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ScottsMiracle-Gro Announces Second Quarter Results Driven by Strong Growth in Both Major Reporting Segments


Sales guidance increased for Hawthorne; 2020 adjusted EPS guidance re-affirmed

Hawthorne sales rise 60% driven by continued demand for indoor growing products


May 6, 2020

https://scottsmiraclegro.gcs-web.com/news-releases/news-release-details/scottsmiracle-gro-announces-second-quarter-results-driven-strong


U.S. Consumer sales increase 11% with strong growth in consumer purchases
GAAP EPS: $4.43 versus $7.10; Non-GAAP adjusted EPS of $4.50 versus $3.64


MARYSVILLE, Ohio, May 06, 2020 (GLOBE NEWSWIRE) -- The Scotts Miracle-Gro Company (NYSE: SMG), the world’s leading marketer of branded consumer lawn and garden as well as indoor and hydroponic growing products, today announced company-wide sales increased 16 percent in its fiscal second quarter driven by strong volume growth in both major business segments.

For the quarter ended March 28, 2020, GAAP earnings from continuing operations were $4.43 per share compared with $7.10 per share in the prior year. Prior year GAAP results were driven by the divestiture of the Company’s minority interest in TruGreen. Non-GAAP adjusted earnings – which are the basis of the Company’s financial guidance – were $4.50 per share compared with $3.64 a year ago.

On a year-to-date basis through May 3, 2020, consumer purchases of the Company’s core lawn and garden products at its largest four retailers in the U.S. increased 8 percent from the same period a year ago driven primarily by strong growth in gardening and insect control products. Entering April, year-to-date POS at those retailers was up 14 percent driven by an increase of more than 20 percent during the second quarter.

“Consumers and retailers have remained engaged in the lawn and garden category and supportive of our brands despite the challenges of the COVID-19 crisis,” said Jim Hagedorn, chairman and chief executive officer. “During April, in the face of difficult year-over-year comparisons and shelter-in-place orders in much of the United States, consumer purchases remained strong. In fact, for the week ending May 3, we recorded our strongest seven-day period in company history with consumer purchases of more than $190 million at our largest four retail partners. All of this allows us to remain confident in our full-year growth outlook for the U.S. Consumer segment.

“At Hawthorne, we continue to see gains in all product categories and we continue to significantly outperform the competition. Even in the face of extremely difficult comparisons over the past two months, we are continuing to see strong year-over-year increases, giving us confidence that sales for the segment will increase approximately 30 to 35 percent for the full year, compared to our original sales guidance of 12 to 15 percent growth.”

Second quarter details

For the fiscal second quarter, the Company reported sales of $1.38 billion, up 16 percent from $1.19 billion a year earlier. U.S. Consumer segment sales increased 11 percent to $1.10 billion. Sales for the Hawthorne segment increased 60 percent to $230.0 million.

The company-wide gross margin rate was 39.8 percent on a GAAP basis and 40.0 percent on a non-GAAP adjusted basis compared with a rate of 39.7 percent and 39.8 percent respectively a year ago. The quarter benefited from the timing of $20 million of higher Roundup commission, related to the Company’s role as marketing agent and consistent with changes in the revised agency agreement signed with Bayer in 2019. Separately, in the third quarter of 2019, the Company received a $20 million reimbursement from Bayer. Therefore, the full year Roundup income and its impact on the gross margin rate are expected to be consistent across both years.

The impact of the commission increase, as well as benefits from pricing and volume, were offset by negative product mix driven primarily by the strong growth of Hawthorne, which has lower overall margins. Selling, general and administrative expenses (SG&A) increased 9 percent to $195.6 million due to higher selling and marketing expenses and higher accruals related to variable compensation.

Other non-operating income was $2.8 million compared with $260.1 million a year earlier that was due primarily to a pre-tax gain of $259.8 million related to the Company’s divestiture of its minority ownership of TruGreen.

On a company-wide basis, GAAP income from continuing operations was $249.8 million, or $4.43 per diluted share, compared with $396.9 million, or $7.10 per share, for the second quarter of fiscal 2019. These results include impairment, restructuring, and other items. Excluding these items, non-GAAP adjusted earnings was $253.8 million, or $4.50 per diluted share, compared with $203.2 million, or $3.64 per share, last year. The higher Roundup commission contributed approximately $0.25 per share during the quarter.

“During the quarter, we also recognized approximately $4 million in expenses related to COVID-19 that we have excluded from our adjusted earnings calculation,” said Randy Coleman, chief financial officer. “These costs include premium pay adjustments that were given to our front-line associates who work in the sales force, as well as our manufacturing and distribution facilities. While the management team has been working remotely throughout the crisis, these associates – roughly 70 percent of our workforce – continued to work in stores and facilities across the globe. We believe the pay adjustments they are receiving appropriately recognize the sacrifice they are making during this critical period. On a full-year basis, we expect to record $30 to $35 million of one-time costs that we will exclude from adjusted earnings as they are not expected to repeat in future years.”

Year-to-date details

For the first six months of fiscal 2020, the Company reported sales of $1.75 billion, up 18 percent from $1.49 billion a year earlier. U.S. Consumer segment sales increased 11 percent to $1.25 billion. Sales for the Hawthorne segment increased 51 percent to $428.8 million.

The company-wide gross margin rate was 34.6 percent on a GAAP basis and 34.8 percent on a non-GAAP adjusted basis compared with a rate of 34.1 percent and 34.3 percent respectively a year ago. Selling, general and administrative expense (SG&A) increased 7 percent to $315.4 million.

Other non-operating income was $5.4 million compared with $262.9 million a year earlier.

On a company-wide basis, GAAP income from continuing operations was $178.5 million, or $3.15 per share, compared with $314.3 million, or $5.62 per share, for the first six months of fiscal 2019. Excluding impairment, restructuring, and other items, non-GAAP adjusted earnings was $191.4 million, or $3.38 per share, compared with $126.2 million, or $2.26 per share, last year.

Full-year outlook

The Company now expects for Hawthorne sales to increase 30 to 35 percent for fiscal 2020 and it re-affirmed a sales outlook for the U.S. Consumer segment of 1 to 3 percent growth. As a result, the Company now expects company-wide sales growth in a range of 6 to 8 percent for the full year. All other aspects of its fiscal 2020 guidance were re-affirmed although management acknowledged the strong start in both the U.S. Consumer and Hawthorne segments increases the possibility that full-year adjusted earnings could exceed its original forecast.

“We have a high degree of confidence in our guidance for non-GAAP adjusted earnings in a range of $4.95 to $5.15 per share,” Coleman said. “While year-over-year comparisons for our U.S. Consumer segment are relatively modest for the balance of the year, more than half of consumer purchases occur between now and our fiscal year-end. There are simply too many unknown factors regarding consumer and retailer engagement right now to justify changing our bottom-line outlook. We currently anticipate providing the financial community with an updated outlook on fiscal 2020 in early June, consistent with how we’ve operated in the past.”

Conference Call and Webcast Scheduled for 9 a.m. EDT Today, May 6
The Company will discuss results during a webcast and conference call today at 9:00 a.m. EDT. To participate in the conference call, please call 1-800-263-0877 (Conference Code: 7872492). A replay of the call can be heard by calling 1-888-203-1112. The replay will be available for 30 days. A live webcast of the call and the press release will be available on the Company’s investor relations website at http://investor.scotts.com. An archive of the press release and any accompanying information will remain available for at least a 12-month period.

About ScottsMiracle-Gro
With approximately $3.2 billion in sales, the Company is one of the world's largest marketers of branded consumer products for lawn and garden care. The Company's brands are among the most recognized in the industry. The Company's Scotts®, Miracle-Gro® and Ortho® brands are market-leading in their categories. The Company’s wholly-owned subsidiary, The Hawthorne Gardening Company, is a leading provider of nutrients, lighting and other materials used in the indoor and hydroponic growing segment. For additional information, visit us at www.scottsmiraclegro.com.

Cautionary Note Regarding Forward-Looking Statements
Statements contained in this press release, other than statements of historical fact, which address activities, events and developments that the Company expects or anticipates will or may occur in the future, 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 statements” within the meaning of the U.S. federal securities laws that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Actual results could differ materially from the forward-looking information in this release due to a variety of factors, including, but not limited to:

The ongoing COVID-19 pandemic could have a material adverse effect on the Company’s business, results of operation, financial condition and/or cash flows;
Compliance with environmental and other public health regulations or changes in such regulations or regulatory enforcement priorities could increase the Company’s costs of doing business or limit the Company’s ability to market all of its products;
Damage to the Company’s reputation or the reputation of its products or products it markets on behalf of third parties could have an adverse effect on its business;
The highly competitive nature of the Company’s markets could adversely affect its ability to maintain or grow revenues;
If the Company is unable to effectively execute its e-commerce business, its reputation and operating results may be harmed;
Because of the concentration of the Company’s sales to a small number of retail customers, the loss of one or more of, or significant reduction in orders from, its top customers could adversely affect the Company’s financial results;
Climate change and unfavorable weather conditions could adversely impact financial results;
Certain of the Company’s products may be purchased for use in new or emerging industries or segments and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions;
The Company’s operations may be impaired if its information technology systems fail to perform adequately or if it is the subject of a data breach or cyber-attack;
The Company may not be able to adequately protect its intellectual property and other proprietary rights that are material to the Company’s business;
In the event the Third Restated Marketing Agreement for consumer Roundup products terminates, or Monsanto’s consumer Roundup business materially declines the Company would lose a substantial source of future earnings and overhead expense absorption;
Hagedorn Partnership, L.P. beneficially owns approximately 26% of the Company’s common shares and can significantly influence decisions that require the approval of shareholders;
Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution and other harmful consequences that may adversely impact the Company’s business and results of operations.

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