00:00I know you're getting settled into the job. You had to come talk to the Wall Street whores. How
00:03did they treat you today? Everybody was great. Yeah. You know, the reality is I've been having
00:07conversations for the last 18 months with our investors. So while the title has changed,
00:11the underlying strategy is still consistent with what I've been talking about for the better part
00:15of two years. Well, let's talk about the underlying strategy. When I see EPS grow at the 5% to
00:198%,
00:20that doesn't seem aggressive, but it's not necessarily low either, given all of the
00:23complexities going on in the world today. What gives you the confidence that you can meet that?
00:28Well, we do recognize it's sort of conservative. It's sort of in the sweet spot of a value investor.
00:32If I look at the last couple of years, we've had a lot of volatility in the markets, a lot
00:36of events
00:37between tariffs and the war in Iran that we just couldn't predict. So our point of view is we're
00:42going to be fairly conservative, but we are going to turn into a growth company. We believe that the
00:46underlying initiatives that we outlined today are going to get us to where we need to be.
00:50But we also wanted to be honest with investors about growth. I told the team, I think we can
00:54outperform that. But our focus right now, especially from a capital allocation standpoint,
00:58is getting that leverage down a little bit. So with regards to the growth strategy,
01:02and forgive me, I don't mean to be flip about it, but when I think about the products you sell,
01:05obviously iconic brands, the branded products, but that doesn't seem like a growth story,
01:10unless I'm missing something. Well, I think you have to look at a couple of ways. So we do believe
01:13there's a lot of organic growth possible. Our average household penetration is only about 10%.
01:18So if you look at the 85 million households out there only being penetrated by 10%, we have a lot
01:23of organic opportunity. Now, the question is, how do we convince consumers to engage with us in our
01:27category? So I think that's one of the fundamentals. The other is, we know channels, consumers are
01:33shopping channels that they didn't before. You know, you come out of the pandemic, I think we had
01:37something like less than 5% of our total point of sale that was through e-commerce. Now we're up
01:42to
01:4313%. 300 bps alone this year. So what we're realizing is we need to go to where the consumer is,
01:48especially the younger consumer, and they're in totally different channels.
01:51Well, talk to me a little bit about that, because what is sort of, I mean, you talked about this
01:55at
01:55The Investor. You talked about this on your earnings last week, I believe as well, about digital
02:00advertising and your approach to it. What does this mean? You're just making like, you know,
02:05funny things on TikTok, or is it a little more sophisticated than that?
02:07No, I mean, we certainly don't want to, we don't want to cheapen the brands. It's more sophisticated
02:11than that. What we're recognizing is we need to meet the consumer where we are. You know,
02:14we used to be a traditional media company. You would buy those upfronts, you would have a fixed
02:18date, the cost was sunk, you would run it, the weather might not be great, not necessarily the
02:23right way to do your media strategy. So we've now pivoted where 80% of our media is digital. And
02:29it
02:29does two things that are really important. One is we get to tailor it for individual consumers.
02:33And the second thing is we get to be really agile with it. We can decide on a Monday if
02:37the weather
02:38is not going to be good in Chicago this weekend, we can pull back or we can redirect it.
02:41So it allows us to be much more effective. And we've seen a commensurate increase in the media ROI
02:46as a result of that. Is your marketing primarily created in-house or are you relying on third-party
02:50agencies? It's a hybrid. We have a, for the social stuff, we like to do it in-house because you
02:54need
02:54to be able to respond to what's happening out in the world. But we have a whole bunch of partner
02:58agencies. We don't do the traditional AOR, you know, model. We actually pick a lot of partners and we
03:03let our people sort of direct. And it's been hit or miss. You know, we've got great agency partners.
03:07We have some that are good for a period of time and then we want to move on. But one
03:11thing,
03:12it's a little bit like AI. It's changing so quickly. We've got to be flexible with who we
03:16partner with on these initiatives. And talk to me about your input costs. I mean,
03:18we've seen commodity prices up, including for urea. Obviously, it does not seem like there's going
03:24to be an end in sight right now for those to come down with regards to the situation in the
03:28Middle
03:28East as well as some of the other weather-related factors. How have you factored that into that 5%
03:33to 8%?
03:33So, yeah, certainly been a challenge. I mean, I think we talked about in our Q3 earnings,
03:37we had a little bit of a headwind this year. We absorbed most of it through cost out,
03:41but about $15 million of it did fall to the bottom line in Q3. For next year, we're doing a
03:46few
03:46things. One is we've got a great team that does pretty sharp hedging. And so we do hedge urea,
03:51diesel when it's available. But more importantly, we work on how to minimize those inputs. And we're also
03:56going to have to take some pricing this year. And that's a delicate balance. We've got to look at
04:00volume trade-offs with that. But we have great relationships with our retail partners.
04:03And given we're in the mid-single-digit range of pricing, we think we can figure out a way to
04:07navigate that. What's the relationship like with the retailers and where you put product versus
04:14what maybe you're trying to sell directly through your own channels? Well, let me be clear. We don't
04:18really endeavor to sell a lot directly through our own channels. It's a pretty small, it's a rounding
04:22error for us. And it's not something we're focused on. Our lawns program is the biggest. But our
04:27retail partners are pivoting very quickly to e-com. So if you look at the big three, which is what
04:32we've
04:32traditionally talked about, footsteps and those brick and mortar stores, flat to down. Actually,
04:37last quarter, they were slightly positive, which was a great sign to see. But they are pivoting
04:41quickly. So we are now in the mode of developing products for all of our e-com consumers and retail
04:47partners. And that's a big part of what we've talked about today, which was innovation.
04:50I do just have to ask you, obviously, when I think of the products that you sell at Scott's
04:54Miracle grow, I think, you know, you're a homeowner. You're going out into your backyard or into your
04:59front yard and applying the products here. We know that the homeownership rate has gone down.
05:05We know the turnover of homes has gone down as well. I assume that has to have a direct impact
05:10in your business. How do you compensate for the slowness that we're seeing in that space?
05:15Well, the good news is it's all part of how we go capture that next generation. So that next
05:19generation, they are not yet homeowners. They are apartment dwellers. They have condos. So we've
05:22pivoted hard into indoor gardening, something we've always done, but we haven't talked about
05:26it. And we had a whole new suite of products that came out. The other big win that we talked
05:30about at Investor Day today is in the grocery aisle. We typically have not been present in
05:34the grocery aisle with our controls products. And so we now are winning business at some of
05:39our bigger partners in the grocery aisle. That's a big deal for us. And then if you look
05:42at our partnerships, we've talked about a partnership with a small company called Murphy's. They're
05:46doing on skin, natural mosquito prevention and repellent. We're finding new channels with
05:52them. So I think, you know, this growth story, just to go back to what you asked me a minute
05:56earlier, it's really about getting the right products in our consumer's hands. So we've
06:00got a traditional consumer that likes the traditional product that you just mentioned, but we have
06:04the next generation consumer. They want natural. They want organic. They want things that are
06:08safe for pets and kids. That includes apartment dwellers. That includes people that aren't
06:12yet homeowners. And when I look at the home ownership, I don't look at it as a headwind
06:17today. I look at it as it's going to be a tailwind when that dam breaks and we start to
06:20see more
06:20turnover in the home ownership. So we don't look at it as a negative. We just know that there'll
06:24be something down the road coming where we can engage that next-gen consumer as they become homeowners.
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