Q4 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Central Garden Pets fourth quarter fiscal year 2000, My Chief Financial results Conference call. My name is Devin and I'll be your conference operator for today at this time all participants are in listen only mode. Later, we will conduct a question answer session sareptas be given at that time.

And what's your acquire systems during the call. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like turn the call over to Steepens anchor Vice President Investor Relations at PNM Communications. Please go ahead.

Thank you Devin good afternoon, everyone. Thank you for joining us.

Well be able to call today are Timco Park Central <unk>, Chief Executive Officer.

Hi, that's our Chief financial Officer.

I would make check our SVP finance and Chief Accounting Officer, Grady Walker, our President Garden branded business and John Hanson, Our President Pat consumer products.

Our press release, providing results for our fourth quarter ended September 28, 2019 develop on our website at www Dot central Dot com off on the website. The GAAP to non-GAAP reconciliation for any non-GAAP measures discussed on this call.

For like turn call over to Penn I'd like to remind you that statements made during this conference call, what's you're not historical facts and putting heap yet another guidance for 2020.

Expectations for new capital in that sense and product introductions future acquisition and improve revenue and profitability are forward looking statements subject to risks and uncertainties that could cause actual results to differ materially I'm not as implied by forward looking statements.

These risks and others are described in Federal Securities Exchange Commission filing.

During our annual report on Form 10-K .

A final today.

That's why undertakes no obligation to publicly update these forward looking statements to reflect new information.

Well in advance or otherwise that will turn the call over to our NIM CEO , Tim Cope for Tim.

Thanks, Steve and good afternoon, it's a pleasure to be here with all of you today on my first earnings call. If they do see deal of Central Garden and pet.

Given that only a few weeks into my tenure here at central I'm going to defer to our CFO Nicola allowed us to review the results for the quarter end the year.

Before turning it over to Nico I'd like to say a few words about why I came to central and my initial observations about the opportunities on how we can unlock our company's potential.

I've spent the first six weeks immersing myself in all things central our business, our brands, our customers and our employees.

I have embraced and aggressive onboarding agenda traveling coast to coast conducting in depth business reviews touring many of our facilities meeting key customers and listening to a great deal of feedback from my central colleagues.

As a result of these engagements I've developed a keen appreciation and respect for what central has built at an even greater enthusiasm for our potential moving forward.

In my 30 years of consumer products experience I've had the privilege to lead many different businesses here in the United States and across the globe.

And my most recent role as Chief growth Officer, among the leaves international I, let all consumer and customer facing functions, including corporate and M&A strategy insights and analytics marketing sales E Commerce research and development quality and innovation.

In partnership with the chairman and CEO among the lease I, let the development in execution of the company's growth strategy, which resulted in accelerated top line growth with continued margin expansion.

My other general management experience includes PML president roles at Oscar Mayer Foods craft Pizza Company, Kraft Foods, Europe , and Mohmed Tilly's Asia Pacific Middle East Africa.

Although these previous efforts were not in the garden or Pat industries, I already see many commonalities was central's customers and consumers.

As I joined Central I'm impressed by its many strengths.

Central is a leader in both garden and pet industries with a robust portfolio of strong brands private label offerings and distribution businesses.

2020 marks 40 years since our chairman Bill Brown founded Central and it's clear to me that our growth through acquisition model has created value for our shareholders and meaningful scale advantages for our company.

Today Central has a brown has a broad route to market unique distribution capabilities, a strong reputation for quality products and superior customer service and an efficient supply chain.

And I can say that since coming here I've been very impressed with our entrepreneurial culture, our talented employees and our empowered Disney business units structure.

All of these strengths gives central a good foundation for the future.

Looking ahead I'm already seeing ways, we can improve the business and better capitalize on our opportunities.

I've only been here for six weeks, but here's my early read.

First we need to better balance consumer and customer.

We need to strengthen our consumer muscle through marketing branding and innovation.

Next.

While we've made good progress over the last several years in gaining a presence online it's clear that we need to invest even more aggressively and expanding our digital agenda and strengthening our ecommerce capabilities.

Third in addition to organic growth M&A remains a compelling opportunity to expand our scale and strength in both core and adjacent categories.

Given central strong balance sheet, we're in a good position to evaluate and pursue value accretive and cash generative acquisitions in businesses that are additive to our overall platform.

And finally, I believe we can improve the consistency of our Executional excellence at central by enhancing discipline monitoring the right K T eyes, and ensuring our incentives are driving the right behavior.

In partnership with our board and our leadership team I plan to flesh out my initial perspectives informed by further conversations with all of central stakeholders over the next several months.

What I can say is that I anticipate 2020 will involve significant investment in growth drivers and capital expenditures in order to take central to the next level and position our platform to grow sustainably in the years ahead.

Sometime in the spring I will share with you an update on our long term strategy and the implications for 2020 and beyond.

In closing I want to reiterate my excitement about joining central and my confidence in the value of the platform and our ability to unlock its full potential.

I am and all of us at Central are committed to working to drive real value for our shareholders with that I'll now turn it over to Nico who will give you a more detailed view on our 2019 results.

Thank you Tim and good afternoon, everyone. Our press release for our fourth quarter fiscal year financials results was issued earlier today.

For fiscal year 2019 sales increased 7.6% due in large part acquisition.

Nurturing and general pet or part of our first and second quarter results, while their inclusion added sales they did reduce margins and overall profitability.

In fiscal 2019, we purchased ardent and our second fiscal quarter and an eight in both sales and profits.

Finally, we closed on CNS and our third fiscal quarter and that was a small sales and profit contributor for the year.

Our overall organic growth of 1.5% was attributable to our garden segment, which grew 4% organically despite unfavorable weather or the control category.

Organic growth for the Pet segment was relatively flat held back meaningfully by our animal health businesses, which were impacted by very unfavorable weather our flight control cattle feed additive in grain protection products.

In addition.

Continuing weakness in our consumer behavior management products due to performance issues and increased competition was also a drag on pets results.

Our total company gross margin of 29.5% for the year declined 100 basis points.

But at decline is attributable to acquisitions that were uninsureds results, but not in last year's results.

Margin impact was from the inclusion of two quarters of del nursery. This year that were not last year's results.

Oh, good quarters for Bell had sizable losses as the business earns all of its profit in one quarter, our third fiscal quarter.

Lower results in our animal health businesses, and an unfavorable mix of product sales also contributed to the gross margin decline.

Our animal health businesses tend to have higher margins and so when they underperformed at a disproportionately large impact on the bottom line.

Operating income for the year declined 9.1% or $15.2 million and our operating margin declined 120 basis points meaningfully impacted by the lower gross margin and higher logistics costs.

Lower marketing expenses as a percent of sales offset some of the decline as we chose to scale back spending in unfavorable weather environment.

EBITDA for the year, excluding the two last quarters for Bell in fiscal 2019 results that were not in the prior years results declined 2% to 210.2 million.

This year also contain certain non operating factors that weighed on EPS, which came in at $1.61 for the year.

Higher number of shares outstanding negative negatively impacted EPS by 13 cents and a higher tax rate reduced EPS by an additional six six cents compared to last year.

If we combine these factors with the dilutive effect of Bell in the first two quarters three factors together eroded EPS by the entire 30 cents shortfall compared to last year.

In summary, well certainly not the type of year, we were hoping for when we began 2019 I continue to feel confident about fundamentals of the underlying business.

Our tax rate for the year of 22.3% was higher than the 19.5% rate a year ago, even adjust even after adjusting out the benefit received last year due to revaluation of our net deferred tax liabilities.

Changes me accounting standards around noncash equity compensation, which benefited last year's tax rate had less of a positive effect on this year's tax rate.

I also want to point out that our operating cash flow for the year of 205 million wasn't increase of 91 million from 114 million in the prior here.

Turning now to the quarter.

Fourth quarter consolidated sales increased 8% to 541 million with organic sales rising 5%, both garden and pet contributed to the organic increase.

Consolidated gross profit for the quarter rose, 1% and our gross margin decreased 180 basis points to 27.5%.

Higher expenses relating to off to writing off inventory in our pet segment and a mix shift in garden were the primary drivers of the decline.

SGN expense for the quarter increased 7% or 9 million versus a year ago and as a percent of sales decreased by 10 basis points to 25.5%.

Operating income for the quarter declined to 11 million compared to 18 million a year ago.

Our operating margin decreased 160 basis points, 2% due to the receivables and inventory write offs as well as the CEO transition costs.

Absent those expenses.

Operating income in margins were up versus a year ago.

Net interest expense decreased 8.1 million from 8.9 billion in the fourth quarter of last year.

Other expense for the fourth quarter decreased 4.2 million compared to the prior year due to our purchase of the rain remaining part of our which is now reflected in the garden operating results.

Our tax rate for the quarter of 22.8% was up over the prior year quarter, which benefited from a gain from the revaluation of our deferred tax accounts and changes in the accounting standards around noncash equity compensation expense.

The latter had a smaller positive effect on this year's tax rate.

Our net income for the quarter was 2.4 million and our diluted earnings per share was four cents compared to 10 cents in the fourth quarter of 2018 after adjusting for the benefit of the revaluation of the deferred tax accounts.

Shares outstanding increased to 56.6 million from 55.4 million in last year's fourth quarter.

Now I'll give some insight and its segments starting with pet.

Pet sales for the fourth quarter increased 5% or 17 million to 356 million aided by our CNS acquisition.

On an organic basis sales increased 2% on strength in the dog and cat and wild bird businesses.

Our life Fitch business was down due to a large customer exiting the category and our aquatic business also declined due to temporary supply constraints, which have been largely result.

The pet segment operating income decreased $1 million or 4% compared to the prior year quarter with results in the animal health and pet bedding business.

With lower excuse me lower results and the animal health and pet bedding businesses in large part due to receivables and inventory write offs.

Pet operating margin declined 80 basis points, 8.7% due primarily to that lower profitability in our animal health and pet bedding businesses.

I do want to point out that while we are projecting improvement in our animal health businesses. In 2020, we're taking a more pragmatic approach to the rate any improvement that we expect due to the normal weather.

Also this is one area, where we will be likely to increase demand creation spend as we seek to reignite growth after a disappointing year.

Moving on to guard for the quarter Garden segment sales increased 13% or 22 million to 185 million, partly due to the inclusion of our Arden acquisition, but more so were due to organic growth.

Organic garden sales increased 10% on higher sales of other manufactured products as well as strengthen our wild bird life plant and grassy businesses.

Unfavorable weather held back sales of control products offsetting a portion of the game.

Garden's operating income for the quarter decreased 1.2 million to 300000, and operating margin decreased 80 basis points to 0.2%.

Our Arden acquisition had a negative impact on operating income and margins as the fourth quarter is its lease profitable quarter of the year and an unfavorable mix of sales in our organic businesses also was responsible for the margin decline.

Now to the balance sheet and cash flow.

For the quarter cash flow provided by operations was approximately 112 million compared to 96 million in the fourth quarter a year ago.

The difference was primarily due to improvements in working working capital accounts.

Capex for the quarter of 11 million was approximately flat versus the prior year.

For the year Capex totaled 32 million compared to 38 million in fiscal 2018.

We anticipate higher capex spend in fiscal 2020.

Depreciation and amortization for the quarter increased to $14 million up from 12 million in last year's fourth quarter due to the acquisitions in the past year.

Cash and equivalents, including short term investments increased to 400 498 million from 482 million a year ago.

We ended the quarter with a leverage ratio of 3.1 times up from three times a year ago.

We are comfortable with our current gross leverage level, which is right around our targeted level of three times to 3.5 times.

During the fourth quarter, we repurchased 1.8 million shares as of the ended the fiscal year, we still have 100 million remaining on our 2019 100 million repurchase authorization as well as an additional 1.2 million shares shares remaining under the board's equity dilution authorization.

In terms of EPS guidance for next year, we currently expect diluted EPS to be at or modestly above the $1.61 of delighted diluted EPS. We are in fiscal 2019.

This is this excludes any impact from potential M&A activity undertaken during the year.

The reason for the lack of significant growth expected in fiscal 2020, espresso, primarily with the sizable additional demand creation investments, we expect to spend in fiscal 2020.

We also are being pragmatic about our expectations for the recovery in our animal health businesses and on the uncertainties regarding the impact of tariffs as Tim mentioned earlier, you still assessing the organization and will share his thoughts on the strategic direction of the company in more detail in the spring.

I will also mentioned that we currently expect our first quarter results to be lower than the prior year.

With us currently projecting a loss of 10 cents or higher due to several factors.

The timing of customer orders and the garden segment, continuing challenges in our animal health businesses and higher corporate expenses.

Our EPS estimates for the quarter near exclude the impact of a recent fire in a pet bedding facility. We believe our insurance coverage is sufficient to cover asset losses as well as the business interruption associated with this event.

While we believe the fire will not have a materially impact on the fiscal years results. The timing aspect of when we recognize the losses versus when we receive insurance proceeds may impact our quarterly results, especially our first quarter.

In conclusion, despite fiscal year 19, being a difficult year for animal health and pet bedding businesses and with next year expected habit earnings impacted by investments for future growth. Our company remains strong well capitalized and well positioned to grow in the years ahead, we look forward to giving you an update on our first quarter calls in early February .

Now, let's open it for questions.

Thank you at this time, we will be conducting a question answer session. If you will include question. Please press star one when you're totaling two point.

For me so into can you line is in the question Q.

Chris start to fuel led to move your question from the Q for participants using speaker Quinn and maybe Mr. Dusty comprehensive before Starkey.

Our first question comes a lot of Brad Thomas with Keybanc. Please ask your question.

Hi, good afternoon, everyone and Tim.

Welcome.

Thank you.

I guess hope by first I was hoping to kick it off of that a high level question for Tim and then ask a couple of.

Follow ups on the financials to Niko if I could.

Tim My guess is you analyze the business and think about some of these investments that could position central for accelerating growth I guess, how do you think about.

The level of investment that may be needed and the pay off with which you may be able to see some return on those investments.

Sure.

I think it's important to say upfronts it's.

Only that a few weeks in the Seattle.

So there's still a lot to learn but as I've done the first round of business reviews and had a chance to.

Meet our leadership on the ground in many of our business units around the country I.

I do think we find ourselves with a lot of opportunity and that opportunity.

Can be further unlocked I think with some investment and the way I think about it is you know in in a few buckets I mean, one clearly as I said in my comments.

In the whole consumer space.

Really understanding.

The way that our consumer approaches these categories, knowing our categories better than our competition enhancing our brand equity building distinctive brands driving some disruptive innovation and winning in the highest growth channel in the United States today, which is the ecommerce channel those are all big.

Opportunities I think for us.

But it's not just in that space I think the other areas are actually on the cost side I think we've got some meaningful opportunities to advance our productivity agenda and that will provide two different benefits. One is obviously as fuel into that growth agenda and the other is obvious.

Fleet to enhance our margin structure from where it is and I'm encouraged by what I see on that that too may require some investment may require some capex et cetera. Finally to the second part of your question.

Clearly I have a strong eye on returns and we will be assessing these opportunities as on a ROI basis I think it's fair to say that some of these won't return in the first year in the first fiscal year and so I'm looking at it obviously as a new CEO too.

To have a clear I on returns, but make sure we're doing the right thing for the long term of this business and to really drive that long term sustainable profitable growth. Finally, as mentioned I'd like to take a few more months to really do the deeper dive and I will come back in the spring with a more comprehensive.

And Cogent view on your question.

That's very helpful. Thank you Tim.

Nico as we look at the quarter and try and get a sense for some of the margin puts and takes.

Can you help us think about.

Quantifying sort of the onetime items in here like when we think about some of the receivable and inventory write downs could you quantify those aspects for us in the quarter.

We're a little remit to quantifying because if we if we wanted to we would have non-GAAP those.

But what I will tell you is absent the the receivables inventory and the CEO costs are both our dollars in our margin would have been a higher than year before.

Perfect Thats very helpful.

And then just lastly from me I guess as we think about the first quarter.

Can you help us think a little more on puts and takes and app from a margin perspective and sales perspective that are driving that net earnings range that you guided us towards.

Yes, so so largely the first quarter keep in mind, it's it's the smallest quarter.

For central so small small puts and takes can have large impacts on on the bottom line.

So overall, we came into the quarter with a very soft.

Grass seed planting season, because of the excessive heat in October so that that was sort of an immediate headwind coming into the quarter. Then you know if you recall a year ago. We had one retailer on the garden side that was very aggressive with respect to their loaded they signaled that that's not going to repeat so we have kind of those those.

Two headwinds going on.

And then on the pet side it it's really timing of orders around the animal health and bedding businesses. So we're seeing some timing effects there as well and then lastly.

Higher corporate costs around executive comp as well as some investment in IP.

Thats very helpful I'll turn it over over to others and good luck to him.

Thank you.

Our next question comes on line of Chris Karen Thank.

Good question.

Hi, good evening.

Hello.

And Tim all come.

Thank you.

So so a few questions here.

I guess, just first on a quarter and then have no questions on some other dynamics over time, but.

I guess, if you think about some of the pricing initiatives.

That have been part of the story over the course of the year and certainly heading into next year doesn't really seem like any of that has has provided much help.

And I I appreciate that mix has been a dynamic here right, but you know this is kind of like the second year. When gross margins are declining and makes gets called out and I just.

And it sounds like probably gross margins are going to decline again next year.

If investments are happening and I suppose I don't know exactly where all those investments are occurring but it seems to me like Thats the case and so.

I guess, you know because because topline came in fine.

Certainly comps help.

But I think the.

The full picture is still a little.

Confusing and I guess, you know Niko and.

Hi.

Am I off here you know is is it that you know as this is is the case, where we're not going to get a lot of visibility on the gross margin line for awhile and maybe if you know Tim in Eco if you could combat comment on whereas some of these investments are are going to be happening.

So I'll kind of comment on some of your comments.

So.

As far as pricing goes we did take fairly broad based pricing across many of our businesses.

I will tell you that there were some pockets where.

We took actually some price decreases because commodity did come down.

And Thats something that is very transparent to the retailers. So they know exactly what's going on those commodity markets and theres no hiding from that so.

I would say that that's that's one issue that's out there. The other issue as you know obviously when you do take price you you know there arsone elasticities implications as well.

Third would be you know as we mentioned earlier comments.

We are lapping.

If you look at the acquisitions, we did.

We did take on some some negative quarters with respect to Bell and now this most recent one with Arden.

Those things all are going to have impact on on the gross to gross margin line.

The other thing I would say is I cant under I cant over overstayed enough really.

You know what I know, you're obviously tired of hearing it but but the mix issue and you know when our animal health.

Businesses don't perform.

You're going to see it you're going to see it at the gross margin line and you're going to seat at the operating margin line.

And that's that's just the fact around our business.

Now I'll address the other issue around gross margin in 2020 I can tell you that we are planning to expand margins in 2020.

We're going to give more detail on that probably later in the year, but we have every intention of of expanding margins at that gross margin one.

Okay.

Okay.

And maybe.

Just on the buyback program right you know so.

Maybe let me know if my read here is wrong, but you still have the 100 million authorization and you basically had already bought back.

No shares when you announced the authorization so.

Maybe haven't been as active recently and perhaps you.

Thought.

There was a potential at the stock would would be down tomorrow, which I suppose it could be.

And so is there a way to think about the cadence of this deployment going forward. If your stock is is down tomorrow as much as it was initially indicated is that what type of time, when you would be opportunistic or or is there another type away that you're thinking about deploying that program overtime.

Well I mean, the way the way we're thinking of it is.

You know if the stock drops and we we find ourselves that you don't imply multiple of six or seven times that's extremely attractive.

As we look at M&A.

We we can't find businesses that are that are that attractive on the outside so when we see our stock dropped to those levels. That's something we're going to act on because it's the right thing to do is a tremendous value. We believe in our story, we believe in our people.

And why wouldn't we support that.

I will tell you internally internally the way, we think about it though is the 500 million.

That we've raised in both debt and equity that's really earmarked for M&A, that's not something we're going to be.

We're really going after and buying our stock back and the way we think of the soft buyback is we really want to do that with our cash flow.

So so really you can see you know we've been buying back and we still have the same amount of cash on the balance sheet. So we we've had we have an effect compartmentalize fit but you know if our stock dropped to certain level, we're going to support it because it's a tremendous value.

Okay that makes sense and then just just one final one just trying to.

I understand this.

Flat to slightly up.

Guidance for earnings next fiscal year, and if you could kind of I suppose frame. It between how much of that is getting impacted by the proactive investments that you're doing just to drive longer term sustainability verse.

It is say you know some of the challenges that you're seeing in the business like an animal health or otherwise so how much of one versus the other and maybe how much of the impact we could see from the.

The facility fire that you are that you highlighted in the press release. So that's it for me. Thank you.

We'll probably be able to dimensionalize the impact between the investments and and the animal health business later in the year, we're going to give more detail.

Going forward.

But I'll give you a couple of comments.

On the last few years, we we have cut our spend and for good reason you know if you go back to 18 poor garden season, and we did one lean into that this year was it was animal health as well as are our Gen. One conference on product that that wasn't performing so we didnt want to lean into that either.

So in that respect it was really the right thing to do given that we believe the returns we're not going to be there for us.

But what I would tell you just as we when we went to our 2020 planning process.

We began really challenging the plant and really asking some tough questions around you know our we happy with our current growth rates are are we happy with our share.

Are we losing share.

We being aggressive enough around digital and our consumer facing agenda now and at the answers are no. You know our we are we sufficiently investing in the steps to substantiate the higher growth as well as the market share gains. So those are really some tough questions. We were asking ourselves and and those are things were going to probably come back.

With more detail later the year.

Let me shift the animal health really quick and just talk a little bit about the challenges there which.

You know include both the consumer as well and pro business and.

You know the challenges have been will be to get our market share back in that consumer business around the conference on product.

And that's on US we have to go out there spent wisely have a high return on investment and take share back symbols that.

On the pro side.

There's a little more complexity. So if you look at the challenges that are going on in the AG market around pro.

Some of which had been exacerbated by trade tensions and if you look at that pro business many of our end customers.

Our the farmers and they've had a really rough gold this year.

The weather aside there is some real macro trends affecting the AG market like the overall health of the beef and dairy industry.

I'll give you some examples.

I think last quarter, I mentioned million cap dying in the in the winter spring flooding.

18, 2700, dairies went out of business.

And this year between January made there were 300 shutdown in Wisconsin, So 300 dairy shut down in that timeframe and then just this month month, Dean foods largest producer of dairy products sell bankruptcy.

You know do I expect another year like 19 no.

But our view is that there's still a fair amount of uncertainty around that animal health business for us to be a lot more thoughtful.

In our guidance not not to expect a full rebound in 2020.

If you take anything away from the comments here I think you know, we're taking a longer term approach we want to create a situation where we can create long term sustainable growth going forward and I think really thats the message.

Thanks, Nick I appreciate that.

Our next question comes on line of build travel with Suntrust. Please you two question.

Hi, This is actually grin on for Bill. Thanks for taking my question and how to Tim.

First one for US just on the on the Pet segment.

Just for the charge off in the quarter on the pet bedding side I'm, assuming that's all related to the fire in not any lower demand, but just wanted to double check that.

No so.

Both the receivables and inventory we're on the pet side.

Receivables redo, we had to bank customers go bankrupt in the fourth quarter, where we had to write off those receivables.

And then the inventory was was largely due to the write off of the comfort zone generation one product. So those those are the two primary drivers.

So not related to the.

For the fire.

The fire the fire is a very recent thing and we're still getting reports in terms of the investigation that's going on so we're still pulling the facts together, we'll obviously have a lot more information come February but it is.

It's fresh news even for us. So unfortunately, we don't have some detail there.

Got it Okay, and then and then maybe thinking longer term.

Your capital allocation strategy it sounds like next year the Capex spend.

He's going to step up but do you still feel like you have a number of potential M&A opportunities in the pipeline is that really the focus still going forward.

Absolutely.

It's really the focus is going to be M&A, and then also capital projects internally, meaning growth as well as cost savings. So those are really.

At the top two and then as I mentioned earlier, when we see our stock dropped.

And the levels I mentioned.

We're going to be buyers at those levels, just because we really believe in what we're doing here.

Got it thank you.

Our next question comes a lot of William <unk> with Bank of America. Please state your question.

Hi, guys. This is Mike on for Bill following up on commentary about the M&A pipeline their maximum size, we should expect for potential target.

No I you know [laughter].

I think you know we remain fairly open to size.

It's kind of across the board I I don't see of doing something over $1 billion on just just to be.

Fully transparent.

The other way to think about a two is we're going to we're going to look at M&A.

From a product standpoint, but also from capability standpoint so.

You know that's another thing we really look at.

In terms of we see a business that has really strong digital capabilities.

We want to up our game, that's something we might look at so.

Going to look at M&A across a number of factors and I think billion is it's going to be on the high end, but you know.

We do have about 1.1 billion of dry powder that.

That gives you sort of an idea of what we can do.

I suppose if we saw something bigger you could always do some deal financing along with it.

Great and then it's just a can you talk about the private label performance and if there's any change as a percentage of total sales. Thanks.

So right now I'll just talk overall company private label and then I'll, let our.

Our segment heads talk about their respective areas of business overall were north of 15% now as far as private label and a lot of that has been due to the acquisitions. We've made so some of the acquisitions we've done recently.

Yes tended to have a big portion of their business being private label.

Overall, it that you know as everyone knows it's very strong consumer trend.

We like the business, particularly when when we are the low cost producer.

Typically you know with retailers were able to get our own product on the shelf as well as the private label.

We know it's going to get bid it out.

Somebody made all the us as the way, we look at it and that way we have.

Really a more meaningful relationship with the retailer if you think about it.

The other thing it does for us internally it fills up our manufacturing plants. So we got a lot of operating leverage out of that and it really helps all the products. One plant. So that's sort of how we think about on a macro scale I'll turn it over to our segment headset.

There's this is Jay the I'll speak to the Garden segment, we would plan the private label brands across a number of our categories fertilizers controls grassy wild bird feed outdoor replacement cushions, even in live goods and it's important business to us unequaled touched on the key drivers behind that gives us larger share of the shelf because.

More critical mass with that retailer. It also helps with factoring plant utilization favorable variances as result of that and then last thing I touch on its just the strategic relationship with that retailer because you are co developing that brand with the retailer and I think that we've been able effectively able to.

Leverage additional branded business as a result of our private label business.

John Yes. This is John Hanson I would echo his skill set as well we continue to wait the opportunity in private label on some categories more than others, but but it does give us a partnership with their customers.

It absorbs overhead and it also gives us an ability to to help the customer and the category and protect our brands that we'd or brands and become a category leader and up in a business partner with their customers. So so we continue like it very much and very much on consumer trend.

Thank you.

Our next question comes the line of Jim's, where do you put Moness Crespi Hardt. Please state your question.

Hi, Thanks for taking my questions.

Jerry talked about the impact of animal health and some other things on the full year, but just in terms of the fourth quarter sales performance versus what you expected.

Back in.

In August .

How to things come in versus your plan.

We were a little bit short to plan on on the sales side, but we again, we had nice organic growth on that topline in both pet and garden. So we felt pretty good about the topline on in Q4.

Okay.

And.

[laughter] bedding business last quarter, you guys called that out as.

A recent for the topline shortfall than you expected. So you had you had a good visibility into orders for fourth quarter habit is betting play out in fourth quarter.

So nothing.

Really slowed down.

In the quarter towards the end and it came it came up a tad short even though we you know I know we've mentioned we had like 66% of the orders on the last call but.

Things that really really slowed down in that in that bedding business in the quarters. Those it was a little under.

Okay, and then I know.

You've talked about kind of the investments for next year.

Just.

Understanding of this year, you know for fourth quarter.

Yes, it looks like some some onetime rich type items cost you guys like 11 cents in fourth quarter.

You've also talked about earlier this year and impact of some legal expenses last quarter. You know you wrote up the order inventory earlier this year, which was a drag on earnings wrote down some home decor.

Inventory last quarter and so there's a lot of one time expenses within that dollar six day.

So how do we think about that in terms of your expectations for next year.

Yeah, and again I'm really for next year. The two main drivers are going to be that investment spend and also our tempered outlook on on animal health.

Any animal health space, there's more going on and just whether others trade. There's you know.

Some real macro factors.

We don't know how quickly or if at all with the old and gain market share back in the conference on product. So you know there just enough uncertainty there for us temper our outlook.

And then again, we plan on being very aggressive on on the spend side. So that's kind of what we are right now that's very high level I know and I know everyone wants more.

But we're going to give we're going to give more detail later in the year keep in mind, you know Tim Tim has only been here matter weeks, and we need to get him properly onboarded and he's got to get his arms around the business and then thank you know strategically going forward.

And just finally on the behavior modification the comfort zone.

Yeah.

Understanding kind of the sales challenges in end markets you're traveling so how is the the reformulated products performed you know we've been testing and at the consumer loans.

Yeah. So you know we've talked about this is John we've talked about comfort zone before.

We did have on this stuff and we were truly diligently on reformulated in the product and and over the past quarter in Q4.

Investing in digital on e-commerce , as well was brick and mortar to a secret that product back to where we need it I wouldn't say, it's all the way back, but I think where you feel.

Very confident about the category in the brands and we're very excited about the future that we can get this turned around for growth in fiscal 2000.

Great. Thanks, and best of luck this year.

Thank you. Thank you.

Our next question comes the line of Peter grow with JP Morgan. Please state your question.

Hey, good evening everyone.

Even though Peter.

So Tim Kinda, given your background and model using kind of the contents of what we've seen in CPG.

I guess over the past few years or this year with Pepsi Colgate I can't help but soon to be increase investments that you're talking to and kind of the earnings growth you're looking to deliver this year kind of looks like a rebase and I know it's been talked a lot about during this call, but clearly something in the first few responding to investments being a driver for performance. So.

You know just kind of.

Is there anything you can share that gives you comfort that higher spend is going to be enough. It's improved market share performance on is there anything you can share in terms of where the spends going to be directed and then I guess lastly.

Do you feel your kind of current a fly 20 guidance reflects the appropriate level spending versus reinvesting commentary still in the early innings in kind of could be ratcheting up higher later in the year. Thanks.

Yes. Thank you.

Look again, I'll preface by saying it it's early days and only a few weeks it in the rule, but I am too I guess one of the three sub questions you asked.

I am confident that we can get a good return on this spend.

Certainly overtime again, whether all occurs in a fiscal year I think my experience would suggest that it doesn't always work that way.

Ed relates to as everyone knows their their fiscal calendar were already the better part of two months into the fiscal so.

I'm not necessarily think for fiscal 20, but certainly overtime thats going to be my orientation and our orientation. I think you know many of you have followed our company for some time, you know that our level of investment spend a on the consumer side in the area in.

Sites and marketing and innovation is actually you know a smaller part relative to some of the other firms you referenced in your question from a consumer standpoint, and therefore, you know that marginal impact of that investment I think can be quite meaningful as I've gone around too many of the bid.

This units and talked about talk to our folks about return on investment in these areas, particularly in the digital space I'm actually seeing some very encouraging numbers that gives me confidence that when we put a little more fuel into that system that we can see it can see a nice pop.

So.

A lot more to come a lot more diligence to to a two to follow.

And I want to assure you and others that are orientation is going to be around investing where we feel like there is a good return in years to come then the last part of your question was do we think.

The amount of investment for 20 is appropriate and consistent with that guidance that Niko provided my short answer is yes.

It does provide while on this call we're not in a position to breakout.

The exact detail of the of the numbers.

I would say it gives us a a good.

A basis for reinvestment across a number of areas and as Niko outlined that's one of the reasons why we guided where we've guided is because we feel good about that level of investment and I don't anticipate that will change as we progress through fiscal plenty.

That was helpful. Thank you.

Once again, if you like that's question. Please press star one on your telephone keypad. Once again, if you look that's question. Please press star one on your telephone keypad.

Our next question comes on line of Hill Holden with Barclays.

Please proceed with your question.

Hi, Thanks for taking my call I had.

Two questions, Tim Hey, you know, it's part of your evaluation of the portfolio is it possible, we might see divestitures to spin a long time since the company's kind of prune some of the also for us.

Well look I would say generally my point of view on on portfolio strategy. It is it's a very healthy discipline to consistently look at your portfolio and make sure that each of the pieces are are contributing to the party and yelp to.

Me, that's just kind of good housekeeping at this stage.

Nothing specific to share in terms of any sort of divestiture candidates, but to me. It's just a part of good General management I would say overall this company in the last many years have built a nice track record of growth through acquisition and brought in nice.

Additions both in for an adjacent categories that have added to the overall portfolio. The other thing in my first few weeks you know we've done a I think that's a good job of kind of doing postmortems on recent acquisitions to understand our they contributing as we had hoped are they delivering on the investment thesis.

Yes.

And to the extent they are great ultimately due more to the extent they aren't what do we need need to two to do and to get those back on track.

So that'll be a part of the continuing discipline, we have his leadership team.

Thank you and then on a pet bedding facility fire I was wondering if you could give us some insight into if you thought.

That was going to leave you short.

Meaningful inventory to ship into the channel or if you're going a little being able to source of from third party, many doctors or elsewhere.

This is John Yes, we see that we had a foot room in or distribution center over 13 business in November .

<unk> was injured or we have a team on the ground that are in the process are really understanding the damage shouldn't going through all the details of of the business and the damage. We're doing our absolute best to continue to service customers and and so we're working through each customer individually.

In terms of can we do that with existing inventory or how we just said zone.

We do as we mentioned have very good insurance.

The timing of the receiving that insurance and those benefits me impact quarters.

But overall, we expect minimal financial impact in total.

So you wouldn't expect to lose any shelf space or.

And you have any issues what kind of your retail partners.

I think I think it's hard to call right now we're going to have to see how how the season plays out.

But right now.

It's it's it's sort of hard to call.

Okay. Thank you and Tim Congrats on Tennessee.

Thank you.

Since our no further questions left in the queue I would like to turn the call back over to Mr., Tim Cooper for any closing remarks.

Okay very good I want to thank everyone for attending our earnings call and I wish everyone. A wonderful Thanksgiving. Thank you.

This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.