ScottsMiracle-Gro Announces Record Third Quarter Sales Based on Solid Growth in Global Consumer and Professional Businesses |
-- Third quarter sales improve 7%, led by 32% improvement in Global
Professional
-- Global Consumer sales grow 6% with improvements in both U.S. and Europe
-- Consumer purchases at major retailer partners in the U.S. increase 8%
-- Company reaffirms previous earnings guidance entering fall lawn care
season
MARYSVILLE, Ohio, July 31 /PRNewswire-FirstCall/ -- The Scotts
Miracle-Gro Company (NYSE: SMG), the world's leading marketer of branded
consumer lawn and garden products, today announced record third quarter
sales of $1.17 billion, up 7 percent from the same period a year ago. The
results were led by a 32 percent improvement in sales from the Company's
Global Professional segment as well as a 6 percent improvement in the
Global Consumer segment.
For the period ended June 28, 2008, adjusted net income - which
excludes the impact of product recalls, registration issues and impairment
charges - was $130.7 million, or $2.00 per share. Those results exclude
$10.2 million of pre-tax costs incurred during the quarter related to
product recall and registration issues. It also excludes a non-cash,
pre-tax impairment charge of $123.3 million related to certain of the
Company's intangible assets. Including the non-recurring items, the
Company's reported net income in the quarter was $22.6 million, or $0.35
per share. The adjusted and reported results both compare with $129.7
million, or $1.98 per share, for the same period a year earlier.
"The lawn and garden category has proven to be resilient in a difficult
economic environment, and we are pleased with the results we announced
today," said Jim Hagedorn, chairman and chief executive officer. "The
business performed well in the third quarter and our Global Consumer
segment maintained its strong momentum throughout July. Based on recent
trends, we continue to believe our results for the year will be at least
$2.00 per share, which is in line with the guidance we provided in May. The
timing and strength of the fall lawn care season will be the most critical
factor in achieving our full-year guidance.
"In regards to our impairment charge, like many companies, the recent
decline in our equity value forced us to accelerate our normal impairment
testing. While we do not believe the impairment is indicative of our
long-term expectations for the business, it is reflective of an accounting
process that is significantly driven by our recent share price."
THIRD QUARTER DETAILS
Sales in the Global Consumer segment increased 6 percent to $930.1
million. The increase was led by strong growth in lawn fertilizers, grass
seed and growing media in the United States. Consumer purchases in those
categories improved 17 percent, 21 percent and 9 percent respectively and
increased 8 percent in total. Sales improved in most European markets.
Increased commodity costs more than offset higher sales, resulting in
operating income for the Global Consumer segment of $207.9 million,
compared with $211.1 million for the same period a year ago.
Global Professional sales increased 32 percent to $98.7 million, with
particularly strong growth in Europe and emerging markets. The business
continued to benefit from strong demand for its proprietary technology and
a strong focus on driving growth. While the business has adjusted prices
throughout the season, those increases have not completely offset increased
commodity costs. As a result, operating income for the segment was $11.9
million, compared with $10.6 million for the same period a year ago.
"The Global Professional business continues to deliver outstanding
results and will remain an important component to our continued growth,"
Hagedorn said. "We expect this business to finish the year with significant
momentum as we enter 2009."
Scotts LawnService reported a 3 percent increase in revenue during the
quarter to $87.4 million. The business continues to see higher cancellation
rates from last year with most homeowners citing macroeconomic pressures as
the reason. Operating profit for Scotts LawnService was $20.6 million in
the quarter, compared with $21.5 million a year ago. Smith & Hawken sales
decreased 14 percent in the quarter to $54.9 million due to lower demand
for high-end outdoor living products and declines in its catalog and
wholesale divisions.
On a company-wide basis, gross margins were 36.4 percent, excluding the
impact from product recalls and registration issues, compared with 38.5
percent a year earlier. Higher than expected commodity costs remain the
primary challenge to gross margin rates throughout the business.
Selling, general and administrative costs increased 4 percent to $206.9
million as the Company maintains strong controls on spending.
Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) was $234.6 million, compared with $244.3 million for the same
period last year.
YEAR-TO-DATE RESULTS
Net sales through the first nine months were $2.44 billion, up 3
percent from $2.36 billion a year earlier. Global Consumer sales improved 1
percent to $1.90 billion and Global Professional sales improved 25 percent
to $260.6 million. Scotts LawnService revenue increased 9 percent to $157.7
million. Smith & Hawken sales declined 13 percent to $121.0 million.
Gross margins declined to 34.6 percent, excluding the impact from
product recalls and registration issues, from 35.8 percent, impacted mainly
by higher input costs. SG&A through the first nine months increased 3
percent to $559.6 million.
Adjusted EBITDA was $327.7 million compared with $360.3 million.
On a reported basis, net income was $23.8 million, or $0.36 per share,
compared with $153.7 million, or $2.28 per share. Adjusted net income -
which excludes the impact of costs related to product recalls and
registration issues, impairment charges and refinancing charges - was
$151.6 million, or $2.31 per share, compared with $165.5 million, or $2.45
per share, a year earlier. Adjusted results exclude approximately $41.0
million of pre-tax costs related to product recalls and registration issues
as well as the third quarter impairment charges noted earlier.
The Company now expects costs related to the recalls and registration
issues to range from $55 to $60 million, which is higher than previously
expected. However, the Company considers these items to be non-recurring
and, therefore, has excluded them from the full-year earnings guidance.
This estimate excludes any potential fines or penalties related to these
issues, which cannot be estimated at this time.
The Company will discuss its third quarter results during a Webcast and
conference call at 9:00 a.m. Eastern Time on Friday, August 1, 2008. The
call will be available live on the investor relations section of the
ScottsMiracle-Gro Web site, http://investor.scotts.com
An archive of the Webcast, as well as accompanying financial
information regarding any non-GAAP financial measures discussed by the
Company during the call, will be available on the Web site for at least 12
months.
About ScottsMiracle-Gro
With more than $2.9 billion in worldwide sales and more than 6,000
associates, The Scotts Miracle-Gro Company, through its wholly-owned
subsidiary, The Scotts Company LLC, is the world's largest marketer of
branded consumer products for lawn and garden care, with products for
professional horticulture as well. The Company's brands are the most
recognized in the industry. In the U.S., the Company's Scotts(R),
Miracle-Gro(R) and Ortho(R) brands are market-leading in their categories,
as is the consumer Roundup(R) brand, which is marketed in North America and
most of Europe exclusively by Scotts and owned by Monsanto. The Company
also owns Smith & Hawken(R), a leading brand of garden-inspired products
that includes pottery, watering equipment, gardening tools, outdoor
furniture and live goods, and Morning Song(R), a leading brand in the wild
bird food market. In Europe, the Company's brands include Weedol(R),
Pathclear(R), Evergreen(R), Levington(R), Miracle-Gro(R), KB(R),
Fertiligene(R) and Substral(R). For additional information, visit us at
http://www.scotts.com
Statement under the Private Securities Litigation Act of 1995: Certain
of the statements contained in this press release, including, but not
limited to, information regarding the future economic performance and
financial condition of the company, the plans and objectives of the
company's management, and the company's assumptions regarding such
performance and plans are forward looking in nature. Actual results could
differ materially from the forward-looking information in this release, due
to a variety of factors, including, but not limited to:
-- Adverse weather conditions could adversely affect our sales and
financial results;
-- Our historical seasonality could impair our ability to pay
obligations and operating expenses as they come due and operating expenses;
-- Our substantial indebtedness could adversely affect our financial
health;
-- Public perceptions regarding the safety of our products,
particularly in light of our recently announced product recalls, could
adversely affect us;
-- Costs associated with our recently announced product recalls and
product registration issues and the corresponding governmental
investigation, including recall costs, legal and advertising expenses, lost
sales and potential governmental fines could adversely affect our financial
results;
-- The loss of one or more of our top customers could adversely affect
our financial results because of the concentration of our sales to a small
number of retail customers;
-- The expiration of certain patents could substantially increase our
competition in the United States;
-- Compliance with environmental and other public health regulations
could increase our cost of doing business; and
-- Our significant international operations make us more susceptible to
fluctuations in currency exchange rates and to the costs of international
regulation.
Additional detailed information concerning a number of the important
factors that could cause actual results to differ materially from the
forward-looking information contained in this release is readily available
in the company's publicly filed quarterly, annual and other reports.
THE SCOTTS MIRACLE-GRO COMPANY
Results of Operations for the Three and Nine Months
Ended June 28, 2008 and June 30, 2007
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes
Three Months Ended Nine Months Ended
June 28, June 30, % June 28, June 30, %
Footnotes 2008 2007 Change 2008 2007 Change
Net sales $1,170.9 $1,098.4 7% $2,437.6 $2,362.9 3%
Cost of sales 746.9 675.7 1,596.9 1,516.5
Cost of sales -
product registrations/
recalls 0.2 - 22.8 -
Gross profit 423.8 422.7 0% 817.9 846.4 -3%
% of sales 36.2% 38.5% 33.6% 35.8%
Operating expenses:
Selling, general and
administrative 206.9 199.2 4% 559.6 544.4 3%
Impairment and product
registrations/
recalls 128.9 - 130.1 -
Other income, net (5.4) (3.6) (9.6) (7.0)
Total operating expenses 330.4 195.6 69% 680.1 537.4 27%
Income from operations 93.4 227.1 -59% 137.8 309.0 -55%
% of sales 8.0% 20.7% 5.7% 13.1%
Costs related to
refinancings - - - 18.3
Interest expense 22.1 26.2 64.6 52.3
Income before taxes 71.3 200.9 -65% 73.2 238.4 -69%
Income tax expense 48.7 71.2 49.4 84.7
Net income 22.6 129.7 -83% 23.8 153.7 -85%
Basic income per
share (1) $0.35 $2.04 -83% $0.37 $2.34 -84%
Diluted income
per share (2) $0.35 $1.98 -83% $0.36 $2.28 -84%
Common shares used in
basic income per share
calculation 64.6 63.6 2% 64.4 65.6 -2%
Common shares and
potential common
shares used in diluted
income per share
calculation 65.3 65.4 0% 65.5 67.5 -3%
Results of operations
excluding restructuring,
refinancing charges,
loss on impairment
and other charges:
Adjusted net
income (4) $130.7 $129.7 1% $151.6 $165.5 -8%
Adjusted diluted
income per share(2)(4) $2.00 $1.98 1% $2.31 $2.45 -6%
Adjusted EBITDA (3)(4) $234.6 $244.3 -4% $327.7 $360.3 -9%
Pro forma results as
if the recapitalization
transactions and
related debt
restructuring occurred
as of the beginning
of each fiscal year
Pro forma adjusted net
income (4)(5) $151.6 $150.3 1%
Pro forma
adjusted diluted
income per share(4) (5) $2.31 $2.31 0%
THE SCOTTS MIRACLE-GRO COMPANY
Net Sales by Segment - Three and Nine Months
Ended June 28, 2008 and June 30, 2007
(in millions)
(unaudited)
Three Months Ended
June 28, June 30,
2008 2007 % Change
Global Consumer 930.1 875.4 6%
Global Professional 98.7 75.0 32%
Scotts LawnService(R) 87.4 84.6 3%
Corporate & Other 54.7 63.4 -14%
Consolidated $1,170.9 $1,098.4 7%
Nine Months Ended
June 28, June 30,
2008 2007 % Change
Global Consumer 1,898.9 1,872.3 1%
Global Professional 260.6 208.5 25%
Scotts LawnService(R) 157.7 144.1 9%
Corporate & Other 120.4 138.0 -13%
Consolidated $2,437.6 $2,362.9 3%
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Balance Sheets
June 28, 2008, June 30, 2007 and September 30, 2007
(Unaudited)
(in millions)
June 28, June 30, September 30,
2008 2007 2007
ASSETS
Current assets
Cash and cash equivalents $166.0 $66.9 $67.9
Accounts receivable, net 796.2 711.1 397.8
Inventories, net 474.9 432.4 405.9
Prepaids and other current assets 153.3 112.7 127.7
Total current assets 1,590.4 1,323.1 999.3
Property, plant and equipment, net 355.8 364.8 365.9
Goodwill, net 386.7 477.7 462.9
Other intangible assets, net 377.1 418.7 418.8
Other assets 23.9 34.6 30.3
Total assets $2,733.9 $2,618.9 $2,277.2
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt $292.1 $237.2 $86.4
Accounts payable 295.1 274.1 202.5
Other current liabilities 443.8 410.0 297.7
Total current liabilities 1,031.0 921.3 586.6
Long-term debt 1,028.3 1,030.1 1,031.4
Other liabilities 174.8 161.4 179.9
Total liabilities 2,234.1 2,112.8 1,797.9
Shareholders' equity 499.8 506.1 479.3
Total liabilities and
shareholders' equity $2,733.9 $2,618.9 $2,277.2
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Three
Months Ended June 28, 2008 and June 30, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes
Three
Three Months Ended June 28, 2008 Months Ended
Product June 30,
Registra- 2007 (a)
As tion/ Impair- As
Reported Recalls ment Adjusted Reported
Net sales $1,170.9 $(5.2) $- $1,176.1 $1,098.4
Cost of sales 746.9 (0.8) - 747.7 675.7
Cost of sales - product
registrations/recalls 0.2 0.2 - - -
Gross profit 423.8 (4.6) - 428.4 422.7
% of sales 36.2% 36.4% 38.5%
Operating expenses:
Selling, general and
administrative 206.9 - - 206.9 199.2
Impairment and product
registrations/recalls 128.9 5.6 123.3 - -
Other income, net (5.4) - - (5.4) (3.6)
Total operating expenses 330.4 5.6 123.3 201.5 195.6
Income from operations 93.4 (10.2) (123.3) 226.9 227.1
% of sales 8.0% 19.3% 20.7%
Costs related to
refinancings - - - - -
Interest expense 22.1 - - 22.1 26.2
Income before taxes 71.3 (10.2) (123.3) 204.8 200.9
Income tax expense 48.7 (4.0) (21.4) 74.1 71.2
Net income (reported,
adjusted and pro forma) $22.6 $(6.2) $(101.9) $130.7 $129.7
Basic income per share $0.35 $(0.10) $(1.58) $2.02 $2.04
Diluted income per share $0.35 $(0.09) $(1.56) $2.00 $1.98
Common shares used in basic
income per share calculation 64.6 64.6 64.6 64.6 63.6
Common shares and potential
common shares used in diluted
income per share calculation 65.3 65.3 65.3 65.3 65.4
Net income 22.6 129.7
Income tax expense 48.7 71.2
Interest expense 22.1 26.2
Product registrations/
recalls (0.4) -
Costs related to refinancing - -
Depreciation 13.7 12.8
Amortization, including
marketing fees 4.6 4.4
Impairment of assets 123.3 -
Adjusted EBITDA $234.6 $244.3
(a) - For the three months ended June 30, 2007, there were no items
impacting comparability.
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Nine
Months Ended June 28, 2008 and June 30, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes
Nine Months Ended June 28, 2008
Product
Registra-
As tions/ Impair-
Reported Recalls ment Adjusted
Net sales $2,437.6 $(24.2) $- $2,461.8
Cost of sales 1,596.9 (12.8) - 1,609.7
Cost of sales - product
registrations/recalls 22.8 22.8 - -
Gross profit 817.9 (34.2) - 852.1
% of sales 33.6% 34.6%
Operating expenses:
Selling, general and administrative 559.6 - - 559.6
Impairment and product
registrations/recalls 130.1 6.8 123.3 -
Other income, net (9.6) - - (9.6)
Total operating expenses 680.1 6.8 123.3 550.0
Income from operations 137.8 (41.0) (123.3) 302.1
% of sales 5.7% 12.3%
Costs related to refinancings - - - -
Interest expense 64.6 - - 64.6
Income before taxes 73.2 (41.0) (123.3) 237.5
Income tax expense 49.4 (15.1) (21.4) 85.9
Net income (reported, adjusted and
pro forma) $23.8 $(25.9) $(101.9) $151.6
Basic income per share $0.37 $(0.40) $(1.58) $2.35
Diluted income per share $0.36 $(0.40) $(1.56) $2.31
Common shares used in basic income
per share calculation 64.4 64.4 64.4 64.4
Common shares and potential common
shares used in diluted income per
share calculation 65.5 65.5 65.5 65.5
Net income 23.8
Income tax expense 49.4
Interest expense 64.6
Product registrations/recalls 13.7
Costs related to refinancing -
Depreciation 40.1
Amortization, including marketing fees 12.8
Impairment of Assets 123.3
Adjusted EBITDA $327.7
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Nine
Months Ended June 28, 2008 and June 30, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes
Nine Months Ended June 30, 2007
Costs
related Pro
to Forma
As refinanc- Adjust- Pro Forma
Reported ings Adjusted ments Adjusted
Net sales $2,362.9 $- $2,362.9 $- $2,362.9
Cost of sales 1,516.5 - 1,516.5 - 1,516.5
Cost of sales - product
registrations/recalls - - - - -
Gross profit 846.4 - 846.4 - 846.4
% of sales 35.8% 35.8% 35.8%
Operating expenses:
Selling, general and
administrative 544.4 - 544.4 - 544.4
Impairment and product
registrations/recalls - - - - -
Other income, net (7.0) - (7.0) - (7.0)
Total operating expenses 537.4 - 537.4 - 537.4
Income from operations 309.0 - 309.0 - 309.0
% of sales 13.1% 13.1% 13.1%
Costs related to refinancings 18.3 18.3 - - -
Interest expense 52.3 - 52.3 23.6 75.9
Income before taxes 238.4 (18.3) 256.7 (23.6) 233.1
Income tax expense 84.7 (6.5) 91.2 (8.4) 82.8
Net income (reported, adjusted
and pro forma) $153.7 $(11.8) $165.5 $(15.2) $150.3
Basic income per share $2.34 $(0.18) $2.52 $(0.14) $2.38
Diluted income per share $2.28 $(0.17) $2.45 $(0.14) $2.31
Common shares used in basic
income per share calculation 65.6 65.6 65.6 63.2
Common shares and potential
common shares used in diluted
income per share calculation 67.5 67.5 67.5 65.2
Net income 153.7
Income tax expense 84.7
Interest expense 52.3
Product registrations/
recalls -
Costs related to refinancing 18.3
Depreciation 39.2
Amortization, including
marketing fees 12.1
Impairment of Assets -
Adjusted EBITDA $360.3
THE SCOTTS MIRACLE-GRO COMPANY
Footnotes to Preceding Financial Statements
(in millions, except per share data)
Results of Operations
(1) Basic earnings per common share is calculated by dividing net income
by average common shares outstanding during the period.
(2) Diluted income per share is calculated by dividing net income by the
average common shares and dilutive potential common shares (common
stock options, stock appreciation rights, and restricted stock)
outstanding during the period.
(3) "Adjusted EBITDA" is defined as net income before interest, taxes,
depreciation and amortization as well as certain other items such as
the impact of discontinued operations, the cumulative effect of
changes in accounting, costs associated with debt refinancing and
other non-recurring, non-cash items effecting net income. Adjusted
EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
used as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity.
(4) The Reconciliation of non-GAAP Disclosure Items includes the following
non-GAAP financial measures:
Adjusted net income and adjusted diluted income per share - These
measures exclude charges or credits relating to refinancings,
impairments, restructurings, and other unusual items as such costs or
gains relate to discrete projects or transactions that are apart from
and not indicative of the results of the operations of the business.
Pro forma adjusted net income and pro forma adjusted diluted income
per share - These measures include interest expense and diluted shares
which have been computed as if the recapitalization transactions were
completed as described in Note 5 below.
Adjusted EBITDA - The presentation of adjusted EBITDA is provided as a
convenience to the Company's lenders because adjusted EBITDA is a
component of certain debt covenants.
Free cash flow - This annual measure is often used by analysts and
creditors as a measure of a company's ability to service debt,
reinvest in the business beyond normal capital expenditures, and
return cash to shareholders. Free cash flow is equivalent to cash
provided by operating activities as defined by generally accepted
accounting principles less capital expenditures.
The Company believes that the disclosure of these non-GAAP financial
measures provides useful information to investors or other users of
the financial statements, such as lenders.
(5) During the second quarter of fiscal 2007, Scotts Miracle-Gro
completed a significant recapitalization plan. The objective of this
plan, announced on December 12, 2006, was to return $750 million to
the Company's shareholders. This was accomplished via a share
repurchase that totaled $245.5 million, or 4.5 million shares, which
was completed via a modified Dutch auction tender offer on February
14, 2007, and a special one-time cash dividend of $8.00 per share,
totaling $508.0 million, which was paid on March 5, 2007 to
shareholders of record as of February 26, 2007.
In order to fund these transactions, the Company entered into new
credit facilities aggregating to $2.15 billion. As part of this debt
restructuring, the Company launched a successful tender offer for all
of its $200 million 6 5/8% senior subordinated notes, which were
retired in the second quarter.
Subsequent to the completion of this recapitalization, the Company's
interest expense has been and will be significantly higher as a
result of the borrowings incurred to fund the cash returned to
shareholders and related expenses. The following pro forma
incremental interest expense has been determined as if the Company
had completed these recapitalization transactions as of October 1,
2006 for fiscal 2007. Borrowing rates in effect as of March 30, 2007
were used to compute this pro forma interest expense. As the
recapitalization involved a share repurchase, pro forma diluted
shares are also provided.
Fiscal 2007
Q1 Q2
Incremental interest on
recapitalization borrowings $13.1 $8.7
New credit facility interest rate differential 1.0 0.5
Incremental amortization of new credit
facility fees 0.2 0.1
Pro forma incremental interest from
recapitalization $14.3 $9.3
Year-to-date incremental interest $23.6
Common shares and potential common shares
used in diluted income per share
calculation 67.2 67.8
Incremental impact of repurchased shares (4.5) (2.7)
Incremental impact on potential common
shares - 0.1
Pro forma diluted shares 62.7 65.2
Year-to-date pro forma diluted shares 65.0
SOURCE The Scotts Miracle-Gro Company
back to topRelated links:
CONTACT:
Jim King of The Scotts Miracle-Gro Company,
Senior Vice President, Investor Relations & Corporate Affairs,
+1-937-578-5622
