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Jarden (NYSE:JAH)

Q2 2011 Earnings Call

July 27, 2011 16:30 p.m. ET

Executives

Erica Pettit – Financial Dynamics

Ian Ashken - Vice Chairman of the Board & Chief Financial Officer

James Lillie – President & Chief Operating Officer

Analysts

Bill Chappell – SunTrust

Jason Gere - RBC Capital Markets

Charles Strauzer – CJS

Greg Badishkanian – Citigroup Global Markets

Joseph Altobello – Oppenheimer

Elizabeth Gilson - Barclays Capital

Bill Leach - CREF

Ann Gilpin - Jeffries and Company

Operator

Good afternoon ladies and gentlemen, and welcome to the Jarden Corporation's conference call. [Operator instructions.] I will now turn the call over to Erica Pettit of FD.

Erica Pettit

Good afternoon, and thank you for joining us for Jarden's second quarter 2011 conference call. In accordance with Regulation FD, or Fair Disclosure, we are webcasting this conference call.

Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Jarden is strictly prohibited. Before we begin, please take note of our cautionary statement regarding forward looking statements at the end of our earnings press release issued today.

While forward looking statements made during this conference call are based on currently available information, our actual results could differ materially from those predicted. However, we undertake no obligation to update any such statements, whether as a result of new information, future events, or otherwise.

Please note that the company has posted supplemental financial data slides, as well as reconciliations of certain non-GAAP to comparable GAAP financial measures on its website. The presentation can be downloaded in the section "For Investors" on Jarden's website under the "Presentations" heading.

And now I'd like to turn the call over to Chief Financial officer Ian Ashken. Ian, please go ahead.

Ian Ashken

Thank you Erica. Unfortunately, Martin had to take his daughter to the hospital this afternoon, so he will not be joining us for the call today. But I'm going to read his prepared remarks as if I'm him. And then I'll switch over to myself when it gets to my comments.

So with that, good afternoon ladies and gentlemen. With me on the call today are Ian Ashken, our vice chairman and chief financial officer, and Jim Lilly, our chief executive officer.

Hopefully you have had the opportunity to review the earnings release we issued earlier this afternoon. Q2 was another strong quarter for Jarden, building on the momentum of Q1 as we delivered overall sales growth of 8% and a record leverage of earnings for Q2, coupled with healthy cash flow.

As always, our success derives from our continued focus on, and commitment to, our brands, our people, and our products. Our results in the quarter were led by our Jarden outdoor solutions segment, which recorded actually sales growth of 11%, including organic sales growth of 3%. JOS's performance exemplifies the strength of our diversified portfolio of trusted, quality brands and our array of innovative seasonal consumer products geared towards enhancing the experience of everyday life.

Given the breadth of our businesses, and the number of categories we serve, primarily on a seasonal basis, we believe that Jarden has become a bellwether for the mainstream U.S. consumer products market.

For example, on our last call, I commented on a trend relating to a shift in manufacturing from Asia to the Americas. Interestingly, this has been discussed increasingly in the media of late. Many commentators get caught up in the news of the day, which is often the result of events that have taken place months, or even years, earlier.

Our approach is to use the visibility we have over the consumer environment over the next 6-9 month period period to continually flex our strategy for the next 3-5 years. A good example of this is the significant increase in the online sales of our outdoor and sporting goods products this year.

Last year we accelerated our strategic initiative to grow our online presence through our own website and those of our retail partners. We continue to invest capital and resources to drive this effort. Today, you can find our outdoor products online in places as diverse as wedding registries and extreme sports websites.

We believe that the internet channel still has meaningful growth to come. We've positioned our business accordingly while not taking our eye of the brick and mortar retail channel, which will always be core to our success.

Looking at, we do not subscribe to the view that the U.S. economy will go backwards into a recession. Nor have we ever anticipated that the recovery will be quick or painless. As I said last August, we believe that the economy will continue to bump along on a slow but upward trajectory.

This positive long term outlook has been supported by an uptick of M&A activity in specialty retail channels this year. We've seen a number of transactions where private equity firms have shown confidence in the growth prospects of specialty retail by requiring online catalog and bricks and mortar specialty retailers to expand their channel distribution.

As you know, I strongly believe that our best assets go home every night. As expressed in Jarden's DNA, we take our responsibilities to our employees and the communities we serve extremely seriously. In April, I was honored to receive on behalf of Jarden the annual New York Fire Commissioner's humanitarian award from the FDNY Foundation.

The award was in recognition of our longstanding commitment to our First Alert brand of fire and safety products to public safety and fire prevention in New York City, including the donation of over 75,000 First Alert carbon monoxide and smoke alarms to help save lives in the New York area.

During Q2, Jarden was once again featured in the Fortune 500 list of the largest companies in America, rising 27 spots from the last year to rank number 379 overall. As part of this, Jarden ranked number 38 on Fortune 500's list of highest annual growth rates in the last 10 years in terms of earnings per share and number 14 in terms of total return to investors.

We also placed first in terms of total return to investors in the consumer product space over the same time period. Everyone at Jarden is extremely proud of these accomplishments, especially as Jarden is only just entering its second decade.

I'll now hand it over to myself to pick up my prepared remarks.

As a result, consistent with our quarterly practice, we have posted a presentation containing more detailed financial analysis of our performance this quarter on our website. Also, we have continued to disclose both as reported and as adjusted results separately in our press release.

I am pleased to report that Jarden delivered another solid performance in Q2. For the first half of 2011, sales grew 15% over the prior year period on an actual basis, 4% excluding the impact of acquisitions, and 2% on an organic basis, adjusting for both acquisitions and foreign exchange movements.

We believe we are still on track to achieve our 3-5% organic sales growth targets for 2011. Adjusted gross margins increased by 30 basis points in the quarter and 80 basis points in the first half of the year as compared to the prior year.

Jim will cover the work we've been doing to offset commodity and other cost inflation, particularly out of China. Margins in the quarter were also impacted by mix as some of our higher margin businesses, particularly fishing and food preservation, were negatively impacted by the weather in Q2. We've put in place plans designed to allow us to offset any gross margin pressures, whether from mix or cost, through SG&A efficiencies.

Cash flow from operations in Q2 was $143 million, compared to $73 million in the second quarter of 2010. Again, we believe that we're on track to meet or exceed our targeted cash flow from operations for the full year of $250 million as we enter our most seasonally significant quarters in the back half of the year.

Turning to the performance of our primary business segments, sales in our outdoor solutions segment increased by approximately 11% in the quarter and 3% on an organic basis, excluding the impact of acquisitions and forex movements.

This growth was fueled by strong sales at Coleman, both domestically and internationally, and solid performance in our Jarden Team Sports and Technical Apparel businesses. Coleman also experienced a sales lift in Japan in response to the continuing natural disaster relief efforts.

These strong performances offset weakness in our fishing business, which was adversely impacted by the floods in the South and Midwest states, and the disasters in Japan. The negative impact of weather on fishing sales in Q2 also impacted JRS's overall margins due to the resulting mix shift as fishing is one of the higher margin businesses in this segment.

We expect that our fishing business will bounce back in the second half of the year as more normal weather patterns have returned and are predicted to continue through the balance of the summer.

Sales in our consumer solutions segment increased by 2% in the quarter, and by 1% adjusting for foreign exchange fluctuations. This growth was driven primarily by continuing strength in international markets, especially Latin America and Canada.

Our JCS segment also experienced a significant EBITDA margin expansion this quarter versus the prior year period of over 150 basis points, driven primarily by gross margin increases in Latin America.

Sales in our branded consumables segment increased in the second quarter by 13% on an actual basis, which includes sales from the Quickie acquisition. Adjusting for acquisitions, sales in the second quarter grew by 3% but on an organic basis declined by 2%.

This organic sales decline was driven primarily by the effect of a cold and rainy spring in certain areas of the U.S., which was partially offset by strong performance, particularly in our Jarden Home and Family business.

Interest expense increased by $2 million in the quarter compared to the prior year. Our weighted average interest rate for the quarter was 5.4% versus 5.8% in the prior year. The lower average interest rate was primarily a result of the $1.3 billion refinancing of our senior credit facility [inaudible] in the first quarter, which resulted in a lower overall cost of debt and an extended maturity profile. The portion of fixed to floating debt at June 30, 2011 was approximately two-thirds fixed to one-third floating.

Working capital increased during the quarter primarily due to increased inventory, as Q2 is typically an inventory build quarter. The higher inventory value also reflects commodity cost inflation and the impact of foreign exchange movement.

We ended the quarter with a bank leverage ratio of approximately 3x, and we continue to expect that this will be 3x or less by the end of the year. As indicated, on our Q4 2010 conference call, we will continue to keep you apprised of any one-time or unusual items that we anticipate incurring in future quarters related to acquisitions or reorganization activities.

Following up on Martin's comments regarding a shift from our international manufacturing base to the Americas, in the second half of 2011 we current anticipate a charge in the range of $20-25 million, primarily related to the rationalization of our international manufacturing platform.

During the quarter we opportunistically repurchased $8.8 million worth of our stock at an average price of $31.68 per share under our share repurchase plan. We also executed on our previously announced plan to increase our authorized share capital from 150 million to $300 million shares of common stock to accommodate any future stock split if appropriate.

The first half of 2011 has been another successful one for Jarden, validating the financial discipline that underpinned our aggressive pursuit of future revenue, margin, and cash flow growth.

And now I'd like to pass the call over to Jim.

James Lillie

Thank you Ian. As both Martin and Ian have indicated, in the second quarter of 2011, our businesses once again delivered strong results, driven by healthy POS performance from our iconic legacy brands.

We once again demonstrated the ability of our trusted brands to outperform and consolidate their leadership positions, even in challenging economic climates. As we enter Q3, we believe that the current trends in our businesses put us on track to achieve the Street's top and bottom line consensus estimates for 2011 while we remain focused on generating long term consistent, profitable growth for our stockholders.

As Martin mentioned in his prepared remarks, our performance this quarter was led by the Jarden Outdoor Solutions segment. Of our in-season businesses within JOS, our Coleman camping and outdoor products business performed particularly well domestically, driven primarily by tents, coolers, and sleeping bags.

Coleman, one of 14 brands in our portfolio that's been in continuous use for over 100 years, is an example of one of several that is synonymous with this category. Coleman has benefited from continuing "staycation" trends and lifestyle changes amongst consumers this season, as evidenced by strong demand for camping permits.

Coleman also experienced a sales lift in its international business as a result of continued relief efforts in Japan, new product introductions, and favorable FX movements.

Our Jarden Team Sports business, which also had a successful quarter, demonstrated our commitment to investing in innovative new products to improve the performance of outdoor enthusiasts. Of particular note this quarter was Rawlings' new 5150 BBCOR bat that helped both the University of South Carolina and the University of Virginia teams reach the number-one ranking in their respective divisions this baseball season and enter the post season as favorites to reach the NCAA College World Series finals, the first under the new bat regulation.

I'm particularly proud that the University of South Carolina won the College World Series, powered by Rawlings bats. Through its precision optimized performance technology, we believe Rawlings' 5150 BBCOR bats provide superior durability, additional flex, and a larger sweet spot on the barrel compared to competing products.

Further demonstrating our commitment to delivering innovative solutions to athletes worldwide, we were proud to serve as official sponsors, under the Zoot brand, for the Dextro Energy Triathalon ITU World Championship Series in Hamburg, Germany earlier this month.

The strong results of Coleman and Jarden Team Sports illustrate the resilience provided by our diversification as they helped offset the adverse impact of weather in Q2 on our fishing business caused by the floods in the South and Midwest states and the natural disaster in Japan.

Our Jarden Consumer Solutions segments reported a solid quarter as well, with actual sales growth of 2% and organic sales growth of 1%, driven primarily by its international divisions, particularly Latin America and Canada.

This growth is in line with our previously stated goal of expanding our presence overseas to reach a long term target split of 50% domestic to 50% international for Jarden as a whole. We continue to make progress in combining our leg businesses with our 2010 acquisitions, leveraging our combined platforms to drive incremental performance for the entire Jarden portfolio.

We've been especially focused on synergy opportunities presented by Jarden Home and Family, which is the Mapa Spontex business we acquired last year to gain distribution for relevant products in the overall Jarden portfolio. But as stated before, this will only begin to have a meaningful impact on the results of our branded consumable segment over a 3-year period.

As we have noted previously, of particular emphasis this year is our gross margins. Each of our businesses has worked aggressively to offset commodity headwinds and other macroeconomic cost increases to achieve adjusted gross profit margin expansion of approximately 30 basis points in the quarter.

As a result of our team's focus, these results were slightly ahead of our expectations for the quarter. Supplementing the information I gave on our Q1 call, I'd like to discuss some key measures that have helped achieve the continued margin expansion.

First, we remain committed to continuously investing in new products that enhance the everyday lives of consumers. As stated in Jarden's DNA, we listen, learn, and innovate. An example of recent new product development initiatives in our Jarden Outdoor Solutions division include Coleman's CPX6 lighting systems and instant tents, which have continued to experience strong sales activity.

In June, Coleman held a promotional event in downtown Chicago to raise awareness for this unique feature of our instant tent. Product demonstrations were held where 100 people simultaneously set up 50 tents within 1 minute.

In Japan, where there continues to be strong demand for emergency preparedness products, particularly in the lighting category, Coleman's quad-LED lanterns have performed extremely well. I'm proud of how our team continues to respond to the ongoing needs of the Japanese marketplace.

I mentioned Rawlings' 5150 BBCOR bats and our Jarden Team Sports business earlier. Jarden Team Sports also successfully launched the Miken Freak FX 700 line of bats and a new line of NRG Quantum football helmets.

Our fishing business, which suffered from the floods domestically and the impact of the earthquake in Japan, won the "Most Innovative Product of the Year" award at the EFTTEX European Fishing Expo for its revolutionary Berkley NanoFil fishing line.

Marmot, with its new plasma sleeping bag series, has now recovered three major industry awards: Backpacker Magazine's Editors Choice for 2011, Outdoors Magazine's "Gear of the Year" award for 2011, and the National Geographic "Adventure Gear of the Year" award for 2011.

Our innovative culture permeates throughout Jarden. For instance, in our Jarden Consumer Solutions segment, Mr. Coffee's one-cup coffee maker, which uses Keurig technology, is already set to launch its second generation machine next year.

In branded consumables safety and security division, First Alert won the Golden Hamburger award for the home security and safety category and successfully launched a full line of security cameras. Jarden Home and Family won an innovation award for its [Mapa Tent Cook Gloves] for superior heat protection, several awards across its range of Nuk baby feeding products, and successfully launched an upgraded line of silicon soothers. These new products are not only innovative but part of our plan to introduce better performing, higher margin new products on a consistent basis.

Second, relative to margin expansion, we continue to proactively manage commodity and other cost inflation through continuous improvement initiatives based on our Lean manufacturing, Six Sigma, and Kaizen programs and regular pricing discussions with our customers, leveraging the breadth of our seasonal consumer staple products where appropriate.

We actively partner with retailers in several ways, including in-store merchandising and special displays. We believe they value our continued commitment to growing the categories we serve by investing in our brands through new product development and marketing. They value our commitment to making day-to-day consumer experiences more satisfying and our ability to serve their needs on a global basis.

Many of our retailers have private label offerings through which they experience commodity cost pressures directly as well, and are able to fully appreciate market conditions and our need to adjust pricing.

Third, our teams continue to work on gross margin enhancing projects across our 50-plus manufacturing platforms, our distribution network, and in partnership with our OEM suppliers. Commodity volatility is a part of life, as are weather-driven changes in mix that impact gross margin. Despite these headwinds, our teams are focused on managing input costs proactively and preemptively in line with the processes I discussed on our Q1 call.

Before turning the call back to Ian for Martin's prepared comments, I'd like to thank the board, Martin, and Ian for the confidence they have shown in me in my new role as CEO. I believe strongly in Jarden's prospects for success, and look forward to building on the pillars of strength that form Jarden's DNA to deliver consistent, profitable growth for our stockholders in the future.

And with that, I'll turn the call back over to Ian.

Ian Ashken

Thank you Jim. I would like to thank the stockholders for their support at the annual meeting this June, during which all resolutions were passed. One of those include the expansion of our board of directors to allow Jim Lillie to join the board in his new role of CEO of the company.

I will continue to actively oversee Jarden's corporate structure as executive chairman as Jim continues to focus on the day-to-day operations of the business, collaborating closely with Ian and me in what we refer to internally as the office of the chairman. This close collaboration has enabled a seamless CEO transition, both internally and externally.

In summary, we are not relying on the economy suddenly bouncing back to achieve our financial or strategic goals. As we have stated for some time, we believe that the macroeconomic environment will continue on a steady but slow growth path and that this improvement will only start to accelerate once the housing market has bottomed out.

Our track record during the recessionary periods of 2008 and 2009 has proven the resilient nature of our businesses and our ability to win during uncertain economic environments.

Operator, we'd now like to open the call up to any questions. Thank you.

Question-and-Answer Session

Operator

[Operator instructions.] Our first question will come from Bill Chappell from SunTrust.

Bill Chappell – SunTrust

Can you just maybe talk a little bit about what you're seeing in terms of order trends in the back half, especially for the small electrics business in terms of order, pricing, Black Friday type things? I heard from one of your competitors that they were cutting back on some of the Black Friday promotions. Just maybe some color you could give on that would be great.

James Lillie

We just had everybody in town last week for our strategic planning and business update meetings and I think our teams are confident in the order pattern that they're seeing for the back half of the year. As you know, Bill, we've invested a lot of money over the last couple of years, when some of our competitors didn't spend as much money. And I think you'll see the results of that as we move through Q3 and Q4. But we're comfortable, obviously, with the back half outlook and our organic sales growth plan for consumer solutions as well as all of Jarden.

Bill Chappell – SunTrust

And just to follow on that in terms of pricing, I know you bill so far in advance to when you're selling that you pretty much know your costs well, but are you looking at incremental price increases in the back half? Or are you looking into stuff for 2012?

James Lillie

I think we're talking price increases now for 2012. Because the order patterns tend to be 4,5,6 months out, the orders are set for Q3 and Q4, as is the pricing. And we are looking for incremental pricing as we move into 2012. And we've got pricing increases in Q2 representing the sales in Q3 and Q4.

Bill Chappell – SunTrust

And then Ian, just a couple on the balance sheet. Inventory growth versus sales growth continues to outpace it. Will we see that start to track back in the back half? And then uses of cash, priorities, as the cash balance builds, $500, $600 million earning at 0.1%, 0.2%. What's the fastest use for that?

Ian Ashken

I commented at the end of Q1 that I thought our balance sheet would be back in line by the end of Q3. I still believe that. Obviously seeing Q2 we generated more cash than we did in Q2 of last year. But I think we're in pretty good shape on the balance sheet for the end of the year. In terms of use of cash, it really hasn't changed. Again, at the beginning of the year I said I would be surprised if we hadn’t used up all of our stock buyback by the end of the year. We've got $23 million left.

I was happy to see that our leverage ratio has already returned to 3:1 by the end of Q2 and we'd like to keep it at that level or lower by the end of the year. And then we'll consider whether we should have another stock buyback, as long as our leverage continues to be within the parameters that we like. And obviously we don't have any large acquisitions that we're looking at at the moment, but we'll continue to be opportunistic on that front.

Bill Chappell – SunTrust

And on the restructuring, you were talking about the back half. Is that all cash restructuring?

Ian Ashken

Well no, it won't hit the cash so much this year. As you know, if you're doing a factory restructuring what happens is when you announce it that's when you take your charge and that charge will go over the period that the restructuring takes. If you look at the footnotes to financial statements you'll see that we've got probably a little less than $10 million of charges from the last 2 years that are still on our balance sheet that get paid down out of either when people leave or leases get terminated and stuff like that.

Operator

Our next question comes from Jason Gere from RBC Capital Markets.

Jason Gere - RBC Capital Markets

Jim, just want to go back, I guess on the 3-5 for the year. Obviously you're implying something in the 4% range, maybe in the back half of the year, and I appreciate the color on the visibility. One of the things that you've been talking about, and I might be playing the worst case scenario, is kind of the inventory levels at retail, just because the economy has not really improved as expected and maybe just some of the fear over private label and holding on to inventory. I'm just wondering can you just share a little bit more color on that? Is this something that you're actually seeing? Is this just kind of what keeps you up at night? And then I just have a followup question.

James Lillie

Sure. Typically I get asked the question what keeps you up at night? And in my draconian view, what concerned me as we moved through the back end of the quarter was I wanted to make sure our teams were focused on monitoring not only what we were doing but what private label was doing and what our competitors were or were not doing.

And I thought we were having very good POS performance in June, and we've seen that in July as well. But I wanted to make sure that our teams weren’t lost in our rosy outlook and that we were kind of looking over our shoulders. So we didn’t see private label performance improve necessarily, nor did we see it cut back in our orders, which was my big concern. So I just wanted to make sure we were protecting our flank and making sure that we weren't overly confident moving through the quarter.

And so that has now passed. But it is something that happened to Jarden about 4 years ago and we saw a cutback in orders. So the revenue growth in the back half of the year you're right is going to be in the 4.5% range, and we feel comfortable with the visibility that we have. And the missing revenue, as Ian mentioned, in Q2 was primarily related to weather, which we'd been talking about all quarter long.

So as you look at the inventory on the books today, it's really more also a reflection of our confidence in the sell-through in the back half of the year of those products.

Jason Gere - RBC Capital Markets

But what type of assumption are you making for, let's say, branded consumables where the organic sales have been weak three out of the last four quarters. Should we be planning for the back half it's going to be outdoor solutions that's really going to drive the upside like it did in 2010?

James Lillie

I think branded consumables, depending on how the weather performs during Q3, could see a return of some of those lost sales related to the home canning products. And then they're somewhat dependent on the weather in the fourth quarter on fire log sales. So we'll just have to see how that plays out. But I have confidence in our baby business and our home and family business in executing against their plans and then the Quickie business performing up to expectations as well.

Ian Ashken

And I'd also comment that when you're looking percentage turns, obviously the branded consumable segment is smaller than the other ones. So when you're looking at percentage variances it can sometimes look larger one way over the other. But the short answer to the question is outdoor solutions will be the fastest growing segment in the back half of the year.

Jason Gere - RBC Capital Markets

And then just thinking about Mapa, can you talk about what the Mapa growth is? What type of contribution for EBITDA do you expect this year? And I know last year you only had 3 quarters of it on the books and there were some kind of integration charges. So I was just trying to think about the delta from Mapa. How much does that help you in terms of your confidence in terms of full year EPS numbers?

Ian Ashken

We don’t really look at it outside of Mapa Sponta, it being outside of branded consumables. So I don’t have that information with me. But we can talk about that separately.

Jason Gere - RBC Capital Markets

Okay. And then just the last question is just on gross margin and I apologize if you said it. Are you still comfortable with the 50 basis points of gross margin improvement for this year? I know you kind of went through a lot of the puts and takes out there but I might have missed if you actually confirmed that number.

Ian Ashken

Well, we didn’t comment specifically on that number. I think that the way we sit here today I think we will achieve that. What we actually said was if there is any shortfall on the gross margin we're very comfortable that we can make it up on the SG&A line. And obviously the volatility has settled down. There was a lot more volatility in April-May on commodities than there is today. The reason we don’t have the cushion given what happened in Q2 is to have volatility in September-October but obviously we don’t have any sight at that. So as we sit here today, the answer is yes. But it’s a close one to call.

Operator

Our next question comes from Charlie Strauzer of CJS.

Charles Strauzer – CJS

First of all, just please send our best regards to Martin and his family. Most of my questions have been answered. Obviously the weather had a pretty good ding in terms of eating some of the upside in the quarter in both the fishing business and the canning business. Are you starting to see some of the reorder trends kind of normalizing again on those two fronts?

James Lillie

Yeah, fishing POS actually picked up in mid-June and turned positive. And I would say that the weather's been pretty supportive of the fishing business across the country as we're seeing warmer, hotter summer activity. The concern, obviously, is if you look at the home canning business you had crop yields that are probably pushed out by a few weeks. But if it stays too hot too long, it could negatively impact those crop yields. So I'm less bullish, if you will, on the outlook for the fresh preserving business. But I think the fishing business should be able to execute in Q3 and regain most of what it lost in Q2.

Charles Strauzer – CJS

Got it. And then Jim, just one brief thing too. I know one thing that you kind of keep an eye on is how your brands perform versus private label. Are there any kind of machinations there going on that are giving you any pause? Or are you still seeing good reorder trends?

James Lillie

No, actually the reorder trends, the performance, the investments we've made, have made our brands the brands of choice in the markets we play in and where we may see softness, we're outperforming the categories and where we're not seeing softness, in our seasonal staples business, like baseball, fishing, camping, the Q2 seasonal staples, we've had a very good execution quarter despite the weather.

Ian Ashken

And I'd add to that Charlie that we're actually running a campaign this month for the Ball jar business and it's a really good TV campaign.

James Lillie

Our first TV campaign ever, actually.

Ian Ashken

Yeah. And similarly for Coleman, we're doing some promotions on the instant tent. So we're investing the media dollars behind the brands, which obviously helps in maintaining our presence over the private label.

Operator

Our next question comes from Greg Badishkanian of Citigroup.

Greg Badishkanian – Citigroup Global Markets

Can you maybe just talk a little bit about POS versus organic sell in shipment numbers that you had and also just half of inventory levels at the retail level and how comfortable the retailers are and if they’ve had any change in terms of what levels they feel comfortable with?

Ian Ashken

I'd say that inventory levels at retail are still less than we would like them and we believe is in the retailers' best interest. And look, I'm sure you guys go to the same stores that we do, and you see a 4-foot shelf space with lots of gaps in it. That is totally understandable given the uncertainty that was there at the beginning of Q2. Our view is that it's in the retailer's interest to have better-stocked shelves, and I think that we certainly haven't seen any curtailing from where we were, and we're certainly not in a position where retailers have too much inventory and therefore it's clogging up the pipeline. If anything, I don't want to say the floodgates are going to open, because it's going to be more like a trickle, but a trickle will help.

James Lillie

An increase in opportunity from the inventory levels they have today.

Operator

Our next question comes from Joe Altobello with Oppenheimer.

Joseph Altobello – Oppenheimer

Just a couple questions. I guess first for Jim. Were you guys surprised at the organic growth number? Because I obviously saw what happened with the weather and knew that that would impact you guys, but I had anticipated a little bit better number given the strength of Japan and other areas that should have offset that.

James Lillie

You know, Joe, I was at your conference and other conferences and we pretty much called this pretty early in the quarter. So I think the quarter turned out as we expected. The weather negative impact on the camping business as well as the fresh preserving business was about $40 million. So if you added that back in, which we don’t do, it would have been a pretty respectable quarter with Q2 generally being the slowest seasonal quarter, and as you'll recall we had 10% growth last year in the quarter. So it was a difficult comp as well.

Joseph Altobello – Oppenheimer

Okay. So it sounds like nothing surprised you late in the quarter on that number.

James Lillie

It really didn't. I think the quarter laid out as we expected.

Joseph Altobello – Oppenheimer

Okay. And then I guess for Ian in terms of the gross margin number, you were a little less emphatic about the 50 basis points earlier. If you were to miss that, it sounds like it wouldn’t be so much of a commodity cost issue, but more so a top line, or really a top line mix issue?

Ian Ashken

That's exactly right. You saw it in Q2, things like fishing are relatively higher gross margins than some of our other businesses, so depending on the mix it is not only within our business but the SKUs across that whole array of things.

So I think that the problem with having a seasonal business that goes across 2 quarters, which basically all of our seasonal businesses do, is you get to see it at a certain point. And when you're watching a soccer game, I prefer to just focus on the final score rather than the halftime score.

And so I think generally do we think that the momentum and are we executing against the objectives that we set ourselves? Yes. Are there some things that we had to deal with in Q2? Absolutely, and that's why, to Jim's point, we called it pretty early that the weather in the first half of the quarter certainly did cause problems with some of our businesses.

Joseph Altobello – Oppenheimer

Understood. And just one last one if I could. In terms of your budget, where are you trending right now in terms of commodity and shipping costs versus where you thought you'd be at this point in time?

James Lillie

We're actually comfortable. We've seen some improvement in certain commodities that were troublesome in Q4 and Q1. We've seen less volatility. So we're in a respectable range relative to where the budget was set on raw material prices. It's not really causing any great concern.

Operator

Our next question comes from Reza Vahabzadeh of Barclays Capital.

Elizabeth Gilson - Barclays Capital

Hi, actually it's Elizabeth Gilson in for Reza. I just have one question today. I was wondering if you could give me some indication about the magnitude of pricing and mix versus unit sales on your organic sales number?

Ian Ashken

The answer is no. [Laughter.] We're not that type of business. And obviously we guestimate at 50-50, and we'll continue to guestimate at that. But with the tens of thousands or hundreds of thousands of SKUs that we have, it's not something we track ourselves or can easily do.

Elizabeth Gilson - Barclays Capital

And was pricing taken later in the quarter or do you not have that?

Ian Ashken

We take pricing every day. And obviously as Jim mentioned, our timeframe is 6-9 months out. So today as we sit here, Coleman is selling in for their Q2 2012, and that's the pricing discussions we're having. It's rare for us to have pricing discussions midseason. Obviously if you go back to '08, when oil was going up 100%, we took 3 price increases our coolers. But that is very, very unusual.

Operator

Our next question comes from Bill Leach of CREF.

Bill Leach - CREF

Ian, I was just wondering, in your organic sales number, did you have any divestitures that you didn’t take out? If I recall, in the first quarter when you divested Paintball and some other stuff it lowered the organic growth number.

Ian Ashken

The answer is yes, but it's very small in Q2.

Bill Leach - CREF

And then in terms of being comfortable with external estimates, that requires EPS to grow about 15% in the back half versus 7% this quarter. So why would you expect that acceleration? Just better sales trends?

Ian Ashken

Well I think the second half is traditionally a much stronger period for Jarden anyway. Q1 is our slowest quarter. Q2 we build. Obviously it's the seasonally strongest for certain businesses like Coleman. But I think that there are two reasons. One is as I mentioned it is where we're going to have a strong ski season because of what happened last year. So we have good visibility on some of the sell in. And because of the issues that we had in Q2, we're expecting some of those sale just to be timing differences between Q2 and Q3 rather than just disappearing in sales.

Now, to Jim's point, we track this stuff pretty carefully. On the yield from the home canning business it's not unusual for things to get pushed either forwards of backwards two or three weeks. What happens now through the September period will determine the yield and therefore the number of things that get sold.

But having had all of our global strategic planning meetings last week, what we're reflecting is really the confidence that our management teams have in our ability to execute.

Operator

And we have time for one more question. That comes from Ann Gilpin at Jeffries & Company.

Ann Gilpin - Jeffries and Company

Can we talk about the SG&A line a little bit? Why is the gross margin expansion not translating into similar operating margin expansion? Last quarter I think you talked about Mapa having an effect on that, but now that's less. Can you give us some more color there? And should we expect off margin expansion in the second half?

Ian Ashken

That's an excellent question, Ann, and we should really talk about this. We are investing quite heavily in our business. We have, for example Marmot, we have an aggressive sales growth with a retail rollout attached to it. We are investing in things, for example our Zoot brand as Jim mentioned, what we were doing in Germany. And so the way we look at it is we're looking obligation to update 2-3 years to hit that $5 a share in 2014. So we'd much rather drive for growth and spend the money in the SG&A line - as long as we're making it on the gross margin line, and that was really I suppose what my comment was earlier.

If we are, for whatever reason, struggling to hit our 50 basis points, which is our objective each year, then we just have to take our foot off the accelerator a little on some of the other initiatives that we have. But we're not looking to drop it all to the bottom line in '11 or '12. We're continuing to make investment, because we want to ideally be at the top end not the bottom end of our 3-5% growth. And to do that, we need to make the investments. As Jim mentioned, it's probably the first media, television national ad that we've ever run for Ball, and it's been around well over 100 years - not that they had television a hundred years ago.

But so that's the point, so I'm glad you asked the question, because it's not that we don’t manage our SG&A or it couldn’t drop to the bottom line, just that our philosophy at the moment is a little delayed gratification.

Ann Gilpin - Jeffries and Company

Got it. And in your prepared remarks, you talked a little bit about consumer solutions organic growth was primarily international driven. Were trends negative domestically? Can you talk about the trends there in international versus domestic?

Ian Ashken

Actually, consumer solutions domestically was pretty flat. And the growth did come from overseas.

Ann Gilpin - Jeffries and Company

Okay. And then just lastly I want to talk a little bit about trends in baby if we could. From some other companies that have exposure to baby and toddler products lately we've seen some kind of mixed demographics and consumers are making some tough choices at the shelf and trading down. Can you comment on that? Are you guys seeing that in your businesses?

James Lillie

I think the company that made those comments is a different company than we are. We've got 8% market share in the business. We think there's a lot of growth opportunities. Like Ian was talking about in SG&A, we've hired some new people to accelerate growth in that category. And we're comfortable with our outlook with the category. I think our product mix is a little bit different than those companies that have come out with public statements. We don’t do strollers and car seats and cribs and things like that, where I think there's a lot of competing product at lower prices. We're primarily in the pacifier and baby bottle categories and in the feeding utensil side of the equation.

Ian Ashken

And the majority of that business is still in Europe. Obviously we see the growth opportunities in the States, but we have to get the people, to Jim's point, in place to be able to really market in the way that we would like to.

With that, we'll wrap up the call. Thank you everybody for joining and we look forward to reporting to you at the end of Q3.

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