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#It would be sales or earnings or asset base and, depending on which deal get consummated over the foreseeable future, it will probably be on the asset base more so than the sales at this point.
But closely approaching both.
Look, <UNK>, I just want to just throw in on that.
This was actually, our January Board meeting was out in California and we did that at the GH headquarters in Santa Rosa.
And I think it was interesting in the discussion with the Board to look at sort of the five-year plan for Hawthorne.
It becomes a very significant part of our North American business within less than five years.
So I think that's the basis where sort of no matter what we do it's going to become a reporting segment.
I'm going to start by saying I hope not.
I think on the acquisition side, I'm not going to allow that.
It is a commitment we made internally.
We all sort of, what's that TV show where they sort of spit in your palm and shake hands, and brothers' oath kind of thing.
That on the M&A side, I think we've got ---+ we understand what is there, we understand the pipeline, we are, within reason, operating about as quickly as we can, meaning to keep things under control and sort of progressively move from deal to deal.
This is generally on the hydro side, where we're I think right where we want to be and I don't think it will extend into 2017 so I think that's clear.
I'm going to say, and I just said it a few minutes ago, I'm somewhat disappointed in what happened in Europe, to be honest.
I don't think it's changed our view.
And so what we have to do is begin to focus on running our business, because it is still our business, and that is going fine.
And then we have to sort of we reevaluate what the next move is and I think we have got ideas.
But I think that the most important thing right now is that we are in season and we've got to run the business.
So could that part push into 2017.
I think probably.
But I don't think that will affect ---+ because remember the ---+ I don't know exactly what we told you guys, so I could step on dog doo here.
Because I think we told you guys that we probably would have had to re-inject cash to re-capitalize that business in Europe under the existing deal structure that we had talked about.
Obviously, we don't have to do that now.
I don't think this affects our cash flow ability to begin buying shares back.
I don't think it significantly affects our go-forward plans, although, final sort of conclusion of what happens in Europe probably does slip into next year I would bet.
I think so too and regarding Europe, I think it would have been a real head scratcher for everyone if we had actually been able to go forward with the deal.
The original terms we had in place made a lot of sense.
As we add more visibility to numbers on our end and their end, it became obvious that the deal wasn't going to work and we could have tried to chase it down and overpaid, but that's not what we are in the business of doing.
So it made sense just to let that go and go out and essentially start from scratch to a degree.
But it is also encouraging that, if the company we were pursuing was able to find the valuation and found a buyer for their business at such a high multiple, I think it is pretty encouraging for us going forward as well.
A lot more to come on that and I wouldn't expect anything to happen by the end of the fiscal year for sure.
Well, on the commodities and fuel, we have almost perfect visibility now.
So we are 90%, 95% hedged on urea and fuel, so that's not a question mark anymore.
The question becomes more about volume and fixed cost leverage, so as shipments and POS come closer, we're not going to end up 16% ahead on sales by the end of the year like we were at the end of March, so a lot of the margin benefit from volume should dissipate over the balance of the year.
The Roundup impact is all front-loaded, so by just the math plays out.
So it becomes a smaller impact by the end of the year, and then the mix question, we will have to wait and see how that turns out.
We need to make up some ground on fertilizers, and if we do, we should have some upside on gross margins and if we don't, it will pull a step back down a little bit.
You will hear from us in August.
Hi, <UNK>.
Sure.
So the impact that we saw in Q2 from the calendar shift was, call it, about $100 million.
We expect that to come out of Q3.
Difficult to predict exactly with precision, but call it dollar for dollar as an estimate at this point and by the time we get to the very end of the fiscal year, all the timing issues will work themselves out.
So not a big number in Q4.
Then regarding Roundup, the $20 million impact year-over-year, we saw that 100% in Q2 so that was also a big contributor, not only to the sales growth in Q2, but as well as our gross margin rate in our earnings.
Sure.
So as part of the deal, we have access to use the brand in that other category, so we're making a lot of progress on the R&D side.
And we'll do, perhaps not a national launch, but we will be launching the new product next year on a test basis and more to come on that.
And there's two or three more that will follow, probably 2018.
So I'm happy with the progress we're making so far.
And remember all progress relating to the disposition of our European business is enabled by this update to the agreement.
That was a very important part of that deal for us was the ability to revise our portfolio.
This is <UNK> <UNK>.
On the home centers, I would say pretty equivalent, I would say hardware is up and I would say mass is down.
Not anything different other than we expected a lot more cap activity out of mass.
That was probably the biggest change.
It is a weekly promotional circular.
They reduced it significantly.
It went from like 53 a year to 13.
No, there's a commitment and everything we built, everybody was talking about POS, we built the original budget.
We loaded most of our upside into May.
We moved most of our promotional activity to May, which is about 10 times more active than we were a year ago.
So we are actually really confident about where we're going to be.
Sure, <UNK>.
This is <UNK>.
Trying to quantify for you a little bit better, I would say that the couple deals on the pipeline right now that we are pursuing most aggressively would be not quite the size of GH, both in the purchase price and the size of the sales, but similar to.
So pretty nice, reasonable businesses that would complement what Hawthorne has built to date.
That gives you a little bit better idea.
Look, I think, <UNK>, we put it in the script, we called it house of brands or something like that.
I would suggest that if you went out in sort of, call it, roughly the 2,000-ish hydro stores, particularly west coast and just look at what's there.
I think that if you look at sort of Scotts North America and the strategy we pursued really since, call it, 1999 on our US consumer business, I think we're interested in that sort of approach in the hydroponics supply side, meaning ferts, nutrients, pesticides, various other consumables, and to some extent, some hard goods, within the area and generally branded products.
So I don't think it's actually that hard to figure out and I would just say go out and do some store visits.
It's more interesting than probably consumer lawn and garden.
The other thing I'd add is if you look at the one acquisition that we did do about a year ago with general hydroponics, it's actually ahead of the business case, which wasn't any kind of a lay-up anyway.
So we feel really good about how the business is performing right now.
I think I would say yes and no.
I think generally it is a unique distribution channel, although this year, we have been in discussions with many of our largest retailers about some hydro products in what would be viewed as sort of conventional lawn and garden channels and you are seeing like Black Magic launch within Home Depot this year, which is soils and nutrients-based.
I think that what Scotts offers within the channel is not just sales execution, it is management, financial systems, capital, to some extent, some process and managements that, the ability to use our IT systems to better control these businesses and there's a lot of, I'm going to say, duplicative overheads.
So I think that what Scotts offers up goes beyond just sales support and execution support, but in R&D, in manufacturing, I could take you, regulatory and legal, there's a lot of things that we can offer to sort of these Hawthorne companies that they don't really have the scale to do today and I think that makes these deals pretty attractive.
And again, this is a sort of strategic discussion we've had at the Board level in that we are very much today, I'm not going to say low growth, but I think what we've told the street is we're going to budget based on 02 and I think that is what makes, by the way, not fiscally challenging for us based on where we are today.
But it tends to be a west coast business.
We tend to be a kind of central and east business.
This is high-margin, high-growth, young, urban and rural, more independent than the big three.
So there's a lot of things we like about that space that we don't see in our existing lawn and garden space, although the existing lawn and garden business really pays for everything.
And so we think it's a pretty good combo and we wouldn't want to miss this opportunity.
Hi, <UNK>tina.
This is <UNK> again.
No, we expect everything to dovetail for the most part.
I mean, we've seen retail inventories over the last couple of years at the end of each quarter be roughly up mid-single digits.
That's where we are right now coming off last weekend.
So the trade does not stop by any means.
I think we're in a good place, we just need it to stop raining in New York City today and get some good POS in Texas and everything should work itself out.
But everything eventually normalizes for the most part.
And shipments in POS and retail inventory come together by the end of the year, not always by the end of September, but by the time we get all the way through the season and call it Thanksgiving.
Yes.
Pricing for the quarter was down a little bit.
A lot of the trade programs we have built this year, we developed earlier in the year and they are much more performance-based, so we've phased those trade programs with sales and with sales being so high in the quarter, a lot of that expense hit earlier this year than it did last year or years in the past.
So that muted some of the price increases on an invoice sale basis that we saw take place as we flipped over to calendar 2016, so as we roll out over the balance of the year, we will see that pricing impact increase quite a bit, which again, I mentioned in my script, gives us more confidence for a gross margin rate.
I think mix is the one area that I think is of greatest concerned.
Those are the two that we will be trying to balance, but pricing will definitely be a good guy, much more in the second half of the year than what we saw in the first.
Okay.
Great.
Thank you very much.
Again, if anybody has follow-up calls, feel free to call my office later today.
You can reach me at 937-578-5622.
Otherwise, those of you who we have calls scheduled with starting later this morning, we will be in touch with you later in the day.
And right now, our Q3 call is tentatively planned for Tuesday, August 2, I believe that is, at 9:00 AM.
So we will communicate with you then.
Thanks for joining us today and have a great day.
