But I don’t know, Baxter?
Nate Baxter: Yes. So Jon, just to comment on Q1, that 300 bps of growth we saw was really focused in three key areas. It was rodents, it was ferns, it was some selective weed. We had a good extension on the Fall. I know Jim was unhappy with the first part of the Fall, But like magic on October 1, between some of the promo, media and weather, that’s really where we saw the lift. Talking about the growth we expect over the year, the depth of new listings, aside from additional shelf space with existing listings, we’ve got healthy, we’ve got Miracle-Gro organics. We’ve got full distribution of buyers’ new dual action Roundup. We have pretty significant increase in private label soils, and then we have our new MAX fertilizer line.
So beyond just additional shelf space of existing listings, we actually have a pretty healthy pipeline of new innovation that’s coming into the market. I’ll turn it over to Matt just to make any final comments. But I think we’re feeling very comfortable. And by the way, just to repeat what Jim said, our plans were built bottoms up with the retailers. So this is not a guess. It’s a partnership with our retail partners.
Matt Garth: That’s a great emphasis on that last point. Thanks, Nate. And so just from a modeling perspective for everyone, let’s base ourselves on a few things. We expect the POS, that plan question to be about plus 5%. In Q1, we actually came in plus 8%. So that’s good, right? That’s the beat that both Jim and Nate are talking about. As you build up the full year, let’s get through the nuance that’s happening, which is volume up 10%, yes, sales up high single digits. The difference being, the price down that we guided you to, which is going to be about — well, we said low single digits, but I say that is 1% to 3%, so call it, 2%. So let’s build this bridge. We are expecting no difference in the activity of the U.S. Consumer year-over-year.
That’s on the positions we held last year or the positions that we are taking and share this year. So you build on top of that price down 2%, elasticity and some other small growth areas that are on existing brands of about 2%. Those two things offset. What Nate and Jim talked about between listings, new products and new promotional activity and expanded promotional activity, that’s plus 8%. If you think high single digits is kind of 7% to 9%.
Jon Andersen : Okay. That’s helpful. I have two more. One is just clean up. On the retail inventories, I think you commented that units are down double digits as of the end of the quarter. Does that get you back to a more normal level? Or is that lower than historical norm? I’m just thinking about the implications for the seasonal build here in the fiscal second quarter. And if I can just tag on a final one around the leverage. The covenant does step down from eight in the quarter to seven three quarters during what is your seasonal working capital peak. So what needs to happen in 2Q here from a working capital perspective, cash gen, EBITDA in order to stay within the boundaries of that covenant? Thanks.
Jim Hagedorn: So let’s reverse that. So I put this as a little bit of cheating, my man. So you put like the big Mondo question sort of hitting at the end thing, just one more thing. So why don’t we get hit that off first, which is the pinch point for leverage at the end of Q2.
Matt Garth: And you detailed it perfectly, which is, right, it does step down from eight in the quarter to 7.75%. We said this is going to be our tightest across the leverage profile for the next couple of years here in the second quarter of 2024. What does that mean? It means that we are in our working capital build, you are right. Inventories go out. We are creating AR. We don’t necessarily get paid here in the second quarter, so working capital is high. EBITDA is also growing. You’ve talked about — we’ve talked about, pardon me, the difference in phasing that we are experiencing year-over-year. So last year, if you recall, the first half of the year was kind of mid-50s, high 50 percentages. This year, it will be closer to 50%.
So you have some shifts between the first half of last year, the first half of this year. But what that does mean is that second quarter here in 2024, you’re going to have a good EBITDA trajectory, and that will help you with the room. But the room, as we’ve said, is the tightest. Across the period, across the horizon, we’ve given ourselves about a half to a full turn in every period in working with our banking partners. That gets tighter in the second quarter, because of the needs for that working capital and also the change in trajectory that we have coming from last year into where we want to be this year. And so, it is manageable. We have multiple levers in place that extend anywhere from additional efficiencies that we’re driving, additional spend controls that we have in place and additional partnering that we can do with our retailers on the timing of shipments and where and how we are promoting.
And so that is work that is being done and we’ll manage that as we get closer to the end of the quarter. But right now, we are feeling good about maintaining compliance and we have good space to maintain compliance here this quarter. And then as we’ve said, that broadens out pretty significantly as we move through the rest of the year and expecting peak to end this year in the fours.
Jim Hagedorn: Let me just throw in just on that. The discussions with our banking partners that delivered that touch point or that squeeze point or that square corner that was not accidental. I think that was a commitment they wanted us to make. And it was — we knew that going in, they wanted — that was — they’re saying this is what you need to do. We know that. When I say in the script that we’re not running the business to what we did last year, this is not a weekly, monthly managing leverage, which is the world we lived in last year. This is really this one point we’re dealing with. We have not been — inventories at retail are very healthy. And we have not been in deal mode to push product in the store. There are opportunities and contingencies we have to solve.
So I think — we went into the year knowing that was going to be our closest point, we built a plan that people are comfortable with. We have outperformed that plan, and we have contingencies in place if we need to move. So I think that — it doesn’t get much better, but it is kind of an artificial square corner in the aviation world. People don’t like square corners and curves. But it was, I think, imposed a little bit. And we’re absolutely capable of managing around it.
Matt Garth: Yeah. I’ll just comment on the first question. So Jon, on retailer inventories, we’re right on plan. We’re — I thought I heard you say down 10%, but we’re down 5%, which is exactly where we want to be. It’s aligned with the retailers. Remember, we’ve got a target hitting final year-end inventory of around $600 million. So we are going to, in partnership with our retailers and our supply chain team, focus on making sure that we’ve got the inventory ready for load-in. I think the retailers are in a good place. We’re looking at probably 150 million units that we need to ship in Q2, and we are right on track with that.
Chris Hagedorn: And just to put a final emphasis on that. The way we’ve talked about retailer inventories over the past year, they are high. They’re higher than they like to have, and they are working down those positions, and that is reflective in everything that we’ve been doing last year in terms of lower production and this year in terms of keeping that production low. We do expect that they will normalize their inventories back to what they usually do is some percentage of POS, it’s around 15% of POS. Currently, it’s around 16%, 17%. So there will be a natural drawdown on retailer inventories as we make it through the year. That is built into our plan. That is why we are saying it’s healthy, and that’s where we get the drive to say inventories are going to be reduced this year, the Scotts inventories. Retail inventories will also be reduced this year.
Jon Andersen: That’s all super helpful. I’ll squeeze one more in.
Jim Hagedorn: One more?
Jon Andersen: Yes, sorry. 2Q. So, again, it’s difficult because there are so many puts and takes. But are we looking at a quarter where EBITDA could be up year-over-year then in the second quarter in order to work through the leverage capital?
Matt Garth: We don’t guide to that kind of stuff. Here’s what I’m going to do. The phasing here is really important, right? So, if you look at US Consumer, so last year in the first quarter, we did about 13% of our sales for the year. This year, we did about 10%. In the second quarter of last year of 2023, we did about 48% of our sales for the year. This year, it will be between 40% and 43%. So, that should help you because incremental margins are staying roughly the same, plus a small benefit as we’re phasing that across the year, you’ll get your normal SG&A moves that we phase in with sales. So, the answer is, potentially. But the real way that this plan is built is on EBITDA dollar expansions in the second half of the year, when you’ll see higher shipments, higher sales and also the realization of the activities that we have on margin expansion and the beginning of the lower cost inventories, that will dip into towards the end of the year.
Jon Andersen: Great. Thanks so much for the time.
Operator: Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open.
Chris Carey: Hi. Good morning. I told myself, I dare not ask more than one question on this call, but I think I’m about…
Jim Hagedorn: After Andersen, you could ask 20.
Chris Carey: I think I want to ask negative questions now.
Jim Hagedorn: Okay, come on. Let’s go, Chris.
Chris Carey: Just how about this? Just quickly on the balance sheet. So, obviously, you’re going to be running tight in the fiscal Q2. Can you talk about contingencies if you run tighter than expected? And really what I’m just asking here is, I think you have an accounts receivable facility. How much is on that? And is that included in your leverage calculation? So, that hopefully is a relatively quick question. I think the sort of maybe broader question is, what’s your visibility on mix in your US Consumer business for this year? Mix was a real headwind to the business, both topline and margins last year as your lawn care, growing media really underperformed. And so you’re talking about visibility with shelf space and POS, and I hear you there.
What’s your visibility of the mix is going to come in as you expect? Do we need to be worrying about weather? Or does the shelf space gains that you’ve had, give you some confidence that again, mix won’t be this volatile factor in the model of what we saw last year? So, thanks for that broader question and the confirmation–
Jim Hagedorn: I’ll take the beginning and then probably leave it to, sort of, to Matt. But I think if you said Q2, it is probably an execution question more than anything. It’s not really a POS issue. So — this is really deployment of inventory into the field for the second half, which is when consumers are buying products. And just to put into context, we haven’t asked retailers to do anything, okay? If we needed to, just to put it into context, you’re dealing with maybe a couple of days of sales. That’s it. That’s — the solution to stuff is like a couple of days of sales move into Q2, if we need help. We’re trying not to like actually insight like additional discounting. But seriously, the sales at that point of the year are so high at the end of the quarter that it’s — when you say contingencies involve what.
There’s probably some internal stuff that we can do. But it’s a couple of days of sales. It’s not asking really a lot. That’s all you have to do, is move a couple of days of sales and pull it forward and you cover that. So just — before everybody gets all weird, it’s like this is a couple of days of sales. And the issue is just if you get a giant snowstorm or something like that where you’re not able to deliver, that’s the kind of stuff that would set you back that has to be corrected for. So I think this is not like anything that’s hard to understand. It’s just moving the product into the field. And if the numbers get big enough and you have a blizzard in the Northeast, what do you do about it? And I think the Nate and his teams without a doubt, have this under control.
