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ScottsMiracle-Gro Announces Second Quarter Financial ResultsAdjusted diluted EPS of $1.19; reported diluted EPS of $0.88Company adjusts full-year earnings outlook
MARYSVILLE, Ohio, May 5 /PRNewswire-FirstCall/ -- The Scotts Miracle-Gro Company NYSE: SMG, the world's leading marketer of branded consumer lawn and garden products, today announced that a slow start to the lawn and garden season led to a decline in sales and net income for the second quarter ended March 29, 2008 compared with the same period a year ago. "Cold and wet weather in March caused the season to break later than normal in most parts of our business, which adversely affected our sales," said Jim Hagedorn, chairman and chief executive officer. "In addition, recent product recalls resulted in a pre-tax charge of $31 million during the quarter. While that charge was excluded from adjusted earnings, the recalls had a significant impact on our reported net income. "Although consumer purchases increased 24 percent in April - traditionally our most important month of the year - the combination of the slow start to the season and a generally weak consumer environment, combined with lost future sales related to the recalls and continued pressure from commodities, now makes it unlikely that we will achieve our initial full-year outlook." Sales for the second quarter declined 4 percent to $958 million compared with $993 million a year earlier. Sales were down 6 percent excluding the impact of foreign exchange. The Company's largest segment, Global Consumer, reported a 6 percent decline to $802 million due primarily to a 9 percent decline in North America. Consumer sales in Europe increased 10 percent, or were flat excluding the impact of foreign exchange rates. Scotts LawnService sales were $32 million compared with $34 million a year earlier, and Smith & Hawken sales were $25 million compared with $30 million. Global Professional sales increased by 29 percent to $100 million from $77 million the same period a year earlier. Excluding the impact of foreign exchange rates, Global Professional sales increased 20 percent. Gross margin rate in the quarter was 33.7 percent compared with 37.1 percent a year ago. Product recalls negatively impacted gross margin rate by 240 basis points. Excluding the impact of the recalls, second quarter gross margin rate was 36.1 percent. The remaining 100 basis point decline was attributable to increased promotional costs. Selling, general and administrative expense increased 3 percent to $208 million. Net income for the quarter was $58.0 million, or $0.88 per diluted share, compared with $83.4 million, or $1.23 per diluted share, a year earlier. On an adjusted basis - which excludes the recalls as well as refinancing costs in the second quarter of fiscal 2007 - the Company reported adjusted net income of $77.7 million, or $1.19 per diluted share, compared with $95.1 million, or $1.40 per diluted share, a year earlier. During the second quarter of 2007, the Company recapitalized, increasing its long-term borrowings by more than $750 million in order to return cash to shareholders through a share repurchase and special one-time dividend. On a pro forma adjusted basis - which excludes costs related to the refinancing and assumes the recapitalization had occurred at the beginning of fiscal 2007 - the Company's second quarter earnings per share of $1.19 would have compared with $1.37 for the same period a year ago. FIRST HALF DETAILS Net sales through the first six months were $1.27 billion, flat from 2007 and down 2 percent excluding the impact of foreign exchange rates. Gross margin rate was 31.1 percent compared with 33.5 percent. Excluding the impact of the product recalls, gross margin rate was 33.0 percent. SG&A increased 2 percent to $353 million. Reported net income was $1.2 million, or $0.02 per diluted share, compared with $24.0 million, or $0.35 per diluted share, the same period last year. Excluding costs related to the product recalls - as well as refinancing costs in 2007 - adjusted net income for the first six months was $20.9 million, or $0.32 per diluted share, compared with $35.7 million, or $0.52 per diluted share, a year earlier. On a pro forma adjusted basis, earnings per share of $0.32 compared with $0.31 for the first half of fiscal 2007. FULL-YEAR OUTLOOK The Company revised its full-year outlook and now expects adjusted earnings to range from $2.00 to $2.20 per share based on the following reasons: -- Although consumer purchases have been strong in recent weeks, the
Company expects consumer purchases to be lower-than-expected on a
full-year basis due to a slow start to the season and broader
macroeconomic issues.
-- Continued pressure from commodity costs that are likely to affect
second-half results.
-- The impact of future lost sales and unplanned administrative expenses -
such as legal and consulting fees - resulting from the product recalls.
This impact excludes direct costs of the product recalls which are
excluded from adjusted earnings and does not currently include any
potential fines or penalties in relation to the recalls or the
potential for additional recalls.
"While we're disappointed that we won't meet our original projections, our team remains focused on delivering the best results possible," Hagedorn said. "Overall, the category appears to be holding up well in the context of an increasingly uncertain economic environment. The fact that our core consumers and our retail partners remain engaged in the category also reinforces our confidence in the business. "While we could make aggressive cuts in planned strategic investments to improve our results this year, we believe such a move would be detrimental to the long-term growth of the business. We will continue to invest in key strategic initiatives throughout the balance of this year that we believe will further strengthen our leadership position in the marketplace and enhance long-term shareholder value." The Company will discuss its second quarter results during a Webcast and conference call at 5 p.m. Eastern Time today. The call will be available live on the investor relations section of the ScottsMiracle-Gro Web site,://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, a leading brand of garden-inspired products that includes pottery, watering equipment, gardening tools, outdoor furniture and live goods, and Morning Song, 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 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 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 Six Months
Ended March 29, 2008 and March 31, 2007
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes at End of Release
Three Months Ended Six Months Ended
March March March March
29, 31, % 29, 31, %
Footnotes 2008 2007 Change 2008 2007 Change
Net sales $958.0 $993.3 -4% $1,266.7 $1,264.5 0%
Cost of sales 612.6 624.9 850.0 840.8
Cost of sales -
product recalls 22.6 - 22.6 -
Gross profit 322.8 368.4 -12% 394.1 423.7 -7%
% of sales 33.7% 37.1% 31.1% 33.5%
Operating
expenses:
Selling, general
and administrative 208.4 203.0 3% 352.7 345.2 2%
SG&A - product
recalls 1.2 - 1.2 -
Other income, net (1.0) (1.1) (4.2) (3.4)
Total operating
expenses 208.6 201.9 3% 349.7 341.8 2%
Income from
operations 114.2 166.5 -31% 44.4 81.9 -46%
% of sales 11.9% 16.8% 3.5% 6.5%
Costs related to
refinancings - 18.3 - 18.3
Interest expense 23.5 17.9 42.5 26.1
Income before
taxes 90.7 130.3 -30% 1.9 37.5 -95%
Income tax expense 32.7 46.9 0.7 13.5
Net income $58.0 $83.4 -30% $1.2 $24.0 -95%
Basic income per
share (1) $0.90 $1.26 -29% $0.02 $0.36 -94%
Diluted income
per share (2) $0.88 $1.23 -28% $0.02 $0.35 -94%
Common shares
used in
basic income
per share
calculation 64.4 66.1 -3% 64.3 66.6 -3%
Common shares and
potential common
shares used in
diluted income per
share calculation 65.6 67.8 -3% 65.7 68.4 -4%
Results of
operations excluding
restructuring,
refinancing charges,
loss on impairment
and other charges:
Adjusted net income (4) $77.7 $95.1 -18% $20.9 $35.7 -41%
Adjusted diluted
income per share (2) (4) $1.19 $1.40 -15% $0.32 $0.52 -39%
Adjusted EBITDA (3) (4) $145.7 $184.2 -21% $93.1 $116.0 -20%
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) $77.7 $89.2 -13% $20.9 $20.5 2%
Pro forma adjusted
diluted income per
share (4) (5) $1.19 $1.37 -13% $0.32 $0.31 4%
THE SCOTTS MIRACLE-GRO COMPANY
Net Sales by Segment - Three and Six Months
Ended March 29, 2008 and March 31, 2007
(in millions)
(unaudited)
Three Months Ended
March 29, March 31, %
2008 2007 Change
Global Consumer $801.9 $852.3 -6%
Global Professional 99.5 77.1 29%
Scotts LawnService(R) 32.0 33.7 -5%
Corporate & Other 24.6 30.2 -19%
Consolidated $958.0 $993.3 -4%
Six Months Ended
March 29, March 31, %
2008 2007 Change
Global Consumer $968.8 $996.8 -3%
Global Professional 161.9 133.6 21%
Scotts LawnService(R) 70.3 59.5 18%
Corporate & Other 65.7 74.6 -12%
Consolidated $1,266.7 $1,264.5 0%
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Balance Sheets
March 29, 2008, March 31, 2007 and September 30, 2007
(Unaudited)
(in millions)
March 29, March 31, September 30,
2008 2007 2007
ASSETS
Current assets
Cash and cash equivalents $76.9 $43.5 $67.9
Accounts receivable, net 1,035.1 1,001.0 397.8
Inventories, net 625.1 571.9 405.9
Prepaids and other current assets 159.7 131.0 127.7
Total current assets 1,896.8 1,747.4 999.3
Property, plant and equipment, net 363.3 369.2 365.9
Goodwill, net 467.3 475.0 462.9
Other intangible assets, net 417.9 421.7 418.8
Other assets 25.6 29.5 30.3
Total assets $3,170.9 $3,042.8 $2,277.2
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt $281.8 $23.7 $86.4
Accounts payable 368.0 341.5 202.5
Other current liabilities 421.2 355.8 297.7
Total current liabilities 1,071.0 721.0 586.6
Long-term debt 1,445.9 1,783.2 1,031.4
Other liabilities 187.8 163.8 179.9
Total liabilities 2,704.7 2,668.0 1,797.9
Shareholders' equity 466.2 374.8 479.3
Total liabilities and
shareholders' equity $3,170.9 $3,042.8 $2,277.2
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Three
Months Ended March 29, 2008 and March 31, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes at End of Release
Three Months Ended March 29, 2008
Product
As Reported Recalls Adjusted
Net sales $958.0 $(19.0) $977.0
Cost of sales 612.6 (12.0) 624.6
Cost of sales - product recalls 22.6 22.6 -
Gross profit 322.8 (29.6) 352.4
% of sales 33.7% 36.1%
Operating expenses:
Selling, general and administrative 208.4 - 208.4
SG&A - product recalls 1.2 1.2 -
Other income, net (1.0) - (1.0)
Total operating expenses 208.6 1.2 207.4
Income from operations 114.2 (30.8) 145.0
% of sales 11.9% 14.8%
Costs related to refinancings - - -
Interest expense 23.5 - 23.5
Income before taxes 90.7 (30.8) 121.5
Income tax expense 32.7 (11.1) 43.8
Net income (reported, adjusted and
pro forma) $58.0 $(19.7) $77.7
Basic income per share $0.90 $(0.31) $1.21
Diluted income per share $0.88 $(0.30) $1.19
Common shares used in basic income
per share calculation 64.4 64.4 64.4
Common shares and potential common
shares used in diluted income
per share calculation 65.6 65.6 65.6
Net income 58.0
Income tax expense 32.7
Interest expense 23.5
Restructuring and other charges 14.1
Costs related to refinancing -
Depreciation 13.3
Amortization, including marketing
fees 4.1
Adjusted EBITDA $145.7
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Three
Months Ended March 29, 2008 and March 31, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes at End of Release
Three Months Ended March 31, 2007
Costs related
As to Pro Forma Pro Forma
Reported refinancings Adjusted Adjustments Adjusted
Net sales $993.3 $- $993.3 $- $993.3
Cost of sales 624.9 - 624.9 - 624.9
Cost of sales -
product recalls - - - - -
Gross profit 368.4 - 368.4 - 368.4
% of sales 37.1% 37.1% 37.1%
Operating expenses:
Selling, general
and administrative 203.0 - 203.0 - 203.0
SG&A - product
recalls - - - - -
Other income, net (1.1) - (1.1) - (1.1)
Total operating
expenses 201.9 - 201.9 - 201.9
Income from
operations 166.5 - 166.5 - 166.5
% of sales 16.8% 16.8% 16.8%
Costs related to
refinancings 18.3 18.3 - - -
Interest expense 17.9 - 17.9 9.3 27.2
Income before taxes 130.3 (18.3) 148.6 (9.3) 139.3
Income tax expense 46.9 (6.6) 53.5 (3.4) 50.1
Net income (reported,
adjusted and pro
forma) $83.4 $(11.7) $95.1 $(5.9) $89.2
Basic income per
share $1.26 $(0.18) $1.44 $(0.04) $1.41
Diluted income
per share $1.23 $(0.17) $1.40 $(0.03) $1.37
Common shares used in
basic income per
share calculation 66.1 66.1 66.1 63.4
Common shares and
potential common
shares used in
diluted income per
share calculation 67.8 67.8 67.8 65.2
Net income 83.4
Income tax expense 46.9
Interest expense 17.9
Restructuring and
other charges -
Costs related to
refinancing 18.3
Depreciation 13.7
Amortization,
including
marketing fees 4.0
Adjusted EBITDA $184.2
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Six
Months Ended March 29, 2008 and March 31, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes at End of Release
Six Months Ended March 29, 2008
Product
As Reported Recalls Adjusted
Net sales $1,266.7 $(19.0) $1,285.7
Cost of sales 850.0 (12.0) 862.0
Cost of sales - product recalls 22.6 22.6 -
Gross profit 394.1 (29.6) 423.7
% of sales 31.1% 33.0%
Operating expenses:
Selling, general and administrative 352.7 - 352.7
SG&A - product recalls 1.2 1.2 -
Other income, net (4.2) - (4.2)
Total operating expenses 349.7 1.2 348.5
Income from operations 44.4 (30.8) 75.2
% of sales 3.5% 5.8%
Costs related to refinancings - - -
Interest expense 42.5 - 42.5
Income before taxes 1.9 (30.8) 32.7
Income tax expense 0.7 (11.1) 11.8
Net income (reported, adjusted and
pro forma) $1.2 $(19.7) $20.9
Basic income per share $0.02 $(0.31) $0.33
Diluted income per share $0.02 $(0.30) $0.32
Common shares used in basic income
per share calculation 64.3 64.3 64.3
Common shares and potential common
shares used in diluted income
per share calculation 65.7 65.7 65.7
Net income 1.2
Income tax expense 0.7
Interest expense 42.5
Restructuring and other charges 14.1
Costs related to refinancing -
Depreciation 26.4
Amortization, including marketing
fees 8.2
Adjusted EBITDA $93.1
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Six
Months Ended March 29, 2008 and March 31, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes at End of Release
Six Months Ended March 31, 2007
Costs related
As to Pro Forma Pro Forma
Reported refinancings Adjusted Adjustments Adjusted
Adjusted
Net sales $1,264.5 $- $1,264.5 $- $1,264.5
Cost of sales 840.8 - 840.8 - 840.8
Cost of sales -
product recalls - - - - -
Gross profit 423.7 - 423.7 - 423.7
% of sales 33.5% 33.5% 33.5%
Operating expenses:
Selling, general and
administrative 345.2 - 345.2 - 345.2
SG&A - product recalls - - - - -
Other income, net (3.4) - (3.4) - (3.4)
Total operating
expenses 341.8 - 341.8 - 341.8
Income from operations 81.9 - 81.9 - 81.9
% of sales 6.5% 6.5% 6.5%
Costs related to
refinancings 18.3 18.3 - - -
Interest expense 26.1 - 26.1 23.6 49.7
Income before taxes 37.5 (18.3) 55.8 (23.6) 32.2
Income tax expense 13.5 (6.6) 20.1 (8.4) 11.7
Net income (reported,
adjusted and pro forma) $24.0 $(11.7) $35.7 $(15.2) $20.5
Basic income
per share $0.36 $(0.18) $0.54 $(0.04) $0.32
Diluted income
per share $0.35 $(0.17) $0.52 $(0.03) $0.31
Common shares used in
basic income per
share calculation 66.6 66.6 66.6 63.0
Common shares and
potential common
shares used in
diluted income per
share calculation 68.4 68.4 68.4 65.0
Net income 24.0
Income tax expense 13.5
Interest expense 26.1
Restructuring and
other charges -
Costs related to
refinancing 18.3
Depreciation 26.4
Amortization,
including
marketing fees 7.7
Adjusted EBITDA $116.0
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
Website: http://www.scotts.com/Website: http://investor.scotts.com/ |
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