WEBVTT - Scotts Miracle-Gro CEO Nate Baxter Talks Growth Strategy

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. So we want to

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<v Speaker 1>take a look at gardening product maker Scott's Miracle Grow,

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<v Speaker 1>unveiling new growth targets in its investor day today, fresh

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<v Speaker 1>off the new CEO appointment. The company says the adjusted

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<v Speaker 1>EPs and sales targets are part of a quote growth

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<v Speaker 1>algorithm with lakes into twenty twenty nine, and to put

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<v Speaker 1>a finer point on that, the company putting out those

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<v Speaker 1>mid range financial targets for fiscal twenty twenty seven through

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<v Speaker 1>fiscal twenty twenty nine average annual adjusted EPs growth of

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<v Speaker 1>five to eight percent. Fresh off that investor day, right

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<v Speaker 1>here in Studio two is the CEO and President of

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<v Speaker 1>Scott's Miracle Grow, Nate Baxter. Great to see you, Nate.

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<v Speaker 2>Thanks for having me.

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<v Speaker 1>I know you're getting settled into the job. You had

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<v Speaker 1>to come talk to the Wall Street wharredes. How did

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<v Speaker 1>they treat you today?

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<v Speaker 2>Everybody was great? Yeah. You know.

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<v Speaker 3>The reality is I've been having conversations for the last

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<v Speaker 3>eighteen months with our investors. So while the title has changed,

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<v Speaker 3>the underlying strategy is still consistent with what I've been

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<v Speaker 3>talking about for the better part of two years.

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<v Speaker 1>Talk about the underlying strategy. When I see EPs growth

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<v Speaker 1>a five to eight percent, that doesn't seem aggressive, but

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<v Speaker 1>it's not necessarily low either. Are given all of the

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<v Speaker 1>complexities going on in the world today, what gives you

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<v Speaker 1>the confidence that you can meet that?

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<v Speaker 3>Well, we do recognize it's sort of conservative. It's sort

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<v Speaker 3>of in the sweet spot of a value investor. If

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<v Speaker 3>I look at the last couple of years, we've had

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<v Speaker 3>a lot of volatility in the markets, a lot of

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<v Speaker 3>events between tariffs and the war in Iran that we

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<v Speaker 3>just couldn't predict. So our point of view is we're

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<v Speaker 3>going to be fairly conservative, but we are going to

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<v Speaker 3>turn into a growth company. Have we believe that the

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<v Speaker 3>underlying initiatives that we outline today are going to get

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<v Speaker 3>us to where we need to be. But we also

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<v Speaker 3>wanted to be honest with investors about growth. I told

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<v Speaker 3>the team, I think we can outperform that, but our

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<v Speaker 3>focus right now, especially from a capital allocation standpoint, is

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<v Speaker 3>getting that leveraged down a little bit.

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<v Speaker 1>So with regards to the growth strategy, and forget me,

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<v Speaker 1>I don't mean to be flip about it, but when

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<v Speaker 1>I think about the products, you see obviously iconic brand,

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<v Speaker 1>the branded products. But that doesn't seem like a growth

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<v Speaker 1>story unless I'm missing something.

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<v Speaker 3>Well, I think you have to look at our a

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<v Speaker 3>couple of ways. So we do believe there's a lot

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<v Speaker 3>of organic growth possible. Our average house penetration is only

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<v Speaker 3>about ten percent. So if you look at the eighty

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<v Speaker 3>five million households out there only being penetrated by ten percent,

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<v Speaker 3>we have a lot of organic opportunity. Now, the question

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<v Speaker 3>is how do we convianse consumers to engage with us

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<v Speaker 3>in our category.

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<v Speaker 2>So I think that's one of the fundamentals.

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<v Speaker 3>The others we know channels, consumers are shopping channels that

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<v Speaker 3>they didn't before, you know, you come out of the pandemic.

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<v Speaker 3>I think we had something like less than five percent

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<v Speaker 3>of our total point of sale that was through e commerce.

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<v Speaker 3>Now we're up to thirteen percent, three hundred BIPs alone

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<v Speaker 3>this year. So what we're realizing is we need to

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<v Speaker 3>go to where the consumer is, especially the younger consumer,

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<v Speaker 3>and they're in totally different channels.

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<v Speaker 1>Well, we'll talk to me a little bit about that,

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<v Speaker 1>because what is sort of I mean, you talked about

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<v Speaker 1>this at the investor, you talked about this on your

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<v Speaker 1>earnings last week. I believe as well about digital advertising

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<v Speaker 1>and your approach to it. What does this mean You're

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<v Speaker 1>just making like, you know, funny things on TikTok or

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<v Speaker 1>is it a little more sophisticated.

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<v Speaker 3>Then no, I mean we certainly don't want to we

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<v Speaker 3>don't want to cheap in the brands.

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<v Speaker 2>It's more sophisticated than that.

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<v Speaker 3>What we're recognizing is we need to meet the consumer

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<v Speaker 3>where we are. You know, we used to be a

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<v Speaker 3>traditional media company, buy those upfronts. You would have a

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<v Speaker 3>fixed date, the cost was sunk, you would run it.

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<v Speaker 3>The weather might not be great, not necessarily the right

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<v Speaker 3>way to do your media strategy. So we've now pivoted

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<v Speaker 3>where eighty percent of our media is digital, and it

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<v Speaker 3>does two things that are really important. One is we

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<v Speaker 3>get to tailor it for individual consumers, and the second

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<v Speaker 3>thing is we get to be really agile with it.

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<v Speaker 3>We can decide on a Monday, if the weather is

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<v Speaker 3>not going to be good in Chicago this weekend, we

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<v Speaker 3>can pull back or we can redirect it. So it

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<v Speaker 3>allows us to be much more effective, and we've seen

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<v Speaker 3>a commensurate increase in the media ROI as a result

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<v Speaker 3>of that.

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<v Speaker 1>Is your marketing primarily created in house or are you

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<v Speaker 1>relying on third party?

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<v Speaker 2>It's a hybrid. We have a for the social stuff.

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<v Speaker 3>We'd like to do it in house because you need

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<v Speaker 3>to be able to respond to what's happening out in

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<v Speaker 3>the world. But we have a whole bunch of partner agencies.

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<v Speaker 3>We don't do the traditional AOAR model. We actually pick

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<v Speaker 3>a lot of partners and we let our people sort

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<v Speaker 3>of direct. And it's been hit or miss. You know,

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<v Speaker 3>We've got great agency partners. We have some that are

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<v Speaker 3>good for a period of time and then we want

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<v Speaker 3>to move on. But one thing, it's a little bit

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<v Speaker 3>like AI. It's changing so quickly. We've got to be

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<v Speaker 3>flexible with who we partner with on the initiatives.

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<v Speaker 1>Now, talk to me about your input costs. I mean,

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<v Speaker 1>we've seen commodity prices up, including for your REA. Obviously,

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<v Speaker 1>it does not seem like there's going to be an

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<v Speaker 1>end in sight right now for those to come down.

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<v Speaker 1>With the guards and the situation in the Middle East

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<v Speaker 1>as well as some of the other weather related factors.

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<v Speaker 1>How have you factored that in too, that five to

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<v Speaker 1>eight percent.

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<v Speaker 3>So yeah, certainly, certainly been a challenge I mean, I

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<v Speaker 3>think we talked about in our Q thre earning Q

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<v Speaker 3>three earnings we had a little bit of a headwind

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<v Speaker 3>this year. We absorbed most of it through costs out,

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<v Speaker 3>but about fifteen million of it did follow the bottom

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<v Speaker 3>line on.

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<v Speaker 2>In Q three. For next year, we're doing a few things.

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<v Speaker 3>One is, we've got a great team that does pretty

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<v Speaker 3>sharp hedging and so we do he Juia diesel when

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<v Speaker 3>it's available. But more importantly, we work on how to

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<v Speaker 3>minimize those inputs. And we're also going to have to

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<v Speaker 3>take some pricing this year, and that's a delicate balance.

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<v Speaker 3>We've got to look at volume trade offs with that.

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<v Speaker 3>But we have great relationships with our retail partners, and

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<v Speaker 3>given we're in the mid single digit ranger pricing, we

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<v Speaker 3>think we can figure out a way to navigate that.

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<v Speaker 1>What's the relationship like with the retailers and where you

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<v Speaker 1>put product versus what maybe you're trying to sell directly

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<v Speaker 1>through your own channels.

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<v Speaker 3>Well, let me be clear, we don't really endeavor to

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<v Speaker 3>sell a lot directly through own channels. It's a pretty

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<v Speaker 3>smart surrounding air for us, and it's not something we're

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<v Speaker 3>focused on.

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<v Speaker 2>Our lawns program.

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<v Speaker 3>As the biggest, but our retail partners are pivoting very

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<v Speaker 3>quickly to ECOMP. So if you look at the big three,

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<v Speaker 3>which is what we've traditionally talked about, footsteps and those

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<v Speaker 3>brick and mortar stores flat to down.

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<v Speaker 2>Actually last quarter.

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<v Speaker 3>They were slightly positive, which was a great sign to see,

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<v Speaker 3>but they are pivoting quickly. So we are now in

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<v Speaker 3>the mode of developing products for all of our eCOM

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<v Speaker 3>consumers and retail partners. And that's a big part of

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<v Speaker 3>what we've talked about today, which was innovation.

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<v Speaker 1>I do just have to ask you, obviously, when I

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<v Speaker 1>think of the products that you sell, it's Scott's miracle grow.

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<v Speaker 2>I think you know you're a homeowner.

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<v Speaker 1>You're going out into your backyard or into your front

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<v Speaker 1>yard and applying and applying the products.

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<v Speaker 2>Here.

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<v Speaker 1>We know that the home ownership rate has gone down.

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<v Speaker 1>We know the turnover of homes has gone down as well.

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<v Speaker 1>I assume that has to have a direct impact in

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<v Speaker 1>your business. How do you compensate for the slowness that

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<v Speaker 1>we're seeing in that space.

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<v Speaker 3>Well, the good news is all part of how we

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<v Speaker 3>go capture that next generation, so that next generation they

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<v Speaker 3>are not yet homeowners. They are apartment dwellers, they have condos.

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<v Speaker 3>So we've pivoted hard into indoor gardening, something we've always

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<v Speaker 3>done but we haven't talked about it, and we have

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<v Speaker 3>a whole new suite of products that came out. The

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<v Speaker 3>other big win that we talked about at investor Day

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<v Speaker 3>today is in the grocery aisle. We typically have not

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<v Speaker 3>been present in the grocery aisle with our Controls products,

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<v Speaker 3>and so we now are winning business at some of

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<v Speaker 3>our bigger partners in the grocery aisle.

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<v Speaker 2>That's a big deal for us.

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<v Speaker 3>And then if you look at our partnerships, we've talked

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<v Speaker 3>about a partnership with a small company called Murphy's. They're

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<v Speaker 3>doing on skin natural mosquito prevention and repellent. We're finding

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<v Speaker 3>new channels with them. So I think you know this

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<v Speaker 3>growth story. Just to go back to what you asked

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<v Speaker 3>me a minute earlier, it's really about getting the right

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<v Speaker 3>products in our consumer's hands. So we've got our traditional

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<v Speaker 3>consumer that likes the traditional product that you just mentioned,

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<v Speaker 3>but we have the next generation consumer. They want natural,

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<v Speaker 3>they want organic, they want things that are safe for

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<v Speaker 3>pets and kids. That includes apartment dwellers. That includes people

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<v Speaker 3>that aren't yet homeowners. And when I look at the

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<v Speaker 3>home ownership I don't look at it as a win today.

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<v Speaker 3>I look at it as it's going to be a

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<v Speaker 3>tailwind when that dam breaks, when we start to see

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<v Speaker 3>more turnover in the home ownership.

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<v Speaker 2>So we don't we don't look at it as a negative.

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<v Speaker 3>We just know that there'll be something down the road

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<v Speaker 3>coming where we can engage that next gen consumer as

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<v Speaker 3>they become homeowners.

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<v Speaker 1>All right, Nate, great to have you here.

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<v Speaker 2>Thank you very much.

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<v Speaker 1>Nate. Nate Baxter there. He is the CEO and president

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<v Speaker 1>of Scott's Miracle Growth