Scotts Miracle-Gro Company (The)

supply chain is led by Dave for a long time. Just a lot of inherent knowledge there. But Dave's done a great job hiring, and we've got some young VPs, really technology forward, that if you were at our conference in July last year, you may have met David Husky. But we've got some really smart people just completely helping us reimagine this. Everything from fully automated forklifts. Probably the biggest thing we did is this core distribution center. It's a mile down the road from our Marysville Manure Perfectioning Plant. All of our fertilizers distribute out of that, and it's picked up by our retailers. We saved half a million miles of truck driving over a year between distribution centers. So we've got a really good crew. You'll see more coming out of us in supply chain. That $3 million Jim asked for, I would say the bulk of it probably comes out of supply chain. But it's all going to be based on a foundation of investing in technology, whether it's supply chain, field sales force, et cetera.

I'd also say, Andrew, that the entire corporation is going to contribute. And that's a little bit like let people get back after board meeting and start sharpening their pencils. But there's a lot of teams working right now. This is a lot of that. It's not just Nate. Nate has been contributing. When you look at the sort of $400 out, add $100 back into the business, a lot of that comes from the operating side. And God bless, but that's where a lot of money gets spent. So it's not inappropriate. The corporate's going to participate here,

too.

And we're asking real big questions about who we want to be and how we add value here. So listen, Mark can say, because he's the most important bean counter and sort of keeping score here. But I don't think that number is scary at all

to you. No, not at all. And I think to your point, it will come also at corporate and SG&A. And so some of it might get reinvested, as Jim talked about, in superpowers. Some might drop to the bottom line. I think it just allows us some flexibility as we continue to do our 26 planning, which we already have started and have been focused on even while we're in season. So yeah, we'll all participate in that process. There's plenty of opportunity there. I think there's a lot of technology over the past five, seven years that have allowed us to do our jobs a lot easier and I think get more efficient. And I think we've got some good ideas. Thanks, I'll pass it on.

One moment for our next question. Our next question comes from Jonathan Matsuwitski with Jefferies, your line is open.

Great, good morning. Nice results and thanks for taking my questions. First one was on innovation. In your prepared remarks, you referenced natural fertilizers and liquids as part of the product roadmap ahead. So just curious how you see those contributing to the 3% sales growth over the medium term and how you think about innovation as a contributor to US consumer segment growth ahead relative to history. Thanks.

Yeah, Jim, I'm gonna steal the beginning of that. It's really Nate's subject matter. But here's what I would tell you. This goes back to one of my main priorities which is seeing progress on unit volume and lawns. Remember, we're not losing share. This is a category wide issue. One of the things I think is concerned by younger people on chemicals use in the yard. And so I do think that organics is one way to avoid people being sensitive. So we know how to do this. This is not hard. So getting organic, we just, a lot of times you just, you believe in organic, you put it in the field, it just doesn't sell that well. Consumers, but I think that one of the reasons people don't feed is their concern over chemicals. And so we wanna have, we wanna make sure we're looking hard at that. And so we're gonna do that. Nate can speak formulation changes, except, you know, I would say it's a very tough place to innovate when you're dealing with controls. There's not that many controls. There's not a lot of innovation in ag chemicals, to be honest. And so you tend to be using the same actives. And so I'm trying to infuse to everybody here that if this was Proctor and we were talking Tide, I think they would assume the cleaning power, convenience of cleaning for homemakers, all this stuff gets better over time. What world are we living in where we're sort of dealing with 30 year old technology and thinking it's okay. EPA is trying to push us to, because they're looking at total exposure that consumers have over a lifetime, you know, including food they eat and their exposure to pesticides there. And so they're inhibiting the ability to put down actives as a way to mitigate lifetime, what they would call risk up, which means less effectiveness. So lack of innovation in the actives, putting down less than probably is optimal to get the controls you're looking for. And I think that drives a need for real innovation. Then I'll get to this other part, which is my view of the seasons and that I think, and I cannot, we hire really good weather people. I cannot get a really great answer is to what we're seeing in the spring is related to climate change. I think it is because we're seeing it over and over again, which is kind of squirrely behavior in April, which is prime for this and really open falls. And you know, we advertise, we stimulate business. The retailers like it too, because they're in lawn and garden mode, it's there it's gonna spring. But what do I think? I think if you talk to a lot of researchers here, they put down in the fall, and they'll say fall is the best time to feed. But we're fighting for the spring and we're fighting for what I think is unreliable weather. Meaning that there's a lot of deviation to the forecast in the spring relative to the fall. That's what I can get out of the experts. So meaning that it's unforecast weather more frequently in the spring in April than there is in fall, particularly Midwest, Northeast. So I'm trying to push to there. And there's another thing that they do. If consumers don't apply our products with a wet lawn, they're not gonna get that great control. They'll get good control, but not great control. And we want great control. If you talk to experts here, I don't care if it's supply chain people, people who know supply chain people, R&D people, senior leadership, they're applying straight feeds with liquids, liquid pesticides, which gives a really good control because it gets right into the leaf. You don't have to apply it to a wet product, which we think some people, a lot of people don't. So that's how you're hearing kind of innovation, seasonality and promotion throughout the year, as opposed to all just in the spring, trying to make the fall important, organics and liquids, because we're trying to sort of get at the things that can cause people to have less great results or make it kind of complicated or deal with bad weather. So those are why you're hearing all things. But when it comes to just innovation and where Nate's going, which is he's, look, he's not me. It's good. No, he's a very processed guy who has plans for everything. And innovation is a planning exercise. It's a long-term investment exercise.

Yeah, I mean, look, I'll break it down to sort of how we look at innovation, which is easy use for the consumer, effectiveness, value and safety. And depending on your consumer, those things, their rank order of importance changes. But I think Jim talked about it. This year we've got our full Miracle Grow Organics line coming out. That's been a big hit in gardening and we know that that's important. We have some new innovation in lawns coming out. We have the O.M. Scott sort of our heritage line, pesticide, herbicide-free, straight food, straight seeds. It's gonna be in a curb recyclable bag. So we're playing around with the new form factors. I mean, I certainly would like to see less plastic in the world, but it's gotta work. We've got an all-natural that sort of is gonna compete with the P&G offering coming out this summer. And here's the thing, I wanna be able to offer to whatever the consumer wants. And if we wanna have a consumer that wants to be all-natural, we'll have products, but we're also gonna have really smart products that are effective and safe to use that contain active ingredients. And we'll talk a little bit with consumers. This goes to the education piece, and I can't stress it enough. We can invent all the great things we want. If we don't talk to the consumer and help them understand how to use these things, it'll fail. So that's gonna be a big piece of it. And then I'll just end with, I think we're the only player in the category that has the horsepower to engage with some of our active suppliers, some of the big ag companies. I mean, we are looking 10 years out. We are looking at biologicals. We are engaging in sort of some of the crystal research they're doing, looking for more natural ways to improve the performance, whether it's a controls product, whether it's a fertilizer or plant food. So it will take time to build that, but it will absolutely, as long as we stick to, is it easy to use? Is it effective? Does it bring value? And is it safe? I'm pretty confident that we'll be leading the pack with innovation. You wanna announce your new partner on the Innovation Committee? So Rob Candelino, outstanding new board member. He will be taking over for Tom Kelly. My team has a lot of respect for him. He's probably given us more insights in the last few months than we've had in a long time, just because he's a working CEO, and he's still out there fighting the good fight. So just a really great add to the board. And while I'm deeply sorry to see Tom Kelly go, and I think we need to give Tom a lot of credit for this company's been over the last couple of decades, we've got an all new team, and I'm pretty excited about that.

That's great color. And just a quick follow up, a lot of references to the opportunity in the .com channel with some of your major retail partners. Is there any way to dimensionalize kind of where you stand today in terms of penetration, and just help clarify the steps for executing on that opportunity? I think it was referenced maybe some optimization of product sizes to work in that channel, but is there anything else? Thanks so much.

Yeah, I'll just say broadly, in DIY brick and mortar, on a unit basis, we call it 40% market share across sort of all our categories. We're barely in the double digits when it comes to the e-com play. So a tremendous amount of opportunity. Here's the thing, and I hate to pick on my old company, Intel, but I worked for them a long time ago, and I joined them when I thought they were the most sort of forward looking tech company in the world. I think we all know their challenges today. One of the things that they tried to do, and I think they've learned from this, is they built a perfect formula around building, designing, manufacturing, marketing, and selling CPUs. And anytime they tried to get into adjacent businesses, they tried to impose that same formula on them. I think we have to look at it the same way. We've built a beautiful franchise around DIY brick and mortar, lawn, and garden. We are not at all giving up on that. There is growth. But for us to operate effectively, whether it's in the e-com or omni-channel where you need smaller, lighter packaging, you're not gonna pick up a gallon of roundup or ortho in a grocery store, but you might pick up an easy to use apartment size form factor, we've gotta be there. And so the team is already working on that. The other end of it is on the pro side. We need to be able to cost effectively provide product on large scale to engage with small and medium sized professionals. So yeah, we absolutely have to reimagine it, and my only mandate for my team is that we don't impose sort of the way we do things today on those growth opportunities.

Jonathan, maybe just to dimensionalize, just to follow up on that, he talked about around like 10% or so. It ranges, single digits for some categories, slightly above into the low double digits, above 10% in other categories. So it just depends category to category, but to his point, a lot of great opportunity that we can do there, especially on the form factor and just different types of offerings and all that good stuff. Thank you, best of luck.

Ladies and gentlemen, that's conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.