITDA leverage from 3.2 to 2.0.

Furthermore, in January 2010, we took initial steps to replace our current credit facility with the issuance of $200 million in bonds, consistent with our stated strategy of diversifying the sources and tenors of our financing. And this last August, we doubled our dividend and initiated a four year, $500 million share repurchase program. And finally, fourth, we made tangible strides in further focusing our business portfolio in 2010 with the closure of Smith & Hawken in our first fiscal quarter and, as we disclosed last quarter, the initiation of a process to evaluate the strategics fit of our professional business, including consideration of a divestiture. Our goal is to be a highly focused, best in class, consumer goods Company, and we made meaningful progress towards that goal in 2010.

Before I review the details of our results, I want to spend a moment talking about two items, which reconcile our GAAP earnings with adjusted earnings. The first relates to recall and registration matters. Consistent with previous quarters, we excluded these costs from our adjusted results. These costs are down significantly in 2010, and we look for further declines in 2011, excluding potential fines or penalties.

The second nonrecurring item relates to impairment charges recorded on our fourth quarter as an outcome of our annual review. These charges, all non-cash, total $18.5 million, and are primarily a result of discontinuing or de-emphasizing certain brands and sub brands. This is consistent with our business strategy to increasingly concentrate our advertising and promotional spending on fewer, more significant brands to more efficiently drive growth. Unfortunately, accounting conventions require us to write down or write off intangible assets associated with these discontinued or de-emphasized brands, despite building greater value in the broader umbrella brands.

Now, having described those two adjustments to our GAAP results, I'll focus the balance of my comments on our adjusted results for both the quarter and fiscal year. On a consolidated basis, net sales were down 9% in the quarter. Excluding the impact of foreign exchange, sales were down 8.2%. Most of this decline was driven by the fiscal calendar shift that's been discussed on past calls. On an apples-to-apples basis, that is adjusting for the calendar shift, the decline in the quarter was 2%, or approximately $9 million. This results in full year consolidated sales growth of 5.3%. Excluding changes in FX, consolidated sales grew 4.6% for the full year with consumer sales increasing 5.8%, prosales essentially flat and lawn service declining 3%.

I'll make some brief comments on each segment, starting with lawn service. After starting the fiscal year down 9% in customer count, performance turned the corner in the March timeframe, and we saw growth in year-over-year customer count in both our third and fourth quarters. This increased customer count resulted in growth in second half sales and earnings, with additional improvement driven by fewer price discounts and continued cost productivity. Customer count ended the year up 4% on a year-over-year basis. A good leading indicator for top line growth in fiscal 2011. Operating income for lawn service grew 28%, driving operating margin rate into double digits, a goal we set back in 2008 when lawn service operating margins dipped below 5%.

Global Professional sales were nearly flat for the fiscal year, excluding changes in currency with unit increases of about 8%, entirely offset by declining prices. Now, midway through the first fiscal quarter of 2011, pricing has generally stabilized with modest increases expected later in the fiscal year. For fiscal 2010, we saw our strongest growth in Pro in Asia offset by declines in the US. The US decline was driven by poor sales of grass seed, a business which continues to slump without foreseeable growth catalysts in housing, golf courses, sports fields or municipalities. Partially as a result of this, we also recorded additional charges to write down proceed inventories, as well as future contracts as market prices in this business continue to show weakness, driven by slow demand in oversupply.

I will now transition to our Global Consumer segment where we built on the momentum we created in 2009 with fiscal 2010 growth of 5.8% on a constant currency basis. Sales in the US increased 6% with growth in every category except wild bird food, where sales declined $21 million, despite a $9 million increase in premium Scotts branded sales. While the entire bird food category was down this year, we're disappointed with our progress in this business and still see it as an unrealized opportunity with a high priority. Outside the US, consumer sales increased 4.8% in local currency. Growth was driven in Canada and the UK where we launched EZ Seed technology and a natural selected weed control product. Operating income for Global Consumer grew 17.2% for fiscal 2010 as a result of strong organic sales growth, gross margin rate expansion and increased SG&A leverage.

Moving on, full year consolidated margin rates improved 100 basis points on a recorded basis and 70 basis points on an adjusted basis. Improvement was driven by supply chain cost productivity initiatives, favorable product mix and increased commissions on sales of Roundup branded products. These margin rate benefits were partially offset by headwinds from year-over-year declines in both pricing and material costs in our Professional business.

Speaking of changing costs, given how much the cost environment has changed over the last 24 months, I thought it would be good to refresh some of the data we have provided in the past regarding the composition of our cost of goods sold. Of total cost to goods sold, about $600 million, or 30% relates to commodity-based materials. At this point, we have locked in about 42% of those costs of materials for 2011.

Moving On to SG&A, we're pleased with our results. With full year costs increasing only 0.5%,(Sic-see press release) of total SG&A spent of $747 million, about 60% is comprised of spending on media, R&D, marketing, sales force and the regional offices. Spending in these areas collectively grew about 6% over the prior year while the remaining 40% of SG&A represented by functional groups like finance, HR, legal, business unit and executive management contracted nearly 7%. While we won't get this type of leverage every year, our 2010 results position us well to meet our commitment of growing SG&A at about half the rate of sales over the four year planning cycle we shared last February.

This increased SG&A leverage, combined with gross margin rates, resulted in fiscal 2010 adjusted operating margin rate of 13.1%. Given the long-term goals we outlined last February, we expect to see operating margins growing to the mid-teens over the next couple of years. Interest expense continued to be favorable to our outlook as underlying LIBOR rates remain at historically low levels, and the spread on our credit facility contracted again to LIBOR plus 0.875% with our lower leverage. Recall that about half of our average debt portfolio floats and half is fixed. We're currently taking advantage of low swap rates for 2012 and beyond to lock in the underlying rates of up to 75% of our average debt. Combined with an effective tax rate of 36.8%, this all adds up to fiscal 2010 adjusted income from continuing operations of $231 million, a 33% increase versus prior year.

Some of you have asked about the status of our share repurchase program. We began executing this in August, repurchasing nearly $25 million of shares. Due to timing, the shares repurchased had an insignificant impact on the weighted average diluted share count for fiscal 2010. As an outcome, the diluted share count for fiscal 2010 increased to 67.6 million shares with growth from 2009 approximately equal to annual delusion from equity grants to management. On the balance sheet, there are only a couple items I'll highlight. Inventories declined $55 million, driven primarily by lower material costs and the elimination of inventories related to Smith & Hawken. Accounts payable declined by $37 million, substantially in line with reduced inventories. And total debt net of cash declined by $196 million as our primary use of free cash flow in most of 2010 remained repayment of debt.

Before I finish, I know many of you are interested in updated guidance for 2011. We intend to provide detailed guidance at our annual investor conference in early February. Until then, I would direct you to the long-term expectations we outlined last February for the planning period 2010 to 2014. These should substantially stand the test of time and represent an appropriate place to start 2011 with just a handful of refinements. First, sales growth will still be in line with our long-term guidance of 4% to 6% annual growth. For gross margin rate, recall that we set a goal of 200 basis points expansion over the four year planning period, and we indicated it would be front half loaded. We picked up 70 basis points in 2010 and believe we could see an additional 70 to 100 basis point improvement in 2011.

On SG&A, we established a four year target to limit growth to half the rate of sales growth, with a commitment to hold overhead costs flat while investing in areas of competitive advantage. We clearly exceeded that goal in 2010. While we're still targeting to hold overhead costs flat again in 2011, we do plan to reinvest a portion of our 2011 growth in gross margin rate and increased category and brand-building initiatives. As a result, we'll see only marginal incremental SG&A expansion in 2011. Interest expense should increase to around $60 million, though the amount of the year-over-year change is largely dependent upon the timing of refinancing our senior secured credit facility.

Based on current market conditions, we anticipate that refinancing to incur in the second or third fiscal quarters. With this assumption, the increase in fiscal 2011 will be primarily driven by the full year impact of the bonds issued last January, a partial year impact of bonds in anticipate issuing in fiscal 2011 and the increased spread over LIBOR we anticipate when we renegotiate a new senior secured credit facility. Our effective tax rates should be around 36.5% and our share count in fiscal 2011 should be about flat to 2010 as the weighted average of shares repurchased will only offset annual dilution from equity grants in the first full year of this program. The cumulative impact of our share repurchase program should result in an appreciable drop in share count, beginning in 2012.

Finally, while we have historically not provided direction on quarterly splits, I will share that sales expenses may flow differently in 2011 from 2010. We're planning for weather to revert to the norm, which will shift some sales out of Q1 and Q3 into Q2, and we expect to see disproportionate growth in SG&A in our first quarter, partially due to severance cost. With that said, we are confident in the full year projections I just outlined. I recognize this is a lot of information, so with that, I will turn it over to the operator for your questions now.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) One moment please while we're waiting for the first question We have a question from Mike Chappell, SunTrust. Your line is now open

Hello, this is Mike Schwartz filling in for Bill Chappell, actually (laughter). Got the two names combined. Hello, good morning. Looking at input costs for 2011, we have seen a run up in urea since May. Just wondering how that -- how do you look at that going into 2011? And do you feel confident that you can get pricing to offset any kind of increase we're seeing right now?

Well, I'm going to take the last half of the conversation, Bill (laughter). And Dave can take the other conversation for Schwartz (laughter). So, we have taken pricing, okay? So, I think that the issue is -- I think we're seeing commodity costs about what we expected, and we priced for that. So, I think we're good on that side, and those prices were discussed with the trade months ago, and so they are inputted. So Dave, you can take the other part of the question

Yes Mike, as I said, we -- so we actively go out and hedge and swap and contract forward. And we're probably most effective is in the area of urea, and I would tell you that we are further out on urea this year than we were a year ago. So, while -- we're probably on the order of magnitude of 70% locked on urea, and when you look at other elements of MPK, it's even greater than that. So, we are seeing some growth in that cost, but we have confidence in our margin rate assumptions for next year, given how much we have already locked in of that inflation

Okay, great. And then one final question. Can you help us understand the quarterly comps and then the full year fiscal 2011 with respect to days in each quarter? And will there be any kind of benefit for fiscal year 2011 versus fiscal year '10? Meaning will there be more days in fiscal year 2011 than '10?

So, first of all, the calendar shift, thank goodness we don't have to talk about that again this year. That'll be, again, five, six years from now. So it will be a day different, which we won't talk about. So, the quarterly comps from a calendar shift basis will disappear. But what I would tell you is weather always plays a factor in the timing of our business. And because we can't be weather forecasters with incredible precision, we don't provide that type of quarterly guidance.

But what I am saying, though, is we know that when we look at 2010, there were some unusual anomalies. We know that the south started slow in January and February, and we know the whole country started slow in the first half of March. It wasn't really until about the last couple of weeks of March where POS started taking off, recall it exploded in April. As we plan for splits each year, we never rely exclusively on just the prior year, but we go back and look at three, four year history and assume that it reverts to the norm. That's why my comments were saying we kind of expect sales to kind of get loaded more in the Q2 coming out of Q1 and Q3. So, then you're going to see the second quarter, if we have normal weather, be stronger in relation to last year. But again, that's all dependent on "normal weather". So Mike, that's probably about as precise as I can get in terms of talking in the quarterly splits and comps

That was very helpful. Thanks a lot.

Okay, who's up next?

Olivia Tong, Bank of America Merrill Lynch. Your line is now open

Thanks. Good morning. Wanted to talk a little bit about the components that go into the gross margin forecasts for 2011. You said something to 100 basis points. Obviously, you have some pricing, raw mats going to be a pull. But maybe if you could give a little bit more color on quantifying your ranges for that and then what kind of factor may occur anything else plays a part. Thanks

Alright. Olivia, there's really three different components that I'm looking at. First of all, there's pricing. The second one would be costs, and the third would be productivity improvements. I think we could see mix wiggle a little bit here and there, but I'm not seeing that, at this point, playing a real role in the growth year-over-year or being a headwind, either. So pricing, as we have said, we dictate pricing, it happened over the summer months. And I think that's going to yield anywhere, I'll call it low single-digit pricing in the US consumer business. So, that's first tailwind driving expansion.

The second tailwind driving expansion is a continuation of the supply chain savings. We have talked about regionalization in the supply chain saving $50 million over the period of four years. I'd expect in aggregate, supply chain savings in conversion and freight costs to yield another $12 million, $13 million, $14 million in 2011. So, the pricing and the supply chain savings are really what's going to drive expansion and margin rate. From a cost perspective, we do see inflation in some areas. Like Mike asked, we see some growth in urea, we will see some growth in freight. But recall last year, we also saw in the early months of the year the last vestiges of the higher cost materials flowing through our P&L. So, we get some benefit from that on easier comps in the initial months of this year. Those easier comps really net against our cost increases to net -- to a fairly neutral position. So when we say 70 to 100 basis points, it is driven primarily by the pricing and by the supply chain productivity measures

Thanks. That's really helpful. And then secondly, just wanted to talk a little bit about new products. EZ Seed clearly had a very good year. Can you talk about penetration of that versus your existing grass seed? I'm assuming you're -- too, you're looking to convert more current users and obviously, users of other products as well. What are you doing to sort of leverage in your -- leverage your existing product innovation in year two.

Olivia, this is Barry Sanders, and I'll specifically answer for grass seed. So, I think there's really two areas we're looking at. We would see -- we'll see more growth in the EZ Seed markets from advertising and really from the adoption curve. We rolled it out this year, it was in many markets. We have had great success, and so we'll see continued expansion of that.

The other thing is when you look at where our shares have been strong, it's typically been full season grasses, which is kind of Mason Dixon line north. This year we advertised pretty heavily in the transition zone south of there and in the lower southern markets, as well as some of the western markets where we're advertising right now in Arizona. And we're seeing great success with our Turf Builder grass seed, as well as EZ Seed. So, the market was kind of down this year because of the weather. Like we said, we were having a great fall, which means we'll have a great spring for those people who didn't repair their lawns now. We're going to heavy up the advertising, we're going to go strong on the EZ Seed and then we're going to go strong in the markets where we have traditionally had lower penetration. So, we would expect going forward next year to continue to gain market share

Alright, thanks. If I could ask one more question. Jim, you had mentioned acquisitions and tuck-ins globally. Is that adding in globally, are you thinking more about other regions, Europe, or is it just -- you just don't want to be specific to only the US? Thank you.

You're welcome. Here's what I would say. I have a ton of confidence in the American business. I think they have been super respectful of capital. We -- one of the things we're doing, just as an aside is minor change to our incentive plan that includes cost to capital. In every operator's numbers, they are actually getting charged a weighted average cost to capital. So, call it notionally, I don't know, 9% roughly.

So, I think we have a group of people who has been highly respectful of capital who - they are going to see it in their incentive. But we also have a very high return on investment in our American business, and so we know we've got all the stuff we need there for what I think we would call tuck-in, bolt-on, right down the core acquisitions. So, I think we continue to keep our eyes open. The unfortunate part is that everything we look, we think is overpriced. And I think in that case, we'll just build our own business, and you'll see more organic growth and I think a good cue of CapEx projects to support that strategy. Although for a well-priced opportunity in the US, we'd take it.

The European business, I think while they have had a relatively good year and I think are starting to sort of gain their place in the family as a consumer business and with better results, they also have the opportunity to make suggestions to Dave and Barry and myself in regard to opportunities. The one thing that I would says that clearly an opportunity, which we talked about before, is that the biggest business in Europe is dirt, growing media. And it's a business we're not participating at all in Germany, and so it is something that we, again, continue to look at and weigh the options of both doing it ourselves or if there's an acquisition opportunity that we find attractive, to look at that. But I would say very focused on the American business, although there are some opportunities and some gaps in our product line Europe that we could fill.

Alright, thank you so much.

Welcome.

Our next question comes from Doug Lane, Jefferies & Company. Your line is now open

Yes, thanks. Good morning, everybody. Just wanted to ask about -- you touched on the regional supply chain initiatives, but could you give us an update on, or post mortem, if you will on 2010 and the accomplishments that you made in the regionalization strategies of sales and marketing and supply chain? And is that going to be an even heavier usage of your time or a more focused initiative in 2011 and 2010, or how should we think about that for next year?

Doug, I'll say a few words and I'm going to let Barry comment on this as well. So, first of all, from the regions, we had three initial regions set up early a year ago. And we completed the US footprint, we're rolling out for the remaining two regions, one in the Midwest and one in the Northeast in our fourth fiscal quarter. So, that footprint is set. And I'll let Barry talk to the results he's seeing from that.

From -- with respect to the supply chain regionalization initiatives, we continue to make progress. I think in 2009 we realized about $6 million in savings. I would tell you, in 2010, we think -- we see we realized about $12 million in savings, and we expect that to continue again with an incremental $12 million, $13 million, $14 million in 2011. The progress we made in the regional supply chain this year was we continued to roll out additional co-distribution locations. Recall, that's where we're putting our bagged fertilizers with bagged growing media and shipping those together.

The other big step we made was the acquisition of a second liquids facility. So, before we were doing it all from Iowa. And we've said this many times, we're shipping water in bottles all over the country. That was the step we were hoping -- one of the steps in manufacturing. Now, we're not going to have that in line and see much of the benefit of that in 2011. That's mostly going to -- that's going to get -- incur mostly in 2012. Those are the two things we made progress on. So, Barry, do you want to talk about --

I just want to interrupt just for a second, only because-- this idea of the regions, which -- it's a good question and the regional manufacturing supports the regional approach to our sales, plus it saves us money and from an environmental stewardship point of view, it's a positive thing and reduces a lot of transportation costs. But remember, this is a Company that continues to outperform the broader categories, okay? And as we look at that, look at our Southeast market. I actually don't have the number in front of me, I know it was in my script. But it was about 250 basis points or something like that a share we picked up in the Southeast.

Remember how FUBARed the Southeast was. For anyone who has a home in Florida or knows someone who does, there was a ton of freeze damage. It was very, very cold. So, while you may say, while there sales numbers weren't that great in the Southeast, their share numbers were because -- and if we hadn't done those regional offices, and hadn't had the region in Palm Beach, I don't think we would have performed as well as we did. And so where we are is where the next phase of these regional offices is really about getting even tighter with the consumer. And this -- really, kind of the first year, they functioned more kind of a sales offices, and they did a good job.

Where we go from here is even tighter intimacy with the consumer, and if you say I can't count on growth from the retailers, I can't count on growth from additional store account, I have to grow the category and then over perform the category. These regions are super important to that, and the regional manufacturing just supports that. So, it's a very good story and I think without those, we wouldn't have had the year we had

Just to add -- this is Barry. Just to add a little color to what Jim said. So the first three regional offices we opened were west Palm Beach, Houston and Orange County, California. And they are all located in the southern regions. And we talked about in the spring how we got off to a really slow starlet. So, January and February were tough months, and we were coming out in not such a good place on POS. And historically, we wold not have had as much of an ability to respond to those type of conditions. And the regions did a tremendous job of responding to that and really bringing us back and having a positive comp year on what started off to be a really tough position. And like Jim said, in the Southeast, primarily in Florida where we have had the worst market shares, was the biggest market share gain that we had with Mike Lukemire and his team down there. They did a terrific job.

Just to add a little bit of color and to the capability of the regions, both on their ability to focus on the proper timing, getting the assortment right, getting the message right. Jim talked about getting closer to the consumer. Our retailers are really asking us now to go more local, understand the real consumer requirements are and get those back to them. And so getting the right products, focusing the right products at the right time and our ability to do that, I think is what really drove the market share gains and the positive POS we had this year.

Then on the supply chain side, it's really what we call a co-distribution effort of riding our high-cost distribution items on our low-cost distribution of our growing medium. So, we saw expansion of that this year, we'll see more expansion going forward, and that's really driving the savings, which is less distribution costs, which is saving us money and to Jim's point, it's providing a lot better sustainability story of less emissions and less fuel consumptions. And then Dave pointed out earlier that we're adding a liquids facility. Right now, we only have one facility in Fort Madison, Iowa that we distributed all of our liquids for nationally. We're going to put one in Pearl, Mississippi, and that will dramatically lower our distribution costs as well. So, both the combination of local insight with the regions, and then going more local with our supply chain is providing us better insight, better capability to respond in a lower cost structure to do that. So it was all positive stories, and we'll still have continuation of that going forward for the next couple years

That sounds good. Just one quick followup. Does Wal-Mart's new initiative to take more of its distribution in house affect your cost savings targets?

No. We have actually partnered with them, and that's already built in, and I was personally involved with that this year. So, that's right in line with where we thought we'd be.

Okay. Thank you

Mark Rupe Longbow Research. Your line is now open

Yes, hello, good morning, guys. Just as it relates to the next year's thought process on the top line, just would like to get some color, if you could, on just confidence levels by channel. Relative hardware versus the independents versus grocery. Just from a sense of maybe programs, listings or in store counselors.

I think, Mark, what we'll see is we'll see a continuation of this year. The hardware channel is extraordinarily strong, the home center channel was very strong. And really, the mass and the grocery wasn't quite as strong, but we are thinking that's going to rebound this year, and we're putting a lot of programs in place to make sure that continues. So, really no change from what we have seen in the past

Okay, and then just as a quick followup. On the bird food business, any sense of confidence that that rebounds at all in 2011?

Well, let me just throw out that the big dog in bird food is Wal-Mart. And so Wal-Mart's performance just as a retailer, and I'm not going to get into the details of our performance at retail except to say they clearly are dealing with their own issues and have made, and I think will continue to make some changes in how the company is managed. So, it's hard to -- where you have so much of your weight of your product line in a single retailer, if that retailer struggles, that's an issue. That's driving part of it.

I also think that we don't have the right mix of the business. It's something we ought to understand, because it's very much like our dirt business. There's a lot of commodity, and then there's a value-added component. And I think we have got some work to do on the business. It's something we're excited about and I view as a significant priority of the business to get it right. But I don't think we're quite there yet. And then on top of that, you have got a retailer that struggles, and that -- it would be very much if of the big DIY retailers are struggling in our lawn or our dirt business. It has a similar effect on our business. So, I don't know, Barry, where you go with it from here.

Probably the only thing to add is I think when you look at our portfolio of products, bird food is the most cyclical item we have. The consumer based 20% of the users drive 80% of the volume driving regular feeding. And so I think the economy did have an effect on this business this year, because people buying bird food on a regular basis we could see some cutback. And so as the economy improves, we also think this business will improve right along with it

Perfect. Thanks, guys.

Eric Bosshard, Cleveland Research. Your line is now open

Good morning.

Hello.

Two questions. I think you said the fertilizer business was flat, is that right? For the year?

That's what we said

Do you have thoughts about, I think the total Company sales were up 5%, and sales in that category were flat. Do you draw any conclusions or take anything away from that? What are your thoughts about that?

Okay, so the answer is I do have thoughts on it. What do I think? First, I think we have taken pretty significant pricing. And while I don't think we're dealing with significant elasticity issues, it's something that I want to spend time on. We haven't lost shares, so whatever is going on as a category issue, our prices rose this year relative to private label, and we still didn't lose share.

But it is something that we're thinking very carefully about and watching carefully, as are the retailers. If you look in, say, what's happening in the business, we -- I am continuing to focus, and I know the team is since I am, are focusing our secondary brands within the business. The Turf Builder and the Plus 2 business are pretty healthy business. I think it's the sort of secondary brands within there where I want to make sure we're putting significant promotional support them and that we view the whole line as being important and that we don't just become bone assessed down south and then Plus 2 and straight for up here. So, what do I think? I'm going to say I think it's concerning, and it's something where we need to have growth in this category, and it's up to us to drive it.

The team is highly focused on it, I can guarantee that. But I don't think it's a big issue, and I think it's a category issue, and we're working closely with both our marketers and retailers, our BETs in our regions to deal with that. It was not the most terrific year for lawn ferts. And part of the reason is what you're looking at right now. The incredible fall season we're having, and it truly is -- I don't know, 24% or some (expletive) thing in October. That is a ridiculously insane number. If you look at the numbers for the Northeast, they are seeing like greater than 50% POS numbers on lawn products every day.

So, the business is good, but what's happening? People are dealing with damaged lawns, and when lawns are looking bad, people aren't going out and throwing a bunch of stuff on top of them. So, I think that had an effect too. But this is a good thing because one of the things that Barry mentioned is that historically, when we have had a difficult summer and had a good fall due to lawn renovation, which includes ferts. There'd be a lot of starter fertilizer in there. What you're seeing in the spring is a lot of those people don't repair their lawns until the spring, so you see a really nice spring coming in. But overall, I would say anytime we're looking at flat category sales, that's a concern, and it's something that we uniquely have to drive. Barry, you got anything to that?

No, just I think summer, Eric, pricing and economics Jim described, the mix of the product that sold, the Turf Builder Plus 2 and the straight turf builder, those are actually moving in different directions. I think the consumer is self-selecting an easier approach to their lawn care, and we're looking at this. Next year is going to be a continuation of our Snap, our new applicator system, so simplifying the user experience, I think is what's going to be required to grow the category of going forward. The last area was definitely weather. We saw a strong spring, and then when the weather got hot this summer, the consumer, I think, just skipped an application this summer, and we didn't see the growth of the rest of the category sold.

Great, and then just one followup. Can you give us a sense of where pricing and advertising growth is going to come in 2011? If there are categories or specific areas where the price increases, as well as the advertising increases are focused?

I think the pricing is generally across the board. This year, we are going to see it increase relative to the same increase that we saw last year for our advertising. I think what you're not going to see is this -- we're going to continue the trend that Jim spoke to earlier of regionalizing our mix versus the national, and that is specific to those areas. And so the timing of the advertising, as well as the product focus will be relative to that region, and you're going to see appropriate increases that we think the business is going to drive

One thing I would add is that the most competitive part of our business is our controls business. And so you're going to see the less pressure from us to pricing on that. We have significant innovation coming in 2012 in our controls business. So, in that period of time, based on the competitive nature of the business, we're probably not putting as much pressure on pricing, within the Ortho brand, although you're likely to see significant innovation in 2012. So, all bets are off on regard to pricing in regard to -- relative to the innovation we put into the marketplace

Great. Thank you.

[Henry Capion], Oppenheimer. Your line is now open.

Yes, thanks for taking my questions. Just wanted to dig in a little more on the cost structure. I think you said you had about 70% of your urea costs locked in. Are there any other costs within that -- the cost of goods sold line that we need to be aware of? And what part of that do you have locked in at this point as well?

Well, Henry, when we think about the 30% of our commodities that are sensitive to the volatility, I'll remind you of the types of materials we're talking about. It's fertilizers, it's MPNK, which includes the urea, it's resins for bags and bottles, it's grass seed. It's wild bird food, so the grains. It's fuel, and it's sphagnum peat. It's a key ingredient in our growing media. Those are the items that we're really fixed on.

When we look at those, each one we have different vehicles for locking in. You're right, on the urea side, we're well along, just straight urea. The other areas would be in fuel, so diesel. We do have an active hedging program in diesel. We're about 27% locked in on that, and we'll rapidly grow that through our first quarter.

In grains, so things like corn and sunflower, again, we're probably in the area of like 30% or 40% locked there, and those tend to be long-term contracts. sphagnum peat, we're fairly significantly locked on sphagnum. So, that leaves the resins, which is one of the areas for bags and bottles where it's more challenging than other areas to lock ahead. But it's also the least concerning because when we look at volatility, historically, that's where we see the least volatility. So, I think we're -- if I go back and look at where we were a year ago, we're just a tad more locked in than we were a year ago. I suspect by the time we get to the February conference, we may be even a bit further ahead than we were a year ago at that point. So the areas where we have historically seen the most volatility is where we're the highest percent locked at this stage/

Okay. That's very helpful. And then just a followup on that in terms of the SG&A. You talked about that growing half the rate of the gross margin expansion, I believe. And then you said part of the benefit this year was from some reductions, obviously in overhead expenses. Can you talk about how much of that was permanent versus how much of that was temporary?

In the overhead cost structure, I think that's primarily -- it's permanent. They are sustainable. We're looking next year and 2011 this year to sustain that and continue to hold what is now 40% of the cost structure flat again. So not looking for that to just return into the cost structure in 2011

Great, thank you

Next question comes from Alice Longley, Buckingham Research. Your line is now open

Hi, I have to start off with a question about the first quarter. I know it's seasonally small, but I'm totally confused because you're going on about how great the October shipments are but then warned that shipments might be shifting into the second quarter and also, there's a hike in severance, which is I guess is for Mark? Could you clarify that? But can you tell us whether the first quarter will be worse or better than a year ago, putting all those contrary pieces together?

It's going to be worse than a year ago

Alright. Simple answer. And also another housekeeping question. When you say fall is up 11% so far, when do you measure fall from? The beginning for September?

Hold for a second, only because I would like to increase the confusion here, I guess, which is consumer take away up, our sales into the trade down, therefore you can reduced inventory levels at the trade, okay? And so that's what's happening in Q1. Okay?

Okay. Alright, and then the fall, I guess this is consumer takeaway of 11% so far. When does the fall start?

September 1 is how we measure the fall.

September 1, okay.

So, from September, the end of October it's up 11%. What we have seen is October itself was up 24%

Yes, okay. And the big surprise for me was in the fourth quarter was SG&A. And can you give us an update on how many compensation was -- helped the quarter year-over-year and maybe for the year? Because you had told us before how much compensation would help the year. And could you tell us how that actually came out?

Yes, Alice, for -- there's two different answers for the full year and for the quarter. For the fourth quarter, actually -- so, I think you're speaking to variable compensation.

Yes, variable comp -- the bonuses.

Variable comp was fairly flat year-over-year in the fourth quarter. On a full-year basis, that helped us about 1% to 1.5% on a full-year basis

It helped the margin 1% to 1.5%?

Yes. In other words, had we been flat on that year-over-year full year, we would have seen SG&A grow an additional 1% to 1.5%

Can you tell us where you think you came out ahead in the fourth quarter? Because I think sales were even a little worse than you thought, but your earnings were above. So, where did you come out a little ahead? Through the P&L?

It was primarily in the SG&A area where spending continued to drift down, and we saw some of those benefits in the fourth quarter. That would be the single biggest reason

And it's productivity improvements, or was compensation -- variable compensation even lower than you had thought?

It would be more productivity than the variable comp. Because if you look at where we landed relative to where we were saying at the end of the third quarter, we were slightly better. So, variable comp actually was slightly higher than we thought entering July. So, the real reductions were in everything else.

Okay.

Relative to where we thought we were going to be.

Okay, one final question, in case I missed it. Did you say how much gross margin would be up in fiscal 2011? 50 or 100 basis points.

No, what I -- yes, I did say, and what I said was, so we were up 70 on an adjusted basis this year. I would expect next year to be up, again, another 70 to -- up to 100 basis points next year

Okay, great. Thanks a lot

You're welcome.

Jon Andersen, William Blair. Your line is now open

Good morning, everyone.

Jon.

I just have one question, most of mine have been answered. It really focuses on the channel. I know that you benefited from a lot of support from the channel over the past couple years in terms of their relative emphasis on the lawn and garden category, whether it be shelf space, the quality of the space in the store, the merchandising and marketing effort they have put in. Where do -- having kind of looking forward to fiscal 2011, what are your impressions about the channel's support for the category going forward? Does it remain at high levels? Does it stabilize here, or is there additional support ahead? Thank you.

Okay, so I went down and [Frank Lake] at Depot has his the top 30 vendors as part of their vendor meeting week. And so all CEOs with management from Depot, start with the fact that they were very happy with their results in lawn and garden. And they continue to -- start with when merchants are making their incentive numbers, they are pretty happy campers. And so you're seeing a merchant team that's got smiles on their face, and I view that as a positive thing. And clearly, and this goes to the dinner itself, where there was a lot of people saying I thought business was going to be better, and they all looked at me and said, how is your business doing? And I'm like, we've had the best year we have ever had.

So, I think lawn and garden continues to outperform broadly, hardware let's call it. And there continues to be then as a kind of low cost, consumable, high bang, I'm going to call it, in home and improvement projects, meaning lawn and garden. They continue to see activity, I'm going to say both paints and in lawn and garden, especially consumable lawn and garden products. So, I think we, based on what we know today, feel very confident that they will continue to use lawn and garden consumable products as a way to bring people into the store and sell them other products and that they will support the business behind that.

In addition, you're going to see, as we have described, A to S ratios increasing the amount of, I'm going to call it productivity we expect from our regional offices to increase. So, we're going to expect more from regional offices. We're going to put more money into our advertising. We expect the retailers will continue, as they have the last two years, to continue to want to drive customers with these categories. And I primarily mean, what I'm understanding is paint and lawn and garden consumable. And so I think that for least fiscal year 2011, we're likely to have seen the same behavior that we have seen previously. Barry, if you'd add to that?

I think the merchandising efforts that you're talking about will continue this year exactly the same way as it did last year. I think what you'll see is, to Jim's point of productivity, I think everyone including us is getting smarter at how to drive traffic and drive the market basket with our products. And so when you look at home center and mass, I think it will continue. We're doing well in hardware, and them as a channel is doing well. I think probably the one that won't be as visible that I think we will actually do better in is at the independent garden centers. We launched a couple new lines of products, both in the controls area and the soils area with them, and we've gone through the shows this fall, and we've have just had a tremendous response. So, I think actually our presence and our marketing due to our regions and being closer to the independence will be a lot better this coming year than it was the past year

Thanks. That's helpful.

Jim Barrett, CL King & Associates, your line is now open

Good morning, everyone.

Hi, Jim.

Hi, Jim. You did touch upon it, but considering how effective the lawn service business has been in improving their operations, are we going to see a return to bolt-on acquisitions specifically in that space? And on a related note, who do you think you're taking share from in that business?

So, we'll do a sort of tag team again, and I'll -- the second part I'll ask Peter Korda, who's sitting here with us to talk about where he thinks he's getting share. We have been laying the ground work, both internally and at the board level, for some flexibility in regard to capital falling into that business. I think as a compliment to the team running it, in spite of the fact that consumers have been a little bit hard to get to, although we're seeing improvement there now, finally, what Peter and his team have done a fantastic job on is really just the process of running the business. And a lot of that is a lot less changeover in technicians so that you're getting a much more quality product for the consumer, which is -- they like to see the same face.

And anyway, so I think we have kind of ringed out about what we can out of running the business. I think it was 11% operating margins. This is a huge improvement from where we've been over the last couple years. And so -- and the year has been very much a tale of two cities. The first half of the year really blew. It was depressing for Peter's business. The second half, he's made like giant -- as far as attracting new consumers, giant steps forward.

So, I think the board and the management team is open to giving Peter some money for bolt-on acquisitions. I think that we have to remember the lessons we have learned, which is acquisitions that don't get integrated well are painful. And so we can't forget what we have learned. But I don't know, Pete, what's your point of view?

The -- so we've been equally stingy with capital till Dave. We're ready, we're working on the plans right now. We're going to continue to be very selective. We think there are ways to acquire that make good sense and good money, and those are the ones we're focused on. And in particular, acquisitions that expand geographic coverage are really interesting to us.

In terms of the question on share, I think there's -- so this is really a hard category to get definitive share information on. I think there's two components to the growth. One is that we're losing a lot fewer customers, and so that's, call it absence of shrink, that's an important -- very important part of any growth story in this kind of business. And the other is I think we're taking bits and pieces of share from all over, probably in proportion to other companies' share. We have got a really large competitor. I feel comfortable in how we're doing against them. And then third, I think we saw good recovery in the category this year from what was a really, really difficult 2009

Thank you both. That was very helpful

You're welcome

And our last question comes from Sam Yake, BGB Securities. Your line is now open

Yes, hello, good morning. Thanks for taking my question. Most of my questions were answered, but I just have one more that maybe I could get some color on. And that is, you had some success in the past. Going back to growing media which you entered as a new business and mulch and bird seed, I'm wondering are there any new categories that you think you can enter, and what kind of opportunities you think there are to go into new fields like that now?

Probably the biggest one that we're looking at right now and evaluating is the animal repellant business. That's a very fast-growing category. And I would compare that to Peter's. We're looking at a judicial use of capital versus doing it ourselves. And you'll see us there soon, and how we do that will depend on what the plans -- what the best plan we have going forward

I think in addition, I'd say that cleaning products is another. I know there's internal growth. I just want to temper that a little bit by saying first of all, these are relatively small businesses compared to what we do today. But they are interesting to us, and they're, I think they're kind of (inaudible) It's what kind what we can just jump into without a lot of risk.

I'm going to say the Rodenticide business has been a really good business for us. So, we're still young in that, and we're still gaining listings and the products are selling well, and I think the advertising fits really well under the Ortho Home Defense. And that style of advertising with that young couple we use, I think is really doing well. The bird food business is not one we have cracked the code on yet. So, before we start talking about all kinds of stuff to go into, I think this is a very important billion dollar category that -- I'm putting a lot of pressure on the team to, let's get it right there before we start tracking down other stuff. So, I just think it's important we maintain our focus on the things that are big right in front of us and that we haven't quite gotten right yet. Yes, go ahead. I think wants to defend himself.

No, no, no, I think one more thing, Sam, is - so you look at acquisitions for our growth. Relative to that, our primary focus, because we are going to look for bolt-on type things. Like Jim was saying, there are some small things out there we can go after. But our primary focus will be on innovation of the categories that we're already in and bringing products like EZ Seed which makes it is a better user experience, and we're going to grow those. And so there will be a lot of new products and innovation coming within our categories because there is still a long way to get this category to the penetration levels that we say is good for a consumer products Company.

Okay. Thank you very much

You're welcome

I show no more further questions. I'll turn it back over to Mr. King

Okay Diane, thanks for your help this morning. Thanks to everybody for joining us. If there are followup questions that we haven't gotten to, please feel free to give me a call. If you'd like directly, 937-578-5622. Otherwise, we will talk to you all again, probably in late January when we announce our Q1 results. Thanks for calling. Have a great day

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