EXHIBIT 99.1
THE SCOTTS COMPANY NEWS
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THE SCOTTS COMPANY REPORTS THIRD QUARTER RESULTS FOR FISCAL 2004
ADJUSTED NET INCOME INCREASED 11 PERCENT, UP 10 PERCENT ON A REPORTED BASIS
- Adjusted Earnings Per Share of $3.06; Reported Earnings Per Share of
$3.01
- Net sales increased 8 percent excluding impact of foreign exchange rates;
9 percent on a reported basis
- Consumer purchases at largest retailers increased 7 percent
MARYSVILLE, Ohio (July 27, 2004) - The Scotts Company (NYSE: SMG), the world's
leading marketer of branded consumer lawn and garden products, announced that
strong sales in North America and Scotts LawnService led to net income growth of
11 percent on an adjusted basis in the third quarter, and a 10 percent increase
on a reported basis.
For the quarter ended June 26, 2004, Scotts reported record
company-wide sales of $773.7 million, up 9 percent from $710.0 million last
year. Excluding the impact of foreign exchange rates, sales were up 8 percent
over the prior year.
Adjusted net income in the quarter was $102.2 million, or $3.06 per
diluted share, compared with $92.3 million, or $2.85 per diluted share, for the
same period last year. Current period adjusted net income excludes restructuring
and other non-recurring charges of $1.9 million, net of tax. Including these
restructuring and non-recurring items, net income in the quarter was $100.3
million, or $3.01 per diluted share.
"We are extremely pleased with our record performance so far this year,
especially with our North American business where we continue to see strong
consumer demand for our brands," said Jim Hagedorn, chairman and chief executive
officer. "Our confidence in producing full-year adjusted net income growth of at
least 13-16 percent, or 17-20 percent without expensing stock options, speaks to
the fundamental strength of our overall business.
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We are consistently delivering double-digit earnings growth while generating
substantial free cash flow and making long-term investments in our business."
Third Quarter 2004 Results
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During the quarter, North American sales increased 7 percent to $587.0
million from $547.1 million as the Company continued to see solid performance
across all categories. Consumer purchases of Scotts' products at its largest
retail partners were up 7 percent for the quarter led by Ortho(R) and
Roundup(R). Ortho posted a 22 percent improvement in consumer purchases, driven
by response to innovative, new products such as Season-Long Grass & Weed
Killer(R) and Bug `B Gon Max(R) insect control. Additionally, consumer purchases
of value-added growing media increased 7 percent in the quarter and lawn
fertilizers increased 6 percent.
Scotts LawnService reported a 23 percent increase in sales to $50.0
million. Customer retention rates of over 80 percent in many key markets are
trending better than expected, and customer count has increased significantly.
"Scotts LawnService has seen tremendous across-the-board improvements
and remains poised as a long-term growth driver for Scotts," said Hagedorn.
"This business is successfully executing its strategic plan, which is evident in
its improved customer-focused performance metrics."
International sales were $136.7 million, up 12 percent from $122.4
million a year earlier, led by strong growth in the United Kingdom. Excluding
the impact of foreign exchange rates, sales in the quarter increased 4 percent.
"Sales in our International business saw a strong bounce back in the
third quarter after a weak start to the season, especially in the United
Kingdom. However, the overall International business continues to perform below
expectations," said Hagedorn. "As we stated previously, we are exploring all of
our options for the International business, with an eye toward improving
shareholder value."
Gross margin in the quarter improved 30 basis points to 39.8 percent
from 39.5 percent for the same period last year. The increase was due primarily
to improvements in both the Scotts LawnService and International businesses.
Operating expenses increased in the quarter to $156.5 million from
$136.3 million last year. The increase is attributed to planned increases in
SG&A, infrastructure investments in
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Scotts LawnService and the expensing of stock options. Stock option expensing
will have a full-year impact of about $10 million or 20 cents per share for
fiscal 2004.
Net Roundup commission increased 42 percent to $23.4 million in the
quarter, compared with $16.5 million a year earlier, with consumer purchases
increasing 24 percent.
Earnings before interest, taxes, depreciation and amortization
(EBITDA), were $189.9 million in the quarter, compared to $173.9 million a year
earlier. Excluding restructuring and other charges, adjusted EBITDA was $192.5
million, compared with $175.7 million the same period last year.
Interest expense in the quarter, excluding refinancing charges, was $13
million, a $6 million improvement from last year.
Nine Month Results
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Net sales through the first nine months were a record $1.69 billion, up
8 percent compared with $1.57 billion a year earlier. Excluding the impact of
foreign exchange rates, year-to-date sales increased 5 percent. In North
America, sales in the first nine months increased 6 percent to $1.25 billion,
versus $1.17 billion for last year's comparable period. Scotts LawnService sales
increased 26 percent to $84.8 from $67.3 million last year.
Year-to-date International sales were $356.7 million, up 9 percent
compared with $327.0 million for the same period in 2003. Excluding the impact
of foreign exchange rates, sales decreased 3 percent.
Gross margin for the first nine months improved 150 basis points to
38.3 percent as a result of margin improvements in each of the Company's three
business segments, especially in the North America business where margin
expansion was realized in every product category. Excluding restructuring, gross
margin improved 130 basis points and is expected to improve 110-120 basis points
for the full year.
Year-to-date operating expenses increased to $423.4 million from $368.0
million a year ago.
Net Roundup commission through the first nine months was $24.5 million,
compared with $13.5 million for the first nine months of 2003, and consumer
takeaway increased 18 percent.
EBITDA in the first nine months was $291.7 million compared to $259.0
million. Excluding restructuring and refinancing costs and other charges,
adjusted EBITDA was
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$295.7 million, compared with $270.2 million the same period last year. Net
income was $102.7 million, or $3.09 per diluted share, compared with net income
of $106.9 million, or $3.33 per share the same period last year. Excluding
restructuring and other charges, adjusted net income was $132.8 million, or
$4.00 per share, compared with $113.8 million, or $3.55 per diluted share, for
the same period last year. This year's results include a pre-tax charge of $44.6
million associated with refinancing the Company's debt.
For the first nine months, interest expense, excluding refinancing
charges, was $38 million compared with $53 million in the prior year. The
decrease is due to a more favorable interest rate environment, the Company's
successful October 2003 refinancing and lower debt levels.
"As a result of our significant cash generation, we pre-paid $100
million of our term debt in the quarter," Hagedorn said. "We are also
refinancing the remaining $400 million of our term loan facilities, the benefits
of which we will begin to see in the fourth quarter. We will continue to use
free cash flow to de-lever our balance sheet as well as pursue acquisitions to
support growth opportunities where appropriate."
The Company will discuss its third quarter results and provide a more
detailed explanation of its quarterly guidance during a webcast and conference
call at 10:00 a.m. eastern time today. That call will be available live on the
investor relations section of the Scotts 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.
DEDICATED TO A BEAUTIFUL WORLD
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THE SCOTTS COMPANY IS THE WORLD'S LARGEST MARKETER OF BRANDED CONSUMER PRODUCTS
FOR LAWN AND GARDEN CARE, WITH A FULL RANGE OF PRODUCTS FOR PROFESSIONAL
HORTICULTURE AS WELL. THE COMPANY OWNS THE INDUSTRY'S MOST RECOGNIZED BRANDS. 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. IN EUROPE, SCOTTS' BRANDS INCLUDE WEEDOL(R), PATHCLEAR(R),
EVERGREEN(R), LEVINGTON(R), MIRACLE-GRO(R), KB(R), FERTILIGENE(R) AND
SUBSTRAL(R).
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
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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 the Company's sales
and financial results;
- The Company's historical seasonality could impair the Company's ability
to pay obligations as they come due and operating expenses;
- The Company's substantial indebtedness could adversely affect the
Company's financial health;
- Public perceptions regarding the safety of the Company's products could
adversely affect the Company;
- The loss of one or more of the Company's top customers could adversely
affect the Company's financial results because of the concentration of
the Company's sales to a small number of retail customers;
- The expiration of certain patents could substantially increase the
Company's competition in the United States;
- Compliance with environmental and other public health regulations could
increase the Company's cost of doing business; and
- The Company's significant international operations make the Company 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
Director, Investor Relations & Corporate Communications
(937) 578-5622
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THE SCOTTS COMPANY
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED JUNE 26, 2004 AND JUNE 28, 2003
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes on Page 10
Three Months Ended Nine Months Ended
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June 26, June 28, % June 26, June 28, %
Footnotes 2004 2003 Change 2004 2003 Change
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Net sales $ 773.7 $ 710.0 9.0% $ 1,689.1 $ 1,567.0 7.8%
Cost of sales 465.6 428.6 8.6% 1,041.0 985.3 5.7%
Cost of sales - restructuring and other 0.2 0.6 -66.7% 0.9 5.7 -84.2%
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Gross profit 307.9 280.8 9.7% 647.2 576.0 12.4%
% of sales 39.8% 39.5% 0.6% 38.3% 36.8% 4.2%
Gross commission from marketing agreement 30.4 23.6 28.8% 45.7 34.8 31.3%
Contribution expenses under marketing agreement 6.2 6.3 -1.6% 18.7 18.8 -0.5%
Amortization of marketing fee 0.8 0.8 0.0% 2.5 2.5 0.0%
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Net commission from marketing agreement 23.4 16.5 41.8% 24.5 13.5 81.5%
Operating expenses:
Advertising 41.7 38.1 9.4% 89.8 81.7 9.9%
S,G&A - excluding lawn service business
and stock-based compensation 94.1 85.0 10.7% 279.3 243.8 14.6%
Stock-based compensation 3.7 1.6 131.3% 8.1 3.1 161.3%
S,G&A - lawn service business 14.8 11.8 25.4% 42.3 34.9 21.2%
S,G&A - restructuring and other 2.4 1.2 100.0% 3.1 5.5 -43.6%
Amortization of intangibles 2.3 2.2 4.5% 7.1 6.3 12.7%
Other (income) expense (2.5) (3.6) -30.6% (6.3) (7.3) -13.7%
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Total operating expenses 156.5 136.3 14.8% 423.4 368.0 15.1%
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Income from operations 174.8 161.0 8.6% 248.3 221.5 12.1%
% of sales 22.6% 22.7% -0.4% 14.7% 14.1% 4.0%
Interest expense - refinancing 0.3 - 44.6 -
Interest expense - recurring 12.7 18.2 -30.2% 38.1 53.4 -28.7%
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Income before taxes 161.8 142.8 13.3% 165.6 168.1 -1.5%
Income tax expense 61.5 51.6 19.2% 62.9 61.2 2.8%
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Net income $ 100.3 $ 91.2 10.0% $ 102.7 $ 106.9 -3.9%
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Basic earnings per share (1) $ 3.09 $ 2.93 5.2% $ 3.19 $ 3.48 -8.4%
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Diluted earnings per share (2) $ 3.01 $ 2.81 7.0% $ 3.09 $ 3.33 -7.1%
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Common shares used in basic earnings
per share calculation 32.5 31.1 4.5% 32.2 30.7 4.9%
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Common shares and potential common
shares used in diluted earnings per
share calculation 33.3 32.4 2.8% 33.2 32.1 3.4%
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EBITDA (3) $ 189.9 $ 173.9 9.2% $ 291.7 $ 259.0 12.6%
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Results of operations excluding restructuring
and refinancing charges:
Adjusted net income $ 102.2 $ 92.3 $ 132.8 $ 113.8
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Adjusted diluted earnings per share (2) $ 3.06 $ 2.85 $ 4.00 $ 3.55
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Adjusted EBITDA (3) $ 192.5 $ 175.7 $ 295.7 $ 270.2
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THE SCOTTS COMPANY
NET SALES BY SEGMENT - THREE AND NINE MONTHS
ENDED JUNE 26, 2004 AND JUNE 28, 2003
(in millions)
(unaudited)
Three Months Ended % Change
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June 26, June 28,
2004 2003 Actual
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North America $ 587.0 $ 547.1 7.3%
Scotts LawnService 50.0 40.5 23.5%
International 136.7 122.4 11.7%
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Consolidated $ 773.7 $ 710.0 9.0%
==================== ===================
Nine Months Ended % Change
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June 26, June 28,
2003 2002 Actual
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North America $ 1,247.6 $ 1,172.7 6.4%
Scotts LawnService 84.8 67.3 26.0%
International 356.7 327.0 9.1%
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Consolidated $ 1,689.1 $ 1,567.0 7.8%
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THE SCOTTS COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 26, 2004, JUNE 28, 2003 AND SEPTEMBER 30, 2003
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARES & SHARE PRICES)
June 26, June 28, September 30,
2004 2003 2003
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ASSETS
Current assets
Cash and cash equivalents $ 39.1 $ 56.6 $ 155.9
Accounts receivable, net 548.8 521.1 290.5
Inventories, net 335.5 323.3 276.1
Current deferred tax asset 60.6 77.7 56.9
Prepaid and other current assets 52.2 40.3 33.2
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Total current assets 1,036.2 1,019.0 812.6
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Property, plant and equipment, net 323.0 341.4 338.2
Goodwill and other intangible assets, net 851.4 819.2 835.5
Other assets 39.6 45.4 44.0
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Total assets $ 2,250.2 $ 2,225.0 $ 2,030.3
================= ===================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt $ 25.3 $ 60.7 $ 55.4
Accounts payable 238.0 225.0 149.0
Other current liabilities 354.1 336.1 243.8
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Total current liabilities 617.4 621.8 448.2
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Long-term debt 612.0 754.9 702.2
Other liabilities 164.1 131.0 151.7
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Total liabilities 1,393.5 1,507.7 1,302.1
Shareholders' equity 856.7 717.3 728.2
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Total liabilities and equity $ 2,250.2 $ 2,225.0 $ 2,030.3
================= ===================== ===================
KEY STATISTICS:
Debt to book capitalization 50.6% 58.6% 56.4%
Market capitalization:
Common shares outstanding and
dilutive common share equivalents 33.2 32.1 32.1
Share price on balance sheet date $ 61.95 $ 49.35 $ 54.70
----------------- --------------------- -------------------
Market capitalization $ 2,056.7 $ 1,584.1 $ 1,757.6
================= ===================== ===================
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THE SCOTTS COMPANY
RECONCILIATION OF NON-GAAP DISCLOSURE ITEMS FOR THE THREE
AND NINE MONTHS ENDED JUNE 26, 2004 AND JUNE 28, 2003
(in millions, except per share data)
Three Months Ended Nine Months Ended
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June 26, June 28, June 26, June 28,
2004 2003 2004 2003
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Net income $ 100.3 $ 91.2 $ 102.7 $ 106.9
Restructuring and other charges, net of tax 1.7 1.1 2.5 6.9
Debt refinancing charges, net of tax 0.2 - 27.7 -
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Adjusted net income $ 102.2 $ 92.3 $ 132.8 $ 113.8
=============================================================================
Income from operations $ 174.8 $ 161.0 $ 248.3 $ 221.5
Depreciation per cash flow 12.0 9.9 33.8 28.7
Amortization, including marketing fee 3.1 3.0 9.6 8.8
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EBITDA $ 189.9 $ 173.9 $ 291.7 $ 259.0
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Restructuring and other charges, gross 2.6 1.8 4.0 11.2
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Adjusted EBITDA $ 192.5 $ 175.7 $ 295.7 $ 270.2
=============================================================================
Diluted earnings per share $ 3.01 $ 2.81 $ 3.09 $ 3.33
Restructuring and other charges, net of tax 0.05 0.03 0.07 0.22
Debt refinancing charges, net of tax - - 0.83 -
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Adjusted diluted earnings per share $ 3.06 $ 2.85 $ 4.00 $ 3.55
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THE SCOTTS COMPANY
FOOTNOTES TO PRECEDING FINANCIAL STATEMENTS
(in millions, except per share data)
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RESULTS OF OPERATIONS
(1) Basic earnings per common share is calculated by dividing income
applicable to common shareholders by average common shares
outstanding during the period.
(2) Diluted earnings per common share is calculated by dividing net
income by the average common shares and dilutive potential common
shares (common stock warrants and options) outstanding during the
period.
(3) "EBITDA" is defined as income from operations, plus depreciation and
amortization. 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.
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