The Scotts Miracle-Gro Company News
ScottsMiracle-Gro Announces Second Quarter Financial Results
"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
"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
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
Net income for the quarter was
During the second quarter of 2007, the Company recapitalized, increasing its long-term borrowings by more than
FIRST HALF DETAILS
Net sales through the first six months were
Excluding costs related to the product recalls - as well as refinancing costs in 2007 - adjusted net income for the first six months was
FULL-YEAR OUTLOOK
The Company revised its full-year outlook and now expects adjusted earnings to range from
— 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
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
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
SOURCE The Scotts Miracle-Gro Company
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