Good day, ladies and gentlemen, and welcome to The Scotts Miracle-Gro 2016 Second Quarter Earnings Conference. Today's conference is being recorded. And at this time, I'd like to turn things over to Mr. Jim King. Please go ahead. Jim King - Senior Vice President, Investor Relations & Corporate Affairs & Chief Communications Officer: Thanks, Greg. Good morning, and thanks everybody for joining us this morning at The Scotts Miracle-Gro second quarter conference call. With me this morning are Jim Hagedorn, our Chairman and CEO; Randy Coleman, our CFO; and Mike Lukemire, President and Chief Operator. We're going to start in a few minutes with prepared comments from Jim, who will update you on our strategic plan as well as provide an overview of the consumer activity we've seen in our U.S. business so far this season. Randy will then go through the numbers including a review of our new reporting segments. We've got a lot of things to cover this morning, so when we get to the Q&A I'd like to ask everyone to ask one question and one follow-up. I have already set up follow-up calls with many of you for later in the day and I have set most of day aside tomorrow to do the same. Before I get started or we get started, I want to remind everyone that our remarks today will include forward-looking statements and as such actual results may differ materially from what we say. We encourage investors to familiarize themselves with the risk factors that could impact our business, a complete description of which can be found on our Form 10-K which is filed with the SEC. Today's call is being recorded. A replay will be available later in the day as will a transcript and a call will be archived on…

And first, from William Blair, we have Jon Andersen. Jon R. Andersen - William Blair & Co. LLC: Good morning, everybody. James Hagedorn - Chairman, President & Chief Executive Officer: Hey. Randy Coleman - Executive Vice President & Chief Financial Officer: Hi, Jon. Jon R. Andersen - William Blair & Co. LLC: I just wanted to ask about the year-to-date point of sale, but more importantly maybe your expectations for May and June. How difficult was the April comp? And how easy, perhaps, or undemanding does the May and June comp get? And I'm trying to kind of just ascertain at a little bit more granular level your level of confidence at this point in the season as it relates to kind of consumer engagement and your ability to kind of hit your kind of full year top line expectations? Thanks. Randy Coleman - Executive Vice President & Chief Financial Officer: Sure, Jon. James Hagedorn - Chairman, President & Chief Executive Officer: I think we'll probably all share this one a little bit. I'd start by saying we were up on a POS basis in sort of the low-teens entering the end of March. So that gives you some idea of – I think when the weather was really good, how active the consumer was. So that's good. April and May are pretty big numbers, and so just the weather we're kind of seeing up in the Northeast right now, rain in Texas, have pulled the numbers back. But remember, our budget numbers don't demand us to be – I mean, if we ended the year plus 15%, it would be like absolutely blow-away. And we weren't expecting that. So at the end of last week, we were up like 4.5% POS on a national basis. So what you're seeing…

Our next question comes from William Reuter with Bank of America.

Good morning. When you guys talked about the increased gross margin dollars that you guys might see due to better gross margins, you also talked about the fact that variable compensation could increase and this would offset part of this. Is there any way you can talk to us a little bit about how that relationship works? Randy Coleman - Executive Vice President & Chief Financial Officer: Sure. I think the most obvious way to think about it is our management incentive plan is largely tied to operating earnings and the better year we'll have, the better we'll get paid. So it's a sliding scale. If we don't perform, we get paid less; if we over perform, we get paid more. We're still really optimistic in our results for Q2 assume that we're going to pay ourselves out at a higher level than would be the normal target. But again, that's somewhat dependent and that gives us a lot of confidence about being able to land the year regardless of how POS performs. But even on that end, we're still feeling really optimistic.

I guess maybe I was thinking such that if gross margin dollars were up, let's just take a number, 100, that therefore we would have 50% of this would be offset through increased compensation – or is there any way for us to think about that? Just to think about how those gross margin dollars flow through more quantitatively? Randy Coleman - Executive Vice President & Chief Financial Officer: Well, thinking about our variable compensation expense, if we were to hit the high-end of our range versus the middle, it's probably worth about $0.10 or $0.15 per share, so that kind of gives you a sense of what that would look like.

Okay. And then just a follow-up for me. It sounds like the acquisitions you're targeting this year are still kind of a modest size relative to the size of the company at this point. I guess I'm wondering whether, on your guys' wish list, or whether you guys have seen opportunities that might be a little bit larger at this point that you guys have been contacted about or thought about? James Hagedorn - Chairman, President & Chief Executive Officer: Well, I'll take that. I think we're – our pipeline is active, and I think full for what we're trying to do. But the deals are of relative modest size. If you look at the big deals that we have done, I think getting the Roundup deal done last year was very important for us. That was, what, $300 million-ish. The lawn service ChemLawn deal was a super-important deal for us. I have to admit to being a little disappointed that the European deal didn't happen. But, again, what we saw in diligence was an emerging valuation problem to our benefit that we weren't quite sure how it was going to get solved. And the seller just took a different choice, and I think that that kind of resolved the problem for them. Our biases have not changed. After that, our reconfiguration is really about getting Europe done, and hydroponic deals closed, within the context of what we've told the shareholder community. Beyond that, what we've said, the company we like the best is us. And that we'd like to significantly reduce our share count over time. So I think that the big deal you're talking about probably is us. And that's kind of what we're headed for. A lot of the bigger ones we've done. There's a few small…

That does answer the question. Okay, that you very much. James Hagedorn - Chairman, President & Chief Executive Officer: You bet.

And next we'll hear from Bill Chappell with SunTrust.

Hey. Good morning. James Hagedorn - Chairman, President & Chief Executive Officer: Hey, Bill. Randy Coleman - Executive Vice President & Chief Financial Officer: Hey, Bill.

I guess, just a side note, you commented that Hawthorne may be separated out as a standalone business depending on different factors, does that mean we're reaching kind of 10% to 15% of total sales, or is there another reason why that would be split out? Randy Coleman - Executive Vice President & Chief Financial Officer: Well, it would be sales or earnings or asset base. And depending on which deal gets consummated over the foreseeable future, will probably be on the asset base more so than the sales at this point.

Okay. Randy Coleman - Executive Vice President & Chief Financial Officer: But closely approaching both.

Okay. And also just on general terms... James Hagedorn - Chairman, President & Chief Executive Officer: Look, Bill, I just want to just throw in on that. This was actually – our January board meeting was out in California and as – and we did that at the GH headquarters in Santa Rosa. And I think it was interesting in the discussion with the board to look at sort of the five-year plan for Hawthorne, it becomes a very significant part of our North American business within less than five years. And so, I think that's the basis where sort of no matter what we do it's going to become a recording segment.

Got it. Thanks. And then when I look at be at Hawthorne or other kind of M&A, and especially talking about Europe, is there a risk that all these things kind of carry into 2017 and you're still trying to negotiate and so we're not doing share repurchase or other things? James Hagedorn - Chairman, President & Chief Executive Officer: Well, I'm going to start by saying I hope not. I'm not going to say – I think on the acquisition side, I'm not going to allow that. I mean it's a commitment we made internally. We all sort of – I don't know, what's that TV show where they sort of spit in your palm and shake hands and brother's oath kind of thing. That on the M&A side I think we've got – we understand what's there. We understand the pipeline. I think we're within reason operating about as quickly as we can, meaning to kind of keep things under control and sort of progressively move from deal to deal. This is generally on the hydro side. We're, I think, right where we want to be. And I don't think it will extend into 2017. So I think that's clear. The – I'm going to say and I've just said it a few minutes ago, I'm somewhat disappointed in what happened in Europe, to be honest. I don't think it's changed our view. And so, what we have to do is begin to focus on running our business because it's still our business. And that's going fine. And then we have to sort of reevaluate what the next move is. And I think we've got ideas. But I think that the most important thing right now is we're in season and we've got to run the business. So…

Okay. And then last, Randy, while I have you. On the gross margin, I understand the conservatism and the variable comp that would offset it, but are you basically saying get one more month through Texas and there should be meaningful upside? Because I mean it's tough to kind of stay within your range in light of current spot prices and what you've done year-to-date. Randy Coleman - Executive Vice President & Chief Financial Officer: Well, on the commodities and fuel, we have almost perfect visibility now.

Right. Randy Coleman - Executive Vice President & Chief Financial Officer: So we're 90%, 95% hedged on urea and fuel. So that's not a question mark anymore. The question becomes more about volume and fixed cost leverage. So as shipments and POS come closer, we're not going to end up 16% ahead on sales by the end of the year like we were at the end of March. So a lot of the margin benefit from volume should dissipate over the balance of the year. The Roundup impact is all front loaded, so that – just the math plays out so it becomes a smaller impact by the end of the year. And then the mix question, we'll have to wait and see how that turns out. So we need to make up some ground on fertilizers and, if we do, we should have some upside in gross margins. And if we don't, it'll pull us a step back down a little bit.

And sorry, are you going to give an intra-quarter update? Or will we next hear from you in August? Randy Coleman - Executive Vice President & Chief Financial Officer: You will hear from us in August.

Okay. Thanks. Randy Coleman - Executive Vice President & Chief Financial Officer: You're welcome.

The next question comes from Olivia Tong with Bank of America.

Hi, guys, this is Chris Carey on for Olivia. Randy Coleman - Executive Vice President & Chief Financial Officer: Hi, Chris.

Hi. Thanks for taking my question. Just following up on the outlook, I actually just have two housekeeping items then a follow-up question. Just on the – on housekeeping, you mentioned that you expected $100 million shift from Q3. Is that correct? And then if you could just provide any commentary on the implications for Q4, that would be helpful. And then just on the Roundup deal, can you just confirm what the contribution was to the quarter? I think you had mentioned it, but just want to make sure I have the numbers correct. Randy Coleman - Executive Vice President & Chief Financial Officer: Sure. So the impact that we saw in Q2 from the calendar shift was, call it, about $100 million. We expect that to come out of Q3. It's difficult to predict exactly with precision but, call it, dollar for dollar as an estimate at this point. And by the time we get to the very end of the fiscal year, all the timing issues will work themselves out, so not a big number in Q4. Then regarding Roundup, the $20 million impact year-over-year we saw that 100% in Q2, so that's also a big contributor not only to the sales growth in Q2 but as well as our gross margin rate in our earnings.

Okay. Thanks. Yeah, I thought I ended up seeing that $20 million number. And then for my question, it's actually shifting gears a little bit around the Monsanto agreement that you restructured. Just wondering if there's anything new you want to share and how you're running that business differently, any new changes that are coming, any developments that you had originally planned for that deal, if they're playing out? That would also be helpful. Thanks. Randy Coleman - Executive Vice President & Chief Financial Officer: Sure. So, as part of the deal we have access to use the brand in the other categories. So we're making a lot of progress on the R&D side and we'll do perhaps not a national launch, but we'll be launching the new product next year on a test basis and more to come on that. And there's two or three more that will follow probably 2018. So I'm happy with the progress we're making so far. James Hagedorn - Chairman, President & Chief Executive Officer: And remember, all progress relating to the disposition of our European business is enabled by this update to the agreement. So that was very important part of that deal for us was the ability to kind of revise our portfolio.

Got it. Thank you very much.

And next we'll move on to Eric Bosshard with Cleveland Research Company.

Two questions. First of all, in terms of retail engagement and commitment to the category, curious on your observations year-to-date and also moving forward. Michael C. Lukemire - Chief Operating Officer & Executive Vice President: This is Mike Lukemire, Eric. On the home centers, I would say pretty equivalent. I would say hardware is up and I would say mass is down.

Anything different than you expected within sort of those three pockets? Michael C. Lukemire - Chief Operating Officer & Executive Vice President: Not anything different other than we expected a lot more tab activity from out of mass. That was probably the biggest change.

Can you explain that? I don't totally understand that. Michael C. Lukemire - Chief Operating Officer & Executive Vice President: It is a weekly promotional circular. They reduced it significantly. It went from like 53 a year to 13.

And that, within those, that doesn't change your ability to get to the full year target that you have in terms of... Michael C. Lukemire - Chief Operating Officer & Executive Vice President: No, no. There's a commitment. And everything we built, everybody was talking about POS, we built the original budget. We loaded most of our upside into May. We moved most of our promotional activity to May. It's about 10 times more active than we were a year ago. So we're actually really confident about where we're going to be.

The second thing I wanted to understand was you had talked earlier about $200 million or $300 million of acquisitions I think at Hawthorne or GH. Can you just expand a little bit on that? I know that you've talked about the smaller deals and the peat deals. And I understand the strategic nature of the latter. But can you talk a little bit more specifically about directionally where you're going? Are these – is this a chunk of money out of a bunch of smaller deals I guess is the first piece of what I'm trying to understand. Randy Coleman - Executive Vice President & Chief Financial Officer: Sure. This is Randy. I'll try to quantify for you a little bit better. I would say that a couple deals in the pipeline right now that we're pursuing most aggressively would be not quite the size of GH, both in the purchase price and the size of the sales, but similar to. So pretty nice, reasonable businesses that would complement what Hawthorne has built to-date. That gives you a little bit better idea. James Hagedorn - Chairman, President & Chief Executive Officer: Look, I think, Eric, we put it in the script. We called it house of brands or something like that. I would suggest if you'd went out and sort of, call it, roughly the 2,000-ish hydro stores, particularly West Coast, and just look at what's there. And I think that we – if you look at sort of Scotts North America and the strategy we've pursued really since, call it, 1999 on our U.S. Consumer business, I think we're interested in that sort of approach in the hydroponic supply side, meaning ferts, nutrients, pesticides, various other sort of consumables and, to some extent, some hard goods within the area, and generally branded products. So I don't think it's actually that hard to figure out. And I'd just say go out and do some store visits. It's more interesting than probably consumer lawn and garden. Randy Coleman - Executive Vice President & Chief Financial Officer: The other thing I'd add is that if you look at the one acquisition that we did do about a year ago with General Hydroponics, it actually has a business case, which wasn't any kind of a layup anyway. So I feel really good about how that business is performing right now.

And then just last, if I can, within this – the asset that you levered as you grew the consumer business was the brand and the selling effort at retail. And there was certainly more than that. I guess, Jim, do you feel like those assets are leverageable within this market? Or does it – are there other assets of the organization that you lever as you grow with these 2,000 stores that you called out? James Hagedorn - Chairman, President & Chief Executive Officer: Well I – look, if we – I think I would say yes and no. I think generally it's a unique distribution channel, although this year we've been in discussions with many of our largest retailers about some hydro products in what would be viewed as sort of conventional lawn and garden channels. And you're seeing like Black Magic launch within Home Depot this year, which is soils and nutrients-based. I think that what Scotts offers within the channel is not just kind of sales execution, it's management, financial systems, capital, to some extent some process and management – the ability to use our IT systems to better control these businesses. And there's a lot of, I'm going to say, duplicative overheads. So I think that what Scotts offers up goes beyond just sales support and execution support but in R&D, manufacturing, I mean it just – I could take you – regulatory and legal. There's a lot of things that we can offer to sort of these Hawthorne companies that they don't really have the scale to bring – to do today. And I think that makes these deals pretty attractive. And again, this is a sort of strategic discussion we've had at the board level in that we're very much today kind of – I'm not going to say low growth, but I think what we've told the Street is we're going to budget based on 0 to 2%. And I think that's what makes this year, by the way, not fiscally challenging for us based on where we are today. But it tends to be a West Coast business. We tend to be a kind of Central and East business. This is high margin, high growth, young, urban and rural, more independent than big three. So there's a lot of things we like about that space that we don't see in our existing lawn and garden space, although the existing lawn and garden business really pays for everything. And so it's – we think it's a pretty good combo. And we wouldn't want to miss this opportunity.

That's helpful. Thank you.

Next from Raymond James we'll hear from Joe Altobello. Krisztina Katai - Raymond James & Associates, Inc.: Hi, good morning. This is Krisztina on for Joe. I was just wondering, do you expect shipments to be below POS in the second half of the year given that you were ahead in the first half? Randy Coleman - Executive Vice President & Chief Financial Officer: Hi, Krisztina. This is Randy again. No, we expect we are in the dovetail for the most part. I mean, we've seen retail inventories over the last couple of years, at the end of each quarter be roughly up mid-single-digits; that's where we are right now, coming off last weekend. So trade does not stop by any means. I think we are in a good place, we just need it to stop raining in New York City today and get some good POS in Texas and everything should work itself out. But everything eventually normalizes for the most part, and shipments and POS and retail inventory come together by the end of the year. Not always by the end of September, but by the time we get all the way through the season, call it, Thanksgiving. Krisztina Katai - Raymond James & Associates, Inc.: Okay, great. And then can you just talk about the pricing impact in the quarter? Randy Coleman - Executive Vice President & Chief Financial Officer: Yeah, pricing for the quarter was down a little bit. A lot of the trade programs we have built this year, we developed earlier in the year, and they're much more performance based. So we've phased those trade programs with sales and with sales programs, or with sales being so high in the quarter, a lot of that expense hit earlier this year than it did last year or years in the past. So that muted some on the price increases on an invoice sales basis that we saw take place as we flipped over to calendar 2016. So as we roll out over the balance of the year, we'll see that pricing impact increase quite a bit, which again, I mentioned in my script, gives us more confidence for a gross margin rate, I think mix is the one area that I think is of greatest concern. So those are the two that we'll be trying to balance, but pricing will definitely be a good guide, much more in the second half of the year than what we saw in the first. Krisztina Katai - Raymond James & Associates, Inc.: Great. Thank you so much. Randy Coleman - Executive Vice President & Chief Financial Officer: Thank you.

And ladies and gentlemen, we have nothing further from the audience at this point. I'll turn things back to Jim King for any additional or closing remarks. Jim King - Senior Vice President, Investor Relations & Corporate Affairs & Chief Communications Officer: Okay, Greg. Thank you very much. Again, if anybody has follow-up calls, feel free to call my office later today. You can reach me at 937-578-5622. Otherwise those of you who we have calls scheduled with starting later this morning, we will be in touch with you later in the day. And, right now, our Q3 is tentatively planned for Tuesday, August 2, I believe that is, at 9:00 A.M. So we will communicate with you then. Thanks for joining us today and have a great day.