The Scotts Miracle-Gro Company | NEWS |
ScottsMiracle-Gro Announces Second Quarter Financial Results
Adjusted diluted EPS of $1.19; reported diluted EPS of $0.88
Company adjusts full-year earnings outlook
MARYSVILLE, Ohio (May 5, 2008) - 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, 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®, Miracle-Gro® and Ortho® brands are market-leading in their categories, as is the consumer Roundup® 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®, Pathclear®, Evergreen®, Levington®, Miracle-Gro®, KB®, Fertiligene® and Substral®. 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.
Contact:
Jim King
Vice President
Investor Relations & Corporate Affairs
(937) 578-5622
