The Scotts Miracle-Gro Company Q4 2012 Earnings Conference Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Sam Darkatsh - Raymond James & Associates - Analyst : One in for Sam. A few housekeeping questions for me on 2013. I know you don't want to provide too much on the consumer, some of the margin area, but could you give us a sense of where you think interest expense and tax will shake out for the year as we get to that [250-plus]?

Question: Sam Darkatsh - Raymond James & Associates - Analyst : Okay. And then it sounds like --

Question: Sam Darkatsh - Raymond James & Associates - Analyst : And just to make sure I am reading between the lines properly on some of the shareholder-friendly activities you have talked about in the past, it sounds like deleveraging is going to be the priority. So if you are not going to change the debt-to-EBITDA ratio until Q3, does that mean we shouldn't expect any actions until 4Q, and what might those look like, would you lean toward dividend, share repurchase, or what?

Question: Olivia Tong - BofA Merrill Lynch - Analyst : Thanks for the sentiments about hurricane and storm earlier today, as well.

Question: Olivia Tong - BofA Merrill Lynch - Analyst : Yes, a lot of people have some pretty bad impacts on Long Island and across the region. If I can transition more toward -- sorry, don't know how to do that.

Question: Olivia Tong - BofA Merrill Lynch - Analyst : If we could talk a little bit about your statement in the press release about trying to get back to what you saw in terms of earnings two years ago, now that we have the 2012 base, if my math is correct, it looks like you're looking for about 400 basis points or so of margin improvement, or, more importantly, about a $100 million decline in costs. So you've obviously got pricing plans next year. You've got advertising that will come down on a year-over-year basis, but presumably, variable comp will have some restoration, etc. So can you talk a little bit about the puts and takes beyond those three factors that will help drive you closer to potential restoration of EPS growth to targets that you made two years ago? Thanks.

Question: Olivia Tong - BofA Merrill Lynch - Analyst : Got it. Thanks for the detail. On the restructuring, would you expect to get more aggressive on that? Is there a potential that we see a more -- a bigger plan with a bigger charge and some detail around the timing and the payback and all that stuff?

Question: Bill Chappell - SunTrust Robinson Humphrey - Analyst : One, I understand the hope of flat volumes going into next year, trying to be conservative, but do you look back and say, the only reason that our volumes were as good as they were or bad as they were in 2012 was because of the stepped-up advertising, and by cutting it 50% next year, that's going to actually mean volumes could decline?

Question: Bill Chappell - SunTrust Robinson Humphrey - Analyst : Yes, I'm just trying to understand. I mean normally when you cut advertising by 50% and don't think that has any effect on volumes --

Question: Bill Chappell - SunTrust Robinson Humphrey - Analyst : Okay. I'll move to -- just to make sure I understand on variable comp, can you give us an idea of the lower variable comp? What impact that had on 2012? I assume you're assuming it's a full-year variable comp for 2013?

Question: Bill Chappell - SunTrust Robinson Humphrey - Analyst : And then 2013 should be --

Question: Bill Chappell - SunTrust Robinson Humphrey - Analyst : Got it. Thanks so much. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: David MacGregor - Longbow Research - Analyst : Just to explore pricing, I'm just trying to get some clarification here. If we should get into next year and the consumer, let's say, explore the scenario where the consumer is a little bit better, the weather is a little bit better, you realized maybe you've got a little bit better pricing power at that point than you anticipated, do you have the opportunity to go back and revisit pricing, or is it pretty much cut in stone based on the negotiations that you are holding right now?

Question: David MacGregor - Longbow Research - Analyst : And then secondly, if you mention this, I missed it. I'm sorry, but raw material inflation for the full year, 2012?

Question: David MacGregor - Longbow Research - Analyst : Thanks very much.

Question: Joe Altobello - Oppenheimer & Co. - Analyst : Just first question, I'll just follow up on the raw materials question. You said , Dave, it was up about $70 jump in 2012. Given that you've locked in almost half of your costs for next year, given where current spot rates are, what would that number look like in 2013?

Question: Joe Altobello - Oppenheimer & Co. - Analyst : Okay. So flat in the back half and up a little bit in the first half is what you are saying in terms of the P&L impact?

Question: Joe Altobello - Oppenheimer & Co. - Analyst : Okay. And then just turning back to advertising, just so I understand, and I apologize for beating this to death, but advertising was up $30 million last year. You said you're taking back half that increase, so advertising in dollars will be down $15 million in 2013?

Question: Joe Altobello - Oppenheimer & Co. - Analyst : Got it. Okay. And just one last one in terms of inventories and not necessarily your inventories but how we think about inventories heading into next year or 2013. Obviously, this year was a tough year for everybody. Would you expect retailers LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Joe Altobello - Oppenheimer & Co. - Analyst : Okay. Thanks, guys.

Question: William Reuter - BofA Merrill Lynch - Analyst : Most of my questions have been answered. I guess I was just curious whether you guys see any potential acquisition activity over the next year or two, or whether that's not something that's really a focus at this point?

Question: William Reuter - BofA Merrill Lynch - Analyst : Would any acquisition that you would complete, do you think you would still keep yourself in that leverage goal of 2.0 to 2.5 times, or could there be a potential huge -- or a larger acquisition that would push you up above that?

Question: William Reuter - BofA Merrill Lynch - Analyst : : Okay. All right. Thank you very much.

Question: Alice Longley - Buckingham Research Group - Analyst : I think this is fairly new that you're going back to talking about some enthusiasm for one-time special dividends, and could you elaborate on that? Because I know that in the past, you have said -- of course, you did it once in a big way, and you noted that it gives you a boost and that it goes away as opposed to raising your dividend on a more sustainable basis. And then also if you do pay a one-time special dividend, what's the thinking about doing it, maybe pushing your leverage ratios and doing it this calendar year because of possible changes in dividend tax rates? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Alice Longley - Buckingham Research Group - Analyst : Okay. And then my next question is about margins, the direction for how we should be thinking about next year. You have gone back and forth on cost increases. I guess costs go up in the first half of the fiscal year and then are flat. And pricing it looks like gives you about $50 million. Is the gross margin expansion for next year mainly on the difference between the pricing and costs, or is it more driven by your cost-cutting programs?

Question: Alice Longley - Buckingham Research Group - Analyst : Okay. And then similarly in SG&A, we've got this maybe $20 million reduction in advertising from a real high level in fiscal 2012. But you've said before that the variable compensation you are going to make sure is up because people haven't been paid for two years. So of that $20 million benefit in advertising, about how much of that is going to be swept away in compensation?

Question: Alice Longley - Buckingham Research Group - Analyst : So if they are offsetting, then where do we get the SG&A ratio benefit? Is that all cost-cutting?

Question: Alice Longley - Buckingham Research Group - Analyst : Okay. And then my final question is you talked quite a bit this last year about the unfavorable product mix because mulch was so strong and its margins are so low. What kind of mix do you think that you're going to get this coming year, and which products are you counting on driving whatever volume growth you do get, and what will that do for mix? Thanks.

Question: Alice Longley - Buckingham Research Group - Analyst : All right. Thank you.

Question: Connie Maneaty - BMO Capital Markets - Analyst : How much European profitability declined, it's not segmented, so I guess I want really more to focus on the part of your business that is so important, the US. But to do that, I guess it's useful to know whether or not -- how far European profits sell, if you are making or losing money there, and then I have a follow-up?

Question: Connie Maneaty - BMO Capital Markets - Analyst : Okay. So how much did the European pressure costs you in earnings this year?

Question: Connie Maneaty - BMO Capital Markets - Analyst : Okay. That's helpful. Secondly, can you give us your perspective on where regionalization fits into the cost structure? Did it add to costs in the shortfall, or are you finding it an efficient structure?

Question: Connie Maneaty - BMO Capital Markets - Analyst : Okay. Great. That's helpful. Thank you.

Question: Jim Barrett - CL King & Associates - Analyst : Jim, how excited are you about your new products pipeline? Will 2013 be a year where you further emphasize existing new products like Snap?

Question: Jim Barrett - CL King & Associates - Analyst : Okay. Thank you. And a brief follow-up. Why do you think you gain market share in the fall on grass seed?

Question: Jim Barrett - CL King & Associates - Analyst : Right. Okay. Well, thank you both.

Question: Jason Gere - RBC Capital Markets - Analyst : My questions have been asked. But I guess just thinking about getting back to that 2010 operating margin a couple of years from now, now is that rate of margin sustainable if the economy doesn't get better, if we see really sluggish net sales in the next four years? Can you talk about that? And then secondarily, while we've heard in household products many of the companies today are really focusing on the next wave of restructuring, cost-cutting efforts, they benchmark against each other. So when you guys think about where gross margin should be, where SG&A should be optically over the next couple of years, who do you bench mark yourself to, and how do you think about that? Thanks. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Jason Gere - RBC Capital Markets - Analyst : Okay. Great. Thanks.