Steven Zenker - Vice President, Investor Relations George Roeth - President and Chief Executive Officer Niko Lahanas - Chief Financial Officer Howard Machek - Senior Vice President, Finance and Chief Accounting Officer J.D. Walker - President, Garden Branded Business Rodolfo Spielmann - President, Pet Consumer Products.

Frank Camma - Sidoti & Company Bill Chappell - SunTrust Brian Nagel - Oppenheimer Jason Gere - KeyBanc Capital Markets Jim Chartier - Monness, Crespi and Hardt Hale Holden - Barclays.

Ladies and gentlemen, thank you for standing by. Welcome to the Central Garden & Pet’s Fourth Quarter Fiscal Year 2017 Financial Results Conference Call. My name is Tim and I will be your conference operator for today. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to turn the call over to Steven Zenker, Vice President of Investor Relations, SP and Communications. Please go ahead..

Thank you, Tim. Good afternoon, everyone. Thank you for joining us. With me on the call today are George Roeth, Central’s President and Chief Executive Officer; Niko Lahanas, Chief Financial Officer; Howard Machek, Senior Vice President, 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 fourth quarter ended September 30, 2017 is available on our website at www.central.com. Also in the website is the GAAP to non-GAAP reconciliation for the non-GAAP measures discussed on this call.

Before I the turn the call over to George, I would like to remind you that statements made during this conference call, which are not historical facts including EPS guidance for 2017, 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 expected to be filed tomorrow. 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 afternoon, everyone. It’s great to be with you today. 2017 turned out to be a terrific year all around for the company as we crossed the $2 billion mark in revenue.

Central marks the second consecutive year of double-digit revenue growth and diluted earnings per share increases while significantly advancing our strategy to enable long-term sustainable sales and profit growth. Our revenue growth for the year totaled over 12% with organic growth making up over half.

Even taking up the impact of the 53rd week, organic growth was 5%. And importantly, both our garden and pet businesses contributed to that growth while building market share.

GAAP and non-GAAP earnings per share rose 75% and 19% respectively benefiting from stronger sales and our continued efforts to reduce costs to drive efficiency and increase profitability. Niko will cover the specifics around the quarter and the year in just a few minutes.

First, however, I would like to spend a few moments detailing the significant progress we made during the year around our five key strategic pillars. The first strategic pillar is to accelerate the growth momentum of the portfolio.

During the year, we strengthened the growth profile of our portfolio by acquiring K&H manufacturing, a high growth business that is the largest producer of heated and cooled dog and cat beds in the U.S.

Combined with our Dallas Manufacturing Company bedding business purchased last year, we have become a formidable player in the pet bedding categories with industry leading market share, a strong pipeline of innovation and strong revenue growth.

Also, last year, we purchased Segrest, the largest producer and distributor of live aquarium fish and just after fiscal year end, we purchased a minority stake in Capital Pet, a global leader and manufacturer of fish and small animal habitats for retail stores.

These investments allow us to offer comprehensive solutions to our brick-and-mortar retail partners, to draw consumers to their outlets with in-store theater and unique products in order to drive growth of our collective businesses.

Also, last year, we exited a small veterinary products business early in the year to enable us to focus on other area of the growth for the company. And finally, we have planted additional seeds for future growth as we entered into several joint ventures in addition to Casco.

These include a mature seasonal business, with an option to buy at an attractive valuation as well as two startup pet enterprises.

Finally, I do think it’s important to mention that having a diversified portfolio of products like we have at Central it’s a real competitive edge as it enables us to balance out the risk to the weather, market conditions and other forces.

An example of this was in 2017 weather was generally unfavorable for our wild bird feed business, which as you might recall is in both our garden and pet segments. We were able to make up for that shortfall and a lot more due to the performance of our other businesses. That showed the strength of a diversified portfolio.

The second key strategic focus is to build on our strong customer relationships. We continue to partner with our customers to grow their categories profitably. We listen, are flexible and responsive and are objective in our assessments and recommendations.

Activity during fiscal 2017 included rolling out successful new private label products and associated packaging that significantly grew both our customers and our sales and profits.

Our strong execution in this area as well as our efforts around our branded products in the lawn and garden segment led to some meaningful recognition from two of our largest customers, Walmart and Lowe’s.

Both companies awarded Central the prestigious Lawn and Garden Supplier of the Year award and Lowe’s presented Central one of three vendor of the year awards, their highest honor to any supplier storewide. Walmart additionally nominated Central for 8 awards, out of the 12 they presented and bestowed 3 upon the company.

In addition to the lawn and garden award, Walmat recognized Central for its innovation in H3 meaning humble, hungry, hustle awards. I should also note that hot off the press, Petco awarded Central Strategic Initiative Vendor of the Year award in Companion Animal. We are honored by this recognition.

We continue to strive to provide best-in-class customer service and partnering with all of our customers and these awards validate that we are executing well on all of these efforts.

Additionally, on the customer front, in our pet distribution business, we are rolling out a partnership with a major grocer with whom we were successful in testing an enhanced business model. This effort entails Central managing a store within a store concept.

Central manages the pet supplies area completely choosing assortment, shelf placement and merchandising in the area to maximize our partner sales and profits. Our efforts resulted in growth for our retail partner while successfully standing our pet distribution business. We look forward to taking this to a new level in fiscal year ‘18.

The third initiative is to increase our innovation output and success rates. Central continued its progress in this important area during the year gaining shelf space with new offerings in numerous categories.

Some of the more notable new products launched during the year included both branded and private label potting soil and an expansion of our quick kill control product line in our garden segment.

In our pet segment, we introduced the CRITTER HOME, which builds on the success of our award winning CRITTER TRAIL product line as well as new equine wound care product using a proprietary technology. Also during the year, Central accelerated innovation efforts by driving better coordination across our business units.

For example, we are executing a joint initiative between our garden and pet segments, whereby our garden controlled and pet professional teams are collaborating to produce new consumer pets controlled products that will hit the shelves this spring. We will talk more about this initiative next quarter.

The fourth strategic pillar is to drive cost savings and productivity improvements to fuel growth. In 2017, Central met its long-term goal of annually cutting controllable costs by 1% to 2% really closer to the 2%.

We successfully increased efficiency by combining facilities, executed new insourcing and outsourcing initiatives and increased capital spending to invest in equipment and processes with lower product costs.

One key initiative was the enhancement of an additional segment of our grass seed product line, which allows consumers to ply less seeds, yet experience better results. Some of these savings were reinvested in demand creation activities to drive our customers’ categories and build market share creating the virtuous cycle that we are striving for.

Also during the year in our garden controlled and pet health and wellness businesses, we were successful in identifying new active ingredients and suppliers enabling us in the upcoming year to produce more efficacious products at a lower cost.

We will be benefiting from these actions and improved products with even more aggressive marketing plans that we are planning to bring to market in 2018. Finally, the fifth initiative is to attract, retain and develop exceptional employees.

It is an understatement to say we could not have achieved the success we enjoyed this year without the excellent execution on many fronts from our talented teammates. Winning awards for our superior customer service, while at the same time, market share gains and profitable growth with passion and commitment is more than any leader can ask.

In addition, we filled some key senior management positions during the year which have made us stronger. Rodolfo Spielmann joined us as President of our Pet Consumer Products and Bill Lynch came on as Senior VP of Operations. Both bring us a wealth of experience and talent and have already made significant contributions to the company’s success.

Additionally, we promoted from within our Senior VP of Human Resources, [indiscernible] and our talented CFO, Niko Lahanas who will now take you through some of the specifics of the year and quarter..

first, a $14.3 million charge in the first quarter related to the refinancing of our fixed rate notes; second, a $2.4 million gain on sale of planned assets in our pet business during the third quarter; third, a $1.8 million non-cash intangible charge in our pet business in the fourth quarter; and fourth, a $16.6 million non-cash impairment charge in the fourth quarter primarily related to the company’s investment in an antimicrobial technology that did not impact operating income, which showed up below the line in our other income expense.

I will start with a brief summary of the year. As George mentioned earlier, we had an exceptional year at both our garden and pet segments. Total company revenues rose 12% with organic revenue increasing 5% excluding the extra week in fiscal 2017.

Both segments drove the growth with garden total revenues up 8% or excluding the extra week 7% organic growth and pet revenues up 15% or 3% organic growth, excluding recent acquisitions and the extra week. Total company gross margin for the year increased 60 basis points to 30.8% with both segments seeing an increase.

Operating income of $156 million was up 21% with operating margin increasing 50 basis points to 7.6%. Earnings per share rose 75% to $1.52. Excluding the items noted earlier in both years, non-GAAP operating income and EPS were up 20% and 19% respectively.

Turning to the quarter, fourth quarter consolidated sales increased 19% to $490 million with organic sales excluding the extra week rising 4%. Both pet and garden contributed to the increase.

The impact of the extra week was approximately $35 million in total revenue, of which $33 million was related to organic revenue and $2 million from acquisitions. Consolidated gross profit for the quarter rose 21% and our gross margin increased 50 basis points to 29.6% on improvement in both segments.

SG&A expenses for the quarter increased 24% or $26 million versus the year ago and as a percent of sales increased by 120 basis points to 26.7%. The increase in dollars is driven primarily by acquisitions.

As a percent of sales, the increase was due to a higher level of demand creation of spend as we continue to invest in future growth and additional expense related to a contingent earn-out for the fiscal 2017 acquisition. Operating income for the quarter rose to $14 million compared to $13 million a year ago.

The prior year has impairment charge of $1.8 million that negatively impacted results. Excluding the $1.8 million charge last year and the $2.3 million charge in the current year related to a contingent earn-out, operating income is up.

Our operating margin including or net of the aforementioned charges declined 20 basis points to 2.9% due to higher SG&A expenses. This increase was driven by our choice to invest in demand creation spending to drive future growth. Net interest expense increased slightly from $6.6 million to $7.2 million.

The increase was due primarily to the extra week in this year’s fourth fiscal quarter. Our net income for the quarter was $4.3 million and our diluted earnings per share, was $0.08 compared to a loss of $5.6 million or $0.11 per share in the fourth quarter of 2016.

In addition to the $1.8 million fourth quarter intangible charges that impacted SG&A expenses, there was also the non-cash impairment charge of $16.6 million last year that was reflected in the other expense line. So, non-GAAP earnings per share in last year’s fourth quarter, which excluded the impairment charges was $0.13.

Other factors that caused this year’s EPS to below last year’s non-GAAP EPS include the other expense and corporate expense lines. We expected unfavorable comparisons in these two areas and called them out in our last two earnings calls.

In this year’s fourth quarter, other expense totaled $1.3 million compared to $0.2 million in the prior year quarter, which excluded $16.6 million charge. The charge is primarily due to JV investments we made in 2017. The larger of those two is currently profitable on an annual basis, but off season typically incurs a loss.

Diving in a little deeper in the pet segment for the quarter, pet sales for the quarter increased 22% or $60 million to $330 million aided by acquisitions of the extra week and strength in the dog and cat business. Pet organic growth excluded the extra week was over 3%.

Pet segment operating income increased $5 million or 22% compared to the prior year, which included a $1.8 million in tangible impairment. Absent the impairment charge in the prior year quarter, operating income increased $3 million or 13%. Pet operating margin on a GAAP basis was flat at 8.3%.

Excluding the impairment charge in the prior year quarter, pet operating margin declined as the higher gross margin was offset by higher SG&A expenses as a percentage of sales due primarily to the contingent earn-out charge related to recent acquisitions as well as increased warehouse and facilities charges in the pet distribution business related to facility transition costs to supporting key business model expansion initiatives.

Moving on to garden for the quarter garden segment sales increased 12% or $70 million to $160 million. Excluding the extra week, garden revenues were up around 4% all of which was organic. Higher sales of other manufacturers’ products and increased sales in our fertilizer and control product category were the largest contributors to the growth.

Garden operating income for the quarter declined to $0.2 million and operating margin decreased 170 basis points to 0.2% despite gross margin being up. As I mentioned earlier, we increased marketing spend during the quarter in several categories to continue to drive garden demand in the year ahead.

In addition, costs related to rest of products in the company’s decor business was also a factor in the lower operating margin. Keep in mind that the fourth quarter is a seasonally small quarter for our garden business, so increased expenditures have a magnified effect on margin changes.

Turning to our balance sheet cash flow statement, for the quarter, cash flow provided by operations was approximately $72 million compared to $62 million in the fourth quarter a year ago. The company’s inventory balance rose $20 million from a year ago and primarily reflects the increase from our recent acquisitions.

CapEx was unchanged versus the prior year at $8 million. Depreciation and amortization for the quarter of $11 million was also unchanged versus a year ago. Cash and cash equivalents including short-term investments decreased to $32 million from $93 million a year ago.

The decrease reflects more cash spend on acquisitions and investments and also CapEx in fiscal 2017 versus fiscal 2016. Our total debt was relatively flat year-over-year. We ended the quarter with a leverage ratio of 1.9x down from 2.2x a year ago.

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. Now, I will turn it over back to George..

Thank you, Niko. As we look ahead to 2018, we continue to be committed to our strategy, which is working. We have a long runway of opportunities and continue to stay focused on growing revenues organically by reinvesting cost savings and using our cash flow and debt capacity to add additional growth through disciplined acquisitions.

We currently plan to continue our growth momentum and expect EPS for 2018 to be $1.62 or higher or expect to continue to be aggressive in the M&A market, our guidance excludes any new M&A we mentioned during the year.

Of course, earnings comparisons will be dependent on the number of factors and may exhibit quarter-to-quarter volatility versus the prior year. For instance, Q4 2018 will have one less week than in 2017. Q3, we are comping against significant 2017 garden growth.

And in Q1, our expense line will reflect the impact of the joint venture in a seasonal business, which while expected to be meaningfully accretive to our second quarter earnings should negatively impact our first quarter results.

Quarterly and annual results will also be impacted by our recent accounting standards that changes the GAAP requirements for the way companies are required to account for some of the impacts related to recording expense for stock options and restricted stock.

We currently believe our tax rate will be lower in 2018 due to the impact of this change, because future stock price changes and employee exercise activity both influenced the impact of this accounting change, we can’t precisely estimate what this impact will have on our fiscal 2018 tax rate.

This also means our tax rate may fluctuate a bit more quarter-to-quarter than it has in the past. For now, we are excluding the possible impact of the new accounting rule and any potential federal tax reform in our guidance. And so we have better clarity on the impact of the changes as we moved through the fiscal year.

Net-net, we had a terrific year in fiscal ‘17 and expect the strong execution of our strategy to continue the momentum for fiscal ‘18 overall, albeit with some quarterly bumpiness. We want to thank our investors for their support. I also want to take a moment to thank our employees for all their hard work.

We look forward to delivering for you in fiscal ‘18 and beyond. And now, we would like to open the line to your questions..

Thank you. [Operator Instructions] Our first question comes from the line of Frank Camma of Sidoti & Company. Please proceed with your question..

Good afternoon, guys. Thanks for taking the questions..

Hi, Frank..

Hey, George. Appreciate the color on, you mentioned a couple of things of headwinds for us to consider going into ‘18 here. I was wondering about sort of some of the benefits that you might have like first of all on the earn-out.

Will that go into next year or two potentially if they exceed your expectations?.

This is Niko, Frank. Yes, the earn-out is potentially going into next year and even the year after, but the bulk of it is behind us..

Okay. And then like how about sort of the recent changes that you have, I think you have completed on the pet manufacturing side.

Can you give us kind of a flavor of that, what we should expect there and maybe what kind of improvements we might see year-over-year?.

I guess, what I would say there is the investments that we are making capital in the current year and generated a return over time. So, you would expect our margins to improve from those changes.

However, our level of investment won’t go down year-over-year, because we are going to continue to invest for sustainable growth and that means spending capital on cost savings and project monies and whatnot to continue to drive the cost savings for the next year. So you will see investment levels stay at their levels currently.

As a matter of fact, our capital spending year-over-year is roughly equivalent. But you will also see the benefits from those investments showing up in the P&L over time..

Okay. My other question – question was really on the M&A environment, recently you booked more towards the pet side of the business. Is that still your focus or are you seeing things on both side of the business.

Can you comment on that sort of longer term how you purchased the acquisition side?.

Yes. So, we are looking in both garden and pet on things to leverage our current capabilities and bolt-on acquisitions. The fact of the matter is there is just more opportunities in the pet side of the business on garden. So, we are actively looking at both.

Both are in our pipeline of the majority of the targets fit within pet and that’s just the nature of the industries..

Okay, great. Thanks, guys..

Thanks, Frank..

Our next question comes from the line of Bill Chappell of SunTrust. Please proceed with your question..

Thanks. Good afternoon..

How is it going?.

Going back to the guidance, just want to make sure I understand kind of the comparables, a year ago, George I think you gave initial guidance, EPS guidance of at least 6% growth and admittedly you beat that by a lot, but you had said at the time that 2017 was a reinvestment year and you could see faster growth actually came out of 2017 and this year we are kind of now looking at depending on how you look at it with earn-outs and extra weeks, 6% to 8% growth.

So is that reasonable or are we going to continuing the investment year into 2018?.

I guess, what I would say is it was $1.62 or higher, which on a non-GAAP basis I think it’s 8% growth. So, one could argue our guidance this year is a little bit more aggressive than last year. I would also say that you will see us continuing to invest over time.

So, this wasn’t a one shot deal where we made investments in 2017 and we get a windfall going forward as that won’t continue if you take that step. So, I would say our guidance is prudent. I mean, we are only 2 months in the fiscal year. There is lot of unknowns and that we have garden season ahead of us, competitive reactions in both garden and pets.

We are going to continue to invest for sustained growth. So, I think you are going to see that be the case over time. And I think our guidance is prudent at this point..

And just a clarification on that for now for that $1.62 or better, are we assuming similar tax rates as last year?.

Yes..

Okay, thanks.

And the second question on the garden business, you obviously had a outstanding year, took some meaningful market share, do you believe that you can grow off of that base assuming a normal garden season?.

Bill, it’s J.D. Walker. I will take that question. Great question. We had a very strong year in 2017. We are proud of the year that we had. I think we are well positioned going into 2018. You probably heard me talk before about the controllable causal factors and the uncontrollables.

I think where we sit right now, George, just mentioned it the lawn and garden season is still in front of us.

So, it will be next spring before we fully get a grasp on how the season is going to unfold, but going into the season, things like distribution, promotional support from our key customers, our ability to execute the fall build as we build our inventories for next spring, we feel good about all of the controllables.

Things like weather, we can’t predict. Things like customer strategies and competitive activity will all be things that we will react to. You mentioned that we had a strong year.

We took share in 2017 and we will see spend in 2018 to defend that share, but where we sit right now, we feel good about where we are with a lot of unpredictable things in front of us..

That’s great to hear.

And then last one from me, just any kind of commentary on higher freight rates that we are seeing kind of across the country and how that’s impacting you?.

We haven’t seen it impact us in a material way as far as across the country. Keep in mind we do have fairly sizable proprietary fleets as well. But overall, we haven’t seen that big of an impact..

Okay, great. Thanks so much..

Thanks, Bill..

Our next question comes from the line of Brian Nagel of Oppenheimer. Please proceed with your question..

Hi, good afternoon..

Hi, Brian..

Hi, Brian..

Congratulations on a nice year. I have a couple of questions. First off, just I guess just on the quarter now follow-up question.

Niko just to understand better, if you look expense growth seem to pickup here, I know you gave a lot of color or comments, but how should we think about, is there a way to sort of say bottom line how we should think about the expense growth in the fourth quarter and how much of that was non-one-time in nature versus things indicative of what maybe – what we will see going forward?.

Yes, so Brian, this is Niko. So, I will try to bridge it for you a bit of qualitative sense that if you look at the P&L top line obviously was pretty solid. We are very pleased with the gross profit. We have got a nice dollar growth and we have got nice margin expansion going on.

If you look at the SG&A, about half the increase was due from acquisitions, so you are seeing that the SG&A increased from acquisitions. Then you have got another 20% to 30% of it as investments in terms of demand creation. So, very intentional, most of it being on the garden side, garden just came off the quarter of 12% growth.

We want to see that continue as best we can, but we do have some tailwinds there and we want to continue to drive the initiatives in the garden business.

The balance of the increase is really in that delivery warehouse storage bucket, primarily on the pet side where we are doing some expansion work in pet distribution around filling out our network to service that large customer we have mentioned earlier..

Okay, that’s helpful. And then I guess to square that with – George, the comments you have made just strategically about continuing to take the cost down each and every year.

How does what we saw in the fourth quarter then sort of relate to that longer term objectives from an expense perspective?.

I would say and I don’t have the numbers in front of me, but as you just looked at the cost of goods and the gross margin numbers, those are pretty darn good, but the investments that we are making to improve our cost of goods profile as well as even in logistics and warehousing area with the some of the changes we made in dog and vet will show up in the CLL in those businesses.

Right now, we are making other investments, for example, in warehouse and logistics to expand the pet distribution at a highly profitable customer and business model. So, yes, there is a one-time quarter implication of that, but I do believe you will see over time as we make these cost changes, our margins will improve.

And if you look at the whole year and I think you have in our business look at a whole year, not quarters, because we tend to have seasonal businesses. We have a lot of small numbers from time-to-time particularly as you look at particularly businesses in quarters. Second, you can draw the wrong conclusions.

If you look at over a year, you will see margin expansion across the board and cost savings numbers consistent with our ongoing targets..

Got it. That’s very helpful. Then the final question I have which is within the pet side, we continue to, I guess, hear rumblings and see reports suggesting weakness or dislocation within the pet super store business.

I know you have also discussed this in the past, but as you think about that, I mean, I guess if you want to say if you think this actually happened or it’s not happening.

If it is happening how much of our headwind has that become 4% and how you are working to offset that?.

Hey, Brian, this is Rodolfo. I will take that. You are right we are seeing that headwind, those headwinds in the pet specialty channel. And we do have a significant presence in that channel. The exposure though has been reduced in the last several quarters since we have been gaining share in club, grocery and e-commerce.

Having said that, we are committed to the channel and to partner with them for long-term growth and we are working with them in a number of different ways same as we are doing with our independent channels, mainly working with them to drive traffic to the stores by leveraging vibrant and healthy aquatics, small animal and bird categories.

Now, this is something unique for pet specialty and what we believe is a base for long-term growth. And most importantly, I think we are uniquely positioned to help the channel and the key customers we are partnering with to return to growth long-term..

Thank you very much and congrats on again a nice year..

Thanks Brian..

Thanks Brian..

Our next question comes from the line of Jason Gere of KeyBanc Capital Markets. Please proceed with your question..

Okay, thanks. And maybe just kind of tacking on to the last question, could you actually say what or tell us what the growth was in online versus brick-and-mortar within pet in the quarter.

And just in terms of the investments that you are making to kind of I guess kind of fuel the growth on the online business, obviously big topic within HPC, but we think that pet is probably going to be a little bit more of a conversation for you than maybe the garden businesses over time? So, that’s just the first question..

Perfect. This is Rodolfo again and I will take that. So, what we consult you is we are growing share in e-commerce and we are growing share in brick and mortar everywhere, but in one large pet specialty customer. So if you put the math on that that means that we are well into the double-digit growth in e-commerce.

And you are right, e-commerce instead is very relevant, depending on who you read at least 10% of the business in garden significantly smaller..

Okay.

And then just the other question I guess just broader speaking George or Niko whoever wants to answer just how you look at the category that you are in obviously you guys have been had a good year taking share, tough environment that’s out there lot of balls in the air with a disruptors, things of that nature, just wondering how you are looking at the category over the next couple of years, what are some of the drivers out there maybe break it down between growth in garden versus the growth in pet and obviously M&A can play a role, but I was just wondering so for us, obviously you don’t give us a top line guidance, but last year’s number was very good.

So, just trying to think about how you think about the category, is it expanding or do you think this is just you really kind of continuing to take share and outplace some of your competitors?.

I will think at a high level yes, we do not give annual guidance, because we are smaller company seasonal, there is a lot of volatility. We do talk about longer term sales goals and we talk in the range of the 2% to 3% probably in the higher side of that. And that’s really both from garden we would expect to grow around the households.

So, it’s roughly around 1% and that’s what we have seen 0% to 1%. We have significantly grown faster in that, because we have done a terrific job of executing and building share and we expect that to continue although getting growing share by leaps and bounds is challenging over long period of time, but we would expect to grow share over time.

The pet side of things we think that’s just a fabulous category. The basic consumer trends around pet have not changed.

People when they are older get pets, they are other humanizing pets, they are spending more on their pets, particularly in pet supplies where we will benefit from that, pet category depending on how you define it grows roughly in the 2% to 4% range and we would expect to continue to build share in that over time.

So, we did a weighted average of that can come up around 2% to 3% in the higher side of that and recently fit I even higher than that, because our share numbers have been so good. So, low cost categories that will obviously grow faster over time. Consumer trends are strong.

We expect to continue to grow share and don’t see that changing in the foreseeable future..

Yes, no, no, that’s great. And then the last question housekeeping just you talk about the calendar for this year other than one less week going back to a 52-week calendar and that’s the fourth quarter, are there any other changes that we should think about as the quarters play out.

And then within the extra week that you had in the fourth quarter, can you break out generally deal between your own sales and sales of other manufacturers like just so for modeling purposes how we should think about next year or is it pretty balanced between the two?.

Jason, it’s J.D. I will take the first part of your question and that is other than the 53rd week, how else should we be thinking about the upcoming year, the 53-week year moving from a 53 to 52 ending the timing of the ending of our quarters by a week.

So in some quarters that won’t be a material impact, another quarter for your shifting a week out of Q2, our Q2 into Q3, it will have a material impact on the quarter. So, timing will of the quarter and we will hope you understand that as we talked – as we presented in future earnings call. We will help you understand the impact on that quarter..

And within that, are you definitely seeing the sensitivity of how a shipping can be pushed off between the end of one weekend I guess into the next week, so you would expect that there could be some of that as 2018 kind of plays out?.

Well, I think we see that every year, right. There is always a little bit of shipment at the end of a quarter that can ship between quarters, but when you lose a week from your spring season and pickup a week at the end of that quarter in the summer, that’s difficult to make up that kind of an impact on season..

I will just provide another thing, it is 100,000 feet. When you look at our company listen to how we talk about the year in our annual guidance. The quarterly numbers are volatile, where seasonal calendar changes, some of the numbers in some of the quarters are quite small.

So, the investment in the quarter was small expense number can drive a big change in margin.

I just wouldn’t get to hung up on the quarters until hung up on extrapolating quarters and we will do as good a job as we can of talking about the year and how we are thinking about the year and that’s really the partner we should be looking to from my perspective..

Jason, on the brand versus the third-party really you can take the quarterly number that we have put in the press release and just divide it by 14 weeks and that would give you a rough approximation..

Okay, great. Thanks..

[Operator Instructions] Our next question comes from the line of Jim Chartier of Monness, Crespi and Hardt. Please proceed with your question..

Hi, thanks for taking my questions.

I just wanted to kind of go back to the SG&A, so I guess first I don’t know if you have mentioned this earlier, but where is the benefit from the extra week in fourth quarter?.

Around $0.01..

Okay.

And how much was SG&A impact from the extra week?.

I don’t think we have that number off the top of our head. I think Steve’s analysis divided by 14 is probably not a bad way to look at things on a very, very high level, but we don’t have it broken that finally..

Okay.

And then I just want to talk the pet facility consolidation and the expansion, is that now complete at the end of fourth quarter or are there any spillover expenses into first quarter?.

That project is complete. As a matter of fact, the leadership team just did a tour of it..

Great.

And just looking at kind of the difference in margin performance between pet and garden this year where garden saw nice 170 basis point expansion or so and then pet was down year-over-year, how much of the margin degradation in pet was related to the facility consolidation? And then you have done a number of acquisitions in the pet segment over the last few years, were there any transition expenses related to those acquisitions and do you expect to see margins in that – from those acquisitions improve going forward?.

So, this is Niko, yes, absolutely we consolidated the 7 facilities into 2 and we had a lot of one-time expenses in terms of making that transition happen. So that definitely impacted our SG&A number and you are right whenever you acquired businesses, you go through the purchase accounting.

Another expense we had was the $2.3 million we called out today as part of the earn-out when we bought one of the acquisitions. So, yes, there is definitely a fair share of one-timers in that SG&A bucket. The other thing to keep in mind too is what can really contribute to margin is our mix.

If you look at – when we look at our business on the last few years, we had very strong promotional, in fact, flea and tick, a slide season for last 2 years. This year was a little softer. It’s still a good year, but it was on the heels of two great years. And that’s one of our higher margin businesses, so keep in mind it’s going to be mix.

We had some transition this year and then the acquisitions play a role there as well..

Okay.

I mean also on the mix side with the acquisitions that branded revenue significantly outpaced the distribution revenue on the pet side, so I would have expected that would have been a positive contributor to margins this year?.

Yes..

Okay.

And then on the capacity expansions, how impactful can that on the top line for the pet segment in ‘18 and how much capacity were you constrained or were you outsourcing some of that to some place else?.

We weren’t outsourcing, but we were definitely matched out. And that business has been one of our top performers quite a few years in a row now and we can see that we were really bumping up against the ceiling as far as the capacity.

The other issue too is you have got FISMA regulations out there and we now have state of the art beautiful clean facility that will pass all the rigors of FISMA. So, it was capacity, it was regulatory and really it gives us a nice long runway now to continue to grow that business..

Are you talking to dog and cat expansion or the pet distribution expansion just to clarify?.

Dog and cat..

Okay, good.

And then just lastly, you guys had some nice private label wins in garden in ‘17 do you expect those businesses continue to grow into ‘18 and any new private label businesses on the horizon for next year?.

This is J.D. I will take that question. So for ‘17 we did see two of our major customers have re-launches of their private label brands that we produced for them. So, that was a tailwind for 2017.

We expect those customers to continue to support the private label offerings significant in 2018 and beyond we are seeing other retailers interested in this space as they did seek to differentiate themselves, particularly from the e-retailers.

So, I would expect that the retailers that are behind private label in a significant way will continue to support it in ‘18 and beyond. It’s been a nice business for us. It helps us leverage our branded business. It gives us a bigger control of the shelf at retail and it creates a partnership with the retailer which we enjoy..

And I will speak more broadly, when you think about the company we like the private label business. We particularly like it when we are the low cost producer and we have excess capacity which is true in many instances. It runs about 10% to 15% of our business kind of the middle of that these days and growing..

Great, thanks and best of luck next year..

Thanks..

Thank you..

[Operator Instructions] Our next question comes from the line of Hale Holden of Barclays. Please proceed with your question..

Great. Thank you for taking the call. I just had one. Your leverage number is now sub 2x see versus a stated upper limit of around 4x for M&A and if I just play the clock forward given your EPS guidance, all things equal you would be less levered by the end of next year. So, you are building a lot of financial capacity.

And I was wondering if you could just give us a refresh on capital allocation.

I do hear your commentary around tuck-ins, but I would be surprised if tuck-ins in the pet category were big enough to move the needle or it’s possible I guess I am missing something?.

No, at the moment, we have very robust M&A pipeline. What I can tell you as far as capital allocation right now, the returns we are seeing are for the right price. We can realize the very high return on M&A.

Alternatively, we have projects in-house that are high return as well that can be either a cast savings project where we were expanding the business as we did in our dog and cat business. So, we have plenty of projects that are returning a very high RRR right now. So, we don’t see a dividend in the future.

We don’t really see a whole lot of stock repurchase in the future. Those are all going to take a backseat to M&A and also internal growth in cost savings projects..

And I will just build on what Niko said. I mean, our first use of capital is against the core business as Niko pointed out and there is plenty of projects within the company that had a yield high returns, then it will turn to M&A.

And the one fun fact I would like to share is there are 1,400 pet manufacturers worldwide, not many of them above $100 million in sales, but many in the $50 million to $100 million range of the types that we have been buying. And I would say our target field is quite rich. Our M&A pipeline is deep.

We can’t control when we make the actual purchases, but we expect to still be aggressive in the marketplace buying..

Thank you very much for the time. I appreciate it..

Thanks..

There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to Mr. George Roeth for closing remarks..

Yes. I have to say thank you everybody for attending the call. We feel great about our fiscal ‘17 and looking forward to a wonderful fiscal ‘18 as well. So, have a good day..

This concludes today’s conference. Thank you for your participation. You may disconnect your lines as this time and have a wonderful rest of your day..