Central Garden & Pet Company (CENT) Q3 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet's Third Quarter Fiscal Year 2015 Financial Results Conference Call. My name is Rob and I will be your conference operator for today. At this 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. As a reminder, this conference call is being recorded. I would now like to turn the call over to Steven Zenker, Vice President of Investor Relations and Communications. Please go ahead, sir. Steven Zenker - Vice President-Investor Relations & Communications: Thank you, Rob. Good afternoon, everyone. Thank you for joining us. With me on the call today are John Ranelli, Central's President and Chief Executive Officer, and Lori Varlas, Central's Chief Financial Officer. Our press release providing results for our third quarter ended June 27, 2015 is available on our website at www.central.com. Also on the website is the GAAP to non-GAAP reconciliation with the non-GAAP measures discussed on this call. Before I turn the call over to John, I would like to remind you that statements made during this conference call which are not historical facts, including expectations for new product introductions, future acquisitions and improved revenue and profitability are forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those implied by forward-looking statements. These risks and others are described in Central's Securities and Exchange Commission filing, including our Annual Report on Form 10-K filed December 11, 2014, and in our Quarterly Report on Form 10-Q to be filled on or about August 5, 2015. Central undertakes no obligation to publicly update these forward-looking statements to reflect new information, subsequent events or otherwise. Now I will turn the call over to John Ranelli. John? John R. Ranelli - President & Chief Executive Officer: Thank you, Steve. Good afternoon, everyone. Thank you for joining us today. I am very pleased with the progress we are making against the plan I set forth when I joined as CEO. We have delivered real operational improvements. The results are now evident in our financial statements. As we continue to execute on our plan, we expect to deliver top-line growth and additional operational improvements, driving continued earnings increases. On our last call in May, I outlined how our focus was shifting to growth. I called out some of the initiatives we are pursuing to drive organic growth in revenues and profits in the years ahead. A key to this shift is changing to a sales-driven organization. Let me elaborate. By being sales-driven we are placing even more emphasis on partnering with our retail customers and providing them with a broad range of products that appeal to our consumers. Being sales-driven is core to our balanced approach. We are leveraging all of our selling tools and more effectively using our dollars and resources to increase our sell-through in the marketplace. Being sales-driven means we are focusing on our customers with the best mix of in-store promotions, point-of-sale initiatives and advertising that drives consumer takeaway. As we become more sales-driven, we are actively building our selling team. Recently, we hired two highly successful pet executives who have a wealth of industry and selling experience. These are strong leaders, who we expect will have a very positive impact on our company. The foundation we have built over the last few years has helped Central return to being a more responsive, flexible and nimble company, attributes that bring value to our customers in many ways. Specifically, we are once again providing industry-leading customer service. Our improved relationships with our customers are benefiting us in a number of ways also. They are creating opportunities for incremental shelf space, enhanced product placement and increased distribution. Because our strategic alignment with our customers is stronger, we have more opportunities to make our products part of our retailers' growth plans. Perhaps best of all, some of our retailers are now calling us first when they have a need for a product, market insights or information. We are proud of the value and service propositions we now bring to our customers. In addition to growing organically, as I just described, M&A is another important aspect for growth. We continue to look for companies that fit well with our business at reasonable prices. Our Envincio acquisition of last year is performing as expected, adding revenues and profits to our bottom line. Also, just last week we acquired a rawhide and dog chew producer, which we believe will be accretive in the coming fiscal year. This is an adjacency that expands our footprint and fits will within our current Treats and Chews business. In addition to our customer initiatives, we are continuing to work on a number of fronts to lower our costs and increase our productivity. We want to be the low-cost producer of high-quality products, enabling us to invest in our branded businesses and be more competitive when bidding for private-label business. I'm pleased that our successes to-date are reflected in our financial results. Our gross margins are up, our SG&A costs as a percentage of sales are down, resulting in an improved bottom line. While we need to continue to reduce costs, the key to our future success is to grow both organically and through acquisitions. To that end, we will continue to leverage the lower-cost structure and stronger balance sheet we have created. The foundational pieces are largely in place to execute on the significant opportunity we have to grow our company over the next several years. I joined the company as CEO almost two-and-a-half years ago. I came here with broad goals and ideas of how to improve the company's performance. I am very pleased with our progress to-date, both in our operations and in our financial results. With the progress we have achieved and continue to achieve, the board and I have thought a lot about the future and how best to maintain the continuity of the business and build on our success. We believe that now is the right time to begin planning for succession. While we have built momentum in our operations and in our earnings over the last few years, we have not yet fulfilled our goals for top-line growth. We have more work to do. I am committed to staying through the end of fiscal 2016, when I reach my 70th birthday. We expect to launch a search for our next CEO this fall to enable an orderly transition. I will continue to work with our management team to build the company. After that, I will consult for an additional four years to support Central's new leader. In the meantime, we will all be working diligently to continue the positive momentum we have worked so hard to put in motion to increase shareholder value. Now I'd like to talk about our third quarter. Lori will give you a more detailed view in just a minute. Again, I am very pleased with our third quarter results. We've delivered earnings of $0.38 per share versus adjusted earnings of $0.28 per share last year. Sales, operating margin and SG&A as a percentage of sales all showing improvement. This is our fourth consecutive quarter of year-over-year improvement. When we last spoke, we believed our third quarter earnings would be flat to down versus last year. Instead, our results showed significant improvement. The principle reason we exceeded our third quarter expectations was the shift of certain higher-margin sales from the fourth quarter into the third. In addition, our wild bird feed and private label fertilizer and controls businesses did better than we expected. Also, we incurred lower than originally expected SG&A expenses. While it is still early in the quarter and there are a number of variables that could impact our fourth quarter results, we continue to believe it will show an improvement in earnings. We currently expect our fiscal 2015 earnings per share will be $0.63 or higher, well ahead of adjusted earnings per share of $0.33 in the prior year. On another matter I wanted to share is that our Chairman of the Board, Bill Brown, commenced a leave of absence in July as he continues to recover from injuries he sustained in an accident in his home earlier in the year. Jack Balousek, our Lead Independent Director, is acting as Interim Non-Executive Chairman until Bill returns. The final thought I would like to leave you with is that we've made excellent progress on our vision. The foundational changes we have made are working and yielding measurable results. Actions are now underway which we expect will deliver future sustainable top-line growth. Like our foundational steps, these actions will take some time to yield results. Our team is energized by the successes to-date and is united around delivering top-notch customer service and improved returns to our shareholders. Before I turn the call over to Lori to go over the financials, I want to take a moment and thank her. Although she will be with us through the end of August, this will be Lori's last earnings call. As you have seen, we put out a separate press release earlier announcing Lori's resignation. I want to express my personal appreciation for her invaluable contributions, leadership and hard work over the last four-and-a-half years. We couldn't have done it without you and we will miss you, Lori. Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Thank you, John. It's been a pleasure being a member of the team and I'm going to miss everyone. John R. Ranelli - President & Chief Executive Officer: Well, thank you. We have named David Chichester as Acting CFO. David has been a member of Central's board for 13 years, including serving as the Audit Committee's Financial Expert. David has been a Senior Financial Executive for several companies, including Starbucks and Marriott. We will be looking both internally and externally for a permanent replacement. Now I will turn it over to Lori. Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Good afternoon, everyone. By now you have likely seen our press release issued earlier today outlining our third quarter financial results. Let me recap and provide some additional color. I'll begin with a consolidated overview before moving on to our segment results. Consolidated sales for the quarter increased 3% versus third quarter 2014 adjusted sales. As a side note, for comparability purposes, I'll be referring to our adjusted 2014 numbers as I outline the details of the quarter. As you may recall, in the third quarter of last year we took a charge related to the discontinuance of two garden products. We reported adjusted numbers, excluding both the impact of that charge and the gain on sale of plant assets. You will find a reconciliation of our GAAP and adjusted numbers in today's press release and on our website. Continuing on with our 3% gain on consolidated sales, we delivered revenue gains in both our Pet and our Garden segments, with the vast majority coming from Pet. We'll get into that in just a minute. Our consolidated gross margin for the third quarter of 2015 was 30.9%, an increase of 30 basis points compared to our consolidated adjusted gross margin in the third quarter of 2014. Our Garden segment drove the improvement in gross margin. SG&A expense as a percentage of sales improved 70 basis points to 22.4%, principally due to the non-reoccurrence of certain Pet marketing expenditures we incurred last year as well as efficiency gains. Corporate expenses increased over the prior year, primarily due to outside consulting expenses. Our third quarter consolidated operating income increased $5.7 million to $39 million. And our operating margin was 8.5%, a 100 basis point improvement over last year, reflecting the higher gross margins and lower SG&A expense as a percentage of sales. We're pleased to see this increase in our bottom line in the third quarter on top of the gains we delivered in prior quarters. Let me move on to the third quarter details for our segment results, starting with Garden. In our Garden segment, revenues increased 2% over adjusted sales from last year. Within the segment, there was a strength in control product sales due to increased distribution and the sales of other manufacturers' product. These gains were partially offset by lower wild bird feed and branded fertilizer sales. Third quarter grass seed sales were relatively flat to last year, which was disappointing after we saw a strong April following a weak second quarter. From an industry sales perspective, the 2015 garden season, which primarily encompasses our second and third quarter, turned out to be somewhat lackluster. The season started late due to a slow warm-up throughout the Northeast and Midwest. April was strong and hopes were high that the second half of the season would make up for the first half weakness. However, in May, record rain in the Southwest, especially Texas, and record heat in the Northeast caused consumer takeaway to falter. So looking back, it was not an optimal Garden season. Year-to-date, our Garden sales were relatively flat versus the prior year. Our Controls and Fertilizer sales were up substantially on the strength of increased distribution. It was lower grass seed and wild bird feed sales that had the largest negative impact. Perhaps most important of all, our Garden profitability for the year-to-date period was the highest in five years. Actions we have taken to lower costs have driven our much-improved Garden bottom line. Getting back to the quarter's result, the Garden segment increased its operating income for the third quarter by $4.6 million versus last year's adjusted operating income. Garden's operating margin improved by 190 basis points to 10.6%. Our grass seed and private label fertilizer businesses were the biggest contributors to the gain in Garden's operating margin. Grass seed benefited from new products and a more favorable mix of sales. Our private label fertilizer business benefited from a more favorable customer mix and lower selling expenses. Our wild bird feed and decor businesses had lower margins than a year ago. Moving on to the Pet segment, third quarter Pet revenues were up $11 million or 5% on higher revenues in our professional products business as well as higher sales of other manufacturers' products. The increase in professional product revenues reflects higher sales of non-consumer active ingredient control products. Additionally, this quarter's professional revenues include higher year-over-year sales from the small natural insecticide business, Envincio, that we acquired at the beginning of the third quarter of 2014. Our Pet Distribution business distributes third-party manufactured products in addition to our branded products to independent retailers and to food, drug and mass. This business is a valuable channel that our branded and private labeled competitors don't have that allows us to provide a broader selection to our customers and provides insight into current industry trends. (20:37) also provides opportunities for organic and acquisitional growth. In the quarter, the sales gains of other manufacturers' products is attributable to increased sales of third-party products in the e-commerce channel and to new store openings by larger customers. Partially offsetting the professional and other manufacturers' product sales gains were lower revenues in our flea and tick and wild bird feed businesses. The flea and tick business was impacted by lower sales in the sub-channel, while wild bird feed sales were negatively impacted by our lower product pricing associated with lower commodity costs. In the Pet industry, 2015 sales growth has slowed compared to recent years. Growth in dog food, particularly the premium natural segment, which has been the driver of the Pet industry's gains over the last few years, has leveled off. In our portfolio, categories within dog food play a larger role. Clearly categories like flea and tick, dog treats and puppy pads has seen decent industry growth this year, while many other categories are down. The weakest industry categories year-to-date that we participate in has been wild bird, pet birds and small animals. In our Pet business, we have reversed course from the sales declines we experienced in 2013 and 2014 due to shelf space losses and our walking away from low-margin business. We expect the revenue growth we have experienced over the last few quarters in this segment to continue. Operating income in our Pet segment increased $4.5 million and the operating margin increased 130 basis points to 13.8%. Higher sales and lower SG&A as a percentage of sales increased the bottom line and drove the increase in operating margin. Our professional and flea and tick businesses were the primary drivers of the increases in operating margin. The professional business benefited from increased efficiency due to higher sales volume. Sales and profitability gains we made in our Envincio business that we acquired last year also added to our profitability. In our flea and tick business, the non-reoccurrence of certain marketing expenditures also had a positive impact. Dog and cat margins were also up, benefiting from better sourcing and a lower manufacturing cost. The equine, aquatics and wild bird feed businesses had lower margins than a year ago. Net-net, both operating profit and operating margin improved for our Pet segment. Looking back to our consolidated results, net interest expense in the third quarter decreased $1.4 million from the prior year to $9 million, primarily due to lower average borrowing including the impact of the redemption of $50 million of our 8.25% senior subordinated notes in the second quarter of this year. Our third quarter tax rate was 37.5% compared to 37% in the third quarter of 2014. Third quarter net income was $18.8 million or $0.38 per fully diluted share compared to adjusted net income of $14.1 million or $0.28 a share in the third quarter of 2014. Turning to our cash flow and our balance sheet, inventories of $340 million were $25 million lower than a year ago, as we continued to seek to optimize inventory balances for our ongoing business needs. This is in addition to the $48 million reduction in inventory we delivered in the third quarter of last year. From a cash flow perspective, our cash flow generated by operations in the third quarter was $155 million compared to $129 million in the third quarter of 2014. CapEx for the quarter was $7.1 million versus $3.7 million last year. Our fiscal 2015 year-to-date capital expenditures are in line with our historical annual run rate of $25 million to $30 million. Depreciation and amortization for the quarter was $8.3 million, down from $9.2 million last year. Net debt was $356 million versus $404 million last year, an improvement of $48 million. Our leverage ratio at quarter end was 2.9 times, down from 5.6 times last year. At the end of the third quarter, we had no borrowings outstanding on our ABL credit facility and had $384 million available for borrowing. During the quarter, we did not repurchase any of our outstanding stock and approximately $35 million remains available under the board-approved stock repurchase program. With regard to our outlook, as John noted earlier, while it's still early in the quarter and there are a number of variables that could impact the company's fourth quarter results, we expect an improvement in earnings compared to last year. We currently expect fiscal 2015 earnings per share of $0.63 or higher, well ahead of ahead of adjusted earnings per share of $0.33 in the prior year. Thank you for joining us this afternoon. We'd be happy to take your questions. Rob, would you please open the line?

Thank you. We'll now be conducting a question-and-answer session. Thank you. Our first question is coming from the line of Bill Chappell with SunTrust Robinson. Please go ahead with your question.

Thanks, guys. John R. Ranelli - President & Chief Executive Officer: Hello, Bill.

How are you? John R. Ranelli - President & Chief Executive Officer: Good.

John, I guess just to the succession issue. Maybe help us understand the outlook if you're – again, I know you're expanding it or extending it, but you're still there for 15 more months. Is the point to really refocus on acquisitions and really change the company or kind of more of the same and then bring in somebody new in the next six months and see where the vision goes from there? John R. Ranelli - President & Chief Executive Officer: No. I believe that the concept behind my contract as structured by the board is based on the successes that we have been having and are having and building the foundation of the financial performance going from $0.20 a share to $0.33 a share and then to a number this year which will be $0.63 or higher. I think the board is very pleased with the direction that we're going and they wanted to keep the concepts that we're doing and the execution of going forward. So they wanted to make sure that we had continuity in succession of the management team. And we went and put the contract together that has the company and I working together for another six years.

Okay. And in terms of looking at where we are in the turnaround, the streamlining, even identifying the cost savings, I mean, is this a realization that we're halfway there or more than halfway there? And in terms of – or are you starting to pivot more towards the marketing and stem (28:38) side, or is there still more cost savings to be found? John R. Ranelli - President & Chief Executive Officer: Great question. Basically, we think that our foundation is now in place. And we have opportunity with that foundation in place to grow and take advantage of Central's, can I call it, financial and operating leverage. In other words, I believe that we could increase our sales significantly without adding that much to our cost base.

And when you talk about increasing sales significantly, is the goal to grow in line with, let's say, the mid-single digit of the Pet category and the low-single digit of the Garden category? And maybe you could give us some color on recent wins or market share gains to just give us some better understanding of what's going on there. John R. Ranelli - President & Chief Executive Officer: Sure. In the area of growth, we have gone into the marketplace and I am really pleased to say that on the Garden side that our market share has stayed relatively flat, if not increased this year. So, I'm very pleased with our Garden performance. In our Pet segment, we were looking at some numbers yesterday. Over the 52-week period, our market share has actually declined, which we expected given where we were on our base coming off of the time that we turned internal (30:30). Where we are now was that over the last 13 weeks we were flat in market share and over the last month we were up. So I'm seeing significant improvements in our POS. And they're mostly driven by two things; one is increased distribution. Recent increases in distribution have come – a significant amount of them have come in our Aquatics business in Petco. And we're very, very pleased with that and also the sales growth that we're getting from it. So we're going both after increased distribution and increased sales growth by using our marketing tools that we have, both from a push and pull basis going forward.

Great. Thanks for the color.

Thank you. Our next question is from the line of Brian Nagel with Oppenheimer. Please go ahead with your question. Brian W. Nagel - Oppenheimer & Co., Inc. (Broker): Hi. Good afternoon. John R. Ranelli - President & Chief Executive Officer: Hi, Brian. Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Hey, Brian. Brian W. Nagel - Oppenheimer & Co., Inc. (Broker): Congratulations on a nice quarter. John R. Ranelli - President & Chief Executive Officer: Thank you. Brian W. Nagel - Oppenheimer & Co., Inc. (Broker): I've got a couple of questions. One is somewhat of a follow up on the prior question. But the acquisitions, John, I think as we look at your story and it sounds like that we're preparing now at least the last couple of quarters that Central's more in the mindset of making acquisitions. Are there any broad parameters we could be thinking about? What type of company, either from the financial perspective or size, that you're looking to acquire? John R. Ranelli - President & Chief Executive Officer: I really couldn't hear the question. But I assume that what the question was, was are there any particular size of business that our potential acquisitions could be in. Is that correct? Brian W. Nagel - Oppenheimer & Co., Inc. (Broker): That's correct. Sorry about my connection being bad. That's correct. Yeah, go ahead. John R. Ranelli - President & Chief Executive Officer: No, there's no particular size. We like to keep our leverage ratio somewhere between 3 times and 4 times. Obviously, for an acquisition, we would go above that to acquire the right acquisition. But we'd like to stay pretty close to our ditty, (33:04) which is in the Pet and Garden business. We have a lot of confidence in these businesses. We have a lot of skills in these businesses. So as you can see from these two acquisitions that we talked about last year and this year, they're very close adjacencies where we have management capability to go forward and do them and then integrate them successfully. And as I mentioned, Envincio is accretive and we expect in the first year that our IMS acquisition would be accretive. Brian W. Nagel - Oppenheimer & Co., Inc. (Broker): Okay, thank you. If you can still hear me, Lori, I guess this question is more for you. Just looking at the gross margin trajectory, you guys now for the last several quarters accrued (33:47) gross margin gains. How should we think about the drivers behind the gross margin here in the third quarter and then going forward, how that continues to play out? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Sure. So in our third quarter in particular, the gross margin gains were primarily in our Garden segment. If you look at some of the mix of our products that drove that, we had some new products like grass seed and a favorable mix of sales. Our private label fertilizer was a contributor to those gains. And so it's really the margin expansion, in the third quarter in particular, are really kind of related to those factors. Of course, we continue to look at that. As John has described in other calls, being a low-cost producer of quality goods is something we're very focused on as the company. And we'll look for other ways to drive efficiencies as we look – as we pivot toward really focus on growth we'll filter our important drivers and factors as we move forward. Brian W. Nagel - Oppenheimer & Co., Inc. (Broker): Got it. Well, thank you and congrats again. John R. Ranelli - President & Chief Executive Officer: Thank you.

Our next question is from the line of Grant Jordan with Wells Fargo Advisors. Please proceed with your questions.

Good afternoon. I may have missed this, but can you repeat on the grass seed, were you able to maintain share or did you lose share during the first six months of the year? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Yes, from a grass seed perspective, it was not a great grass seed year. We've certainly seen the trajectory and the impact of those overall grass seeds, but from a share perspective, I think we're holding our own.

Okay. That's what I thought I heard you say. Second question. Now that the balance sheet has improved, is there any thought to we're going to pay down more of the bonds or do a refi? Or is more strategic activity on the back burner with the management changes? John R. Ranelli - President & Chief Executive Officer: We and our advisors are constantly watching the market. And please remember that we repurchased $50 million of bonds not too long ago, in fact, earlier in the year. And also our call premium expires next March. We're going to continue looking at the markets, continually look at our acquisitions, continuing to look at our capital structure and we will do what's right at the right time given our opportunities.

Okay. Thank you.

Our next question is from the line of Carla Casella with JPMorgan. Please go ahead with your questions.

Hi. So you've got the question on M&A. I'm wondering also if there's any other of your businesses that you would consider selling as you've exited some of your lower performers in the past. John R. Ranelli - President & Chief Executive Officer: We're constantly looking at our portfolio. Right now there is no business that we would be interested in selling.

Okay. Great. And then just given all the changes in management, does it make you any more open to looking at offers like you had in the past for the entire business? John R. Ranelli - President & Chief Executive Officer: There are no plans to sell the company.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Gregg Hillman with First Wilshire. Please go ahead with your question.

Hey. Good afternoon. Hey, John, could you review the competitive dynamics of the flea and tick control market? I noticed that Bayer is in some of the stores, but also in just other products, taking share, outlets like Walmart. Can you compare how that market has changed over time and where the sales are occurring and in what channel? And what that portends for you in the future? Whether that will be less? I know it's a great little cash cow for you, but do you think that's sustainable? And also talk about your applicator thing, whether that's a differentiating thing, whether that's getting traction. Just review the whole thing for me, please. Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Yeah, so our flea and tick business. I think that that space, that category certainly has been evolving. Over the last several years, there's a lot more competitors than there were years ago. We have good products. You talked about the applicator. I think that's a differentiator. It tends to appeal to our consumers as far as how the active ingredients get applied to their pet. And it's certainly an important area of our business. If you look at the results for the quarter, if you look at our operating income, the flea and tick business actually helped our operating income from that perspective.

So it improved year-over-year? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: The flea and tick operating margin did, yeah.

But but did the actual operating income improve as opposed to margins? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Yeah, we had some challenges, as I'd mentioned, in our flea and tick in our Club channel sales were down so we certainly felt the impact of that.

Okay. And by the way, how does that applicator thing work? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: You open it up and put the active ingredient in it, close it back up and you just drag it along the along the pet's back and it distributes the active ingredient within the fur.

And you don't get any on your hands when you're doing it? You don't have to wear gloves or something like that? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: No.

Okay. Okay. That's pretty great. And then can you talk about is dog food an important segment for you? I mean, like is it more important than flea and tick at this point or is just pet food in general? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: So, I think there's a two-part answer to that particular question. We have dog food that's in our product portfolio, it's smaller than some of our other categories. If you look at our third-party distribution and you look at the Pet category in general, we do distribute third-party dog food products on behalf of other manufacturers. And so (40:43) our third-party as well as our own branded business. It's important, but in our own personal portfolio, dog food plays a smaller role.

Okay. And then finally in the fertilizer and controls area – well, let's just say the fertilizer area. I take it you have a lot of fertilizer. How's that differentiated from Miracle-Gro products? John R. Ranelli - President & Chief Executive Officer: I don't think I would want to talk about our products versus our competitors' products. I think you can see that in the marketplace. But our fertilizer business is growing, growing significantly this year, and primarily from increased distribution, but we've also had increased sell-through.

Okay. That's great. That's all I have at this time. Thanks. Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Thank you.

Thank you. Our final question today is coming from the line of Hale Holden with Barclays. Please proceed with your question.

Thank you for taking the call. I just had two quick ones. Can you give us input commodity price outlook for where you're thinking for the next six months or so? Lori A. Varlas - Chief Financial Officer, Secretary & Senior VP: Yeah, so from a commodity perspective, a lot of the harvest is just beginning or about to begin as we head into the fall. What we've seen from our input costs for grass seed, the cost of grass seed has been rising over the past year. I think we'll have to wait and see how the yields are and the demands are. I think that might be a better question for next quarter once we see those yields.

Okay. And then back, I don't know, 18 months ago when you had the Pennington Sprayer recall, or lack of sale issue, you had asked us to give you two years to three years of innovation. And I was wondering where you were on the pipeline on new products? And then specifically if you could kind of blend that into the distribution gains that you got on Aquatics. Was that new product-related or just sales and knocking on doors related? John R. Ranelli - President & Chief Executive Officer: Great question. What we had to do 18 months ago was to re-establish our business unit managers who were experts in the various businesses and categories that we participated in. Once we did that, what we did was built product development organizations under them. We had prior to 18 months ago a centralized product development process, which wasn't yielding the product that we would like. After distributing the business responsibility to the various business units, each of them went and built a product development team. The results of that team have been very encouraging. I would say that given where we wanted to be about this time, we are. We're there. Where are we with the total objective? I would say we're about 50% of the way there with regard to what I would call a success level. So we're moving quickly, but it does take a while to get product developed, designed with a new team and into the marketplace. Where we are is that the basic foundation is in place to do that and that product is now being introduced into the marketplace, but it will probably be another year to two before you will fully see that on our income statement. With regard to the aquatics product, I think they're about 50% from where they would like to be. I would say that part of those sales were as a result of new product, but part of it was also increased distribution and a lot of increased sell-through from both existing products due to product promotions that we're running, incremental space that we've achieved. And I'm very, very pleased with where we are and where we're going.

Just one follow on. Have you seen the aquatics generally start to stabilize? I know it has been a declining category for a little while, maybe not Central-specific, but just aquatics generically. John R. Ranelli - President & Chief Executive Officer: I would say that it is starting to stabilize. But for us, we are increasing our market share.

Thank you for the time. I appreciate it.

Thank you. I will now turn the floor back to Mr. John Ranelli for additional and further comments. John R. Ranelli - President & Chief Executive Officer: Well, thank you for your questions and for joining us on the call today. We look forward to talking to you again on our next call. Thank you.

Thank you. This will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.