Q3 2020 Scotts Miracle-Gro Co Earnings Call
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Mr. He says she deal could grow company's third quarter conference call. Today's call is being recorded Mr. King you may now begin.
Sure Good morning, everyone and welcome to the Scott's Group third quarter earnings Conference call.
With me this morning, our Jim Hagedorn, Chairman and CEO.
Randy Coleman, our CFO, Mike Lukemire, our president and Chief operating Officer.
And of course, Haggen organs General manager Hawthorne gardening company.
I'm sure you're already seeing this morning, our press release that includes the details of a record third quarter results updated guidance for fiscal 2020, and you know sort of additional plans return cash to shareholders.
And just a few Rollins Jim will share some prepared remarks regarding what color on these issues as well as others.
Afterward, Randy will grow a little deeper into the numbers and set the table for communicating our yearend results in November which is also will provide guidance for fiscal 2021.
After Randy's remarks, well open the call for your questions and both Mike and Chris will also participate in that session.
Given the amount of content being covered today, we ask that you help us manage to the time by asking my one question and one follow.
If we don't get everyone. The Q what do you have additional questions. We don't cover. Please call me directly at 9375 75, six to two I'm glad to give you as much times needed.
Obviously, our comments. This morning are going to contain forward looking statements storm compelled to remind everyone that our actual results could differ materially from what we discussed on.
A discussion of the risk factors that could impact future results are provided in the press release this morning.
As was within our 10-K, which of course as filed with the FCC.
I want to remind everyone. In this morning's call is being recorded an archived version this call will be available on our Investor Relations website.
With that let me just agent turn things over to Jim Tiger One Jim.
Thanks game and good morning, everyone.
The late 19 nineties, we created a commercial that was used for our sponsorship of the American experienced on PBS.
Yeah, I'd copy read as follows that the Scotts company, we made grass greener treat controller.
Flower more beautiful.
There's a better business to be in fleet, let us now.
So all bucks gear reflect than what we've seen over the past couple of months. The question posed PBF spot feels more relevant than ever.
What our category does for People's emotional and physical wellbeing has never been more evident bend it hasn't been in 2020.
Our brands and products enhanced the lives of consumers has never been more important and our ability to thrive during times of macro economic distress and deliver for all of our stakeholders has never been more obvious.
These are great business to be in all of us are grateful to be a part of it the record results, we announced this morning, our bulk exciting incumbent.
On a full year basis, we now expect to exceed even on most optimistic expectations.
The unprecedented success, we're seeing continues in both the U.S. consumer segment and an awful.
We're now in positive territory with every product category in both businesses.
Momentum we've enjoyed does not seem to be slowing down as we entered the final two months of our fiscal year.
I want to start by thanking our consumers cultivators for their support of our branch.
I want to thank our retail partners for their support of our category and our business.
Most of all I want to thank you so seems to the Scotts Miracle Gro company, who delivered these results.
Our success. This year has required a level of dedication creativity collaboration it's been inspiring to see.
I'm compelled to stay that our shareholders own associates addendum gratitude, especially those who work on the front lines in our manufacturing distribution facilities.
Well as the field sales force.
As the severity of this crisis was ebb and flow. These frontline associates have been there every day, demonstrating a level of loyalty and the time, even bravery that allowed us to keep up with consumer demand.
In the face of our success this year perspective matters.
We know too many Americans are still on employed.
Becoming increasingly apparent the economy has a long road ahead in terms of recovery.
And of course, we know the families of more than 140000 Americans continued agreed for the loss of loved ones.
We also lost a member of the Scotts Miracle Gro family to the Corona buyers just a few weeks ago.
I would just 34 years old and his passing reminded us of the severity of the crisis.
We continue to extend our thoughts and prayers do is beyond say and its family.
As we move on this morning, I wanted to buy my remaining comments into four areas.
Perfect. It's important to understand whats driven our results this year.
So I'll talk about the successes, we've seen in both U.S. consumer and Hawthorne at a high level, while allowing Randy to focus on the financials.
Second I want to talk about where we expected, finishing 2020 in the investments, we're making for the balance of the year.
Third I want to share some initial thoughts about next year. This is not guidance, it's far too early for us to target specific numbers for either the top or bottom line for 2021.
But to some extent I want us to call to provide the roadmap from what we seeing 2021.
The obvious question on cable. This morning is how do we comp this year as a result, and we want to address that issue proactively.
And fourth I want to address our current thinking about our balance sheet uses of cash and elaborate on our other announcement. This morning of a special dividend up $5 per share, which will be paid in September.
Lots of cover so let's dig in to discuss current business trends.
I'll start with the U.S. consumer segment, which reported sales increase of 21% orders now up 15% year to date.
That year to date number is expected to improve further which is why we raised our guidance again for the U.S. consumer business to a range of 20% to 22% compared to the previous guidance of 9% to 11% growth.
Entering August consumer purchases are up 23% on a year to date basis at our top four retail partners.
When you look at consumer activity more closely we continued to seed gardening as the driving force even though we are weeks pass what would normally be the people that season.
Consumer purchases of our branded soils are up more than 40% year to date implant food purchases are up more than 30%.
He points in which we have a 25% financial interest as being an increase in Pos up about 50%.
I don't know Guardian continues as well in popularity.
The success of Bonnie this year increasingly reinforces our long held interest in this category in our belief that edible gardening is critical to our strategy in the years ahead.
Our controls business continues to see significant increases from last year.
Ortho outdoor insect control products as being more than 60% increase in Pos in ortho indoor insect products are up more than 40%.
Most of these gains have come from increased consumer activity. Although we have also benefited from improved listing support.
Ortho weed control products are up about 15% driven by the continued success of ground clear, which continues to improve its market share position in the non selective weed control space.
Roundup, which we represent per buyer has seen an 8% increase in Pos on a year over year basis.
In lawns grass seed continues as multi year run with Pos up nearly 25%.
Consumer purchases up lawn fertilizer up 9%.
Across all retailers are long portfolio recently cleared the 1 billion dollar milestone for the first.
That's what two months still ahead of us.
After severity of this summer and its damaging effects on launch should bode well for our fall Gretzky business as well.
Finally, mulch crossed over into positive territory near the end of June Pos has now up more than 4% as we enter August.
Recall that month was still and deep negative numbers entering Q3 and suffered as retailers cancel black Friday events and other aggressive promotions that use knowledge to drive foot traffic into lawn and garden apartments.
While multi isn't a high margin business is a highly strategic one.
Retailers began to aggressively reengaging the multi category beginning in may.
They did we joined their efforts we employed a rifle shot approach to using digital media to drive consumer purchases of bulge in specific markets across the country, which help clear the inventory from both our distribution points as well as retail stores.
Success, the bat combined effort again showed how this product category can create momentum for the entire lawn and garden space.
We've seen strong double digit improvements in every retail channel.
We continue to see especially strong year to date growth in the hardware club and farm tweak panels.
Retailers in the homes kind of channels significantly reengaged in May and June as the economy began to reopen across the country, which allows them to operate with fewer restrictions.
The big picture trends around Cobot, 19, undoubtedly had a positive impact in our industry and our brands.
But it's important to stress that success, we had this year Didnt just happened.
Our marketing team has done an outstanding job all season long adjusting our messaging and campaigns, especially in the digital space.
Early in this evening no one was talking to the consumer except us the team Didnt just carrying the load for the entire industry.
So with smart innovative and fast efforts that hit the right note at the right time in the right places.
Our direct to consumer business was also significantly impacted.
This is both at home delivery and curbside order in store pickup.
We've seen more than a 200% increase in volume growth, we easily absorb because of the groundwork laid by the team over the last several years.
Our salesforce did more than just work with our retail partners.
Hey stayed engaging during the peak of the crisis, often adjusting their efforts to work in the middle of the night in order to keep our products in stock while operating in a smart and safe way.
Our supply chain has been exceptional.
I'm not saying we were perfect.
We weren't and we often employ a band but don't break mentality as our teams work 24, seven to keep up with record demand.
At times service levels fell below our standard we own that issue and working to fix it. However, this team managing unprecedented level of volatility in the midst of a pandemic.
They didnt just keep product rolling through the system, but did so while establishing social listening in other safety protocols, including regular shutdowns to accommodate deep cleaning activities in more than 50 locations.
It may be on most remarkable success story of the entire year.
Our supply chain wasn't just challenged to keep up with demand in U.S. consumer button Hawthorne as well sales in the quarter for Hawthorne were up more than 70% against a nearly 50% comp from a year ago.
And with year to date sales growth of 59%, we are moving our sales guidance for Hawthorne higher as well and now expect sales growth of 55 that 60% for the full year.
We saw third quarter growth in every Hawthorne category in nearly every geography.
We were up 129% in lighting driven by our recently introduced Davita led products.
We were up 45% and nutrients, 62% in growing media and 81% in growing systems.
In our largest and most established market, California sales in the quarter were up nearly 80%.
Meanwhile, in expanding in recently approved markets like Michigan in Oklahoma were up 140, and 190% respectively.
On a year to date basis, there was not a single negative market in the entire country.
The other important story line here is we're simply running the business better.
Shock to the system, we experienced in 2018 is a distant memory, but the lessons remain.
We have better visibility into the marketplace.
More focused on working capital management, and our innovation pipeline continues to improve.
This has allowed the team to strike the right balance between your driving growth market share gains margin improvement.
The time, we complete 2020, we will have exceeded expectations in all three of those measures.
The entire Hawthorne team deserves recognition for how they've evolved over the past three years.
I would ultimately critical this group of one of these calls in 28 key.
Frankly at the time they deserve the criticism.
But they jealousy units since then in other establish credibility as a true industry leader.
They didnt just embrace the idea of remote management they've excelled at it.
Air performance. This year gives all of us confidence what the future holds for this business.
The second subject I wanted to cover is where and how we believe we'll finish the year.
As you saw we increase our adjusted EPS guidance for the full year and I'll leave it to Randy to cover the details.
I just want to be straightforward that range could be higher if we wanted to be.
We're incurring some originally unplanned expenses, however, because we have the flexibility to do so because it's the right thing to do.
For starters beyond our normal bonus plans, which apply to about 5800 people, we've decided to share some of our upside with a broader group of associates.
As I said at the outset of my remarks. The success. We enjoyed this year would never occurred without them.
They deserve to share on the outcome.
That's why we plan later this year to make onetime cash payments as well as enhanced retirement contributions to approximately 3000 hourly and salary associates, who do not participate in our variable pay plans.
These associates worked for locally all season to help us deliver this resolved and they are the first people on the list to share in or upside.
We also plan to increase our charitable efforts. This year, primarily with increased corporate contribution is through the Scotts Miracle Gro Foundation.
We have also stepped up our support a specific beauty initiatives close to home and central Ohio, and more broadly bucked, the 911 memorial and the United Veterans War Council.
By the end of the year, we will more than doubled our planned contributions the journey.
Those combined efforts are worth approximately 20 cents per share on an adjusted basis.
All this brings me to my third topic, which is our current viewpoint about 2021.
Jim team have told us barely a bagels by which is not asked about the tough comp we paid after this historic here.
So we know what's the number one topic on everyone's mind.
As a reminder, we're not providing guidance today for next year, we'll look to provide that in November but I want to address the very big differences for 2021 as it relates to our ability to comp this year from a sales perspective, and then on an earnings perspective.
On the topline, let's start with Hawthorne when stories relatively simple.
If we extrapolate the current run rate of the business into next year, we would expect to see extremely solid double digit growth in the front half a year.
Given our current order booking view of the market the seems achievable.
Our comps in the second half of next year, obviously will be a lot harder. So even if were flat in the second half and I'm, not saying thats the expectation.
Then we should still be able to hit our long term targets of high single digit growth.
In U.S. consumer we know the Steidel changes brought on by Cobot 19 will begin to normalize at some point.
We told you on our last call it 30% of edible gardening activity came from consumers who are either new to the category this year or return to the category Aspart stepping away.
Since then we've conducted some additional consumer research, which tells us that long here a participation increased by 14%.
Meaning an additional 8 million households use grass seed or long food, but first time this year.
We also know the 28% of all homeowners said they spend more time on overall lawn and garden activities. This year.
Keeping all these consumers engaged will be the single biggest key to whether our U.S consumer segment gross in 2021.
I'll start by saying the Palmer activity the Rockies consumers to us in 2020 edible gardening. It's a good start we know that most people who engage in edible gardening don't see this a chore, it's a passion in a lifestyle choice.
And it's been the fastest growing area of lawn and garden for years.
I believe most people will do it again next year.
To help ensure that outcome, we know we need to strengthen our relationship with these consumers and that means we intend to stay connected with them.
We'll likely see us continue to communicate for down throughout the fall and winter not just about our products, but about the lifestyle around gardening and being out in the yard.
We made major improvements to our marketing efforts in 2020 in fact I believe we are as good as we've ever been.
Our team has transformed the way we communicate with our consumers.
We know them better than ever before and we're not simply advertisements and them anymore. We're communicating with them in a way that is clearly delivering results.
That doesn't mean, we're done.
You will see us continue to adapt to the marketplace faster than ever with more creative assets in more ways to deploy them.
Come next spring, we also expect a different retail dynamic.
Remember that home centers, which generated about 60% of our revenue had a little to no promotional activity. This past spring.
We expect to step up of promotional activity, especially early in the season, but not necessarily a return to the way things used to be.
Clearly consumers remain engaged this year with very little promotional activity.
We think theres, a better balance out there and we're working in partnership with those retailers to find it.
Remember our retail partners, who were in that next year from a scale perspective had tremendous success in 2020, clearly saw market share gains.
They aren't going to simply rollover in 2021, they're going to work hard to defend their space.
So I believe we'll see a much more competitive retail landscape next year.
Finally, we would expect to take some pricing next year, a pretty much in line with our historical behavior.
And that should help the top line as well, we also know even with the big gains we've seen this year, we left some sales in the table due to supply chain constraints during the peak of the season.
While we feel good about next year, you should expect for us to be conservative when we've got sales guidance in November if you told me right now we could comp this year and hold our margins I take it clearly will incentivize the team to do better than that and as we've shown this year, we possess an incredible ability to derive the challenging when we have higher than expected growth.
I'd, rather do that in 2021 than just at an unrealistic expectation.
However, when we think about earnings next year growth should be far easier.
Getting SGN a back to more normal level should be worth at least 70 or $80 million and that's primarily a variable compensation issue. So we have a good visibility to the potential upside there.
Well, obviously being a much better place to share details can we talk in November.
What I wanted you know that our 2021, I mean budgeting has become our number one priority and more sensitive to the same issues that we know all of you care about as well.
The last topic I want to covers our balance sheet in our current thoughts about uses of cash.
When we announced project focus in 2015, we said we'd focus on three things.
First to maximize the potential of our us consumer business and I think we've done a great job there.
Second to reconfigure our company wide portfolio that meant divesting some businesses and acquiring others and that's how Hawthorne evolved to what it is today.
Third we said, we'd focus on cash flow and returning cash to shareholders, while maintaining target leverage ratio of about 3.5 times debt to EBITDA.
We were in the mode of starting return cash, but pulled back a bit in 2018. After the challenges we faced that your took our leverage ratio higher than we wanted.
Once we got back to our comfort zone, we re engaging our share repurchase activity in 2019 until cobot 19 hit us.
We suspended share repurchases in March out of an abundance of caution which was the right decision at the time.
Now with free cash flow likely to be in its highest level ever and leverage well below our target we want to get back to returning cash to our shareholders.
A special dividend puts cash back into the hands of our shareholders right away and allows them to decide how they want to invest the money.
In my conversation with some of our largest institutional shareholders over the years I've found most of them to be agnostic about share repurchase versus dividend.
So this time, we chose the dividend.
Most likely special dividend will replace any meaningful share repurchase activity for lease the next summer months, though we still have enough flexibility to be opportunistic.
We also have ramped up some of our M&A work in recent months and are currently pursuing a couple of small but strategic ideas for both us consumer and talk more.
For obvious reasons I don't intend to share details this morning, but we still see strategic opportunities to expand our portfolio.
And better position both businesses for continued success.
Before I turn things over to Randy I want to wrap things up by acknowledging the good fortune that's come our way in 2020.
In late March we issued a press release, saying, we've seen a recent surgeon business.
But also acknowledging we did not know where the season would take us.
At the time, we stuck a conservative posture pulling back on SDN aims to spending our share repurchase activity, we didnt know what to expect.
But then consumers stepped up.
Clearly demonstrating they viewed our category is critical to them as they navigate it is public health crisis.
The trust consumers and growers put enough.
Trust that our retail partners, putting us has not been forgotten by any that people on this team.
We're working harder than ever to strengthen our relationship with them even further in 2021.
We're using the strength and flexibility of our financial position to make our company stronger too to position us for success not just in 2021, but in the years that followed with that let's switch gears and look at the numbers Randy.
Thanks, Jeremy Hello, everyone.
It's obvious from our announcement today that our Q3 results greatly exceeded what we expected when we update our guidance about seven weeks ago.
Throughout June surpassed anything we've historically seen continuing even as we speak.
So I want to start by doing Jim and think our consumers in retail partners, but mostly our associates for helping us navigate Dakota crisis, so effectively in delivering outstanding results.
This morning, I would like to spend most of my time, providing color commentary on the piano.
Well go through all the numbers I know most of you have already done that.
I also want to pick up on Jim's commentary about 2020 war.
I'll reiterate that we're not providing guidance today.
But also stressed and I feel confident in our ability to drive earnings even higher next year.
So let's get started.
On the top line and most important story to understand is what's happening with us consumer.
In June Rainbow guidance, and projected 9% to 11% growth for the full year.
Even if we were making those comments the landscape is evolving differently than we expected.
If I assume you 20 years consumer Pos data, we see a consistent pattern consumer behavior.
In any given year timing of the season and impacts from weather could affect the slope of the Qs curve to some degree it's been a season, but it's very consistent after the middle June.
So that's what we expected.
Instead, we saw an extension of the season well beyond our expectation.
So confronted with dramatic euromonitor growth throughout the rest.
Given the consumer momentum in the market, we continue to push the category, but more media and in store support.
That strategy work.
Increased 50% in the month versus the prior year.
Result was that June sales in Europe consumer over delivered by over $100 million remotely expected when we established our new guidance range center in them.
That's been the strength is continuing.
Sooner purchases in July for example, or 33% from last year.
Obviously lowered the smallest month of the lawn and garden.
And that's what we'll see again this year.
We're not forecasting year over year percentage growth.
Mirror, what we've been seeing off.
Fair enough expecting a strong coffee is due to alluded to in his remarks.
Actually fell in the fall product from September should be very strong true.
Our revised guidance assumes the terms we've been seeing through July will continue through year end, which gives us to 20% to 22% sales growth on a full year basis rigorous consumer.
Corn history is starting to sound a bit because we simply did not expect to second half a year and be very strong.
For Q3, we reported 72% sales growth against a 49% comp.
There is no 59% year to date in respect to full year number being arranged 55, and 60% expectation slightly higher comps over the next two months.
Jim Henson happens profitability and I want to share some thoughts as well you'll see the segment margin Marine Corps was 13.5%.
We're at 11% on a year to date basis expected full year rates to hit our 10% targeting a decrease from Q3 Q4, as we make more investments in supply chain sales and marketing and other areas to strengthen our business for the long term.
The irony here, but I believe the margin rate would be even higher sales growth rate was closer to 25 or 30%.
It's been there's been a mine to keep up with demand.
I mean were less efficient and margins over the.
That said the rate improvement will do for the full year will meet our original guidance you keep us on track for the 15% segment margin rate that is achievable for this business over time.
Let's move on gross margin.
There are a lot of moving pieces here, that's a good story overall.
Gross margin rate declined 10 basis points in the quarter to 36.1 from soon.
Although the Europe consumer and copper segments improved in the quarter relative strength of the lower margin, California business, driven company wide margin rates down nearly 80 basis points.
Also up another 85 basis points from return the $20 million Romit payment. We received in Q3 of last year from bear.
Recall that we received a similar increase their commission income into two of this year. So there's no full year impact on rate.
I mean, other side of equation pricing and volume benefits combining to nearly offset the end.
Year to date basis, we're still about 25 basis points ahead of last year.
We expect for full year gross margin rate could be about flat once we get in September thirtyth.
We plan to execute fuel supply chain initiatives in Q4 that were increased cost in 2014 that helped us improve service next year.
Moving onto SDMA, 43% year over year increase surely stands out so let me provide context.
As Jim said earlier, we've made the decision this year to share some of the upside our results and associates.
Our full year basis, we expect our variable compensation will be $60 million to $70 million higher than a year ago inventory to our accruals in quarter two factors.
To begin to recruit dollars for hourly and salaried associated we don't typically participating enterprise plan that will receive onetime bonuses. This year given their significant contributions to our collective success.
In addition to the compensation related items, we significantly increased our newest consumer media spend expect we'll finish the year about 20% higher than year ago.
Absolutely consumer impressions greatly exceed our growth and spending as media costs are down significantly from last year.
We've also continue to aggressively investment hot summer the growth and as DNA is almost keeping up with the increase in sales.
Below the operating line, we'll see the interest expenses down nearly $6 million in the quarter in $17 million year to date.
The strong operating cash flows the postponement of share repurchase activity. This year beyond Q2. The fact are no acquisitions collectively likely lower than expected borrowing levels with lower interest rate is helping to.
Looking at the bottom line adjusted earnings of 3080 cents per share for 22% higher than a year ago.
In the year to date, adjusted EPS totaled $7.20, 34% above last year.
91 cents on an adjusted basis in Q4 last year.
And we expect our year over year earnings improvement to continue in Q4 this year.
Continued topline momentum across the company as incremental investments and incentives in the fourth quarter as expected results full year adjusted EPS 665 to six being five per share, which is a dollar per share higher than our previous guidance.
We believe it or not conservative Roe.
Having said that in early June we clearly under estimated forward looking demand such an unprecedented scene.
The profitability remains that we could still be this new range.
Regardless of preferred providing transparent forward looking estimates versus just reporting results. After the books are closed.
That's a challenging environment, which precision is extremely difficult.
Let me remind everyone that our adjusted results exclude incremental cost the premium payments dosing, we continue to work in stores factories distribution centers.
On Saturday covered pandemic.
Year to date amount, we spent on 50% hourly pay enhancements by $18 million.
We are making more unchanged from the approach we outlined last quarter, we will not be adjusting our enhanced clean maintenance cost as we plan to continue this practices into the foreseeable future. Thank.
Thinking about next year, it's fair to these about our ability to grow again next year and he and I are in lockstep on this point.
Take a conservative view as we put our plans for us consumer and Hopper and growth should continue and not the same rate we're seeing in 2020.
SDMA submit significant tailwind and should allow us to see operating income growth in line with our long term growth.
While we continue invest our brands.
In supply chain growth initiatives in our direct consumer distribution models.
Moving to the balancing our debt to EBITDA ratio stood at 2.8 times that ended the quarter.
Given our strong anticipated free cash flow this year, which we now expect to be about $400 million.
And given our continued confidence in the business as we look ahead.
We choose to again began returning cash to shareholders even over time, because a few months ahead of what we expected only a couple of months ago.
That's a better than we announced today, we'll take our leverage up to slightly over three times.
The midpoint of our target leverage range.
Looking ahead, we saw the flexibility to repurchase shares next year and execute against the current pipeline in the two small and early stage M&A opportunities.
We're making the leverage ratio below three and at times and possibly returning to a level similar to what we've seen right now at this time again next year.
As it relates to cash flow for next year I would expect us to take a step back just a bit for a period.
First the incentives we accrue in 2020 will be paid in 2020 warm and this will be a large headwind the next year.
Also as Jim pointed out earlier, the Viking was for us throughout the entire year.
Well I applaud our effort to be unprecedented demand increases within can service levels fall below our expectations at certain times.
We've been attempting to build inventory over the last few months sales growth continued to accelerate.
Finished the third quarter with inventory about $40 million lower than year ago.
Importantly, the probably the biggest rebuild from inventory levels in the fourth quarter and throughout 2020 warm as we continue to attempt to get ahead of demand.
I'd like close I can't help but reflect on the dramatic changes we've seen in a world our country and our business over the past several months.
Cost is fortunate to be in a position to help our consumers.
Our management team and associates are extremely grateful for our success this year.
Thank you for your support.
With that let's move on to Q anyway.
Thanks, operator, good morning, everyone and what.
[noise] given let's go ahead and start right.
Yes, Sir.
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Again that star one to ask a question.
And we will take our first question from Mr., Jon Andersen with William Blair. Please.
Please go ahead Sir.
Thank you good morning, everybody.
I got.
Hi.
One of the dynamics.
Laid out this year is oh.
That you referred to in the prepared comments is a lot less promotion.
And that's been.
Driven by I think a couple of things most notably.
Cobot 19, or some other restraints that that put on.
Yes.
Home centers, so I guess.
My question there is.
Has has that benefited as that benefit largely accrued to the retailers or has it also if approved to scotts with less promotion frequency in depth.
And how do you hold this plays out.
In 2021 2022, do we go back to a more promotional intensity environment in like whats kind of what was pretty cold it or.
Have they are really done some learnings around consumer engagement that can be applied there too.
Maybe a moderate the level of promotional activity category.
I think I'll start and then handed over to Randy.
John Here's what I, what I think.
Number one most of the benefit I think accrue to the retailers I think we got some benefit but a lot of that because there was no voice sort of to industry Flash category, we upped our spending in pretty much just good kind of what we want and in some ways. It was good because we didnt have passed a lot of period.
Can we just.
Kind of Iran.
For the industry and I think that work for us and we've learned a lot from it.
I don't think the retailers probably pocket it a lot of that because they're operating expenses were up significantly. So they kind of had to work their labor and cleanliness and stuff in the stores. So I don't think of retailers would be kind of beating your chest that they talk a lot of it but I think if as we look at sort of.
The margin at the retail level.
On our products than we thought it was we think it's a lot higher at at at the retailer side a lot again, our Pete I think they spent most of that.
No we've talked about.
That.
My for these my view and I think it's kind of hard view here is that black Friday, we were getting kind of more and more down on these black Friday events, largely because if we looked at these early season, which are real tied to weather.
What we saw as of real high interest rate of sort of cold and bad weather.
And at least 50% of everybody's promotional dollars as going into these black Friday events.
And our view is what I'm going to say call. It like a 20% hit rate, meaning at 80% NIST rate. So we've been engaged in conversations all in the last 12 months with retail are saying due to it doesn't seem like the way to do it.
It's just a lot of money being spent curve.
Not kind of the results that we'd like to see and we think theres, a better or more kind of what we call rifle shot approach which is.
By market by category looking at the weather, which we can do a couple of weeks in advance pretty easily.
And so.
I think there's probably more believers that the retail level. After this year than than there has been meaning.
I think everybody is looking at the sales are saying clearly.
The consumer didnt require the level of kind of giveaways that they have typically got especially if some of our larger categories.
So I think that's.
Going to change it we're engaged with retailers right now to see if.
What the balances where it's a little less discount.
Focused.
[music].
So.
Now that's kind of one thing I think on the other side, you're going to look and say because I think largely because of footprints.
No that the big retailers.
The big home home centers.
We're just under more pressure to not make their shopping.
We experienced dangerous both for their associates and for consumers and so they were limiting the number of people when they were limiting their promotions we weren't working days there we were mostly working nights.
During the peak of the.
The crisis and.
Someplace is still doing that.
And so where do we go from here I think that what you're going to see is some kind of mid road.
Where we promote wheat.
You saw our comments on knowledge, which is you know.
As we looked at our kind of our inventory level. What I think we saw was a lot of knowledge that we really wanted to get moved out and so.
We started using very targeted marketing promotions.
Like what I'm talking about whether you know.
You know sort of marketplace like almost Zip code.
Targeted with weather.
And we were able to get all that multi removed and so we know that this approach.
Which is kind of a new approach to sort of what used to be black Fridays works.
But what you're seeing is the home centers lost quite a bit you share.
In you know I would say roughly 10% I don't know Mikes next to me I don't know fee.
I like that number I would say.
About 10% over all homes.
And so.
I think they're going to want to get that back.
And I think that the people who gained it.
Which would be.
Wholesale clubs.
Hardware.
General merchandise I mean, there's a lot of people.
I had to put it out online [laughter] direct to consumer.
I think theres going to be.
A lot of pressure for them to maintain that sure affirmed fleet was another area that like did really well this year and so what do I think I think it sets up a pretty competitive environment for or the beginning of next season and it's I don't think we're going to be able to talk people out of that because I think you're going have people who've made big gains of one of the fandom and I think any.
People who lost.
Remember lawn and garden is a major category in season for us the most important category most important not lumber category at home centers during our season.
So I think there's going to be a big bye.
Looking depending on what happens with over you could see that in the fall.
I think you're going to fee Halloween being kind of a weird season. This year and so I think that opens up fall opportunities for us to promote which were I think or beyond discussions I think there's actually planning occurring with our are significant accounts on making fall.
Bigger season than it would normally be.
And so what do I think.
Back to your question.
I think theres going to be a difference next year I think most of the benefit did end up at the retailers.
I think it's going to be more competitive and I think you're going to see a more year around business than you've seen before I don't know Randy.
No John there's nothing I could add to that starting Jim captured all you have a follow up you wanted to get.
Yeah, I do think quick follow up maybe waiting for you Randy.
So I know thank you for the commentary on 2021.
It's earlier than usual, but appreciate that.
I guess, what I heard is.
Be happy with.
Kind of flat top line.
I think in U.S. consumer is what you're referring to.
And yet.
You see an opportunity to grow.
Our earnings.
And so.
Let's assume you know kind of flat top line in U.S. consumer plays out and there is some growth in Hawthorne, but you know what aggregate modest top line growth given the tough comp can you walk through maybe just at a high level. Some of the key puts and takes there like what are I think you mentioned $60 million to $70 million of perhaps swing and very.
Welcome and there is this kind of onetime bonus.
[music] employees I don't know, if that's incremental for that but just step us through.
The benefits.
That could get you to solid earnings growth despite.
You know maybe less top line than normal.
Look I just before Randy Johnson, then hill.
Do that I, just want to talk about really to top line a little bit.
Yes.
You know part of my job as we go through budget, and which has been challenging both.
In the in season here and as we look at next year is.
What would be kind of a victory and so I think as we've looked at this especially early on and we've got to I think on a lot more granular now than we did like.
Even a month ago.
His would we be happy if we could comp this year hold our gross margins and then pick up the DNA Tailwinds and I think Randy and I sort of set the expectations for the operating community that we thought that would be a good result, and I think thats, what we communicated today.
And Randy can sort of take you through the details of that at least.
Sort of asking a tailwind and what we think I do want to talk a little bit about just the topline just because I think it's important.
I think anybody who shot Mike is pretty self critical about you know our ability to execute in season. When demand was just going kind of bananas I'm much more forgiving in that.
And you know my wife, and I have done a lot of gardening. This year and so we've been in quite a few garden centers buying stuff in there were a lot of empty shelves.
I think Chris has demand on Hawthorne was also I wouldn't say excessive but it was a lot higher than we had forecast and that business as a lot younger and you know we just implemented S&P.
So I think you could easily have sort of tag maybe 100 million hours of money, we left or table on both businesses.
Which is is pretty significant just because we couldn't.
Fill orders, sometimes and I think we did a really really good job like living up to kind of the standard.
As we said we know we could have better, but we left a lot of money in the table, there and I think.
We don't intend to do that again next year, meaning that.
There's been a lot of discussion about inventory levels in Mike's got a major projects on.
What he'd call the customer experience, which means our customers and making sure that where the vendor we we need to be.
In addition.
We're really looking at a lot of opportunity in Q4 in Q1 as we go forward and much more of a kind of year around business and I think that the Halloween Phil you know fits into that.
And our direct to consumer business fits into that so I think weve.
As we spend more time talking and including with our retail partners and our direct to consumer people I think we actually I believe there is upside on the topline, but this issue of if we could.
Comp last 2020, the other thing last year, but this year, if we could comp this year hold margins and get the tailwinds it would be a really great.
Earnings year, and I think thats kind of where around but I think we actually have more visibility to growth in.
In 2021 than we probably did like a month ago.
Yeah, I fully agree with their engine said, John I'd say.
I was having much more line of sight to what Q1 is going to look like in that.
Year to play momentum going into the fall.
You get beyond that point and you have to make assumptions and do here scenario analysis around what's going on in the world and what's that going to me and we're doing that.
But they are trying to.
You know.
Put death on what scenario is going to either right one way too early to get there, but your real question. What does next year look like from the bottom line.
Pretty clear if we take our incentive plans back to more of a target or normalized level plus some of that's DNA that weve expedited from Q1 into Q4, and we're trying to get ahead and go to better business for next year and year after that.
Trying to quantify that as the dollar share vps of.
Gross margins are flat on on flat sales growth, which.
Believe they will be pushing for much higher number than that but as a starting point and just have to have a scenario to work against.
That's the way, we're thinking about it and.
When we're trying to keep things and bounced between sales growth.
We're going to be a $4 billion accompany this year and last year slightly over 3 billion. So.
We're being ourselves up a bit on on service, but trying to keep up with that.
No go backwards four months ago, we were counterparties and just trying to be careful and make sure we'd be able to navigate through this year. So again I'd give everybody a big Pat on the back but you on one.
A lot of that as DNA that were.
Putting in our piano here in 2020 rollout into 2021, our operating margin rates will be.
Significantly higher and we'll see a lot of accretion across the company and and how far into which I know that big focus for everybody, but we're trying to keep things imbalance. We're trying to think about this year, but also next year on year after year after that and I really like the way that were.
We're running business right now in order to prepare for that so.
Hopefully I answered a question, John and I am really bullish and where we're going right now.
Yeah. Thanks. Thank you have both appreciate all the color. Thanks.
Okay and that is star one to ask a question. If you find your question has been answered you may room yourself from the Q by pressing star to.
We will take our next question from Mr., William Ruger with Bank of America.
Please go ahead Sir.
Good morning.
I just have one I know, it's a little early for liner is for next year, but I would imagine your categories have been some of the most productive for your big retail customers have you heard from them that they.
Plan on dramatically altering or increasing the shelf space allocated to your categories.
Hi, This is Mike Lukemire.
Yeah, we're in the midst of line reviews, and and we're seeing retailers want to lean and lower with us on on on that space, but we really don't finalize that total really December as they finish out there years, but the indication is.
They are definitely leaning into fall observed we are seeing expanded space, there and we're seeing a willingness with our retailers to lean into more and build off of what we've accomplished this year.
The other thing I'd add this is Randy again.
When you think about the way would go to business and we talked about.
E commerce being up 200% or even higher than that when you look at buy online pickup in store and looking forward I'd expect that to continue to be a key way that consumers shop and I believe we're at a real advantage in that area, just because it national advertising national scope of brands across stores regardless.
You know if you're in Washington State or Florida or May in California, we have a covered so I think there should be more focused by us and the retailers I'm just trying to focus on key core skews that consumers want to show up and buy and I think we're a big advantage in order to do that that business from that.
After than any other channel or any other.
Component that we look at.
I'd like to just throw a little bit into sort of that because that I think what Randy as an important point.
It's not just us that are looking at kind of inventory levels, its us and the retailers.
And again, Mike Hartmann himself, but.
This year was very much kind of business combat and I think when you do that stuff you break stuff and so we had kind of what I call a good war, but we definitely Brooks and stuff and that's going to help us be better, but its ups and the retailers and I think this idea of.
Kind of our core skews and make sure that we have the inventory and the retailers do as well. So that we don't have out of stocks and empty shelves. So I think you're likely to see kind of a rebuilding both of our inventory and retail inventory on certain of our high volume skews for next year.
Yeah, and we're seeing that.
They are playing out big time, but some of the southern markets will need to have 80% of the Pos in early.
So.
So I mean, there's just there's just good momentum right now on being ready and taking advantage of that.
You know occupied their shelves.
Great that aligns with my expectation spend thought.
Thank you.
We will take our next question from Mr., Joe Altobello with Raymond James.
Go ahead Sir.
Thanks, guys good morning congratulations.
Question on U.S. consumer and because the based on that.
The second edible gardening.
With edible gardening, and sort of because 2021 and beyond but I'm curious.
I think co grid.
Permanently in the wake number to think about your categories.
For the temporary phenomenon, which.
A lot or would they keep it flat sales aggressive for next year.
Yeah.
I'll use profanity should I have no [laughter], what do I think.
Hey.
I guess I I disagree in that when I disagree with is the fact that consumers are seeing it differently I think that what we're seeing is that.
How people feel about the category, which is I think people's attract attraction to gardening clearly people being stuck at home has been helpful to us.
But I think people have really gone to things that make them happy and I think they've to some extent rediscover the value I mean, I just hardly anybody I don't know that doesn't have a garden.
And I know currently and I.
You know.
You know we're up at our place in Vermont, we have a pretty big garden, we intend to expand that next year and.
I'm not sure there's not a lot of people getting a lot of satisfaction orphaned that aren't getting a lot of satisfaction from from gardening and I think we we expect that to continue.
The the focus of our communications effort there is weird I'm not really calling in advertising efforts I.
I don't know Randy would know the number of Joe about like what over the last three or four years. It was really I got to say Randy who came to me like three years ago, and I think I told you guys. This.
That said due to Blair Brantley consider company Landstar like marketing dollars continuing to go down in our promotional dollars continuing to go up.
And so.
I don't know rainy what are what spending over the last three years last year, we were up.
30% or so this year another 20% and then a shirt you know even beyond the dollars. The fact that media is on fell right now.
Presses are well above that 20% never the probably 35% again.
So you know really our challenge is to keep those people engaged and communicate to them in a way there there you know where and when and.
And so you know.
I've always been pretty negative on sort of digital advertising just kind of taking what is like TV like advertising and banner ads and bullshit on.
You know on social.
We are doing some incredible work I think and we're really just getting going on that so I think our ability to keep people engage it is pretty high.
And so I personally listen.
I have no idea like when people are released.
Are they going to want to just rush out and go to bars and get Cobot I you know I don't think so at this point.
And the more people are.
The more I talk to my partners here the more like.
I talk to my my family.
Before I talk to warn that Miami Adnan.
People are really comfortable at home.
And they feel vulnerable we're in there around people they don't know and they don't know what they've been up to it I don't think thats going to change a lot sort of this fall and winter So I think that.
You are going to continue to see people wanting to be home and wanting to engage in activities that make them feel good right. So I think that was always there I don't think it was lock.
That got us where we are today I know my father had this thing you know walk is where preparations opportunity and I think we prepared you know we we built this business.
Kind of follow what's happened there not for cold it but we built this because we thought it was a.
Kind of an essential business for people and it turned out that way so.
Look is there risk.
Clearly, we you know if you talk to my he'd say we can be.
This year.
Randy and I are basically plugging you know that would it be right because I mean, just think about what we said.
If we can comp this year not lose margin.
Plus a dollar and a bottom line.
What do we think we think Thats a damn good result, and I think.
Could it be worse, yes, it could be I don't think it will be but it is possible.
And I think Mike actually is not in a talking stage with his business with it the operators.
I think there's there's growth out there and that's up to us to prove and we'll talk more about it in November but I you know.
I think what Randy has also been frustrated on.
The financials because every time, we talk to you guys were under counting.
And.
So I.
I mean, it's hard for us even figure out how we're going to end Q Q4, right now and I know that.
Bothering, Randy and part of that as we've been so conservative as you guys know in how we talk about or numbers you know under promise over deliver that has not been or friend.
From accuracy of financials this year.
And I.
I think Randy is more interested in.
The real numbers.
No not.
Massage numbers that we can be.
And that's been hard for the culture here to sort of except that what are the real numbers and so I think that.
What you're hearing from us they are probably more like the real numbers, which means there's upside and downside risk and but I think that it's it's bounced I don't really targeting I'd say, we could've taken an easy way out and just throwing up brands and said yeah. We'll figure out later, we'll tell you when we know but.
As he was very encouraging back at the onset of of covert same we should be providing more transparency about forward looking numbers. We've tried to do that but we do have a culture of trying to be conserve and make sure that we hit that hit the targets I think three.
Clearly way to go back in June when we spoke at the William Blair converts.
We've taken another shot and saying if we just keep the same run rate. We saw in July and that runs out the rest of year retail inventory stay about where they are.
Hopper and forecasts, maybe a little upside it looks pretty good we do all that that should be in the range that we talked about having said that it is very unpredictable right now and there could still be upside to that and jumps then coma, taking these young yourself, but I think we all expect better from ourselves around here and we've given to the best I would count right now.
I appreciate that thank you guys.
We will take our next question from Mr. Bill Chappell with Suntrust. Please go ahead Sir.
Thanks, Good morning, and congratulations on on on a exceptional quarter.
Two quick questions I guess, maybe not quick way we've been going.
The first Ah.
On some of the outlook for Hawthorne next year.
I mean, I understand where.
Here early stage the planning, but I mean do you have any real visibility that kind of how these come down the pipe.
Individual states in terms of like they utilize this funnel and then sales go here and then they go recreational I got here I mean after doing this for a couple of years.
Just trying to understand if you haven't visibility, especially if you talk about potential tough comparisons in the second half of next year.
We're all kind of looking at just say who answered that one.
[laughter].
Chris you want to start on that and then hit at the Randy.
Yes, sure and I'll be albeit relatively brief say, though Chris yes.
The way, we sort of track this over the past few years, you mentioned starting to get a pretty good handle we think on sort of timelines from.
I just think if legalized in one fashion, rather whether it's a you know bode or or a state Senate bill whatever.
As usually about a 12 month lag time from.
Bobby past until we start seeing.
Actual cans being sold.
And typically it's about a year lag time, even even for our business and we see a bump from that and then typically there's a year or two of the state getting comfortable with recreation before they are two medical before making recreational so.
Typically what do we look at each and every stage legislated a bit differently, but we could get or somebody new from passage of law till we start seeing real bump in our business in that geography, and another year or two after that before the state for us to reach any level of what we can hear maturity.
That answers your question.
Yeah. So couple of things that I would add as you know given the nature of the way to industry is set up as there's not really capacity within retailers to be loading inventory.
So we have a lot better direct line of sight since we purchased sound like supply a couple of years ago. Now. So we have good line of sight to what's going on with retailers. They really just on a capacity load in another area. We look out a lot as its wholesale and retail pricing in the marketplace and that's fairly stable it up a lot from couple of years ago.
So that seems to be in good shape right now even though the results are high.
And then you would think about demand I think it for you know like Chris said this in our last earnings call people are staying on the Gardner people stay at home and do another thing. So I think demand is high and that's understandable why whether that will sustain a my bet is it will but no I think we're in good place in the.
Approach, where you know outlying right now on more to come in November is if we just stayed the same run rate through the first six months of the year, we'll be in healthy double digit growth next year similar approach to what we took this year coming off the 2019, because we've got look at it six month, but at a time I think thats, a very healthy place to be.
Right. So I appreciate it and then secondly, just and I'm sorry, if I missed this battle on just your media spend for 2020, where are you able to spin what you wanted to and as you look to next year do you still need to be at the levels to do historically been I just assume such advertising around.
Early season baseball games, or if you double late March madness, or something like that I mean, it doesn't necessarily make sense to do it in the fall, but I'd just trying to understand what the total spend kind of looks like this year versus in next year.
Right. So when backed into March time period, and even April we were really careful and try to preserve some money.
One thing started looking a lot better in early may we really through a lot of.
If you want to fire again, we do that in June were still continuing to do that our fault program will be higher than it's ever been I.
I don't if there's any expectation were going to go backwards next year.
Difficult to predict what will be going on with media rates next year and you know.
Hard to believe that they'll go down again, but again, you never know, but I'd expect us to continue invest in the brands as our business grows and I don't see that changing it off.
Okay I mean.
We will definitely be spending more money next year on.
With our marketing group.
And you know we do like sports that's been challenging and major League baseball for one has been very flexible in.
Our view is.
They'll game no money.
But they.
Baseball thing good to work with and we continue to like March Madness. So I think if you look at our our media people. They continue to like sports and we're doing a ton in.
And on the social side, as well, but sports and news there will continue to be important for us.
Great. Thanks, so much.
We'll take our next question from Miss Carla Casella with JP Morgan Please.
Please go ahead.
Hi, my questions related to M&A. He mentioned that you were so.
Looking at opportunities I'm wondering if you're seeing more from smaller or weaker competitors.
Go ahead.
Yes, so any of that we'll be filing an application what's your comfort level with taking leverage up above your target range to the right opportunity.
I mean, I'll I will start term I, let's start with the latter part I don't I don't think that's actually necessary.
You know I have actually been pushing hawthorne to kind of think bigger and.
Where they have ended up is.
Kind of close in adjacent sees which are smaller deals and I wouldn't put them in the.
So just on the Hawthorne side I would say our opportunities are not with people who are struggling I think the whole industry is actually doing pretty well.
But its people who were I think open minded to.
Being with us and monetizing.
All or something or there.
Investment.
So.
But but I I.
Think that the business has tried to push back to me to say.
You know there's areas within Hawthorne that are clearly opportunities that.
The owners are willing to monetize that would fit in really well with our kind of pillars of our business, which is the places that we we operate and so I think they've pushed back that said, we don't need to do big giant deals I am pushing Randy and Chris.
You know Randy the strategy group reports in the Randy.
To look at kind of a game changing opportunity, which are not part of our friends at the moment.
Basically say if if we believe that this country is moving toward.
Sort of national legalization.
And that.
Because of sort of.
You know.
Tax code and problems with banking.
That.
These businesses are struggling to some extent unnaturally.
[music].
What if we believe that it's going to be legal what's what are we more than you know do we want to step in early those those are in very early stages and I am not predicting were looking a game changing opportunities there, but I do want the company.
Taking a look in saying is there a possibility to go big here.
And then what does that mean to Hawthorne as far as.
In Scotts next to Scotts you know I don't think we know, but I don't want on Miss the opportunity to sort of have the strategic group and our banking partners, helping us look at industry structure, not tomorrow, but sort of 10 years out in that way.
Being smart about it but for right now what everybody, saying is dude, let's just look at closely adjacent fees that are easily integrated a lot of transferring dealing with these companies because of our relationship of sunlight partner ownership of sunlight and so.
That's that on earnings on the consumer side.
Again, nothing groundbreaking this would be businesses that were already operating with and just sort of rationalizing sort of the ownership structure, but I think you're probably talking.
Less than 200 million hours ERM on on both Hawthorne and consumer side for 2021.
Possibly at the end of 2020.
We continue to make progress. So I don't think we're having to operate at higher leverage ratios. ERM, then we're comfortable with but if if we thought there was a big enough opportunity I think we.
We could start by talking to our board and in Randy will start reaching out to.
Our banking partners to figure out how would you know finance that.
Carla.
I'd point out back in.
2018, when we purchased on like supplier leverage to go and size about four and a half times and we put a lot of actions to pay that down as quickly as possible. So really comfortable with where we're at three and a half go very reasonable place to be and even after the dividend we won't be even close to three and half times. So.
We would do it again, if we are the right deal, but we don't how their ideal but I'd also say sunlight was clearly the right deal. So at the time industry was all kinds of flux.
If you compare to where we are now versus three years ago, but you know the number three competitor dropped out of the industry and you look at us compared to our largest competitor now is number two our sales are three or four times bigger our profitability at five or six times higher. So this has been a terrific success and looking ahead to next year, we still have a lot of moment.
And we can do a whole lot better so more to come on that.
Great. Thank you Jim I saw the color.
I see them at jump in here, if we can.
Just take two more questions and then we'll wrap things up every Greg.
Of course are absolutely we will Tesco next question from Alex slow CEO with Aaron Burke. Please go ahead.
Good morning, guys, but they're all doing well.
I've got a better sense of the sustainability of began seeing and U.S. consumer the public landscaping wholesale as also saw some decent growth this quarter, which acquired non DIY spending didn't change much year over year. Despite the pandemic.
Based on that do Youve any visibility into how many of your end customers are servicing their own property to some degree in addition to using a professional.
So we would have had a lot more insight Alex back when we were partners with Trugreen now that we no longer have that relationship.
Yeah, we're not nearly as much insight I can tell you back then when we were able to compare and contrast, we'd look at sales by geography, So Florida was having a great year for Scott Trugreen laws as well for example.
So at this point I can't really speak to that but I think most of its consumer game.
Non.
Pro wealth and if you look at if you look like they are our home center channels and say how much of that was being going in the back of a pickup truck with somebody who is a landscape or.
I think you would see much more gain on the consumer side.
Okay that makes sense it.
Yeah, I agree with it I mean people didn't want really want to people in their property and so they're very sensitive about then they want to do it for themselves. So I think we're seeing that.
Alright, great. That's helpful. And then just a follow up can you explain how you laid that special dividend decision versus an incorrect internal growth opportunities or other capital allocation office.
Yes, I mean up up.
You know chapel's yelling at us for like talking to the wrong I guess.
So.
You know we started endorsed of what this people's to ask on how did you decide how to do it you know I think we look looked at the equity and saying we believe it's pretty fairly valued so.
I think that pushed us toward a cash special dividend.
But.
You know.
I think we just.
Animated choice that said.
That seems like the appropriate thing we've over the years talk to a lot of people, who generally had said and I'm talking.
Investors that.
I really respect you know and.
Were you talking when they do my own with problem with your share repurchase stuff is you guys by like Crazy when you're feeling good under your equity is high.
And then when the business is not doing your equity lows.
Sure you like put the brakes on and you just give me the cash and I'll decide because I have more kind of cone A's when it comes to buying when things aren't great than you do.
And so I think.
Because there is.
Nobody really felt strongly about either way, we just made the decision to go with a special and we feel good about that and remember I you know I, we had a call with my family yesterday and they asked about you know what what does that kind of future plans.
And I just wanted to say the same thing team to the street, which I told them which is.
We're in the mode of.
After.
Reconfiguring, our businesses, which is.
Trugreen Scotts Lawnservice out Europe out.
Also in line.
Live goods in.
That we would then pay down debt and go back to being shareholder friendly and so this is not a one time.
You know deal of returning cash to shareholders, we just decided that with the equity price. The way. It was we thought it was a better moved it to you to just do a special but.
We intend to continue to return cash to shareholders. The question is how animals. This look at it every time, we have that opportunity, but we.
Plan to continue this.
Alex what I'd add is your free cash flows coming in better than we expected just a couple of months ago. So.
$400 million fit plus for this year and we were in a situation, where we're going to up cash on our balance sheet.
Starting end of July August September. So originally were contemplating doing something in the fall, we just that why wait but with doing now rather than sit on cash and we don't really want to pay down any kind of debt capacity. So that has a lot to do with it.
And we could do look our share repurchases over the last with called the last five years I'm going to give you a rough numbers, but we repurchased about 800 million Bucks and the average share prices around 90, so something in that range, but we will be doing share repurchases again.
We're not going away for 90 Bucks I'll tell you that.
And in the latter part of it is that.
As Randy and I talked about.
Preferences of.
Investment in the business versus shareholder friendly I think Randy.
Has taken a point of view, which I'm completely an agreement with which is weak we actually can do both we can't be excessive on either area, but but we can do both and I think that's what you're seeing right now is.
Yeah.
Popcorn is not.
Requesting more money and we're prepared to hand over and the consumer businesses not requesting more money than were handing over so we're meeting the needs of the business to invest.
And we're also you know upping the shareholder friendly side. So I think we feel like we're pretty much on balance right now.
Oh. Thank you I appreciate the comprehensive answer and good luck with rest of Q4.
Thank you Sir.
And we will take our final question of the day for Mr., Eric Bouchard with Cleveland Research. Please go ahead Sir.
Thank you good morning.
A question I will follow.
Thanks, a question a follow up if I could the.
I think 8 million new consumers engaged in the category is.
It's tremendous accomplishment achievement. However, you want to view how twice played out that something I know that Jim you've been focused after years of getting more people gauge to the category.
My question is if you think about 21.
And 20 day engaged.
I would assume in part because they didn't have anything else to do.
21, if there are more alternatives for how people spend their time I'm curious for.
What you're doing or what the sort of buckets focus our to say don't forget about your lawn and garden 21. When you can do other things what were worse focus to sort of keep them engage.
Massive [laughter] massive it is.
It is our.
Major focus is great retention of that customer pool.
Going into 21, I, you know I think that.
Yeah, I don't want to jump on this coated bandwagon in ways that are kinda inappropriate.
I lost the Kid I know how that feels we lost and associate here just a couple of weeks ago, only 34 with no underlying health conditions.
It's Sox.
But I think that.
You know.
My view based on sort of Americas kind of shaky response.
To this that.
I think the fall could be score early and I think people coming out. So you know I look at saying I'm not sure. The behavior next spring is going to be a ton different than it is and has been this year.
And I think that into some weird unfortunate way.
Benefits us work as we look so we are doing tremendous amount of work and the work, we're doing with Vainer media and Weve reconfigured, our marketing teams and our sort of advertising efforts and and that's broad when I say advertising, it's more communications.
They they have like a limited ability to really do what it takes to keep those consumers into the know the retailers.
Want to do the same thing in our our online in direct businesses also continues.
Two.
This or do you know I think where it drives us is that.
22 is going to be the interesting your that's kind of where we're getting too is that I think everybody is hopeful with this is behind us.
In the 22 seasons.
But I think the 21 season, this kind of setting up okay for us, but the major focus is gonna be on retention of those customers and they really don't have a budget to do that.
I think we'd the work we did this year was very much in the moment.
Meaning you know just think about how we.
The level of content.
I would say you know you're dealing with probably tens of thousands of pieces of content that were produced.
A lot of that was done where we couldn't get talent, we had to use our stock footage or imagery. It was all done over night, meaning we say, we got to do something here and it would be done sort of overnight where the fees.
Creative teams were working through the night to produce stuff that we could run kind of the next day.
I think thats going to be easier for us but.
We were just kind of learning this shit.
Look I am speaking aspirationally, a little bit but.
I.
It was not a big believer in sort of digital up till now.
I think the.
It's kind of everything right now and that's not because were I don't think we're doing it stupidly, but I think we can do it so much better.
And I think we have a great partner our partner with the retainer and our teams are really organized around that.
Randy is a believer Mike as a believer.
And so.
Oh I'm hopeful that when we have this conversation next year.
We can say to you that nano retain that group, but we've also gotten to sell more and we didn't.
New sales because we couldn't deliver.
And Hawthorne is better than high single digits. So that's what I'm hopeful for but I think we've got a lot to show the sort of.
The community of consumer goods that we're engaged in.
Sort of a new approach to how we market our products in a way that lawn and garden really works well for <unk>.
Eric I'd add we know who the consumers are we're targeting them directly.
We're not being too so it's been in lots of though to get after it and but even beyond that social media. We recently developed a new TV spot that ran for the first time in it and the first baseball game that.
That was played last week pretty quickly after the game started and.
It run for a while there if you watch bad and if that doesn't you know broken emotional response from people people report harder because you know it really goes to what we're trying to do which it's more focused on lifestyle and people with their family in the yards and I thought it was terrific.
We're seeing more people waiting in the fall and gardening, they're looking for the second harvest the Aero gardeners tremendously up we see that momentum of a 365 and then a lot of people are moving out of the cities. It to the suburbs, which is a huge opportunity for lawn and garden. So I think those trends.
We got to capitalize on it and that's where you know how good. It we are at that will be the determining factor.
Okay, and then just a follow up you.
Sounded optimistic about price next year I'm curious if theres any challenge to that in a year, where it's not to get home centers loss share this year and they're going to want to drive traffic.
Can you sort of square those those two points that your price can go up and it sounds like their prices going to go down and I understand maybe the opposite happen this year, but.
I'm curious how you think about that.
Or do I think.
We want pricing and but it's a fight this year to be [laughter] heavy transparent.
And I think for you know pretty reasonable you know there are retailers out there you know some of the biggest retailers in world, who would say good there's all kinds of unemployment.
You guys are making money like crazy at your your numbers.
Our stupid good.
Really you weren't pricing.
But we've got a lot to do to drive.
You know comp numbers and.
And so today.
So we also view it as to some extent unbalanced because of the real lack of promotion the effect, it's had not really on our margins, but on their margins that.
I I don't think it should you know because if you look at the consumer price the consumer prices, probably up 10% I don't know something like that.
This year and we don't think it's crazy to look for 100 200 basis points of of pricing, but there is there's definitely resistance out there I, we will achieve our pricing.
But it's I think requiring Mike and I make that [laughter] personally to sort of explain what we're trying to do and the challenge of Comping. This year, which again doesn't I don't want anybody to think I don't think it can be done.
But I do think that it is it's a tall order and we.
I think we know what to do.
And that means that we're going to continue to invest in the business to be.
A better vendor you know have satisfaction rates that are higher and to invest the money in our brands, which is really I'll just repeat something that Randy sort of grabbed me at the end of a budget session I'm like three years ago and said.
Lehrer, well why we're putting so much money promotion and so much less money into our marketing efforts and that doesn't seem to me to flow to the strength of our brands and so I think.
Randy was right.
And we're trying to convince retailers the.
This is right to but it's it's it's not an environment, where they are just like completely open minded to.
Demand and pricing, even though I think we really help that the industry. This year.
Mike anything you want to add on [laughter] I think it's a it's a each one is a discussion and battle to try to get to the right spot.
While we will be successful, Eric and getting the pricing it's just.
If if requiring us to.
Talk personally to top to top.
Okay, Okay fair enough. Thank you.
Alright, Thanks, Eric.
Stephen I'm, we're going to ramp up at this point I know there were several people who are in the queue that we didnt get there.
So feel free to reach out to me directly marrying 37578.
Six through too.
Otherwise our next plant public communication is Ah tentatively scheduled for November 4th quarter, we'll be sharing our for your results and a more detailed outlook for 2021.
For joining us have a great day regarding.
This concludes today's call. Thank you for your participation you may now disconnect.
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