Q4 2024 Central Garden & Pet Co Earnings Call
Yeah.
Julian: Ladies and gentlemen, thank you for standing by welcome to Central's fourth quarter fiscal 2024 earnings call. My name is Julian and I'll be your conference operator for today.
Time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.
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Speaker Change: I'd now like to turn the call over to <unk>.
Speaker Change: Fredrik Edelman, Vice President of Investor Relations. Please go ahead.
Fredrik Edelman: Thank you Julian and a warm welcome everybody to central fourth quarter and fiscal year 2024 earnings call speaking today are Nicola Central's, New Chief Executive Officer, Brad Smith, our new Chief Financial Officer, John Hanson, President Pet consumer products and J D Walker.
Speaker Change: President Garden consumer product in just a moment Nico will provide all key takeaways from the fiscal year share more at all cost and simplicity of program and our outlook and Brad will then discuss the financial results for the year and for the quarter, our two segments in our outlook in more detail.
Speaker Change: Julian J D will then join us for your questions.
Speaker Change: Before they begin I would like to remind you that all forward looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what we shared today. We've described the range of risk factors in our annual report filed with the SEC.
Speaker Change: Central undertakes no obligation to publicly update these forward looking statements to reflect new information subsequent events or otherwise.
Speaker Change: Our press release and related materials are available on IR dot central Dot Com and include the GAAP reconciliation for the non-GAAP measures discussed on this call lastly, all growth comparisons made during this call are against the same period in the prior year unless otherwise stated.
Speaker Change: If you have more questions. After the call. Please don't hesitate to reach out to me and with that I'm handing it over to Niko.
Niko: Good afternoon, and thank you all for joining us today.
Niko: I'm truly honored to be here at central CEO, leading our talented team as we advance the company and enter an exciting phase of growth.
Niko: Since becoming CEO I've had the privilege of working closely with our leaders and our board of directors and I'm more confident than ever in our path forward.
Niko: We're operating from a foundation of strength with a focus on our central to home strategy, which includes our cost of simplicity initiatives in our plants around customer and consumer experience innovation and operational excellence.
Niko: Our goal is to build on this foundation and to drive long term value for you our investors.
Speaker Change: Having been with central for over 18 years, I bring deep experience and understanding of our business.
However, stepping into the CEO role offers me a fresh perspective, and I see clear opportunities to sharpen our focus and accelerate our key initiatives and identify areas for future growth.
Speaker Change: Going forward I'm eager to share our vision and provide you with insights into our performance and discuss the steps, we're taking to navigate the current environment, while setting the stage for future success.
Speaker Change: Before we go into the key messages I want to thank that Springer, who did an exceptional job as our interim CEO and continue to serve as our lead independent director.
Speaker Change: Let me start with the three key themes I'd like you to take away from this call.
Speaker Change: First we had notable achievements in fiscal 'twenty four despite challenges we delivered solid results in a tough environment.
Speaker Change: We've made meaningful progress on our cost and simplicity program.
Speaker Change: We're streamlining our operations and positioning ourselves for long term success.
Speaker Change: Third looking ahead to fiscal 'twenty five.
Speaker Change: We expect the consumer and competitive landscape to remain difficult, we're focused on executing our strategy and driving sustainable growth.
Speaker Change: Now, let me delve into each of these themes in more detail.
Speaker Change: Turning first to our fiscal 'twenty four achievements, we're incredibly proud of what team central accomplished over the past 12 months.
Speaker Change: Despite facing a difficult environment, including soft demand across our pet businesses, particularly durable pet products and a tough garden season, we delivered the following.
Speaker Change: Growth in non-GAAP EPS.
Speaker Change: Continued gross margin expansion.
Speaker Change: Strong profits in our pet segment and another record year of operating cash flow.
Speaker Change: These achievements showcase the grit and perseverance of our 6450 employees, who rolled up their sleeves and work together to drive results and serve our customers. Thank you to the entire central team for your dedication and resilience.
Speaker Change: Second progress on our cost and simplicity program.
Speaker Change: Our cost and simplicity program is a multiyear journey to simplify operations enhance efficiency and better leverage the scale of our business across procurement manufacturing logistics portfolio optimization and administrative costs.
Speaker Change: We highlight some of the initiatives from the fourth quarter.
Speaker Change: Starting first with our consolidation of operations with.
We further integrated our Arden outdoor cushion dog bed and can't H businesses closing two leased facilities in Arizona, and California, and shifting production to our own facilities in North Carolina, and Indiana has improved e-commerce capabilities reduce shipping costs and provided room for growth.
Yeah.
Speaker Change: Second scaling our natural dog treats production.
To meet growing consumer demand, we expanded capacity and enhanced efficiency at our natural dog treats processing plant in Mexico, allowing us to capture a larger market share.
Third optimizing transportation.
Speaker Change: We completed the rollout of our corporate transportation management system, and centralized load planning across most business units, reducing costs and improving delivery reliability.
Speaker Change: And finally streamlining our life plants operations, we consolidated our two life planner businesses under the Bell brand name closed older less profitable facilities and move production to a modernized site in Kentucky for better planning and output.
Speaker Change: These initiatives are part of a broader effort to make central more lean more agile and efficient. They are designed to drive margin expansion and free up resources for organic growth and strategic M&A as well as to enhance our social responsibility and environmental stewardship.
Speaker Change: As such we are embedding sustainability into our operations with measurable goals outlined in our latest impact report to ensure a resilient and secure supply chain reduce our environmental impact and provide a safe working environment for our employees.
Speaker Change: Recent efforts also include participation in Lowe's is foundation and home Depot Foundation community events, reflecting our commitment to giving back to those who need it.
Speaker Change: Now, let's move to our third key message around our outlook for fiscal 'twenty five.
Speaker Change: Looking ahead, we remain steadfast in our commitment to the central the home strategy.
Speaker Change: Here's how we're preparing for the year ahead.
Speaker Change: Staying disciplined on our cost and cash agenda.
Speaker Change: <unk> targeted investments in critical capabilities, particularly in E Commerce digital and innovation.
Speaker Change: Maintaining a focused approach to identifying and pursuing strategic M&A opportunities that align with our growth priorities enhance our capabilities and strengthen our portfolio.
Speaker Change: And advancing a pipeline of new products across our pet and garden portfolios with launches planned for fiscal 'twenty five and beyond.
Speaker Change: That said, we anticipate having to navigate a challenging external environment marked by macroeconomic and geopolitical uncertainties. We foresee continued pressure on consumers, who provoked prioritize value and be strongly influenced by discounts and promotional offers and.
Speaker Change: And increasingly competitive and promotion driven marketplace and significant headwinds in the brick and mortar retail sector presenting unique challenges.
Furthermore, extreme weather seems to have become the new normal, adding an even greater volatility to an already seasonal garden business.
Speaker Change: That said, we remain confident in our strategy our team and the decisive actions, we are taking to drive profitable growth in fiscal 2020 five and beyond.
Speaker Change: In line with this we are guiding fiscal 'twenty five to non-GAAP EPS to be $2 in 'twenty or higher.
Speaker Change: With that let me briefly summarize my remarks before turning it over to Brad.
Speaker Change: I'm incredibly proud of what we accomplished in a challenging year.
We delivered growth in non-GAAP EPS, demonstrating our financial resilience.
Speaker Change: We successfully expanded our gross margin despite softer category consumption sales and.
Speaker Change: And we achieved a record breaking cash flow year, solidifying our fortress balance sheet.
Speaker Change: But what excites me most was that these achievements were driven by our exceptional people and their unwavering ability to execute even in a continually changing and tough environment.
And with that I'd like to introduce to you Brad Smith Central's New CFO.
Speaker Change: For those of you who haven't met Brad yet he joined central in 2017, as Chief Financial Officer of our Pet segment.
Speaker Change: Prior to central Brad work 12 years at what is now all delays Brad the floor is yours.
Thank you Nico and Hello, everyone, it's great to be here with you all today.
Speaker Change: Building on the East Coast remarks, let me start with our fiscal 'twenty four results net sales were $3 2 billion, a decrease of 3% compared to the prior year as a reminder, fiscal 'twenty three benefitted from an extra week in our fourth quarter organic net sales declined 4%, excluding the impact of the <unk> acquisition.
Speaker Change: And the sale of our independent Garden channel distribution business.
Speaker Change: non-GAAP gross profit for the year was 960 million compared to 957 million and non-GAAP gross margin expanded by 110 basis points to 30% driven by productivity efforts throughout the year and moderating inflation.
non-GAAP SG&A of 737 million was 1% above the prior year and non-GAAP SG&A as a percentage of sales increased to 100 basis points to 23%, reflecting the addition of G. D. B B S, partially offset by cost discipline across our business in response to lower volumes.
Speaker Change: non-GAAP adjustments were $45 million in fiscal 'twenty four of that total $28 million related to cost and simplicity initiatives within garden. This included closure and consolidation of one manufacturing facility six distribution facilities and one research facility all of which will be completed by the end of this.
Speaker Change: Calendar year as well as the wind down of our pottery business, which will be completed by the end of calendar 'twenty five.
Speaker Change: Within Pat this included closure and consolidation of two Arden and can't H manufacturing facilities, which were announced in the fourth quarter and will be completed in the second half of fiscal 'twenty five.
Speaker Change: In addition to the cost and simplicity charges. The fourth quarter also includes the impairment of intangible assets related to <unk> due to changing market conditions and increased international competition.
Speaker Change: Lastly, we recognized 4 million in net charges related to the impairment of equity investments into private businesses, partially offset by a gain on the settlement of litigation.
Speaker Change: The 45 million overall charge was mostly noncash with 16 million included in Cogs cost of goods $21 million in SG&A and $8 million in other expense.
Speaker Change: non-GAAP operating income for the year was 223 million compared to $227 million, a year ago, and non-GAAP operating margin expanded two 7% from $6 9%.
Speaker Change: Below the line interest expense net interest expense was 38 million compared to $50 million driven by higher interest income.
Speaker Change: non-GAAP other income was $2 4 million compared to 1.5 million non-GAAP net income was 142 million compared to 138 million and non-GAAP EPS came in at 213 above our guidance and above prior year GAAP EPS was $1 62.
Speaker Change: Adjusted EBITDA for the year was 334 million compared to 343 million our tax rate for the year increased by 80 basis points to 23, 2% primarily due to an increase in the blended state income tax rate now.
Speaker Change: Now turning to the consolidated financial statements for the fourth quarter.
Speaker Change: Fourth quarter net sales were 669 million down 11% versus the prior year. The decline was primarily due to lapping the extra week last year organic net sales decreased 13%, excluding the acquisition of T. D V D S and the sale of the garden distribution business.
Speaker Change: non-GAAP gross profit for the quarter was 174 million compared to 199 million and non-GAAP gross margin contracted 60 basis points to 26%, primarily driven by impairment of grass seed inventory in our garden segment in line with what we signaled in our Q3 call.
Speaker Change: Discharged more than offset benefits, we had from moderating inflation and productivity efforts.
Speaker Change: non-GAAP SG&A for the quarter was $186 million, a 1% decrease and as a percentage of net sales was 27, 7% compared to 25%. These variances reflect lower volumes and timing of spend related to productivity and commercial initiatives.
Speaker Change: non-GAAP adjustments for the quarter were 29 million, reflecting 10 million related to cost and simplicity initiatives $13 million related to intangible impairments and $4 million related to the equity investment write down and partially offsetting legal set up my game.
Speaker Change: The 29 million overall charge was mostly noncash with 5 million included in cost of goods 16 million and SG&A and $8 million in other expense.
Speaker Change: non-GAAP operating loss for the quarter was $11 million compared to operating income of $12 million non-GAAP operating margin contracted to negative one 7%.
Speaker Change: Net interest expense was 6 million compared to 8 million non-GAAP loss for the quarter was $12 million compared to non-GAAP income of 5 million last year and non-GAAP loss per share was <unk> 18 cents compared to a non-GAAP earnings per share of eight cents last year adjusted for the stock dividend earlier this year.
Speaker Change: GAAP loss per share was 51 cents.
Speaker Change: Adjusted EBITDA for the quarter was $17 million compared to 42 million now I'll provide some insights into the fourth quarter of our two segments starting with pet.
Speaker Change: Pat net sales decreased 10% to 435 million organic net sales decreased 14%, excluding the impact of T. B B S. The decrease was primarily due to lapping an extra week.
Speaker Change: Durables continue to be soft from a shipment and P. O S standpoint, consumables Pos remained positive and outpaced shipments for the quarter.
Speaker Change: Overall, we held market share with gains in e-commerce, offsetting slight declines in brick and mortar e-commerce as a percentage of total pet sales reached a record high of 29% up four points over prior year as we continued to improve conversion rates and drive share growth online.
Speaker Change: Sales of our branded pet products outperformed our private label sales our brands continued to demonstrate resilience with share gains in raw hide both organic and with the addition of T D Bbs and in dog treats and bird this more than offset private label declines linked primarily to durable products where demand is soft.
Speaker Change: And where we've been purposefully rationalizing and in some cases exiting low profit skus.
Speaker Change: non-GAAP operating income for pet with $35 million versus $48 million, a year ago, due to lower volume and timing of spend related to our productivity and commercial initiatives.
non-GAAP operating margin was 8% versus nine 9% a year ago.
Speaker Change: Pet segment, adjusted EBITDA was $45 million compared to $58 million a year ago move.
Speaker Change: Moving to garden in the fourth quarter Garden, net sales were 234 million down 12% versus a year ago.
Speaker Change: Organic net sales decreased 11%, excluding the sale of the distribution business similar to Pat the decline was primarily due to lapping the extra week importantly, after a challenging third quarter. We saw positive Pos trends returned in the fourth quarter as foot traffic improved in home centers, returning to a level of a prior year.
Speaker Change: Moreover, we saw particularly good performance in grass seed, which posted strong share gains across all retailers and channels.
Speaker Change: Darden ecommerce sales, which is lesser developed impact continuing to see double digit growth as investments, we made in new and improved content displays and videos and addition of new items drove higher engagement and conversion rates.
Speaker Change: non-GAAP operating loss for garden was 25 million versus a $5 million loss due to the impairment of grass seed inventory.
Speaker Change: non-GAAP operating margin was negative 10, 6% compared to negative 2%.
Speaker Change: <unk> segment, adjusted EBITDA was a negative 14 million compared to a positive 6 million in the prior year.
Speaker Change: Let me now address the balance sheet and cash flows.
Speaker Change: So our focus on turning inventories into cash we had a record cash flow year cash provided by operations was at an all time high of $395 million of fiscal 'twenty four versus $382 million in the prior year compared to last year, our inventory at year end, even with the acquisition of <unk> was down 10%.
Capex for the year was $43 million about 20% less than what we invested in the prior year depreciation and amortization was 91 million compared to $88 million during.
Speaker Change: During the fourth quarter of fiscal 'twenty four we bought back approximately 270000 shares for roughly $9 million.
Speaker Change: Sequencers fiscal year end, we purchased approximately $1 7 million additional shares for roughly $52 million through November 21st.
Speaker Change: Total debt was $1 2 billion in line with the prior year, we ended the quarter with a gross leverage ratio of 3.1 also in line with the prior year and within our target range of 3% to three five times, we had no borrowings under our $750 million credit facility at the end of the year.
Cash and equivalents, including short term investments were 754 million at year end compared to 489 million in the prior year, coupled with our credit facility. This provides us with ample liquidity for M&A and given our financial strength, we continue to be on the lookout for high growth consumables companies with accretive margins too.
Speaker Change: Build scale in our core categories enter adjacent categories and add key capabilities now.
Speaker Change: Now turning to our fiscal 'twenty five outlook.
Speaker Change: As Niko mentioned, we are guiding fiscal 'twenty five non-GAAP EPS to be $2 20, or better this carefully balances the confidence we have in our strategy and our people against the headwinds we see in front of us this year around macroeconomic and geopolitical uncertainties consumer and customer pressures and volatile weather conditions.
Speaker Change: As we look to Capex, we're planning to invest approximately $60 million to $70 million, most of which is either needed for maintenance or productivity initiatives across both our segments. We expect Q1 non-GAAP loss per share to be a loss of <unk> or better for the quarter I want to remind you that Q1 is typically one of our smallest quarter.
Speaker Change: <unk> and not indicative of the full year. It is even more of the case. This year given we have two less shipping days at quarter end compared to last year.
Speaker Change: As always our outlook for Q1, and the fiscal year excludes any impact from acquisitions divestitures or restructuring activities that may occur during fiscal 'twenty. Five this includes projects under the cost and simplicity program and with that we'd like to open the line for all your questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue. So participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment, while we poll for questions.
Speaker Change: Yeah.
Speaker Change: And our first question comes from Bill Chappell Securities.
Speaker Change: Thanks, Good afternoon.
Speaker Change: Hey, Bill Nico Brad Congratulations Nico Brad Congratulations Nico long long overdue.
Thank you Ali in the seat.
I guess two questions one.
Speaker Change: A year ago, we talked about pet was going to have a tough year and just it was kind of the.
Speaker Change: Hangover for.
Speaker Change: From the pandemic and you thought it would kind of ease as we get to the back half and things would normalize as we moved into 2005. So what's the state of the state today are we feeling like the hangover is going to last a little bit longer or do we feel like we bottomed out and in pet in particular is going to start to grow again.
Speaker Change: Organically as a category or as multiple categories.
John Hanson: Bill This is John.
Speaker Change: You know what we told you for 24 came true.
Speaker Change: Consumables.
Speaker Change: Performed durables, but durables.
Speaker Change: Continue to have a double digit decline you had in Q4, the category was down double digits.
Speaker Change: I think teens.
Speaker Change: Low double digits, and we actually were down a little bit more than that because we have been continuing to skew.
Speaker Change: Low margin unprofitable skus.
Speaker Change: You know if you look at Q4 consumable business was up on P. O S. Right. We think that is more indicative of how we view the business going forward, but the category still is getting pulled down by durables.
Speaker Change: The other thing and we mentioned this in the last quarter.
Speaker Change: No.
Speaker Change: I'm on the durable side, our consumers are buying product directly out of Asia, and there's there's e-commerce businesses like a team who as an example that get around the de Minimis tariff.
Speaker Change: And we're we don't have visibility into what that data looks like.
Speaker Change: But.
Speaker Change: It's something we're staying on top of and we're managing appropriately going forward.
Speaker Change: But as we look at the category.
Speaker Change: Next year, we see consumables growing you know low to mid single digits, and we see our business in the durable category continuing to decline roughly you know.
Speaker Change: Mid single digits I'd call it.
Speaker Change: Does that help.
Speaker Change: That helps can you remind us the percentage of sales is durables versus consumable yeah for the category. It's roughly 70 525 for us where over 80% consumable.
Speaker Change: Got it. Thank you and then second question little harder than 80.
Speaker Change: Second question, just as we look into 'twenty five.
Are you assuming or are you planning on price increases for both pet and garden.
Speaker Change: Bill.
Speaker Change: Pricing next year will be very very tough in our in our plan.
We're actually net negative on price.
Speaker Change: Because it's going to be you know very much.
Speaker Change: Everyone knows that the commodities have moderated so pricing will be very difficult to come by that's going to be one of the headwinds.
Speaker Change: Going into the year, it makes our cost and simplicity program that much more.
Speaker Change: So that we can maintain margin as opposed to just taking it on the chin on the topline so.
Speaker Change: Pricing will be really hard to come by I think in both segments.
Speaker Change: Given given what's going on out there.
Speaker Change: In terms of the commodities as well as the consumer.
The consumer being very value driven right now as well.
Great. Thanks, so much.
Speaker Change: Thank you. Our next question comes from Brad Thomas of Keybanc capital markets.
Speaker Change: Good afternoon, and Nico and Brad Congratulations.
Speaker Change: I wanted to start off asking about the garden segment and J D. I was hoping you could just give us an update on <unk>.
Speaker Change: How some of the conversations are going as you think about the spring sell in and the amount of shelf space.
Gonna have.
Speaker Change: Particularly and particularly how you're thinking about the larger opportunity extra such a poor.
Speaker Change: Bring that we had last year for the industry.
Speaker Change: Hi, Brad Thanks for the question I think we feel cautiously optimistic when we look at our.
Speaker Change: And we look forward to the spring.
Speaker Change: We are now in negotiations with our customers for a lot of the promotional support we already know our listings for next year and I'd say from a branded.
From a branded standpoint, we're in very good shape heading into the year. The customers are signaling that they will load the stores early as Niko mentioned in the script. We have a couple of shipping days less at the end of the quarter. So the end of the Q1, we shipped an awful lot of the initial shipments for store sets at the beginning of the.
Speaker Change: The season.
Speaker Change: So if it doesn't ship at the end of December it'll trickle into into January but they are signaling that they're going to take an aggressive approach to loading the stores and.
Speaker Change: And getting ready for the season.
Speaker Change: We're going to live goods I'd say, we're also cautiously optimistic I think we've taken some key steps here to one take cost out of our own internal network and secondly, take some steps to limit the downtime a downside risk to that category for US now we had an awful Q.
Speaker Change: Three and live goods last year and it was mainly weather driven so whether can still having a negative impact on us next year, it's hard to imagine that whether it would be worse than it was this past year when it rains six of the eight weekends that were key to our season and we came out of that in Q3 and went into the hottest summer on record so.
Speaker Change: Having said that we're seeing some very encouraging signs can some with regard to consumption in the live goods category going into our Q4 and into Q1 of our fiscal year 'twenty five so I'd say the word here is cautiously optimistic for both the live goods and across the entire garden segment.
Speaker Change: That's really helpful J D.
Speaker Change: And Niko, maybe if I could ask you a question just around <unk>.
Speaker Change: Tariffs and acquisition, maybe I bucket is as you think about the current.
Speaker Change: Administration, that's coming in here in some of their policies I guess for one on the tariff front can you remind us your exposure to.
China and if there's anything unusual about the playbook that you would run with tariffs and then just as again as we think about this administration and the backdrop does that change at all you think the opportunity for acquisitions on the horizon. Thanks.
Speaker Change: Sure.
Speaker Change: You know tariffs for one of the keys that we looked at as we put together our plans for 25.
Speaker Change: You know, we're looking at potentially 60% coming in from China, and then 'twenty, 20% coming in from other regions. So it'll have an impact if all of those things happen hard to tell right now whether it's a lot of saber rattling or or what's going to play out.
Speaker Change: An update on our on our.
Speaker Change: Exposure to tariffs, specifically, China I know in the past, we've talked about 8% of our cost of goods.
Speaker Change: The decrease so the silver lining with the decrease in durables is that we're below 5% now coming in from China. So much less exposure and again, if there was a silver lining.
Speaker Change: That's pretty much it.
As far as part two of your question I think it's a really important one because.
Speaker Change: If you look at where we are and how we're strategically positioned for the future.
Speaker Change: We really operate in two great categories, but with the elections behind us we're really entering a new phase one that could bring you know reduce regulatory pressures increased M&A activity and heightened deal opportunities in 25.
Speaker Change: So how are we preparing to leverage these favorable conditions.
Speaker Change: We're really we're ready not only to navigate the changes, but also poised to capitalize on them given our exceptional liquidity position on our balance sheet.
Speaker Change: So it's the best insurance policy that I can think of you can think of ensuring that we stay ahead in an evolving landscape.
All very exciting great. Thanks, so much Nicole I appreciate it.
Speaker Change: And our next question comes from Jim Chartier of <unk> Crespi Hardt.
Speaker Change: Okay.
Speaker Change: Hi, Thanks for taking my question, congratulations to Nico Brad as well.
Speaker Change: Okay.
Speaker Change: It sounds like you have a pet business is going to be up a little bit next year I'm just kind of.
Speaker Change: Help us understand kind of your overall sales guidance for the company.
Particular.
Speaker Change: Yeah, we typically don't guide on the top line.
Speaker Change: But overall I would say that we're pretty cautious going into the year.
Speaker Change: It's not going to be a year of exceptional growth I think that any growth, we get where we're really going to have to fight for and so I think that's going to be it's going to be a real challenge and the other thing I would add too is we.
Speaker Change: We also walked away from some business on the pet side. So theres, some low margin durable business that really didn't meet our margin.
Speaker Change: Standards, if you will for the company as we're very very margin focused right. Now. So we ended up walking away from some low margin business, which creates a little bit of a hole that we have to dig our way out of but we think that we've got a good shot at that.
Speaker Change: Okay, Yeah, and just to build on that a little bit.
Speaker Change: The durable side I said.
Speaker Change: Our expectation that it.
It'll be declining as a category kind of mid single digits, we're gonna lose Sharon durables not sure we'll be down more because of the SKU rationalization.
Speaker Change: Well and the other thing too is what's really the big catalyst on the pet side is household penetration.
Speaker Change: So we saw a bit of a pullback. After we saw this incredible growth rate during that during the pandemic, where everyone is buying a puppy and we've seen a bit of a pullback in terms of the penetration.
The good news is we've got a much younger cohort in the category in terms of millennials and Gen Z, but the but the older generation, whose pets are passing or not re upping and so they're engaging in more travel and.
Speaker Change: Experiential things as opposed to going back and buying another dog so until that starts to turn around.
Speaker Change: We're sort of stuck in the category being a bit and I'm talking mainly dog here cat has actually done better.
Speaker Change: We're a bit stuck because as everybody knows it's the durables that follow the.
Speaker Change: The live animal sales and in our World, We view the live animal sales durables as well.
Speaker Change: And that's really dark, which which sort of drives drives the bus here cat cat has done better.
We feel that's one of the reasons for that is the return to office in cats tend to be a little bit more independent and folks have continued to.
Purchase cat so that area has done better.
Speaker Change: Okay, and then I think last quarter, you said the grass seed weight gain would be.
Speaker Change: $15 million to $20 million.
Speaker Change: Where exactly did that come in.
Speaker Change: Came in that range. Unfortunately.
Speaker Change: We were we were pretty accurate.
Speaker Change: And was it $20 million or.
Speaker Change: No. It was on the high end of the range. It was it was 19.
Speaker Change: Okay.
Speaker Change: And then you mentioned your tough.
Speaker Change: To take pricing next year, what is your cost outlook look like for next year before the benefit of you.
Speaker Change: Coffee simplicity initiatives.
Speaker Change: I mean, our cost outlook is is good we've done a great job over the years, taking cost out we're going to continue to do that we're becoming better at manufacturing.
Speaker Change: The real the real question will be what is the promotional environment look like.
Speaker Change: In the marketplace or are we going to have to promote more discount more.
Speaker Change: Those things still have to play out, but I will tell you that we're doing everything we can on our end to become a more efficient and better organization.
Speaker Change: Great. Thank you and best of luck.
Yeah.
Speaker Change: And our next question comes from Bob <unk> CJS Securities.
Speaker Change: Good afternoon, and we'd like to offer congratulations to Nico and Brad as well.
Speaker Change: So thank you for taking our questions I guess.
Speaker Change: We've talked a little bit about revenue headwinds. So far you said pricing walking from some lower margin business or consumer et cetera. I was hoping you could kind of give us a sense of any other revenue headwinds are going to hear and then certainly any tailwind you see that we should be thinking about for fiscal 'twenty five.
Speaker Change: Yes, I mean.
Speaker Change: We also had we lost a little bit of business on the garden side in our vendor partner.
Speaker Change: It's not going to be the highest margin business, but it does create a little bit of a gap on the top line.
Speaker Change: I would say you know tailwind sort of what I outlined.
Speaker Change: We.
Speaker Change: We are taking a very consumer centric approach.
Speaker Change: Delivering exceptional value to customers and consumers through tailored promotions.
Speaker Change: We're going to innovate and also up our game digitally. So those are areas that we think we can grow.
Speaker Change: And then under underpinning all of that is our continued efforts around cost and simplicity optimizing the supply chain inventory management.
Speaker Change: These are all going to help us mitigate impact on tariffs and weather related disruptions, so just becoming a better more efficient organization.
Speaker Change: And again.
Speaker Change: Investing in e-commerce, because we think that can offset some of the challenges that we're seeing in brick and mortar right now.
Speaker Change: And then really adapting to changing consumer behaviors, so really become on becoming a more agile organization.
Okay, Great and then as it relates to cost and simplicity, how would you characterize you know.
Speaker Change: How much you've accomplished to date and what remains as you know opportunities ahead in terms of.
Speaker Change: I don't know how much will quantify the impact you could have on fiscal 'twenty five the benefits and then.
Speaker Change: Sure benefits over the next several years.
Yes, again, we were.
Speaker Change: We're staying away from quantifying it giving a big cost envelope, and then giving a timetable to.
Speaker Change: To hit those numbers because invariably we'd be wrong about all of that are what I would tell you is we've made a tremendous amount of progress we closed 11 facilities in 'twenty four.
Speaker Change: And we're really consolidating.
Speaker Change: Facilities and taking cost out.
Speaker Change: We are consolidating businesses. If you look at what we did on the pet side with with pet bedding, our cushion business.
Speaker Change: KH, so youre seeing a form these these platforms around efficiency and really aligning for scale.
Speaker Change: We have a ways to go.
We're going to be doing more of it in 'twenty five and into the future.
Speaker Change: I think also when you look at a company like ours, where we really grow through acquisition and we have a big M&A agenda that the work is never really done. So you continuously looking to integrate take cost out become more efficient.
Speaker Change: And the bigger and better our platforms are the more synergies we can bring to the table when we do acquisition. So we.
Speaker Change: We feel like it really sets us up and makes us an even better acquirer going forward.
Speaker Change: When when we engage in M&A.
Speaker Change: Okay Super Thank you.
Speaker Change: Thank you. Our next question comes from Brian Mcnamara Canaccord Genuity.
Hey, good afternoon, thanks for taking our questions and of course, our congratulations to Nico and Brad on the promotions.
Speaker Change: A couple of months ago as CFO at one of your pet specialty retail customers offered an expectation that the pet industry is your return to mid single digit growth in quote unquote, the not too distant future I'm curious what your take is there and what's kind of required to get the category growing again.
Our pets, just too expensive in the current macro environment.
Speaker Change: Oh God, that's a lot.
Speaker Change: [laughter] highest.
Speaker Change: I would go back to what I had stated earlier, which is it really starts with the live animal and until we get folks out there.
Speaker Change: Buying more of live animals.
Speaker Change: We're going to see sort of the pet category kind of flatline, I think youre seeing a lot of other things at work here. There is theres a lot of premium position going on particularly in food and treats but to get to real unit growth, we need to improve the household penetration of the pets themselves. So in our view that.
Speaker Change: That's really the rate limiting factor.
In some categories were below pre pandemic levels right now.
Speaker Change: That's helpful and maybe one for J D. Obviously, the last three years of weather I haven't clearly helped the Jarden business can you remind us what is ideal weather for your important our garden product lines as you in your public.
Competitors are very exposures and are there any efforts are being made to kind of diversify our medically mitigate this weather risks.
Speaker Change: Yeah, Great question I think if you look at our portfolio, we actually do have one business that has a little bit counter seasonal to the typical lawn and garden business and that is our wild bird feed business. So winter months winter storms things like that we tend to see a spike in our business and it's it it's <unk>.
Speaker Change: Nice offset to the rest of our traditional lawn and garden portfolio.
Speaker Change: But ideally we'd like to see you know unlike the harsh.
Summers that we've seen in the last couple of years and late breaking spring, we'd like to see warm temperatures moderate temperatures with precipitation ideally I tell people ideally it'd be great. If it would rain on Wednesdays in every weekend was sunny and beautiful so that would be ideal for whether we just haven't seen that in a few years.
Speaker Change: Got it that's helpful. Thanks, a lot.
Speaker Change: Thank you. Our next question comes from Shobana Charterer J P. Morgan.
Speaker Change: Hi, congrats to both be Glenn Brad and thank you for taking our question.
I wanted to ask two questions. If I may you spoke about how E. Commerce has been growing for both the segments and it has more or less offset partially offset some of the pressure. So you may be seeing in brick and mortar and so you said you had maybe a finger game digitally next year to help with the topline.
Speaker Change: Can you give can you elaborate more on what are some of the steps you're taking and also if I may I'd like to ask about consumers are attracted to more promotions understandably given the current macro environment and you called out the cheap Asian E. Commerce, just to know can you give us some more color on the center.
Speaker Change: The level of promotions youre seeing versus pre pandemic levels.
Speaker Change: And also a sense of how your market share. Some pack that does not result, thank you.
Speaker Change: Sure outflows are with.
Speaker Change: Good question.
Speaker Change: We.
Speaker Change: We've made a lot of really great progress in E. Comm, we've hired some tremendously talented people.
Speaker Change: If you look at.
Speaker Change: We have to have an orientation that looks at the business from an omnichannel standpoint, and a lot of customers. They.
Speaker Change: They want that that's what they're doing so.
It's really kind of a symbiotic relationship between online and offline.
Speaker Change: It's going to I'll oversimplify, it but it really just starts with content.
Speaker Change: As the first step and really having that a plus content for your ace skus and getting that out there.
Speaker Change: And then the other part is is really inventory management, making sure that the product is available to ship. So it may sound, a little bit oversimplified, oversimplistic, but it really starts with blocking and tackling then there is other things we can do in terms of.
Search engine optimization.
Speaker Change: Improving conversion rates.
Speaker Change: We have an extensive program, where we go out we test things if they fail, we fail fast and then take a different angle in terms of.
Speaker Change: We're trying to drive the customer to the site and really increase that conversion rate.
Speaker Change: And the return on.
Speaker Change: On on those Adsense.
Speaker Change: And we constantly monitor that and I think theres been.
Speaker Change: A lot of a lot of progress there the other part two is.
Speaker Change: Having your own fulfillment capabilities and Thats something that we are distributing across the across the company.
Back in 'twenty, one we bought <unk> they had an incredible.
Speaker Change: Fulfillment capability, we're taking their software and their business process.
Speaker Change: And really distributed across the country. So that we're in a position where we have that flexibility to either shipped to an E com E tailor or to a <unk> situation, where we are fulfilling it ourselves in the most efficient way possible.
Speaker Change: It's digital from a marketing standpoint, it's also very much having logistical capabilities as well.
Okay.
Speaker Change: Yeah, and the only thing I'd add on the pet side Niko mentioned, we built a ton of capability here.
Speaker Change: People you know.
Speaker Change: It's systems, it's processes, it's the DM old capability.
<unk> mentioned.
This year, 29% of our business flows was economy, that's up four points, we've grown share year on year, I think for three or four years in E com.
So we've got a good playbook and we want to continue to enhance that playbook.
Speaker Change: Having the right pack sizes as well to hit the key price points that we need.
Speaker Change: But the fulfillment piece is going to be really important as we go forward.
Speaker Change: And that's going to be help as an enabler to continue that growth and continue to lean into that channel.
Thank you and the other question is on the promotional level Theyre seeing for SaaS pre pandemic levels cemetery too and how has your market share been impact that if a test.
Speaker Change: Well I mean, it's.
John Hanson: It's J D. You want to take it well, we're just going to speak for garden.
John Hanson: Planning of the promotional calendar.
John Hanson: Not yet.
John Hanson: There are only a few months out so they are not beyond early spring at this point in time, we're anticipating much more promotional.
Marketplace this coming year, but we don't know a lot of the details yet. So we are in the bidding process to land some of those promotions and we will be aggressively, but we expect it to be very competitive marketplace.
Speaker Change: Yeah, I, just think overall growth again, I said it earlier, it's going to be harder to come by because of the deflationary environment that we're in.
Speaker Change: And so it's going to become very very competitive we think in 'twenty five from a from a promotional standpoint.
Speaker Change: Thank you I'll pass it on.
Speaker Change: Thank you. Our next question comes from William Reuter Bank of America.
Speaker Change: Okay.
Speaker Change: A correction that is Carla Casella Jpmorgan. Please proceed with your question.
Speaker Change: Yes.
Speaker Change: Alright.
Lastly.
Speaker Change: Carla you there.
Speaker Change: Can you hear me okay.
Speaker Change: Yes barely.
Speaker Change: I'm, having trouble with my connection can you hear me that's better.
Speaker Change: Okay, sorry about that.
Couple of questions here, when you talked about the M&A environment thinking.
Speaker Change: Changing any Hershey has 25 and you're totally agree with you. There can you give us some guidepost of how high it comes off.
Speaker Change: <unk> leverage you're kind of where your comfort zone in terms of leverage if you find the right transaction or transactions.
Speaker Change: Sure Yeah.
Speaker Change: We'd be we'd be willing to go over four times leverage.
Speaker Change: We need to have a direct line of sight to get it back to our three three and a half, but we'd be willing to lean into something over four.
Speaker Change: Okay, Great and then I'm a tariff by Lincoln.
Speaker Change: But getting back to 18 19 or that.
Speaker Change: That's mitigating some of them.
Speaker Change: How can you mitigate the tariffs and the changed as you look at that potential.
Speaker Change: Go round.
Speaker Change: Yeah.
Speaker Change: I think it does to some extent because I don't believe the tariffs were let's just talk China for a second I don't think they were 60% last time they were they were a little bit lower.
Speaker Change: There are several ways you can look at it we looked at in sourcing.
Speaker Change: I'll look at sourcing from different countries that either have no tariff or a much lower tariff.
Speaker Change: And then if we can't move the product then we work with those vendors on taking cost out and just getting it to a point where you can be competitive those are really kind of the three options. Those are the things we did last time.
We'll be doing it again, if we're putting that position.
Speaker Change: Our exposures lower though so that yes that plays a pretty big role for us.
Speaker Change: Great and then just one more on the comp.
Speaker Change: And program and how much do you outsource for assistance with today and where are you in that process how many.
Inning are you in in terms of further opportunities there.
Good question.
Speaker Change: I would probably put us.
Speaker Change: Maybe midway you know kind of.
Speaker Change: Fourth fifth.
Inning right now we've made a lot of progress this last year.
Speaker Change: I think 25 is going to be another pretty big year for us as well, but really things are progressing quite quite nicely like I said, we took out 11 facilities in <unk> and 'twenty four.
Speaker Change: With minimal to no business disruption so.
Speaker Change: Let's take a quick opportunity to call out the teams that have done that work.
Speaker Change: It's just amazing that.
There was no business disruption there are really performing with excellence. So we're getting quite good at it.
Speaker Change: Great. Thank you.
Speaker Change: And our next question comes from William Reuter of Bank of America.
Speaker Change: Good afternoon.
Speaker Change:
Speaker Change: So you just got you clearly have a ton of cash on the balance sheet. You mentioned that your outlook is still that the pet industry is going to be down.
Speaker Change: I think you said mid single digits this year, our valuations and for acquisitions coming down commensurate for the outlook, which is more subdued than I think most industry participants expected 12 or 18 months ago.
Speaker Change: On the pet side, we haven't seen much.
Speaker Change: We have seen a lot of durable business is out there, but not a whole lot of consumables.
Speaker Change: The expectation is still pretty high on the pet side in terms of multiples.
Speaker Change: But.
Speaker Change: My great banking relationships assure me that theres going to be immense deal flow in 25, So we'll have lots to choose from.
So I'm being a little cheeky, but but the election being over I think that there is a lot of optimism going into 'twenty five that that deal flow will pick up.
Speaker Change: In the midst of a more favorable regulatory environment and really just a lot of pent up demand if you look at.
Speaker Change: Yeah.
Speaker Change: The level of transactions Ipos you name it has been fairly anemic the last year or two so we believe that there is there is a lot of pent up demand both from a supply and demand standpoint. So we're looking to we're looking forward.
Speaker Change: So seeing more deals and frankly, I can't think of being better positioned than we are right now to take advantage of that.
Okay, and then just one follow up.
Speaker Change: In terms of M&A targets, you mentioned consumables and you mentioned pets would you consider targets that are either on the durable side and Pat or would you consider additional M&A in the garden side of the business.
Speaker Change: It depends on the deal I think.
Speaker Change: The durable side is believe it or not a little harder for us to wrap our heads around right now given what's going on.
Speaker Change: But if if an attractive deal came across.
Speaker Change: And garden that we think have legs.
Speaker Change: We would look at it I think it's going to be very deal specific and where we see value.
Speaker Change: So I'll never say no.
Speaker Change: But but I think the durable as a longer put the durable piece.
Speaker Change: This is Brad one thing I would add is strategically I think we went at.
Speaker Change: Avoid any further exposure to seasonality in our business. So that's a key driver as well and what we look at.
Got it alright, thank you.
Speaker Change: And our last question comes from Hale Holden Barclays.
Speaker Change: Hi, This is Mary Ann Neale Entre Hal just on the back of it.
Speaker Change: Carla and Bill's questions could you speak a little bit too.
Speaker Change: What inning you might be in your M&A pipeline in terms of pursuing a transaction. Please thank you.
Speaker Change: Yes.
Speaker Change: M&A is really an uncertain business. So we're a little reluctant to two.
To give color in terms of what inning. We're in what I can tell you is things have picked up a little bit.
Speaker Change: We're in a few processes right now, but thats pretty much all I can share because there is no guarantee we win those or what what the outcome is there are there is there.
There's a lot of uncertainty in those as everybody knows so just.
Speaker Change: Just know that that things are have picked up a little bit and we are out there looking at stuff.
Speaker Change: Got it thank you.
Speaker Change: Mhm.
Speaker Change: And with that there are no further questions at this time I would like to turn the floor back to Friedrich Edelman for closing remarks.
Fredrik Edelman: Thank you for attending our earnings call today and have a wonderful Thanksgiving. If you have further questions. Please reach out to me and otherwise enjoy the rest of the day.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
Fredrik Edelman: [music].
Fredrik Edelman: Hum.
Fredrik Edelman: Mhm.
Fredrik Edelman: [music].
Fredrik Edelman: Hum.
Fredrik Edelman: [music].
Fredrik Edelman: Uh huh.
Uh-huh.
Fredrik Edelman: [music].
Fredrik Edelman: Mhm.
Fredrik Edelman: [music].
Fredrik Edelman: Hum.
Fredrik Edelman: [music].
Fredrik Edelman: Uh huh.
Fredrik Edelman: [music].
Fredrik Edelman: Yeah.