Central Garden & Pet Company
Q3 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

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. [Operator Instructions] 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:]

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 for the non-GAAP measures discussed on this call. Before I turn the call over to John, I'd 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 filings, including our Annual Report on Form 10-K filed December 11, 2014 and our quarterly report on Form 10-Q to be filed 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 Ranelli:]

Thank you, Steve. Good afternoon, everyone. Thank you for joining us today. I'm very pleased with the progress we are making against the plan I've 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 outlines 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 the 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 lease sources to increase our sell through in the markets. Being sales driven means we are focusing on our customers with the best mix of in store promotions plan of sale initiatives and advertising that drives consumer take away. 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 benefitting 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 product 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 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 well 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 am pleased that our success to-date are reflected in our financial results. Our gross margins are up, our SG&A cost as a percentage of sales are down, resulting in an approved bottom-line, while we need to continue to reduce cost. 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 of pieces are largely in place to execute on a significant opportunity we have to grow our company over the next several years. I joined the company as CEO almost two and one half years ago. I came here with bright goals and ideas on how to improve the company’s performance. I am very pleased with our progress today, 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 with top-line growth. We have more work to do. I am committed to saying through the end up to fiscal 2016 when I reach 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 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 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 improve. This is our fourth consecutive quarter of year-over-year improvement. When we last spoke we believed our third quarter earnings will be flat to down versus last year, instead our results showed significant improvement. The principal reason we're exceeded our third quarter expectations was the shift of certain higher margins sales from the fourth quarter into the third. In addition our wild bird feed and private label fertilizes and controllers businesses did better than we expected. Also we incurred lower than the originally expected SG&A expenses while it is still early in the quarter and there are a number of variable 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 manner I wanted to share is that our Chairman of the Board, Bill Brown commenced a leave assets in July as he continues to be 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 review is that we've made excellent program 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 times to yield results. Our team is energized by the successes to date and is united around delivering top notched customers 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 4.5 years. We couldn't have done it without you and we will miss you Lori.

[Lori Varlas:]

Thank you, John. It's been a pleasure being a member of the team and I am going to miss everyone.

[John Ranelli:]

Thanks you. We have named David Chichester as acting CFO. David has been a member of Centrals 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. He will be working both internally and externally for a permanent replacement. Now I'll turn it over to Lori.

[Lori Varlas:]

Good afternoon everyone. By now you’ve 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 by outlining details of the quarter. As you may recall in the third quarter of last year we took a charge related to the discontinuous of two garden products. We reported adjusted numbers excluding both impact of that charge and the gain on the sale of plant assets. You will find a reconciliation of our GAAP and adjusted numbers in today’s press release and on our Web site. Continuing along with our 3% gain on consolidated sales, we delivered revenue gains in both our pet and garden segments with a vast majority coming from pet. We'll get into that in just a minute. Our consolidated growth margins for the third quarter of 215 was 30.9% an increase 30 basis points compared to our consolidated adjusted growth margin in the third quarter of 2014. Our garden segment drove the improvement in growth margin. SG&A expense as a percentage of sales improved 70 basis points to 22.4% especially due to non-recurrence of certain pet marketing expenditures we incurred last year as well as efficiency gain. Corporate expenses increased over the prior year primarily due to higher outside consulting expenses. Our third quarter consolidated operating income increased 5.7 million to $39 million and our operating margin was 8.5%, 100 basis point improvement over last year, Reflecting the higher gross margin and lower SG&A expense as a percentage of sales. We are pleased to see this increase in our bottom line in the third quarter on top of the gains we delivered in prior quarter. 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 statement there was a strength in controlled product sales due to increased distribution and sales of other manufacturer’s product. These gains were partially offset by a lower wild bird feed and branded fertilizer sale. Third quarter grass feed sales were relatively flat to last year which was disappointing actually we saw a strong April follow the weak second quarter. From an industry sales perspective the 2015 Gardens season which primarily encompasses our second quarter and third quarter turned out to be somewhat lack luster. The season started last due to a slow warm up throughout the Northeast and Midwest, April was strong and hopes were high that the second half of this season would make up for the first half’s weakness. However May record rain in the Southwest especially, Texas and a record heat in the Northeast has consumer takeaway the falter [ph], so looking back I was not an optimal season. Year-to-date our Gardens sales were relatively flat versus the prior year our controls and fertilizers sales were up substantially on the strength of increased distribution. There was lower grass seed and feed sales that had largest negative impact. Perhaps most important of our driving possibility for the year-to-date periods was the highest than five year. Actions we have taken to lower cost have driven our much improved bottom line. Getting back to the quarters result, the Garden segment increase its operating income for the third quarter by $4.6 million versus last year adjusted operating income. Gardens operating margin improved by a 190 basis points to 10.6%. Our grass seed and private label fertilizer business were the biggest contributors to the gain in Gardens operating margin. Grass seeds benefitted from new products and more favorable mix of sales. Our private label fertilizer business benefited from more favorable custom mix and lower selling expenses. Our wild bird feed and the core 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 product business as well as higher sales of other manufacturers products. The increase in professional product revenues reflects higher sales of non-consumer active ingredient controlled product. Additionally, this quarters professional revenues includes higher year-over-year sales from a small natural insecticide business in Envincio that we acquired at the beginning of the third quarter of 2014. Our Pet distribution business distributes third party manufacturer’s product in addition to our branded product to independent retailers and to [Indiscernible]. This business is a valuable talent that our branded and private label competitors don’t have and it allows us to provide a broader selection to our customers and provide insight into current industry trend. [Indiscernible] also provides opportunity for organic and acquisitional growth. In the quarter the sales gains of other manufactures product is attributable to increase sales of third party products and the e-commerce channel and to new store openings by larger customers. Partially offset in the professional and other manufactures product sales gains were lower revenues in 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 comp. In the Pet industry 2016 sales growth has slowed compared to recent year. Growth in dog food particularly the premium natural segment which has been the driver of the Pet industry gains in the last few years has leveled off. In our portfolio categories of urban [ph] dog food play a larger role, certain categories like flea and tick, dog treats and puppy have been decent industry growth this year while many other categories were down. The weak industry category year-to-date that we purchased in have been wild bird, pet bird and small animal. In our Pet business we have reversed course from the sales decline we experienced since 2013 and 2014 due to shelf based losses and our walking away from lower margin business. We expect the revenue growth we had experience on 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 expenses as a percentage of sales increased a bottom line and drove the increase of operating margin. Our professional and flea and tick business were the primary drivers of the increases in operating margin. The professional business benefitted from increased efficiency due to higher sales volume. Sales and profitability gains we made in our Envincio business that required 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 and a lower manufacturing cost, the declines of products and wild bird businesses had lower margins than a year ago. Net-net both operating profit and operating margin improved for our Pet segment. Moving 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 borrowings including the impact of the redemptions 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, inventory is at $340 million, $25 million lower than a year ago, as we continue to seek to optimize inventory balances for our ongoing business needs. This is an addition to the $48 million reduction 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 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 improve in earnings compared to last year. We currently expect fiscal 2015 earnings per share at $0.63 are higher, well ahead of adjusted earnings per share of $0.33 in the prior year. Thank you for joining us this afternoon. We’ll be happy to take your questions. Rob would you please open the line?

[Operator:]

We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Bill Chappell with SunTrust Robinson. Please go ahead with your question.

[Bill Chappell:]

John just to the succession issue maybe you help us understand kind of 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 kind of bring in somebody new in the next six months and kind of see what vision goes from there?

[John Ranelli:]

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 in building the foundation of the financial thought performance filling 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 going forward. So they want us to make sure that we have continually succession of the management team and we went and -- but the contract together that has the company and I working together for another 6 years.

[Bill Chappell:]

And in terms of looking at the where we are and turnaround the streamlining even identifying the cost savings, I mean is this the realization that we’re halfway there or more of the halfway there just in terms of -- or you starting to pivot more towards the marketing and spend side or are you still some of our cost savings to be found?

[John Ranelli:]

Basically we think that our foundation is now in place and we have the opportunity with that foundation in place to grow and take advantage of Central’s financial and operating leverage, In other words I believe that we can increase our sales significantly without adding that much to our cost base.

[Bill Chappell:]

And when you talk about increasing sales significantly, is the goal to grow in line with the mid single digit of the pet category and the low single digit of the garden category and maybe you could give me some color on kind of recently wins or market share gains just to kind of give us some better understanding what's going on there?

[John Ranelli:]

Sure, in the area of growth we have gone into the market place and I am really pleased to say that on the garden side that market share has stayed relatively flat if not increased this year so I am very pleased with our Garden performance. In our Pet segment, we were looking at some numbers yesterday over 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. 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 am seeing significant improvements in our POS and they're mostly driven by two things, one is increased distribution reason increases in distribution account significant amount of coming are aquatics business in pet brand and we're very-very pleased with that and also the sell through that we're getting from them. So we're going both after increased distribution and increased sell through by using our marketing tools that we have both form a push and pull base that are going forward.

[Operator:]

Thank you. Our next question is from the line of Brian Nagel with Oppenheimer. Please go ahead with your question.

[Brian Nagel:]

I've got a couple of questions. One, somewhat of a follow-up on the prior question, but the acquisitions, John -- as we look at your story and it sounds like it was [technical difficulty] the last couple of quarters that Central’s more in the mindset of making acquisition. Are there any broad parameters we should be thinking about -- what type of company, either from a financial respect or size that you're looking to acquire?

[John Ranelli:]

I really couldn’t hear the questions but I assume the question was, are there any particular size of our business that are potential acquisitions could be gained?

[Brian Nagel:]

That's correct, sorry about my connection being bad.

[John Ranelli:]

Now there is no particular size. We like to keep our leverage ratio somewhere between 3 and 4 times. Obviously if we brought acquisition we would go above that to acquire the right acquisition, but we like to state pretty close to our identity [ph] 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 the two acquisitions that we talked about last year and this year they're very close adjacent, where we have management capability to go forward and do them and then integrate them successful. And as I mention Envincio is accretive and we expect in the first year that our IMS acquisition would be accretive.

[Brian Nagel:]

Okay, thank you. If you can still hear me, Lori, I guess this question's more for you. But you looking at the gross margins trajectory you've got now for the last several quarters good 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 Varlas:]

Sure so in our third quarter and particular the growth margin gains were part of our Garden segment, if you look at the mix of our products that drove that we have some new products like brown seeds and favorable mix of sales, our private label fertilizer was a contributor to those gain and so it's really the margin expense for the third quarter in particular really kind of related to those factors. Of course we need to look that as John described in the other call being a low cost producer of quality goods is something that we're very focused on as a company and we'll look for other way to drive efficiencies as we look or we pivot towards when we focus on growth. Those are important drivers and factors as moving forward.

[Operator:]

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

[Grant Jordan:]

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 Varlas:]

Yes. From an aggressive perspective it was not a great grass seed year, we are certainly seeing the trajectory and impact of those overall grass seeds. But from a shares perspective I think we're building our own.

[Grant Jordan:]

Okay, that's what I thought I heard you say. Second question -- now that the balance sheet has improved a good bit, 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 Ranelli:]

We and our advisors are constantly watching the market and please remember that we repurchased $15 million of borrowings not to longer, in fact earlier in the year and also our call premium expires next March looking at the continued 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 opportunity.

[Operator:]

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

[Carla Casella:]

So you got the question on M&A, but 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 Ranelli:]

But we constantly looking at our portfolio, right now there is no business that we would be interested in selling.

[Carla Casella:]

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 Ranelli:]

No there are no plans to sell the company.

[Operator:]

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

[Gregg Hillman:]

Hey, could you review the competitive dynamics of the flea and tick control market? I noticed [indiscernible] is in some of the stores, but also just other products taking share in outlets like Wal-Mart. Can you just compare how that market has changed over time, and where the sales are occurring, what channel? And what that portends for you in the future, whether that would be less -- I know it's a great little cash cow for you, but do you think that's sustainable? And also, quantify your applicator thing, whether that's a differentiating thing, whether that's getting traction. Just review the whole thing for me, please.

[Lori Varlas:]

Ye. So our flea and tick business I think is at that stage -- that category, fairly has been evolving over the last several years, a lot more competitors they were years ago. We have good products you talked to me about the applicators, I think that’s a differentiators good appear for our consumers as far as how the active ingredients get applied to their pet and certainly an important area of our business and if you look at the results for the quarter, if you look at our operating income the flea and tick business actually helps our operating income from that perspective.

[Gregg Hillman:]

So it improved year-over-year?

[Lori Varlas:]

Operating margin is, yes.

[Gregg Hillman:]

And you said -- did the actual operating income improve as opposed to the margins?

[Lori Varlas:]

So we had some challenges that I've mentioned in our flea and tick and our club channel and sales were down and so we certainly felt the impact of that.

[Gregg Hillman:]

Okay. And by the way how does that applicators thing work?

[Lori Varlas:]

You open it up set the active ingredient in it, close to back up and you just drive it along the pets back and it distributes the active ingredient within the fur.

[Gregg Hillman:]

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 Varlas:]

No.

[Gregg Hillman:]

Okay, that's pretty great. And then, is dog food an important segment for you? I mean, like, is it more important than flea and tick at this point? Is it kind of just pet food in general?

[Lori Varlas:]

Two point answer to that particular question, we have dog food that’s in our product portfolio, small than some of our other categories. If you look at our third party distribution and you look at the pet categories in general. We just due to third party dog food products on behalf of other manufacturers themselves, dog food in general being across a third party as well as our branded business, it’s important but our overall personal portfolio, dog food plays a smaller role.

[Gregg Hillman:]

Okay. And then finally, in the fertilizer and controls area -- let's just say the fertilizer area -- I take it you have a lot of fertilizer. How is that differentiated from MiracleGro products?

[John Ranelli:]

I don’t think I’m going to bother to talk about our products versus our competitors’ products, I think you can see that in the marketplace. But our fertilizer business is growing from significantly this year and it’s been primarily from increased distribution, but we’ve also had increased sell-through.

[Operator:]

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

[Hale Holden:]

I just had two quick ones. Can you give us input commodity price kind of outlook for -- what you're thinking for the next six months or so?

[Lori Varlas:]

So from commodity perspective a lot of harvest is beginning or about to begin the -- heading to fall. What we’ve seen and from our input cost for grass seeds, cost of grass seeds have been rising over the past year. I think we’ll have to sort of wait and see how the yields are and demand is, I think that might be as better question for next quarter ones you see those yields.

[Hale Holden:]

Okay. And then back 18 months ago, when you had the Pennington sprayer recalled -- for lack of sale issue -- you had asked us to give you sort of two to three years of innovation. And I was wondering where you were in 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 you knocking on doors related?

[John Ranelli:]

What we had to do 18 months ago was to reestablish our business unit managers who were experts in the various businesses and categories that we participated in. Once we did that, what we did is we build product development organizations under them. We had prior to 18 months ago a centralize product development process which wasn’t yielding the products that we would like. After our distributing the business responsibility to the various business unit each of them went and build a product development team. The results of their team have been very encouraging, I would say that given where we wanted to be about this time we are we’re there, where we are total objective, I would say we’re about 50% of the way there with regard to what I would call a successful 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 just 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 products, I think there about 50% of where they would like to be. I would say that type of the sales were as a result of new product, but part of it was also increased distribution and a lot of increase sell through from both existing product due to product promotion that we’re running, incremental space that we achieved and I am very, very pleased with where we are and where we’re going.

[Hale Holden:]

Just one follow-on -- have you seen the aquatics generally start to stabilize? I know it had been a declining category for a little while. Maybe not Central-specific, but just aquatics generically.

[John Ranelli:]

I would say that it is starting to stabilize, but for us we are increasing our market-share.

[Operator:]

Thank you. I’ll now turn floor back to Mr. John Ranelli for additional and further comments.

[John Ranelli:]

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.

[Operator:]

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