Scotts Miracle Gro Earnings Call Insights: Global Consumer Sales, Commodity Costs

On Tuesday, Scotts Miracle Gro Co (NYSE:SMG) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Global Consumer Sales

Jon Andersen – William Blair: I guess my question is – you touched on this a little bit in the prepared remarks. The consumer purchase has been up 20% in the quarter, but the global consumer sales or the U.S. sales have been up 3%. It seems like that’s a significant divergence and I am just wondering, if there is any more kind of color there beyond the inventory comments you made that would help us understand that divergence?

Barry W. Sanders – President and COO: Jon, this is Barry Sanders. Traditionally when we looked at replenishment on how the stores would stock, I don’t anybody anticipated that the purchases would be up 20% margin. It turned out that we had a fantastic start to the season and so I would say for the most part we played – we were playing almost a JIT getting product back in stock and making sure that inventories were level (indiscernible). So where we would have came out of March with higher inventory getting ready for April, as Jim said, those purchases – a lot of those purchases really shifted into March and so it was a matter of time shifting in April. So I would say it’s more of a timing issue, Jon.

Jon Andersen – William Blair: Okay. And I guess one other question on the mass channel which was a more difficult channel for you in the last year. It sounds like that has – the performance in that channel has improved. Can you talk a little bit about what you’ve done there specifically to address that and source of the kind of the better performance in the current year?

James Hagedorn – Chairman and CEO: Well, I’ll – Jim here. I’ll sort of start with it and then Barry if you want to just complete you can do that. To start with, I think our team managing the big customer in that space has done a really superb job of reengaging with the retailer and that has been great and I think the relationship between the two companies is significantly enhanced and the level of trust and – you know, all the things (indiscernible) is the beginning of anything is everybody wants to work together and everybody wants to succeed in the lawn and garden category. Last year we ran some work that we had done in Florida where we did some print work, some integrated radio work with the customer and what we saw – and this was in the fall – what we saw is I mean really incredible performance like we haven’t really seen in many years with that retailer. I went down and visited personally with the CEO before the year end and basically offered up an opportunity to see if we could do that a couple more times on a national basis, and what we’ve seen is similar kind of result, which is that the results we saw in Florida in the test we’ve seen on a national basis, and those promotions continue. So, what do I think? I think everyone’s committed to the space, the degree of cooperation between the two of us is way better, and the inventory position and promotional and integrated sort of marketing plan to the consumer, I think, is way better. And it’s a kind of long answer to the question, but it was something that really concerned us last year, and this is – my part of this is kind of the CEO to CEO part, which was important, but most of the work has been done by Barry and his team. And I don’t know Barry, what you’ll add.

Barry W. Sanders – President and COO: Just sum it up, Jim, I would say, significant improvement in the relationship on both sides has led to a much better business plan and the teams believe in it and they are doing a fantastic job of executing. So, I think the results reflect of those primary three things.

Session 2:

William Chappell – SunTrust Robinson Humphrey: Can you talk little bit more just about the commodity costs, especially as we go into next year, I mean watching urea outside of kind of the range what you would have expected and probably what we would have expected on categories that I think you’ve said you probably can’t raise prices again on lawn (products) and other things going into next year. So, how are you looking at that? I know it doesn’t affect this year, but how do you look at it going to next year?

James Hagedorn – Chairman and CEO: Okay. So, let me just before Dave goes on there, just in regard to pricing, which is we’re in discussions with people now. You can assume we’re taking pricing next year, okay.

William Chappell – SunTrust Robinson Humphrey: Okay.

James Hagedorn – Chairman and CEO: Right, so Dave.

David C. Evans – CFO and EVP, Strategy and Business Development: So Bill you’re correct, so commodities we had gone out and hedged to fairly significant extent. I believe right now we’re about 88% locked for the fiscal year. So we did see – you’re probably referencing urea. We saw a spike in urea and I think that would have a high correlation to favorable spring weather and aggressive planting by farmers using that particular product for the growth. When we look at the forward markets, we don’t see the current market as being indicative of the forward markets for when we’re going to be back in the market purchasing urea for next fiscal year. So at this stage we’re not seeming urea as a material concern for next year.

James Hagedorn – Chairman and CEO: And I’ll just add and we’ve committing to that forward market.

William Chappell – SunTrust Robinson Humphrey: And then just as a clarification, I thought historically the biggest months of the year were April and May and it seems like you’re saying it’s more May and June. Has the season kind of been pushed out versus kind of historical or is it extended or how should I interpret that?

David C. Evans – CFO and EVP, Strategy and Business Development: Your numbers are right Bill, but I would state June as equally as important month. It’s not as big as April or May but it’s still important to us.