Central Garden & Pet Co
NASDAQ:CENT
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
32.52
50.85
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Central Garden & Pet Co
You don't have any saved screeners yet
Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet's Second Quarter Fiscal Year 2019 Financial Results Conference Call. My name is Kevin, and I will be your conference operator for today. At this time all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, instructions will be given at that time. [Operator Instructions] As a reminder this conference call is being recorded.
I would now like to turn the call over to Steve Zenker, Vice President of Investor Relations, FP&A and Communications. Please go ahead.
Thank you, Kevin. Good afternoon everyone, and thank you for joining us today. With me on the call today are George Roeth, Central's President and Chief Executive Officer; Niko Lahanas, Chief Financial Officer; Howard Machek, SVP Finance and Chief Accounting Officer; J.D. Walker, President, Garden Branded Business; and Rodolfo Spielmann, President, Pet Consumer Products. Our press release providing results for our second quarter ended March 30th, 2019, is available on our website at www.central.com and contains the GAAP to non-GAAP reconciliation for the non-GAAP measures discussed on this call.
Before I turn the call over to George, I would like to remind you that things made during this conference call, which are not historical facts; including adjusted EPS guidance for 2019, expectations for new product introductions, long-term organic growth goals, future acquisitions and future revenue cost savings and profitability. Our 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 filings, including our annual report on Form 10-K filed on November 28, 2018. 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 our CEO, George Roeth. George?
Thank you, Steve. Good morning everybody. I'm going to keep my comments relatively brief and let me go to the heavy lifting around the finer details of the quarter's financial results. Bottom line, we are pleased to report that we grew overall sales, organic sales, and excluding the impact of the one-time live fish rate up, organic EBITDA versus a year ago. As expected and as we foreshadowed, our overall year-over-year earnings metrics were challenged by the seasonal losses of Bell Nursery, which were not in year ago numbers and by the share dilution caused by our August 2018 equity rates. We are on track and we continue to remain focused on executing our current strategy and delivering on our financial commitments for the year.
Coming into the second quarter, we knew that we had to work it out for us, as we're comping against the strong 6% organic growth rate last year across our Garden & Pet segments. We are pleased to report that we ended the quarter with a robust overall sales growth of 10%, due in large part to acquisitions. However, organic sales grew as well up 2%, driven by gains in our Garden segment. We're very encouraged by the way the Garden season has started off, fiscal year-to-date through Q2 Garden consumption a key track customers was up mid-single digits aided by increased distribution of existing items; such as our Amdro mosquito line, new items such as Pennington Lawn Booster, as well as strong sales by our vendor partner group. We continue to be optimistic that we will build on our market share gains over the last several years, while also delivering strong sales and profit growth. Of course there's still much in the Garden season to play out especially for control products, which tend to peak later in the season.
And our Pet segment, while our businesses collectively grew 5%. Overall pet organic growth was flattish, ticking up 1.1%. The organic growth rate was depressed in part by our professional business, which has underperformed over the last several quarters, due in large part to unfavorable weather and customer inventory challenges. We expect these headwinds to subside in the back half of the fiscal year.
Our pet consumer business did grow organically, driven by strength and our aquatics-related businesses, Dog Treats, Equine products and our overall digital efforts. We talked last quarter about headwinds on the Pet consumer side, with a new entrant and product issues on our behavior management business. The product issue has been rectified and the newly reformulated items are now shipping. Hence, we forecast the overall pet; including pet consumer business, we'll see growth accelerating into the second half of the year, helping Pet organic growth rates to return to rates more in line with their longer term trends by the fourth quarter.
Our gross and operating margins were down for the quarter, due largely to the impact on our latest three acquisitions. Bell, Arden and General Pet. Arden is significantly burdened by the impact of purchase accounting where all three have ongoing reported operating margins depressed by the amortization of intangibles. We are addressing this issue going forward by actively reporting EBITDA progress to provide transparency to the value being created by the cash flow generated by these acquisitions.
Our overall organic operating margin was relatively flat versus a year ago. The positive impact of the price increase was taken during the quarter are much of our portfolio, while able to mitigate a good deal of the inflationary pressures over the last 12 months was unable to completely offset the cumulative inflation impact since our last pricing actions. This was influenced by the fact that we did not implement all increases on exactly January 1st. Although by quarter end, all announced price increases were in effect.
So with the full impact of pricing, additional more targeted pricing plan for Q3 and more favorable year-over-year comp comparisons, we estimate that margins for the second half of the year versus prior year will show meaningful gains. As we look forward to the rest that year, we are optimistic that the strong start to the Garden season, as well as an expected pickup in Pet organic growth in the fourth quarter results in a fourth consecutive year of solid organic sales growth, that will be within our 2% to 3% annual long-term goal. We are affirming our guidance of a $80 per share or higher. Excluding any impact of significant one-time costs associated with our CEO transition.
Finally, I do want to address for a moment, the CEO search that we are undertaking for my successor. Central is committed to finding a leader, who can build upon a momentum both generating growth organically and through acquisitions. The Board is committed to the direction in which Central is headed and is not looking for a leader, who will dramatically change the organization or its strategy. Rather they are looking for a leader that can partner with the Board to further Central success. We've hired outside resources to work with the Board Succession Committee to find the right CEO, and I will continue to lead the company until the point in time a successor is announced. We continue to expect that will be before fiscal year end in September.
Now, I will turn it over to Niko to discuss more specifics on the quarter.
Thank you, George. Good afternoon, everyone. We issued our second quarter press release with our financial results earlier today. I'll dwell deeper into the numbers and then turn back it to George for his closing remarks.
Second quarter sales increased 10% or $60.6 million to $674 million from $613 million in the second quarter of last year. Our three recent acquisitions of Arden Companies, Bell Nursery and General Pet were the primary drivers of the sales gain, accounting for $48 million of the revenue in the quarter -- revenues in the quarter.
Organic sales growth of $13 million was, up 2% aided by the gains in our Garden segment, which had a good start to the season. The gains came on top of a robust 6% organic growth rate in the second quarter of last year. Consolidated gross profit for the quarter increased $12 million and our gross margin decreased 110 basis points to 30.6% impacted significantly by the inclusion of the three recent acquisitions. Absent the acquisitions, organic gross margin was unchanged as the price increases implemented to offset inflationary cost pressures and a less favorable mix of sales.
SG&A expense for the quarter increased 12% or $15 million versus a year ago. As a percent of sales, SG&A was, up 40 basis points to 21.4%, due primarily to higher freight costs. Like many companies, we have seen trucking costs in particular increase and that has been a headwind for the last several quarters. Included in the SG&A, our two non-cash items, a $2.5 million impairment charge of an intangible assets due to the exit from the Live Fish business by a major retailer that we noted on our last earnings call; and a $3.2 million write-up of our previous minority position in Arden. With our early February purchase of Arden, we now own 100% of the company and have since consolidated its results in our Garden segment.
Central's operating income for the quarter decreased 6% to $62 million and operating margin declined 150 basis points to 9.2%. Excluding the acquisitions, and the two non-cash items I just mentioned, operating income increased and operating margin was relatively flat. EBITDA for the quarter decreased 3.7% to $74 million, but was up excluding the acquisitions and the net gain from the two non-cash items.
Turning now to the Pet segment. Pet segment sales for the quarter increased 5% or $17 million to $338 million with organic sales up slightly. Organic sales were aided by stronger results in our Dog and Cat, Live Fish and Aquatic businesses. But that benefit was offset by continued weakness in the animal health businesses, which include our professional and behavior management products. The professional business has been impacted by weather and customer inventory issues, while the behavior management business has experienced new competition and product performance issues, which have impacted us the last few quarters. The behavior management products with their new formulation are now shipping and we continue to expect the back half of the year to show improvement for both the professional and behavior modification businesses.
Pet segment operating income for the quarter declined by $6 million inclusive of the $2.5 million intangible asset write-down or 18%, compared to prior year to $27 million. Pet operating margin decreased 220 basis points to 8%. Pet organic margins were also down as lower volumes in the animal health business had a negative impact on both mix and margins. Pet EBITDA for the quarter decreased 12% to $35 million for the same reasons as the decline in operating income.
Turning now to Garden; for the quarter, Garden segment sales increased 15% or $44 million to $336 million, due in large part to the Arden and Bell acquisitions, as well as organic growth of 4%. Organic growth was led by grass seed and wild bird feed, as well as positive timing shift from one large retailer. As you may recall we saw our strongest sales increases last year in our second quarter with lower third quarter sales, while others in the industry experienced the opposite. Garden's operating income was $53 million in the quarter, compared to $51 million in the second quarter of last year. The gain of $3.2 million from the write-up of the initial 45% interest in Arden that we acquired in 2017 was the driver of the increase.
Excluding that gain, Garden operating income was down slightly versus a year ago, due to the inclusion of Bell results in the quarter. Bell's loss for the quarter was significant, which is normal for that business, which makes all its profit in our fiscal third quarter. Excluding Bell, Garden organic operating income was up in the high single-digits.
Operating margin decreased to 150 basis points to 15.9% with Bell Nursery and Arden responsible for much of the decline. Organic Garden operating margin was up, Garden EBITDA of $56 million increased versus a year ago, and was up even more organically.
Now getting back to our consolidated results. In the second quarter, we had other income of $0.5 million, compared to other income of $1.5 million, a year ago. The decline was primarily due to the absence of two months of income from our minority interest in Arden this quarter, compared to a full quarter of Arden income in last year's second quarter.
As I said earlier, we purchased Arden at the beginning of February, and at that time began reporting Arden as a fully consolidated entity in our Garden segment. Though we lost the Arden income in the other income line item and we did not recoup those gains in Garden's operating income, because we were required the write-up Arden's inventory at the time of purchase under purchase price accounting rules. So, Arden has part of the Garden segment excluded the write-up of the 45% interest generated very little operating income for the quarter.
Net interest expense decreased $1 million to $8 million, primarily due to the interest earned on our higher cash balances here versus a year ago. We also benefited from a higher interest rate earned on that cash balance. Our tax rate for the quarter was 21.3%, as compared to 20.3% in the second quarter a year ago.
Turning now to our balance sheet and cash flow statements. Cash at the end of the second quarter was $330 million, up from $132 million at the end of the second quarter last year. The increase reflects the inclusion of the proceeds of the equity offering we closed in August of 2018. Total debt was $698 million relatively unchanged from last year. Our gross leverage ratio at the end of the quarter remained at 3.2 times, the same as a year ago and well within our target range. We also had $374 million of availability on our credit line at the end of the quarter.
For the quarter cash used by operations was $86 million versus cash used by operations of $70 million in the second quarter a year ago, due primarily to working capital changes. CapEx was $6 million down from $9 million in the second quarter of 2018.
Depreciation and amortization for the quarter was $12 million, up from $11 million a year ago, primarily due to recent acquisitions. During the quarter, we have not repurchased any of our outstanding stock and approximately $35 million remains available under the board approved stock repurchase program.
Now I'll turn it back over to George.
Thanks, Niko. I just want to wrap-up by saying that we continue to be on track with the execution of our strategy and associated financial commitments for the year. We knew at the outset of the fiscal year that our earnings growth is back half loaded. This always puts more risk into the plan, but due to all the timing issues associated with our acquisitions and with pricing, this was unavoidable in order to do what we believe was in the best long-term interest of the company. But we believe that we will deliver these commitments we are not raising any projections at this point in time, it's just way too early in the game. So thanks for your continued engagement.
And with that said I'd like to turn the meeting over to questions from our listeners.
Thank you. Now we'll be conducting question-and-answer session. [Operator Instructions] Our first question today is coming from Bill Chappell from SunTrust Robinson Humphrey. Your line is now live.
Thanks, good afternoon. I guess first on the Pet side was there any impact from the last customer or the -- on the Live Fish side or is that still to come?
Yes, started, the impact was minimum. And we need to remind you for the -- for that business, exited available model. For Pet this is small issues for the total company surroundings. There were over in Q2.
And then in terms of, George, with your planned departure, just trying to understand. How that affects M&A, I mean, obviously it's -- we're now seven months since the equity offering. There hasn't been a whole lot done, and so I didn't know if that's postponed even further with not having somebody, kind of, -- we necessarily know where division's going six months from now?
Yes, I'd say a few things on that front. I would say no, it hasn't slowed us down. I'm partnering with our investor committee and the Board and doing that for the board is actively engaged. We also have a very actively engaged team here; Niko is obviously a key member of that. So our philosophy and effort against it is unchanged and full [ph].
And then on the pricing standpoint, I mean, you said all pricing is now in for this year. Can you just remind us or give us some kind of idea, how much that might have been either for Pet or Garden? Or whether that was for both Pet and Garden? And does that mean we've see that kind of pick up in terms of overall sales? I assume it's not impacting volumes as we move to 3Q and 4Q?
Bill, I'd say a couple of things and then I'll turn it over to Rodolfo and J.D. answer for their particular segments. I wouldn't say that all pricing in for the year, there will be some tactical pricing taken on some businesses likely in Q3. So I want to be clear on that front. In terms of volumes, there is some elasticity to pricing, so you would expect some volume impact, although it's not dollar for dollar. And I'll let Rodolfo and J.D. talk about their specific segments. JD, why don't you start with Garden?
Right. So with Garden, I'd say that the pricing went into effect January 1st, it has been accepted obviously by all customers. And as George said, we'll have some surgical pricing in Q3 on some commodity type items, but we're seeing the market move as well. So I don't think it's having a big impact on POS or take away, because the entire market moved.
Got it. And then…
I mean, in the case of Pet similarly all pricing was presented and accepted during Q2. Not every customer does do the research at the same time, so it trickled throughout the quarter. But most of it is in place in Q2, we have still some trickling new pricing coming in Q3, but the vast majority was Q2. So to be honest, way so many categories and in fact what we have been is a decrease in volume, but not enough to offset the pricing.
And then last one from me, just -- Scott, certainly had a very strong quarter, they've indicated that some of their key customers they were gaining some shelf space. I know that has been said by every company, every year that I can remember but I was just trying to understand was your growth in Garden weighted towards oneness customer or are you seeing incremental gains in other customers out there?
Bill, this is JD, I'll take that question. So we're seeing gains really across all of our customers, I can't say it's weighted more toward one customer than another. I'm aware what our competition said, I'm having a little bit of a hard time triangulating some of their data points, and they quoted a double digit POS increase, we're in the high single-digits during that same period, but we're also comping against a strong quarter -- a stronger quarter a year ago. It's difficult to make apples-to-apples comparison between the two because they're playing a lot of categories where we don't like mulch [ph] where they had a 30% increase.
So I'd say that we feel good about where we are right now, we feel good about our year-over-year gains in POS and in sell-in, and with a lot of the season still left in front of us, but we like where we are right now.
Got it. Thanks so much.
Thanks, Bill.
Our next question today is coming from Chris Carey from Bank of America. Your line is now live.
Hi, thanks so much for the question. I thought, I heard something about a shift in sales from fiscal Q3 to fiscal Q2 in the Garden segment. Can you just elaborate on that, and then maybe elaborate on your expectations for Q3 in Garden? And then secondly, just -- why completely separately; why has it taken so long to get acquisitions and cost alliance? Maybe if you can comment on that as well.
Sure, this is J.D., I'll take the first part of the question. The shift in sales and some shipments that really shifted between Q1 to Q2. And that was a customer, who typically set their stores for the spring season, they would start to receive those shipments in December, they've push those shipments into January. So we saw that shift and it was referenced in the script, I believe George mentioned it earlier today. I would say that even accounting for that shift, we did have a year-over-year organic increase and shipments even factoring that out.
Chris, this is Niko. As far as M&A goes, that the comment I would make is that the result so far just not been reflective of the activity going on. So there is lot of activity going behind the scenes that obviously most folks are unaware of. That said, we have done three deals over the last year, we continue to have a very active pipeline and we're pushing hard to get some deals over the line here. So, we're continuing to press it.
And if you could comment on the, sort of maybe deal size or the flavor of deals that you're looking at. My understanding at times is that you are looking at more growth acquisitions, higher margin would potentially pay up on a multiple basis, if you thought that you could get something into the pipeline that could deliver positive growth over the long-term. Thanks.
Yes. So I mean the bias is to go after a higher margin, margin accretive deals right now. What I can tell you about the pipeline is it's filled with Pet and Garden deals; so right now there's nothing that third leg in the pipeline. And again, it's a full pipeline and we continue to have deals in numerous stages and at numerous valuations. So we're looking at deals everywhere from $10 million to several hundreds of millions of dollars. So it's across the entire board, but the bias again would be margin accretive.
Thank you. Our next question is coming from Christina Brathwaite from J.P. Morgan. Your line is now live. Ms. Brathwaite, perhaps your phone is on mute.
Sorry about that. Can you hear me now?
Hi, Christina.
Sorry about that. So first can you just talk a little bit about the financial impact from Arden, and just give us color within the guidance for $1.80 for this year. You know, what's the Arden for both top line and end margin implication in there?
Well, so as we mentioned earlier in the script, Arden really has no real impact because of the purchase accounting. So we ended up buying the business at -- really it's peak. It is seasonal and the highest inventory level that it has; and so we had to mark-up that inventory from a purchase accounting standpoint which wipes out the bulk of the profit, so really no impact this year. As far as size, we typically don't give that out on deals so that's about all we've got on Arden.
Okay. And I guess to continue on the Garden side; so just -- how are things shaping up for the Bell Nursery business about your end peak season? What are you seeing in terms of the initial merchandise sets of the nurseries and the performance there? Just trying to get an idea for how we should be thinking about it since it's been lastly difficult, the last couple of quarters?
Yes. Christina, this is J.D., I'll take that question. So we feel great about the business right now. It's everything we thought it would be when we purchased the company. And as you mentioned the last couple of quarters and we knew this going in they make all their money really in one quarter of the year. So the last couple of quarters it's been tough, and because we're -- it's accretive to our overall financial position. However, now that we're in their season, we're seeing strong consumption, great execution by the Bell team, they grow fantastic, high quality flowers and that's resonating with the consumers. They have also this year picked up some adjacent markets to there, so they've picked up some new geographies, as well as some new sub-classes including vegetables; the first time that they've been in the vegetable business, which came directly from our competition. So it's -- and they're executing extremely well against that, so we feel very good about that business.
Okay, great. And then I guess the last one from me. Just the overall freight environment, but a headwind for us for a couple quarters. When do you expect that to kind of stabilize going forward and just any kind of guidance that would be really helpful.
We're expecting the second half of the year to be much better where we're seeing the full effect of price increases in that second half of the year, also we're seeing the stabilization of the cost increases that we've experienced over the last year. The other thing too is, we're assuming going into the year is the normalized weather pattern as well. So, we'll be expecting a nice bump in our pro-business, as well as tech [ph]. So those are the assumptions going into that second half and we feel like we'll see some margin expansion under those assumptions.
And Niko, I'll just build on to that. As you mentioned weather but there are many of the northern markets that are just now coming on board, we're starting to see some consumption. One of the positive things that we've seen on the Garden side, Christina, is that when the weather is decent we're getting consumed whether it's highly engaged in our category and the demand is there, so we feel good about having plenty of runway still in front of us.
Yes. Thanks, guys.
Thank you. Our next question is coming from Brad Thomas from KeyBanc Capital Markets. Your line is now live.
Good afternoon. Thank you for taking my questions. Just a follow-up for JD on the cadence of the business. I guess just to be clear in this current third quarter here; are there any impacts from timing that we should anticipate on the Garden season in terms of maybe deliveries that you already did in 2Q or that slipped into 3Q here?
No, Brad. No timing issues to factor into Garden performance for Q3. And I'd say that as it's widely been reported, consumption has been very strong in April. We do have some strong comps in front of us for May and June, so it's too early to call the quarter, but we feel good about the position we're in right now, but no unusual circumstances.
Okay, great. And then just in terms of the full year as we think about your prior guidance, I believe was for organic sales growth of about 2% to 3%, you're tracking little bit below that. Two quarters in, it does sound like you expect some of the new product in Pet, as well as easier weather comparisons to help you accelerate the growth rate. Anything else that we should contemplate as we think about organic growth the next couple of quarters here?
No, you've captured it. We expect it to accelerate over the back half the year, particularly in Q4, and we do expect to be within our long-term guidance.
Great. Maybe one last thing from me; just as you all look at e-commerce in that channel shift. Anything new happening from that perspective?
I would basically say it's all systems go. They continue -- well, truly in Amazon when you look at the Pet side of things continue to grow very rapidly. You have to be faster for, Amazon is a very sophisticated customer who is changing their models and the way they do business day to day but we have a customer facing team there, we've put a lot of sophisticated tools in place to grow that business. We're on top of it and we feel really good about where we're at, and we feel particularly good we're at with Chewy [ph] who has decided to really go after Pet supplies in a much stronger way than they have previously, they were largely a food company, and we're benefiting from that quite significantly.
This is Rodolfo. I would only add that after you go through Amazon Chewy, then you open all their omni-channel and the growth is fantastic on that area for us. We opened a new customer in Q4 last year, which is growing really well and we are seeing partnership with the customer sort of understanding how to manage both, brick-and-mortar and the e-commerce avenue, and how to grow both together. So also good growth in that area.
Very helpful. Thank you, guys.
Thank you. Our next question today is coming from Martinson [ph] from Jefferies. Your line is now live.
Good afternoon. I was just wondering what impact are you seeing, if any on the store shelves when you go up against the roundup products?
This is JD, I'll take that question. So I heard when our competitors said about takeaway of the roundup brand, I know there's been quite a bit of publicity out there. We don't have a branded product that competes directly against roundup in the grass and wheat space. We do have some private label brands that compete directly against it. And from what they reported first [ph] sales on the roundup brand, that's not what we've seen at retail and they've also taken that roundup brand into other products as well. And we're not seeing a strong velocity that they're reporting, but you know that may be because we're not paying close enough attention to that. And I think that -- yes, I think the court of public opinion is still out on that and overtime we'll see where that goes. We're monitoring it very closely and making plans for the future related to that.
My apologies if I missed it, did you talk about that the magnitude of the surgical pricing for the third quarter that's being implemented?
Yes, we're not giving out specifics, but I would say it's very tactical relative to what we did in Q2, so a few businesses.
Okay. And just lastly, part of my ignorance with the behavior management drag; what are -- could you go into a little detail and provide a little color on what that business is struggling with?
So we talked about behavior modification, this is mainly our comfort zone brand, which -- you plug into the wall, then with fair amounts you get your capital stock destructive behavior in the house, so it really comes down, that's what we call behavior modification. We have two things going on in this segment after growing pretty rapidly for several years, A) we had our former vendor entering the category, so obviously, that's a bit of a hit. And the second one is, our new product had -- a minimum amount of consumers had issues with the aroma of the product, so we have to change that aroma and we're started chipping the new drug [ph] now in Q2. Now it's important to understand that this is a challenge that's around 40% of the household, and the category has a penetration of 0.4%, so we're just starting.
So yes, we have a bit of an issue year-over-year, it does bother to have a new competitor on an area that we're competing alone before, but we're still number one, we're launching the new -- we launched actually the improved new product in Q2, and we have a lot more innovation coming afterwards in the year; so very comfortable with where we're going here.
Okay. And then where do you guys stand on CBD Oil for pet and infused products since we're seeing so much and reading so much about that now?
I would tell you there is nothing to report at this time, but obviously we see that trend in the category, I mean some area we're exploring. One of the benefits of having that fairly large portfolio which includes this division is we can track everything that is going on very closely. So whenever is the time, we'll be ready.
Okay. Thank you very much guys, appreciate it.
Thank you. Our next question today is coming from Jim Chartier from Monness Crespi Hardt. Your line is now live.
Good afternoon. Thanks for taking my questions. So I think you had come into the year expected bill to be -- I think about $0.10 drag in the first half of the year for EPS. Yet did it come in that range; was it bigger or smaller than that?
Obviously, I don't remember giving a $0.01 target for the Bell's impact specifically, but I will say Bell has been tracking pretty much as we thought for the year.
And then on the Pet distributor business, organically it looks like that was down 4% in second quarter and was down at first quarter after pretty good growth last year. So anything going on there that's noteworthy -- that's kind of laughter [ph] the selling -- whether the ramp of the large grocery customer last year?
I can tell you that I'm not sure what the numbers are coming -- that our Pet distribution business is fine, that's not growing up fast as we're growing a year ago when we're adding new businesses but the business is fine; so now no major concerns there.
Okay. And then on the behavior modification have customers started buying that? And then how confident are you in the new formulation that you're knocking at the same issues?
So, all the customers that partnered with us last year they are still with us and they are still bearing on the new product, all of them since the new item [indiscernible]. And we're comfortable in the new formulation, we have done all the testing to make sure that the aroma area we had missed has been taken care of.
Jim, by the way the PetD business as it fits within our portfolio is flat, so not down, overall that business is flat. Well, we usually don't -- typically we don't call out individual businesses, I think you are referring more to the third-party business but that's effectively -- overall, the Pet D business is flat.
Okay. Thank you.
Thank you. [Operator Instructions] Our next question today is coming from Hale Holden from Barclays. Your line is now live.
Thanks for taking the call. I just had two questions. Circling back to the M&A commentary, I was wondering if you had seen any inflation and multiples in your discussions over the last six months with the equity market or if you were still kind of holding the line in terms of price discipline?
Well, I mean as far as the last six months we haven't seen any inflation from the previous 12 or 18, the multiples still are tracking fairly high. And I think to some extent you get what you pay for; so if you're looking for companies that have great brands, that are growing their top line pretty aggressively and have great margins, you can expect to pay higher multiple for those. So, I think that's just laying the land. We've been fortunate, our last two acquisitions, we've been finding sort of the diamonds in the rough, paying lower multiples. But again, if you look at a lot of businesses, they're good businesses, but they're not exactly ones where you've got some killer brand that's out there, that's just crushing the category. So we'll expect to pay more for higher margin, higher growth businesses, it's as simple as that.
Got it. And my second question is, you talked a little bit about the trucking costs or transport costs but I was wondering, you know, as you look at your broader, kind of, input or commodity basket, if there are any others that have changed that you would want to call out over the last quarter or so?
I mean, overall, you know, freight looks like it's stabilized, labor continues to be an issue. We have little pockets where we're seeing some inflation, you know, within our grain category; millet, we see a little bit of a run up there. Our fertilizer business, our inputs there are fairly flat, so it's subsided a little bit, I would say, overall, if I had to comment. And then there are pockets of grass seeds that are up as well, like your Bermuda, and some of those we won't have a good handle on until later in the year, some of those are dependent on a crop yield. And for example, in some of the grains it's going to [indiscernible] those are just being planted now. Long-term weather forecast looks favorable, so we think it's going to be a good harvest, but too early to tell, we won't know until later in the year.
The only thing I'd add is the cost that would flow through this year's P&L increases would be contemplated in the forecast that we're giving you.
Great. Thank you so much, I appreciate it.
Thanks.
Thank you. Our next question today is coming from William Reuter from Bank of America Merrill Lynch. Your line is now live.
Hi guys, Justin [ph] on for Bill, just one for me. Can you talk about the current conversations you're having with retailers in regards to the current US-China tariff situation. Obviously, there was big news over the weekend? Thanks.
Clearly, at this point I cannot tell you conversation from the last few hours because it's a new news. But what I can tell you that, when the last couple of rounds of tariffs came, we took a very principle approach, which is we spoke with every retailer, we explained to them that what we're doing to reduce cost, what we're doing from opportunities of sourcing. And what we did is, we made it very clear what was a price increase and also what was a tariff increase. And we did say that as long as the tariffs were in place that add charge or surcharge would be in place. If tariffs increase more, we would increase that more; if they get repealed, we would take it out. So we were very transparent, they appreciated that, 100% of them accepted our behavior. We expect the same thing to happen if it comes to that.
Thanks.
Thank you. We've reached end of our question-and answer-session. I'd like to turn the floor back over to George for any further or closing comments.
I just want to thank everybody for attending the call, and have a great day.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.