MARYSVILLE, Ohio, Oct. 31 /PRNewswire-FirstCall/ --
- Company-wide sales increase 4% for the year, 7% in the quarter
- Global Consumer sales increase 2% for the year; up 8% in the quarter
- Global Professional sales increase 24% for the year; 20% in the quarter
- Strong working capital management leads to free cash flow of $141
million
- Company outlines preliminary outlook for fiscal 2009
The Scotts Miracle-Gro Company (NYSE: SMG), the world's leading marketer
of branded consumer lawn and garden products, today announced that
company-wide sales in fiscal 2008 increased 4 percent to a record $2.98
billion.
Adjusted net income for fiscal 2008 -- which excludes one-time charges
primarily related to product recalls, registration issues and impairment --
was $134.1 million, or $2.05 per share, which was in line with the guidance
the Company provided in May. On a reported basis, the Company had a net loss
for the year of $10.9 million, or $0.17 per share, compared with net income of
$113.4 million, or $1.69 per diluted share, in fiscal 2007.
The full-year results were bolstered by a strong fourth quarter, during
which company-wide sales increased 7 percent, including 8 percent growth in
the Global Consumer segment.
"We're satisfied with the full-year results we are reporting and
encouraged by the positive sales momentum in the fourth quarter," said Jim
Hagedorn, chairman and chief executive officer. "Consumer purchases of our
products in the U.S. increased 4 percent in the fourth quarter due to
double-digit growth throughout the Midwest and solid results in the Northeast
and Mid-Atlantic. We continued to see particularly strong growth in our
gardening business, especially in value-added growing media products.
"While our lawn fertilizer business declined on a full-year basis, we were
encouraged that our largest and most important product, Scotts Turf Builder
Plus 2, finished 2008 with 20 consecutive weeks of growth compared to last
season. We also saw consistent growth throughout the year in our flagship
Scotts Turf Builder fertilizer product."
The Company established earnings guidance of $2.00 per share on an
adjusted basis for fiscal 2009 based on the assumption of nominal sales
growth.
"While the economic climate is challenging, we are cautiously optimistic
that we can meet our guidance of $2 per share and, perhaps, perform even
better depending on the level of consumer engagement next spring," Hagedorn
said. "In addition to an improving commodity outlook, we believe have strong
consumer programs in place for next season and that our retail partners remain
supportive of the category."
FOURTH QUARTER RESULTS
For the quarter, company-wide sales increased 7 percent to $544.2 million.
The Global Consumer segment reported 8 percent growth to $328.9 million, due
largely to a 4 percent improvement in consumer purchases in the U.S. Consumer
purchases were especially strong in the Midwest, up 14 percent, and increased
5 percent in both the Northeast and Mid-Atlantic regions as well.
Global Professional sales improved 20 percent to $88.2 million due to
higher demand of the Company's proprietary time-released fertilizer product
and increased pricing to offset commodity costs. Scotts LawnService reported a
4 percent sales increase in the quarter to $89.7 million. Smith & Hawken sales
decreased 17 percent to $37.6 million.
Gross margins, excluding the impact of product recalls, declined to 26.0
percent. The decline was due almost entirely to higher commodity costs,
particularly related to higher urea and diesel prices. The Company also
recorded a non-cash impairment charge of $13.5 million, principally related to
a revised value for Smith & Hawken. The amount of these charges remains
estimated until the evaluation is complete and the Company files its Form 10-K
in late November.
Adjusted earnings before interest, taxes, depreciation and amortization
(EBITDA) was a loss of 9.3 million, compared with a gain of $22.2 million a
year earlier. Excluding product recalls and registration issues, as well as
impairment charges, the Company reported a net loss in the quarter of $17.5
million, or $0.27 per share, compared with a loss of $6.7 million, or $0.10
per share. On a reported basis, the Company recorded a loss in the quarter of
$34.7 million, or $0.54 per share, compared with a loss of $40.3 million, or
$0.63 per share, in 2007.
FULL YEAR RESULTS
On a company-wide basis, sales improved 4 percent to a record $2.98
billion. Sales for the Global Consumer business improved 2 percent for the
year to $2.22 billion. This increase is in line with consumer purchases at
retail in the U.S., which also improved 2 percent for the full year.
Approximately 80 percent of Global Consumer sales are generated in the United
States. Excluding the impact of foreign exchange rates, segment sales
increased 1 percent.
Global Professional sales increased 24 percent to $348.8 million.
Excluding the impact of foreign exchange rates, the segment improved 17
percent. Scotts LawnService, which is the Company's most economically
sensitive segment, reported 7 percent growth to $247.4 million. Smith & Hawken
sales decreased 14 percent to $158.6 million.
Gross margin rate, excluding the impact of product recalls, declined 190
basis points to 33.1 percent. Selling, general and administrative expenses
(SG&A) increased 2 percent for the year to $717.6 million. The modest increase
includes increased investments in both selling as well as research and
development.
Adjusted EBITDA was $318.4 million compared with $382.6 million in 2007.
Adjusted net income for the full year, was $134.1 million, or $2.05 per share,
compared with $158.8 million, or $2.37 per share a year earlier. Net loss on a
reported basis was $10.9 million, or $0.17 per share, compared with net income
of $113.4 million, or $1.69 per diluted share in 2007. The adjusted results
for 2008 exclude approximately $51 million related to costs associated with
product recalls and registration issues. It also excludes non-cash impairment
charges of $136.8 million. The adjusted results for 2007 exclude both the
one-time costs of $18.3 million related to refinancing and impairment charges
of $38.0 million.
Inventories increased just $10 million to $416 million despite lower than
expected sales and sharply higher commodity prices. Overall, strong working
capital management allowed ScottsMiracle-Gro to report free cash flow of $141
million for the year, slightly higher than the Company had projected.
"In a challenging environment we were able to deliver a solid result and I
am particularly pleased with our focus on working capital and free cash flow,"
said Dave Evans, chief financial officer. "Both of these metrics will remain a
key focus in 2009."
The Company will discuss its fourth quarter and full-year results during a
Webcast and conference call at 8:30 a.m. Eastern Time today. This 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 $3.0 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
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;
-- An inability to remain in compliance with current debt covenants could
impact our projected interest expense or ability to obtain additional credit
without significant costs and therefore 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 previously 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 Twelve Months
Ended September 30, 2008 and September 30, 2007
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes
Three Months Ended Twelve Months Ended
Sept. 30, Sept. 30, % Sept. 30, Sept. 30, %
Footnotes 2008 2007 Change 2008 2007 Change
Net sales $544.2 $508.9 7% $2,981.8 $2,871.8 4%
Cost of sales 403.0 350.8 1,999.9 1,867.3
Cost of sales
- product
registrations/
recalls 4.4 - 27.2 -
Gross profit 136.8 158.1 -13% 954.7 1,004.5 -5%
% of sales 25.1% 31.1% 32.0% 35.0%
Operating
expenses:
Selling, general
and administrative 158.0 156.5 1% 717.6 700.9 2%
Impairment and
product
registrations/
recalls 19.4 38.0 149.5 38.0
Other income, net (0.8) (4.5) (10.4) (11.5)
Total operating
expenses 176.6 190.0 -7% 856.7 727.4 18%
Income (loss)
from operations (39.8) (31.9) -25% 98.0 277.1 -65%
% of sales -7.3% -6.3% 3.3% 9.6%
Costs related to
refinancings - - - 18.3
Interest expense 17.6 18.4 82.2 70.7
Income (loss)
before taxes (57.4) (50.3) -14% 15.8 188.1 -92%
Income tax
expense (benefit) (22.7) (10.0) 26.7 74.7
Net income (loss) (34.7) (40.3) 14% (10.9) 113.4
Basic income
(loss) per
share (1) $(0.54) $(0.63) 14% $(0.17) $1.74
Diluted income
(loss) per
share (2) $(0.54) $(0.63) 14% $(0.17) $1.69
Common shares
used in basic
income (loss)
per share
calculation 64.7 63.9 1% 64.5 65.2 -1%
Common shares
and potential
common shares
used in diluted
income (loss) per
share calculation 64.7 63.9 1% 65.4 67.0 -2%
Results of operations
excluding restructuring,
refinancing charges,
loss on impairment and
other charges:
Adjusted net
income (loss) (4) $(17.5) $(6.7) $134.1 $158.8 -16%
Adjusted diluted
income (loss)
per share (2)(4) $(0.27) $(0.10) $2.05 $2.37 -13%
Adjusted EBITDA (3)(4) $(9.3) $22.2 $318.4 $382.6 -17%
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) $134.1 $143.5 -7%
Pro forma adjusted
diluted income
per share (4)(5) $2.05 $2.19 -6%
THE SCOTTS MIRACLE-GRO COMPANY
Net Sales by Segment - Three and Twelve Months
Ended September 30, 2008 and September 30, 2007
(in millions)
(unaudited)
Three Months Ended
September 30, September 30,
2008 2007 % Change
Global Consumer $328.9 $303.9 8%
Global Professional 88.2 73.4 20%
Scotts LawnService(R) 89.7 86.4 4%
Corporate & Other 37.4 45.2 -17%
Consolidated $544.2 $508.9 7%
Twelve Months Ended
September 30, September 30,
2008 2007 % Change
Global Consumer $2,227.8 $2,176.2 2%
Global Professional 348.8 281.9 24%
Scotts LawnService(R) 247.4 230.5 7%
Corporate & Other 157.8 183.2 -14%
Consolidated $2,981.8 $2,871.8 4%
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Balance Sheets
September 30, 2008 and 2007
(Unaudited)
(in millions)
September 30, September 30,
2008 2007
ASSETS
Current assets
Cash and cash equivalents $84.7 $67.9
Accounts receivable, net 406.4 397.8
Inventories, net 415.9 405.9
Prepaids and other current assets 148.2 127.7
Total current assets 1,055.2 999.3
Property, plant and equipment, net 344.1 365.9
Goodwill, net 377.7 462.9
Other intangible assets, net 367.2 418.8
Other assets 22.4 30.3
Total assets $ 2,166.6 $2,277.2
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt $150.0 $86.4
Accounts payable 207.6 202.5
Other current liabilities 320.5 297.7
Total current liabilities 678.1 586.6
Long-term debt 849.5 1,031.4
Other liabilities 202.3 179.9
Total liabilities 1,729.9 1,797.9
Shareholders' equity 436.7 479.3
Total liabilities and
shareholders' equity $ 2,166.6 $2,277.2
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Three
Months Ended September 30, 2008 and September 30, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes
Three Months Ended Three Months Ended
September 30, 2008 September 30, 2007
Product
Regi-
As stration/ Impair- As Impair-
Reported Recalls ment Adjusted Reported ment Adjusted
Net sales $544.2 $1.9 $ - $542.3 $508.9 $- $508.9
Cost of sales 403.0 1.7 - 401.3 350.8 - 350.8
Cost of sales
- product
registrations/
recalls 4.4 4.4 - - - - -
Gross profit 136.8 (4.2) - 141.0 158.1 - 158.1
% of sales 25.1% 26.0% 31.1% 31.1%
Operating
expenses:
Selling, general
and admini-
strative 158.0 - - 158.0 156.5 - 156.5
Impairment
and product
registrations/
recalls 19.4 5.9 13.5 - 38.0 38.0 -
- -
Other income,
net (0.8) - - (0.8) (4.5) - (4.5)
Total operating
expenses 176.6 5.9 13.5 157.2 190.0 38.0 152.0
- 152.0
Income (loss)
from
operations (39.8) (10.1) (13.5) (16.2) (31.9) (38.0) 6.1
% of sales -7.3% -3.0% -6.3% 1.2%
Costs related to
refinancings - - - - - - -
Interest
expense 17.6 - - 17.6 18.4 - 18.4
Loss before
taxes (57.4) (10.1) (13.5) (33.8) (50.3) (38.0) (12.3)
Income tax
benefit (22.7) (17.9) 11.5 (16.3) (10.0) (4.4) (5.6)
Net loss $(34.7) $7.8 $(25.0) $(17.5) $(40.3) $(33.6) $(6.7)
Basic loss
per share $(0.54) $0.12 $(0.39) $(0.27) $(0.63) $(0.53) $(0.10)
Diluted loss
per share $(0.54) $0.12 $(0.39) $(0.27) $(0.63) $(0.53) $(0.10)
Common shares
used in basic
loss per share
calculation 64.7 64.7 64.7 64.7 63.9 63.9 63.9
Common shares
and potential
common shares
used in diluted
loss per share
calculation 64.7 64.7 64.7 64.7 63.9 63.9 63.9
Net loss $(34.7) $(40.3)
Income tax
expense (22.7) (10.0)
Interest
expense 17.6 18.4
Depreciation 13.8 12.1
Amortization,
including
marketing
fees 3.6 4.0
Impairment of
assets 13.5 38.0
Product
registrations/
recalls,
non-cash
portion (0.4) -
Adjusted
EBITDA $(9.3) $22.2
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Twelve
Months Ended September 30, 2008 and September 30, 2007
Note: See Notes 3, 4 and 5 to the Accompanying Footnotes
Twelve Months Ended September 30, 2008
Product
Registr-
As ations/ Impair-
Reported Recalls ment Adjusted
Net sales $2,981.8 $(22.3) $- $3,004.1
Cost of sales 1,999.9 (11.1) - 2,011.0
Cost of sales - product
registrations/recalls 27.2 27.2 - -
Gross profit 954.7 (38.4) - 993.1
% of sales 32.0% 33.1%
Operating expenses:
Selling, general and administrative 717.6 - - 717.6
Impairment and product
registrations/recalls 149.5 12.7 136.8 -
Other income, net (10.4) - - (10.4)
Total operating expenses 856.7 12.7 136.8 707.2
Income from operations 98.0 (51.1) (136.8) 285.9
% of sales 3.3% 9.5%
Costs related to refinancings - - - -
Interest expense 82.2 - - 82.2
Income before taxes 15.8 (51.1) (136.8) 203.7
Income tax expense 26.7 (17.9) (25.0) 69.6
Net income (loss) $(10.9) $(33.2) $(111.8) $134.1
Basic income (loss) per share $(0.17) $(0.51) $(1.73) $2.08
Diluted income (loss) per share $(0.17) $(0.51) $(1.71) $2.05
Common shares used in basic income
(loss) per share calculation 64.5 64.5 64.5 64.5
Common shares and potential common
shares used in diluted income
(loss) per share calculation 65.4 65.4 65.4 65.4
Net income (loss) $(10.9)
Income tax expense 26.7
Interest expense 82.2
Costs related to refinancing -
Depreciation 53.9
Amortization, including marketing
fees 16.4
Impairment of assets 136.8
Product registrations/recalls,
non-cash portion 13.3
Adjusted EBITDA $318.4
Net income (loss) $(10.9)
Depreciation 53.9
Amortization, including marketing
fees 16.4
Impairment of assets 136.8
Stock-based compensation 12.5
Costs related to refinancing -
Changes in working capital and
other (7.8)
Investment in property, plant and
equipment (56.1)
Investment in intellectual
property (4.1)
Free cash flow $140.7
Twelve Months Ended September 30, 2007
Costs Pro
related Forma
As to re- Impair- Adjust- Pro Forma
Reported financings ment Adjusted ments Adjusted
Net sales $2,871.8 $- $- $2,871.8 $- $2,871.8
Cost of sales 1,867.3 - - $1,867.3 - 1,867.3
Cost of sales -
product
registrations/
recalls - - - - - -
Gross profit 1,004.5 - - 1,004.5 - 1,004.5
% of sales 35.0% 35.0% 35.0%
Operating expenses:
Selling, general and
administrative 700.9 - - 700.9 - 700.9
Impairment and
product
registrations/
recalls 38.0 - 38.0 - - -
Other income, net (11.5) - - (11.5) - (11.5)
Total operating
expenses 727.4 - 38.0 689.4 - 689.4
Income from
operations 277.1 - (38.0) 315.1 - 315.1
% of sales 9.6% 11.0% 11.0%
Costs related to
refinancings 18.3 18.3 - - - -
Interest expense 70.7 - - 70.7 23.6 94.3
Income before taxes 188.1 (18.3) (38.0) 244.4 (23.6) 220.8
Income tax expense 74.7 (6.5) (4.4) 85.6 (8.3) 77.3
Net income (loss) $113.4 $(11.8) $(33.6) $158.8 $(15.3) $143.5
Basic income (loss)
per share $1.74 $(0.18) $(0.52) $2.44 $(0.18) $2.26
Diluted income
(loss) per share $1.69 $(0.18) $(0.50) $2.37 $(0.18) $2.19
Common shares used
in basic income
(loss) per share
calculation 65.2 65.2 65.2 65.2 63.4
Common shares and
potential common
shares used in
diluted income (loss)
per share calculation 67.0 67.0 67.0 67.0 65.4
Net income (loss) $113.4
Income tax expense 74.7
Interest expense 70.7
Costs related to
refinancing 18.3
Depreciation 51.4
Amortization,
including
marketing fees 16.1
Impairment of assets 38.0
Product
registrations/
recalls, non-cash
portion -
Adjusted EBITDA $382.6
Net income (loss) $113.4
Depreciation 51.4
Amortization,
including
marketing fees 16.1
Impairment of
assets 38.0
Stock-based
compensation 13.3
Costs related to
refinancing 18.3
Changes in
working capital
and other (3.9)
Investment in
property, plant
and equipment (54.0)
Investment in
intellectual
property -
Free cash flow $192.6
THE SCOTTS MIRACLE-GRO COMPANY
Footnotes to Preceding Financial Statements
(in millions, except per share data)
Results of Operations
(1) Basic income (loss) per common share is calculated by dividing net
income (loss) by average common shares outstanding during the period.
(2) Diluted income (loss) per share is calculated by dividing net income
(loss) by the average common shares and dilutive potential common shares
(common stock options, stock appreciation rights, and restricted stock)
outstanding during the period. If there is a loss for any period, diluted
shares are equal to basic shares as dilutive potential common shares are
anti-dilutive.
(3) "Adjusted EBITDA" is defined as net income (loss) 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 (loss). 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
(loss) 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, product registration and recall matters, and other unusual
items such as 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 of
fiscal 2007.
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
