The Scotts Miracle-Gro Co (SMG) Q2 2019 Earnings Call Transcript
But consumer sentiment is evolving and if we didn't create the ultimate organic product, we knew someone else would. So, we spent four years working on Performance Organics and the result, the creation of an organic fertilizer that performed every well, it's a bit of a synthetic, was worth the wait. Retailer support has been fantastic, consumer engagement has been strong and the entire growing media category is up 10% on a fiscal year-to-date basis entering May, and that's before we get to the peak gardening weeks of the year.
Here is a common thread in all the product stories I've highlighted this morning. In each case it's been about addressing the changing needs and attitudes of consumers. To truly address those changes, we need the support of our retailers. This season, in particular, we strengthened our relationship with them by having critical timely and honest conversations about the challenges and opportunities in our category. The transparency of those conversations has helped strengthening those relationships and trust, and drive the results we announced today, and positioned us for continued success in 2020 as well.
I'll cover more about the US consumer business in Q&A, if you'd like, but in the interest of time, I want to shift gears and talk about Hawthorne a bit. Clearly, we're pleased with what we're seeing. We had double-digit growth throughout the quarter with strong growth in both durables and consumables, and we're seeing growth in both emerging and mature markets. I'll leave the rest of the facts and numbers to Randy.
On the last call someone asked me why we're so confident we would win in this space and what we would bring to the party that gives us a right to win on the professional side of the industry. There was a clear implication and some folks believe our experience as a consumer company somehow impedes our ability to be successful here. When you run a public company it's hard to plug your ears sometimes, that was one of those times. Because the notion that we have the wrong products or skills set to win in the professional grower market is just flat out wrong. I'll start reminding you that a very small percentage, we believe, like less than 5% of our hydroponic products are used by people growing plants at home.
Said differently, more than $500 million worth of our products will be used by commercial operators this year, including the largest growers in the world. In fact, we have a dedicated team that focuses exclusively on that segment. While it's become cool and fashionable to invest in companies that are affiliated in the hemp and state-authorized cannabis industries, we were the first major player and certainly the first public company to enter this space. We've been bullish in this category from day one, including a year ago when it felt like the sky was falling.
I've suggested many times that last year was an aberration, the kind of result that occur sometimes when a business is still in the adolescent stage. But the results we posted in Q2 and the momentum we've seen so far in Q3 is showing once again that this industry has great potential and we are better positioned than anyone to win. First, the results we reported today demonstrate that large commercial operators in the industry see us as a critical part of their success. And the approach we've taken with them has allowed us to expand our market position.
Over the past year we've taken an aggressive approach to promotions. And it's not because we lack confidence, it's because we have confidence. In a moment of frustration last year, I made a comment on one of these calls that the team was gun-shy. They've taken great pride in proving me wrong. Our goal is to be the perfect supplier to growers in both the US and Canada. And so we have been investing, as we plan to do, to build our customer base and distance ourselves from the competition. We are succeeding. The Number 3 player in this space has exited the category in recent months and we have further distanced ourselves from the Number 2 player. We have demonstrated to our customers that we are just as committed to their success as we are to our own. To be the perfect vendor, we can't simply sell products. We have to sell performance and be viewed as a trusted resource. This is especially true as the market continues to evolve and the financial stakes of growers continues to climb.
We have to help them understand how to use our systems in a way that delivers the best results in the most cost-effective way possible. To be the perfect vendor, our customers can't see us as a vendor. They have to see us as an indispensable partner to their success. To achieve that goal, there was a clear near-term trade-off that we're making. Our margin rate is clearly not where we'd like it to be right now. In the near term, however, by engaging an aggressive promotional strategy we have solidified our market leadership, which I believe, creates the best environment for more attractive level of profitability over the long term.
Sustained success will require us to continue to further improve our product portfolio. We need to expand our technical capabilities and ensure that our R&D pipeline is focused on performance, cost and speed. We have to be mindful that as fast as this industry is evolving, much of it remains the same. Just as we do in our US consumer business, we need to respect the culture that the pioneers in this industry created and help them continue to succeed alongside the larger players who are now coming in.
I want to wrap up and turn things over to Randy, but I first want to reiterate how good I feel about the way we're running this Company. As I said earlier, creating long-term value requires a lot more than getting a good break from Mother Nature or hitting the occasional home run with a new product. It starts with a mindset and a commitment, and it requires investment in both the right people and the right processes to get things done. I want to tip my hat to Mike Lukemire he's done a great job as Chief Operator and his team is performing at an extremely high level. What's really exciting is that I'm confident they've got a lot more in their tank. I also have to give a nod across the table to Randy. In my 20 years as CEO, he's been the best operating CFO I've ever worked with. It's been rewarding to see him expand his role to take on strategy, to help us navigate M&A and to drive our discussions with the team at Bayer. It's also been great to see the momentum just back on our side at Hawthorne. Even though politicians mostly at the federal level are ridiculously slow to embrace changes that Americans clearly want, it's encouraging to see positive changes in states where voters are getting a say.
In those places, state laws are helping our business. Growers are finding it profitable to grow again and retailers are feeling more comfortable taking inventory because they're feeling the tailwinds as well. It's not hard to be pleased with the results we announced today. It always feels better when people are stressed to keep up with demand, instead of being stressed to create it. There was a renewed sense of confidence and enthusiasm throughout the Company this year and is palpable. We can feel it, I can feel it. I hope you guys can as well.
So let me turn things over to my partner to run you through the numbers. Randy?
Randy Coleman -- Executive Vice President and Chief Financial Officer
Nice job, Jim.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
Thank you.
Randy Coleman -- Executive Vice President and Chief Financial Officer
I know there was a struggle. Hopefully Everybody listening appreciate that. So, good morning everyone. We clearly have a great deal of good news to cover today and I want to start by reinforcing the confidence Jim just expressed about where we stand right now. I'll discuss our guidance in more detail near the end of my prepared comments. I'll just say out of the gate that I feel optimistic about our ability to deliver on the commitments we made at the start of the year.
I'm not going to go line by line through the P&L. We will cover things in Q&A if there is an area where you need more explanation, but I will hit the highlights and try to anticipate some of the question you have that may not be answered by simply looking at the numbers. On the sales lines, let me touch on a couple of items. We said the US consumer business would be up 1% to 2% for the year and were up 8% in the quarter and year-to-date, and we are now at the midway point of the year. Two things you should know, first, a lot of the malt sales we're seeing this year were not contemplated in our original guidance, at least $35 million worth.
The other point is remind you what I said on our last call, we've seen some of our retailers take a more aggressive approach to fill in their stores earlier this year. That's exactly what happened. So, more -- so then in most years the balance of 2019 is really about replenishment, and that means it's really about consumer engagement and POS from this point forward. Both we and our retail partners remain extremely active in trying to drive consumer engagement. Remember though, we have a plus 28 comp in May. So we are likely to give back much of the POS growth we've seen year-to-date.
In addition, histrorically speaking, we still have about 50% of the POS year still in front of us. If POS is plus 4, plus 5 in mid-June, I'll be very pleased with our results.
The other thing working in our favor right now is that retail inventory levels are up from last year's levels. There's clearly less focus on that metric at this point in the season than we saw a year ago. The seasoning (ph) in inventory is really what the retailers historically trying to manage. We anticipate it going into the year that retail inventory reductions could put downward pressure on our top line number by the end of the year. Even though that's not manifesting itself right now, we're not going to move off of this assumption until much later in the year.
Hawthorne total shipments, up 21% in the quarter and 5% year-to-date on an apples-to-apples basis also look a bit better right now than our guidance would have suggested at the midway point in the year. Even more encouragingly we are also up over 20% in the US hydroponics business for the month of April. I'm usually a margin hog, but I'm totally aligned with Jim's comments about our near term focus to reenergize the top line at Hawthorne. My bias actually stems from the dozens of shareholder meetings I participated in over the past year.
I believe getting this business to once again to sustainable growth is our number one near-term priority. However, looking into the future we will be shifting our focus next year to create a margin profile that allows us to drive the kind of value from the business that our shareholders expect. On the Companywide gross margin line, our rate had declined 60 basis points in the quarter and 160 basis points year-to-date on a non-GAAP basis. While our gross margin dollars are up almost $65 million so far this year, we obviously have some ground to make up to get our gross margin rate to flat by year end as we had originally planned.
Right now, as expected, the impact of the Sunlight deal and more specifically the lower margin distribution side of this business is the biggest drag on the rate. So that begins to anniversary in June. Also, we've been highly promotional at Hawthorne over that past few months. While this approach is driving share gains and top line growth, it also has an impact on the gross margin rate.
Pricing in our US Consumer segment only took effect in Q2. So we'll get more benefit in the months ahead. Additionally, the impact of the incremental malts (ph) business will add more margin dollars, but it will also be dilutive to our overall rate. Some of the margin pressure will be offset in Q3 by a $20 million reimbursement we received from Bayer for incremental expenses incurred and to be incurred in the future related to the Roundup business. This payment will run through our P&L similar to how the commission does. As a reminder, we originally guided to a $20 million contractual reduction in Roundup-related gross margin for the full year and that impact will now be entirely offset within gross margin -- April 1st payment.
Commodities continue to come in as expected, a headwind over last year, but mitigated by pricing. We are about 90% locked on the commodity purchases for this year and have begun locking in costs for 2020 as well. On a related note, hats off to our supply chain team. Despite retailers pulling forward inventory and consumer purchases been red hot in the early season, we've done a great job of keeping retailers in stock without facing any unexpected pressure on either the availability or the cost of (inaudible).
Moving on to SG&A, we saw increases of 8% in the quarter and year-to-date, $280 million and $296 million, respectively. The increases were driven primarily by the Sunlight deal, net of synergies. We've had higher media spending this year as well. Some of it was planned and some of it not planned at the start of the year. However, some of the $20 million reimbursement coming from Bayer is targeted to help cover the incremental investments in advertising expense that was not contemplated in the original guidance that we provided to you.
In terms of the Sunlight deal, the SG&A savings we anticipate have been realized on time and in full. Some of the anticipated supply chain savings are trending slightly behind schedule, but we still plan to hit our incremental $30 million cost savings goal for the full year.
You'll notice that segment profit for Hawthorne is about $15 million year-to-date. So we need a strong performance in the second half to hit our $60 million profit goal. Continued strong sales trends, back half synergies and prior year purchase accounting expenses that will not repeat are the key drivers for Hawthorne.
Interest expense in the quarter was $29 million, an increase of about $6.5 million from last year and our leverage ratio stood at about 3.9 times entering Q3. I will reiterate once again that 100% of the proceeds from the triggering divestiture have gone toward paying down debt. In addition, separate from the $20 million reimbursement mentioned earlier, we also received on April 1st a $37 million payment from Bayer for the sale of our interest in a JV for professional business and we also applied those proceeds to debt reduction. Combined with the plans we already had in place, I would anticipate our leverage ratio to continue to be slightly below 4 times at the end of the year.
When we take all this down to the bottom line, our non-GAAP adjusted net income was $203.2 million or $3.64 per share in the quarter. That compares with $165.2 million or $2.88 per share in the same period a year ago. On a year-to-date basis, non-GAAP adjusted earnings are $126.2 million or $2.26 per share compared with $103 million or $1.78 per share a year ago.
What does all this mean for our full year guidance. Frankly it's still too early in the year to change anything, but some clear trends are definitely shaping up. I think it's reasonable to expect that we may over-deliver on the top line, either in one segment or both and I'm optimistic about where we stand right now.
Our original guidance for the gross margin rate, flat from last year, is still possible, but may now be a best case scenario. Regarding SG&A, given the media spending that's incremental to our initial guidance, SG&A dollars will likely be higher than we thought, but SG&A as a percentage of sales probably will not change materially. Perhaps this is redundant for my previous comments, but I also want to clearly address the impact of the $20 million we received from Bayer on April 1st. We've been in discussion with Bayer for several months, providing confidence that we have extra money to invest in both US Consumer media and Hawthorne promotions that would drive our top line, after paying for certain other SG&A costs. Accordingly. I would not assume any of the $20 million as incremental earnings for the year.
To-date we've seen terrific success with incremental spending plans developed after we provided our full year guidance last fall. However, we still have several big POS weeks ahead of us and the hydroponic business can vary significantly from one month to the next. So it's not prudent to formally update our expectations until we have more visibility on the year. And with all these puts and takes, it's simply too early to give you an accurate gauge on what all those means to our non-GAAP adjusted EPS targets.
Jim King said at the outset that we will be in Chicago on June 6th for the William Blair conference. We almost always use this event to provide a live update on where we stand and I expect us to do that again this year. Regardless of all that, I want to close my remarks by once again expecting to my optimism about where we stand. And frankly, I appreciated Jim's comments about how we got there. A year ago I was out there front and center listening to people question our strategy, did we get everything perfect? Not initially, but I'm proud that we stayed true to our beliefs, stayed focused on executing. Those facts put us in a great position and into the back half of this year, and also as we begin preparing for the 2020 season.
So with that, let me open the call for your questions. Thank you.
Questions and Answers:
Operator
Thank you. (Operator Instructions) We will now take our first question from Bill Chappell of SunTrust. Please go ahead, your line is open.
Bill Chappell -- SunTrust -- Analyst
Thanks, good morning.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
Hi, Bill.
Bill Chappell -- SunTrust -- Analyst
Just first on the Hawthorne side, can you kind of give us some more color on what the liquidation did to your sales and your margins intra-quarter of the number, I guess the Number 3 player, just trying to understand, did that cause a cut in prices because of the slowdown in sales. Were they could have actually been better. I just didn't understand what the near-term impact was.
Randy Coleman -- Executive Vice President and Chief Financial Officer
Bill, this is Randy. So we have been promotional. We have been taking market share. The Number 3 player is out of business. Number 2 player, definitely challenged given how aggressive we've been in market share we've been taking. To exactly quantify the impact of that, it's difficult to say. I can tell you the promotions that we've run have been profitable. So they've been margin dilutive, but we have not losing money, it's not a loss leader, we're still making money in what we're doing and we're being very successful driving the top line and we always engage in a lot of debate here about margin versus sales and so on, but for what we're doing for this year I'm completely aligned with driving the top line, taking share and putting us in a really good long-term position. So hopefully that helps. I don't know if Jim, Luke or Chris want to add anything else.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
I'm going to try to save my voice, if that works.
Chris Hagedorn -- General Manager
Yes. Bill, this is Chris. One thing I would add is that without looking at it from a financial perspective, just looking at it from sort of a market share perspective, following the closure of the Number 3 player, we've seen a significant increase in the number of retail accounts that we've signed up either as a partial supplier or exclusive supplier through those retailers, which to us is probably the clearest indicator of market share and as I said, that number went up significantly following the closure of Number 3 player. So that's a good indicator for us.
Bill Chappell -- SunTrust -- Analyst
Got it. And then on the Bayer payment, is this expected to be an ongoing payment, I mean, ongoing kind of subsidy to help offset the negative news.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
You might as well take it, my voice is crashing here.
Randy Coleman -- Executive Vice President and Chief Financial Officer
Well, Jim tried to jump in here, but I'll answer that one, Bill. So, the $20 million for 2019, given what's going on with the marketplace and the challenges that have been going on and we've been working collaboratively with the team, both in Saint Louis and in Germany over the last several months. So we finally came to an agreement and the payment was made on April 1st. But it's a one-time payment in 2019 for reimbursement of certain costs related to Roundup and some of that is incremental to those costs and we've been able to take those dollars, invested in Roundup media, other media in our US business as well as help fund some of the promotions in Hawthorne that we already talked about. So, happy the way that turned out, but that's the 2019 one year payment,
Bill Chappell -- SunTrust -- Analyst
Maybe just talk about kind of where you're at that one.
Randy Coleman -- Executive Vice President and Chief Financial Officer
We're still in conversations like Jim said, we think it's important to have flexibility, optionality, security and the agency agreement that we already have. Conversations have been very productive. The team over there understands where we're coming from. Too early to be more clear or definite, but we're encouraged by (multiple speakers).
James Hagedorn -- Chief Executive Officer and Chairman of the Board
One of the conversations is about the economics and those -- like Randy said, those conversations are ongoing and I want to be -- constructive and I want to be thankful to our partners at Bayer for -- at a time of I think pretty high stress for them, just sort of deal with our issues, as we see them. And I think these conversations are being led by Randy and are going, I think, really well. We'll have lot more to say when we can.
Bill Chappell -- SunTrust -- Analyst
Got it. And then just last one from me. I mean, the 13% POS this time of the year, it's the highest I remember at least in the past five plus years and you'd started going back to January saying that the retailers were kind of geared up better than they have been before and were really ready. Is there an explanation for beyond weather, I mean, whether was better, I get that. But like why it's just so strong this early in the year?
James Hagedorn -- Chief Executive Officer and Chairman of the Board
I think, first, the weather has been good. That always helps. I think it's a little bit -- go back and look, take out last year, and -- so there is good growth, but last year stocks (ph) so bad that it sort of says we're in a pretty good like trajectory, if you just take last year out, but I think you're right and that there's more than that going on.
I think all of our retailers are highly encouraged in the category. I mentioned in my script that we have a lot of senior-level discussions primarily about what's happening with Roundup and this has been really Mike and myself at the most senior levels of really all of our retailers. And number one, I think it's allowed Mike and I to kind of renew our relationship without talking about the day-to-day of kind of the transaction of doing business with a big retailer, which tends to be kind of everything, which is selling stuff. This is one where it's kind of adults in a room talking about what do we want to do, how we're going to do it together and I think it resulted in some retailers that, you know, we have had more stressful relationship with over the years recently, where we renewed our relationships at the senior levels. And I think we sort of discovered we like each other more than we knew and I think that helped.
I also think that new management at Lowe's, to be fair, is extremely keen on stepping out on really the first quarter of their first year, their first full year. And so, they're taking it very seriously, which is great. And last, I think this is one of those internal things that we're all going to have to figure out. I mean you guys too, Randy is -- mulch is a very -- I mean I think we're rediscovering the importance of mulch to start the season and I think it's pretty critical.
I think we've got to figure out in our sort of margin structure if mulch is really important to us, what does that mean to our gross margin expectations. It clearly is slightly dilutive and we just got to figure out sort of how permanent that is, but you know it's -- I just don't think you can actually promote -- I'm talking at the retailer, promote into the season without something like mulch and therefore I think we've been conflicted about that and tried to sort of move toward discipline on margin and reduction in our exposure of that category. Just saying, it's not that high-calorie count, but I think that I view that as a mistake.
So, I think it's really good for the total business and I think it's important for the Street to sort of see that, this is not falling into undisciplined selling. This is actually leading with something that really gets more on the garden season going and I think that's been a big part of what's happened this year. And I want to put out, Tom Crabtree and Mike are new, that give us more upside opportunity. It's going pretty well. And so it's a healthy thing and I think that it's more than one thing, it's a lot of things coming together that you would hope would come together and they have.
Randy Coleman -- Executive Vice President and Chief Financial Officer
Bill, to answer your question on this year, April 2019 that we're in, just about rival, the best April that we've had in history looking backwards. Versus the three-year average over the last few years, we're up about 3%. So that's puts a 13% in context. But really pleased with where we're at and a little bit more color on just what the numbers look like. When we look at retail performance, we're up across all channels. So we're doing well across the board for lot of reasons that Jim talked about. When you look at it regionally, we're doing right now better in Midwest and Northeast just because last year was such a challenge on the weather end. So we expect that the West and the South to do a lot better in May and June and complement that. And when you think about share, we have typically higher market share in Midwest and Northeast, especially on the fertilizer business. So that's helped quite a bit as well.
And then on our last call we talked about coming out of line reviews and market share expectations for this year. And like I said, there were certain skews that retailers took out, but I understand completely they weren't really working well for us. They weren't working well for the retailers either, but since then we've been really competitive. I believe we're taking market share at this point in a post-line review (inaudible). We've been a lot more competitive in the marketplace, taking advantage of opportunities in the store and the new products we've introduced aren't just about market share, they are also about growing the category. So when you think about GroundClear, it's growing the category in non-selective weed and our Performance Organics, it's growing the category and (inaudible) mix and garden soil and plant food as well. So not just market share, they are truly growing the category and more reason why we're excited about what's happening this year.
Bill Chappell -- SunTrust -- Analyst
Great, thank you.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
Mike, anything you want to add on this, your business?
Michael Lukemire -- President & Chief Operating Officer
I think you got to look at it as retailers in the renewables are counting on us to grow the category and that's the complete solution across all categories versus picking to choose winners and losers. And I think that's where (inaudible) bring more people in and then when we convert with our brands, we went in other categories. And I think that's the effect we're seeing.
Operator
We will now move on to our next question from Jon Andersen of William Blair. Please go ahead, your line is open.
Jon Andersen -- William Blair -- Analyst
Thanks, good morning, everybody.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
Hi.
Jon Andersen -- William Blair -- Analyst
Wanted to ask -- start on Roundup. I'm trying to kind of square the idea that Roundup point-of-sale was up 20% with some of the noise around the brand and then the payment that you referred to from Bayer. If you could talk a little bit about the strength of Roundup in light of some of the headlines, what you expect going forward for that brand and is GroundClear meant to replace Roundup over time or added as a kind of an option for those consumers who may not be comfortable on the margin by Roundup in the future?
James Hagedorn -- Chief Executive Officer and Chairman of the Board
All right. I'll start, if I can continue. We're surprised too. So one of things we did is increased the ad spend and both of us, Bayer and Scotts, agreed to pay for it. When you're seeing like whatever it is Prop 65 language in California being talked about, I think we told you guys last year, California in spite of the Prop 65 and IR stuff actually had really good POS results last year in spite of what you would say -- and by the way our research would show that consumers were concerned.
So one of the things that's happened I think is the Southwest had a pretty wet winter and a lot of weed pressure. And so we started out early with really good sales in like Arizona, Phoenix especially. And when you look at it and look a year before that and the year before, it was less -- Roundup, last year was such a bad year that it's a little bit like talking about our consumer business. So part of the growth is the fact that it's less impressive when you look at it compared to sort of the previous years, not excluding last year.
So we increased the advertising. We were concerned, the retailers were concerned. We didn't know what's going to happen. Honestly, I'm not sure I can tell you exactly what happened. But we're happy about the result. I think all of us, Bayer, Scotts, the retailers have been concerned and we're relieved at the result that we're getting. So that's kind of on that side.
The lineup -- GroundClear lineup is designed as a kind of a fallback just because we didn't know and we wanted a product line that was allowed under the agency agreement which GroundClear is to just in case there was a backlash be ready for that. And we funded that at a pretty high level. And so, the result is when you see our sales which are really the category being up almost a third year-to-date, it is impressive, heck. So GroundClear was designed as a backup.
I think it actually has a real place in the -- I mean, we're not going to not focus on that product line next year as a result of the results of this year. I think it gives us a better (inaudible) set, I think it offers an OMRI-certified product for retailers who -- or for consumers who might be concerned or want a different sort of less chemical product. So I think it is a little bit serendipity in that, we had a bad season last year, that season was a lot better, meaning a lot more weed pressure and I think it's probably pretty clear that consumers have a lot more resiliency than maybe our research what's shown in regard to sort of the brand reputation.
Randy Coleman -- Executive Vice President and Chief Financial Officer
Jon, the only other thing I'd add is, you haven't seen that the EPA came out yesterday, US EPA. They've done another review of glyphosate and very comfortable the signs are sound, safe for use. So I think even more affirmation that things are fine.
Jon Andersen -- William Blair -- Analyst
That's helpful.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
I think that I'm going to go and say too, if our friends at Bayer are listening that they've actually been really good to work with so far throughout what I think is extremely disruptive period of their history as they're dealing with integration of Monsanto and the Monsanto kind of reputational issues and sort of legal liability issues that they're dealing with. So, if I look back at kind of where we were last fall after that original Johnson verdict to where we are today, Randy has really primarily led the exercise in trying to figure out how our relationship needs to be modified in order to do the right thing for this company and they've actually been receptive in dealing with that and it's been not pleasant to deal with, but it's been pretty professional.
Jon Andersen -- William Blair -- Analyst
Okay. You talked in the prepared portion of your comments, you know, how important it's going to be viewed or become a trusted partner for large commercial operators in the hydroponic space and you are having the right products, differentiated products. Just wondering if you could talk a little bit about, you know, you have two sides to the business. You have the consumable side and the durable side, and where you think you have the most differentiation or importance today to those large-scale commercial operators and where you have the most work or more work to do to demonstrate that technical expertise and differentiation, again, comparing your durables portion of your business versus the consumables?
James Hagedorn -- Chief Executive Officer and Chairman of the Board
You want to take that, Chris?
Chris Hagedorn -- General Manager
Sure. Hey guys, it's Chris. So it's a good question and it's a little bit difficult for us to break it out. On the one hand, we are the market leader by a pretty significant margin on the lighting side as we are in the consumable side. I think you can look at and say, as with our routes from Scotts Miracle-Gro, the the biggest and most experienced consumer lawn and garden company and thus nutrient and growing media company in the world, I think our prowess there is pretty unparalleled and we compete on the lighting side with some very significant, very established players.
So I think the competition I would probably say is stiffer on the durable side particularly as relates to lighting, but we've got some very strong partnerships with some extremely significant player. So I don't think we're in a disadvantage position there, but I think again just understanding who we are from an enterprise level, Scotts Miracle-Gro, I think our sort of primacy there is pretty unrivaled, not to sound arrogant.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
I probably would say it slightly differently. Sorry, Chris. I think we have on sort of the consumable side, I agree with what Chris said, I think we just have to do it. I think we've got to look at our nutrients business, our soils business, our R&D pipeline. I mean, the things that we can add, when you talk about -- Chris talks about prowess, I think we have to execute against it and I think we are headed down the road. On the life business, first of all, we have a Board meeting tomorrow and Friday where Chris and his team are going to talk about all the stuff, but I think that we aim to lead lighting both in sort of the traditional lights and LEDs. And I think we've got a plan to do that, which is key.
And I think in the other durable areas, which would be sort of hydroponic systems, sort of you're rolling stock, there's a lot of innovation happening. So, I think that, somebody said how far down the track to you think you are in being what I've been saying lately the kind of the perfect vendor, perfect partner to professional growers, I think we're more than halfway there and that's a long way since where we were a year ago.
So I think we've -- we've got a lot of what to do, but when we talk durables, we're really talking kind of plastics and lights. And I think there's a lot of really good work happening, both here in Europe and in Vancouver. And on the consumable side, we've got a lot of value we can add that we're just, I mean, it's been -- I think Randy was actually being or maybe it was Mike last week being defensive of Hawthorne. I said, for Christ's sake guys, we have like eight months to integrate. And when you consider that we're trying to strategically make ourselves into an essential partner, I think we've made progress in both areas, but Scotts has a lot to help Chris with and his group on the consumable side. On the durable side, there is a lot of progress happening.
Randy Coleman -- Executive Vice President and Chief Financial Officer
And just one thing that I want to add that as important as it is to look at those two hats of our business and we do look at them that way between durables and consumables, I think it's also important to note that we have competitors in each of our individual categories, but for me I don't really see the differentiator as much an individual category for Hawthorne. It's the fact that we are basically partnered with people who were basic in every category, and when you look at these operations from a growers perspective, everything has to work in concert, every product, every tool you use has to work together with the others and being the only people out there who offer all of that along with the tech services package that we have, that to me is the big differentiator less than any individual product line.
Joe Altobello -- Raymond James -- Analyst
Okay. great. Last one from me is just, the Number 2 -- Number three player that liquidated relative to Sunlight. What are your expectations for the Number 2 player, are are they kindering, do you expect them to remain as a competitor or what kind of the implications be there going forward? Thanks.
Chris Hagedorn -- General Manager
I'll answer the question for my team. We respect everybody who's competing in this space and we aim to keep them hard until Randy says you better start focusing on margin. So, I would say highly respectful of our other competitor and we are not like taking our foot off the gas either. But I'm not going to say anything about (inaudible) because every time I do, that comes back to bite us on the ass. But I will say, so there are good honest people and we're going to continue doing what we do.
Jon Andersen -- William Blair -- Analyst
Thank you.
Operator
Okay. We will now move on to our next question from Joe Altobello of Raymond James. Your line is open.
Joe Altobello -- Raymond James -- Analyst
Hi guys, good morning.
James Hagedorn -- Chief Executive Officer and Chairman of the Board
Hi, Joe.
Joe Altobello -- Raymond James -- Analyst
So I guess couple of questions on the Bayer reimbursement. First, and it's my understand what you said earlier Randy, It's in the guide, but you're spending it back, so don't flow it through the model, number one. And number two, what was the rationale for the reimbursement because it seems like that the Roundup business is doing pretty well as you guys pointed out this morning?
Chris Hagedorn -- General Manager
Right. So let's (inaudible) question one. And Randy is capable of answering the whole thing. I would just say is, as we talked about this before, we didn't know how that was going to go. So we've done a lot of work to make sure that the good result you're seeing today at least as close -- we want to sort of overcome headwinds, I would say three or four months ago. And if I had answer for you, I would tell you, you know, is it safe? I think it was like a marathon man or something. I have no idea, OK, if it's safe. The results certainly --
Joe Altobello -- Raymond James -- Analyst
Product or the outlook, I think you need to be --
Chris Hagedorn