The Scotts Miracle-Gro Company (NYSE:SMG), the world’s
leading marketer of branded consumer lawn and garden as well as
hydroponic growing products, today announced company-wide sales
increased 17 percent in its fiscal second quarter driven by the
acquisition of Sunlight Supply and volume growth in both major
business segments.
For the quarter ended March 30, 2019, GAAP earnings from
continuing operations were $7.10 per share compared with
$2.66 per share in the prior year. Within the quarter is a
benefit of $259.8 million from the company’s divestiture of its
minority stake in TruGreen. Non-GAAP adjusted earnings – which are
the basis of the company’s financial guidance – were $3.64 per
share compared with $2.88 a year ago.
On a fiscal year-to-date basis entering May, the Company said
consumer purchases of its core lawn and garden products at its
largest retailers in the U.S. increased by 13 percent.
“Consumers came flying out of the gate compared with last year
to get a head start on the lawn and garden season,” said Jim
Hagedorn, chairman and chief executive officer. “We’ve seen strong
consumer engagement in every region, in every channel of retail and
in nearly every product category in which we compete. Innovation
has helped drive double-digit increases in lawn food, grass seed
and growing media products, while retailer support led to over a 30
percent increase in consumer purchases of mulch. In addition,
consumer purchases of non-selective weed control also are well
ahead of last year, including a more than 20 percent increase in
Roundup purchases.”
“In Hawthorne, shipments increased double digits on a
comparative basis in every month of the quarter, and again in
April. We’re seeing consistent growth in both durable and
consumable products and solid performance in both new and
established markets.”
“Our strong start in both businesses gives us increased
confidence in our full-year guidance and increases the probability
that sales growth for the full year could exceed our original
guidance range of 10 to 11 percent.”
Second quarter details For the fiscal second
quarter, the Company reported sales of $1.19 billion, up 17
percent from $1.01 billion a year earlier. U.S. Consumer
segment sales increased 8 percent to $993.5 million. Sales for
the Hawthorne segment increased 245 percent
to $144.1 million. On a comparative basis as if Sunlight was
owned in 2018, sales increased 21%.
The company-wide gross margin rate was 39.7 percent on a GAAP
basis and 39.8 percent on a non-GAAP adjusted basis. Both compare
with a rate of 40.4 percent a year ago. The decline was mainly
attributed to the impact of the Sunlight acquisition and
unfavorable product mix, partially offset by higher pricing.
Selling, general and administrative expenses (SG&A) increased 8
percent to $179.7 million due to acquisitions and higher media
spending.
Other non-operating income was $260.1 million compared
to a loss of $9.2 million a year earlier. The difference
is due primarily to a pre-tax gain of $259.8 million related to the
company’s divestiture of its minority ownership of TruGreen. The
Company used the net proceeds from that transaction to reduce
debt.
On a company-wide basis, GAAP income from continuing operations
was $396.9 million, or $7.10 per share, compared with $152.7
million, or $2.66 per share, for the second quarter of
fiscal 2018. These results include impairment, restructuring, and
other items including the impact of the TruGreen transaction.
Excluding these items, non-GAAP adjusted earnings was $203.2
million, or $3.64 per share, compared with $165.2 million,
or $2.88 per share, last year.
Year-to-date details For the first six months
of fiscal 2019, the Company reported sales of $1.49 billion,
up 20 percent from $1.23 billion a year earlier. U.S.
Consumer segment sales increased 8 percent to $1.13 billion.
Sales for the Hawthorne segment increased 140 percent
to $284.8 million. On a comparative basis as if Sunlight was
owned in 2018, sales increased 5%.
The company-wide gross margin rate was 34.1 percent on a GAAP
basis and 34.3 percent on a non-GAAP adjusted basis. Both compare
with a rate of 35.9 percent a year ago. Selling, general and
administrative expense (SG&A) increased 8 percent
to $296.0 million.
Other non-operating income was $262.9 million compared
to a loss of $6.7 million a year earlier.
On a company-wide basis, GAAP income from continuing operations
was $314.3 million, or $5.62 per share, compared with $132.7
million, or $2.29 per share, for the first six months of
fiscal 2018. Excluding impairment, restructuring, and other items
including the impact of the TruGreen transaction, non-GAAP adjusted
earnings was $126.2 million, or $2.26 per share, compared with
$103.0 million, or $1.78 per share, last year.
The Company also announced it has recently sold its ownership
stake in a joint venture of a professional U.S. industrial, turf
and ornamental herbicide company to Bayer for $37 million. The
proceeds from the sale will be used to reduce debt. Also subsequent
to the end of the second quarter, Bayer agreed to reimbursements of
$20 million related to incremental expenses the Company has
incurred and will incur later this year related to the Roundup
business. Both of those payments will be reflected in the Company’s
third quarter results.
Full-year outlookThe Company re-affirmed all
aspects of its fiscal 2019 guidance although it acknowledged the
strong start in both the U.S. Consumer and Hawthorne segments
increases the probability that sales growth for the full year could
exceed its original forecast.
“We are extremely pleased with our strong start to the year,
which gives us a high degree of confidence in our guidance for
non-GAAP adjusted earnings in a range of $4.10 to $4.30 per share,”
said Randy Coleman, executive vice president and chief financial
officer. “Our expected performance, combined with the cash proceeds
from two divestitures, is allowing us to pay down debt more quickly
than we expected several months ago.”
“While it’s still too early in the fiscal year to adjust any of
our guidance targets, we currently anticipate providing the
financial community with an updated outlook on fiscal 2019 in early
June, consistent with how we’ve operated in the past.”
Conference Call and Webcast Scheduled for 9 a.m.
EDT Today, May 1 The Company will discuss
results during a webcast and conference call today at 9:00
a.m. EST. To participate in the conference call, please call
866-337-5532 (Conference Code: 7577941). A replay of the call
can be heard by calling 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 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-GroWith approximately $2.6
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, as is the consumer Roundup®
brand, which is marketed in the U.S. and certain other countries by
Scotts and owned by Monsanto. We maintain a minority interest in
Bonnie Plants®, the largest marketer of edible gardening plants in
retail channels. The Company’s wholly-owned subsidiary, The
Hawthorne Gardening Company, is a leading provider of nutrients,
lighting and other materials used in the hydroponic growing
segment. For additional information, visit us at
www.scottsmiraclegro.com.
Forward Looking Non-GAAP MeasuresIn this
release, the Company provides an outlook for fiscal 2019 non-GAAP
adjusted EPS. The Company does not provide a GAAP EPS outlook,
which is the most directly comparable GAAP measure to non-GAAP
adjusted EPS, because changes in the items that the Company
excludes from GAAP EPS to calculate non-GAAP adjusted EPS,
described above, can be dependent on future events that are less
capable of being controlled or reliably predicted by management and
are not part of the Company’s routine operating activities.
Additionally, due to their unpredictability, management does not
forecast the excluded items for internal use and therefore cannot
create or rely on a GAAP EPS outlook without unreasonable efforts.
The timing and amount of any of the excluded items could
significantly impact the Company’s GAAP EPS. As a result, the
Company does not provide a reconciliation of guidance for non-GAAP
adjusted EPS to GAAP EPS, in reliance on the unreasonable efforts
exception provided under Item 10(e)(1)(i)(B) of Regulation S-K.
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:
- Compliance with environmental and other public health
regulations 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;
- 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 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 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 expenses absorption;
- Hagedorn Partnership, L.P. beneficially owns approximately 27%
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.
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 Company disclaims any
obligation to update developments of these risk factors or to
announce publicly any revision to any of the forward-looking
statements contained in this release, or to make corrections to
reflect future events or developments.
Contact:Jim KingSenior
Vice PresidentInvestor Relations & Corporate
Affairs(937) 578-5622
THE SCOTTS MIRACLE-GRO
COMPANYCondensed Consolidated Statements of
Operations(In millions, except for per common share
data)(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
|
Footnotes |
|
March 30, 2019 |
|
March 31, 2018 |
|
% Change |
|
March 30, 2019 |
|
March 31, 2018 |
|
% Change |
Net sales |
|
|
|
$ |
1,189.9 |
|
|
$ |
1,013.3 |
|
|
17 |
% |
|
$ |
1,488.0 |
|
|
$ |
1,234.9 |
|
|
20 |
% |
Cost of sales |
|
|
|
716.8 |
|
|
604.1 |
|
|
|
|
977.8 |
|
|
791.7 |
|
|
|
Cost of
sales—impairment, restructuring and other |
|
|
|
1.0 |
|
|
— |
|
|
|
|
3.5 |
|
|
— |
|
|
|
Gross profit |
|
|
|
472.1 |
|
|
409.2 |
|
|
15 |
% |
|
506.7 |
|
|
443.2 |
|
|
14 |
% |
% of sales |
|
|
|
39.7 |
% |
|
40.4 |
% |
|
|
|
34.1 |
% |
|
35.9 |
% |
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative |
|
|
|
179.7 |
|
|
166.0 |
|
|
8 |
% |
|
296.0 |
|
|
274.2 |
|
|
8 |
% |
Impairment, restructuring and other |
|
|
|
0.2 |
|
|
10.2 |
|
|
|
|
3.7 |
|
|
10.0 |
|
|
|
Other
(income) expense, net |
|
|
|
2.0 |
|
|
0.7 |
|
|
|
|
1.6 |
|
|
(1.4 |
) |
|
|
Income from
operations |
|
|
|
290.2 |
|
|
232.3 |
|
|
25 |
% |
|
205.4 |
|
|
160.4 |
|
|
28 |
% |
% of sales |
|
|
|
24.4 |
% |
|
22.9 |
% |
|
|
|
13.8 |
% |
|
13.0 |
% |
|
|
Equity in income of
unconsolidated affiliates |
|
|
|
(2.0 |
) |
|
(1.5 |
) |
|
|
|
(3.3 |
) |
|
(2.1 |
) |
|
|
Interest expense |
|
|
|
28.9 |
|
|
22.6 |
|
|
|
|
54.1 |
|
|
40.4 |
|
|
|
Other non-operating
(income) expense, net |
|
|
|
(260.1 |
) |
|
9.2 |
|
|
|
|
(262.9 |
) |
|
6.7 |
|
|
|
Income from continuing
operations before income taxes |
|
|
|
523.4 |
|
|
202.0 |
|
|
159 |
% |
|
417.5 |
|
|
115.4 |
|
|
262 |
% |
Income tax expense
(benefit) from continuing operations |
|
|
|
126.5 |
|
|
49.3 |
|
|
|
|
103.2 |
|
|
(17.3 |
) |
|
|
Income from continuing
operations |
|
|
|
396.9 |
|
|
152.7 |
|
|
160 |
% |
|
314.3 |
|
|
132.7 |
|
|
137 |
% |
Income (loss) from
discontinued operations, net of tax |
|
|
|
(0.5 |
) |
|
(3.7 |
) |
|
|
|
2.5 |
|
|
(4.9 |
) |
|
|
Net income |
|
|
|
$ |
396.4 |
|
|
$ |
149.0 |
|
|
|
|
$ |
316.8 |
|
|
$ |
127.8 |
|
|
|
Net (income) loss
attributable to noncontrolling interest |
|
|
|
0.1 |
|
|
(0.1 |
) |
|
|
|
0.1 |
|
|
(0.1 |
) |
|
|
Net income attributable
to controlling interest |
|
|
|
$ |
396.5 |
|
|
$ |
148.9 |
|
|
|
|
$ |
316.9 |
|
|
$ |
127.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per
common share: |
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations |
|
|
|
$ |
7.17 |
|
|
$ |
2.70 |
|
|
166 |
% |
|
$ |
5.68 |
|
|
$ |
2.33 |
|
|
144 |
% |
Income
(loss) from discontinued operations |
|
|
|
(0.01 |
) |
|
(0.06 |
) |
|
|
|
0.04 |
|
|
(0.09 |
) |
|
|
Net income |
|
|
|
$ |
7.16 |
|
|
$ |
2.64 |
|
|
|
|
$ |
5.72 |
|
|
$ |
2.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss)
per common share: |
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations |
|
|
|
$ |
7.10 |
|
|
$ |
2.66 |
|
|
167 |
% |
|
$ |
5.62 |
|
|
$ |
2.29 |
|
|
145 |
% |
Income
(loss) from discontinued operations |
|
|
|
(0.01 |
) |
|
(0.07 |
) |
|
|
|
0.05 |
|
|
(0.09 |
) |
|
|
Net income |
|
|
|
$ |
7.09 |
|
|
$ |
2.59 |
|
|
|
|
$ |
5.67 |
|
|
$ |
2.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares used in
basic income (loss) per share calculation |
|
|
|
55.4 |
|
|
56.5 |
|
|
(2 |
)% |
|
55.4 |
|
|
57.0 |
|
|
(3 |
)% |
Common shares and
potential common shares used in diluted income (loss) per share
calculation |
|
|
|
55.9 |
|
|
57.4 |
|
|
(3 |
)% |
|
55.9 |
|
|
58.0 |
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
attributable to controlling interest from continuing
operations |
|
(3 |
) |
|
$ |
203.2 |
|
|
$ |
165.2 |
|
|
23 |
% |
|
$ |
126.2 |
|
|
$ |
103.0 |
|
|
23 |
% |
Adjusted diluted income
per common share from continuing operations |
|
(2) (3) |
|
$ |
3.64 |
|
|
$ |
2.88 |
|
|
26 |
% |
|
$ |
2.26 |
|
|
$ |
1.78 |
|
|
27 |
% |
Adjusted EBITDA |
|
(3 |
) |
|
$ |
327.4 |
|
|
$ |
272.9 |
|
|
20 |
% |
|
$ |
280.1 |
|
|
$ |
228.0 |
|
|
23 |
% |
Note: See
accompanying footnotes on page 10. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYSegment Results(In
millions)(Unaudited)
The Company divides its business into three
reportable segments: U.S. Consumer, Hawthorne and Other. U.S.
Consumer consists of the Company’s consumer lawn and garden
business located in the geographic United States. Hawthorne
consists of the Company’s indoor, urban and hydroponic gardening
business. Other consists of the Company’s consumer lawn and garden
business in geographies other than the U.S. and the Company’s
product sales to commercial nurseries, greenhouses and other
professional customers. Corporate consists of general and
administrative expenses and certain other income/expense items not
allocated to the business segments. This identification of
reportable segments is consistent with how the segments report to
and are managed by the chief operating decision maker of the
Company.
The performance of each reportable segment is
evaluated based on several factors, including income (loss) from
continuing operations before income taxes, amortization,
impairment, restructuring and other charges (“Segment Profit
(Loss)”), which is a non-GAAP financial measure. Senior
management uses Segment Profit (Loss) to evaluate segment
performance because they believe this measure is indicative of
performance trends and the overall earnings potential of each
segment.
The following tables present financial
information for the Company’s reportable segments for the periods
indicated:
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
March 30, 2019 |
|
March 31, 2018 |
|
% Change |
|
March 30, 2019 |
|
March 31, 2018 |
|
% Change |
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
993.5 |
|
|
$ |
920.2 |
|
|
8 |
% |
|
$ |
1,130.4 |
|
|
$ |
1,046.1 |
|
|
8 |
% |
Hawthorne |
144.1 |
|
|
41.8 |
|
|
245 |
% |
|
284.8 |
|
|
118.5 |
|
|
140 |
% |
Other |
52.3 |
|
|
51.3 |
|
|
2 |
% |
|
72.8 |
|
|
70.3 |
|
|
4 |
% |
Consolidated |
$ |
1,189.9 |
|
|
$ |
1,013.3 |
|
|
17 |
% |
|
$ |
1,488.0 |
|
|
$ |
1,234.9 |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit (Loss) (Non-GAAP): |
|
|
|
|
|
|
U.S. Consumer |
$ |
320.0 |
|
|
$ |
286.2 |
|
|
12 |
% |
|
$ |
277.0 |
|
|
$ |
248.3 |
|
|
12 |
% |
Hawthorne |
10.3 |
|
|
(4.8 |
) |
|
315 |
% |
|
14.7 |
|
|
(3.0 |
) |
|
590 |
% |
Other |
3.8 |
|
|
1.6 |
|
|
138 |
% |
|
(0.2 |
) |
|
(2.5 |
) |
|
92 |
% |
Total
Segment Profit (Non-GAAP) |
334.1 |
|
|
283.0 |
|
|
18 |
% |
|
291.5 |
|
|
242.8 |
|
|
20 |
% |
Corporate |
(34.3 |
) |
|
(33.6 |
) |
|
|
|
(62.1 |
) |
|
(58.7 |
) |
|
|
Intangible asset
amortization |
(8.4 |
) |
|
(6.9 |
) |
|
|
|
(16.8 |
) |
|
(13.7 |
) |
|
|
Impairment,
restructuring and other |
(1.2 |
) |
|
(10.2 |
) |
|
|
|
(7.2 |
) |
|
(10.0 |
) |
|
|
Equity in income of
unconsolidated affiliates |
2.0 |
|
|
1.5 |
|
|
|
|
3.3 |
|
|
2.1 |
|
|
|
Interest expense |
(28.9 |
) |
|
(22.6 |
) |
|
|
|
(54.1 |
) |
|
(40.4 |
) |
|
|
Other non-operating
income (expense), net |
260.1 |
|
|
(9.2 |
) |
|
|
|
262.9 |
|
|
(6.7 |
) |
|
|
Income
from continuing operations before income taxes (GAAP) |
$ |
523.4 |
|
|
$ |
202.0 |
|
|
159 |
% |
|
$ |
417.5 |
|
|
$ |
115.4 |
|
|
262 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYCondensed Consolidated Balance
Sheets(In millions)(Unaudited)
|
March 30, 2019 |
|
March 31, 2018 |
|
September 30, 2018 |
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash and
cash equivalents |
$ |
37.5 |
|
|
$ |
33.0 |
|
|
$ |
33.9 |
|
|
Accounts
receivable, net |
1,032.9 |
|
|
931.3 |
|
|
310.5 |
|
|
Inventories |
675.3 |
|
|
596.9 |
|
|
481.4 |
|
|
Prepaid
and other current assets |
93.7 |
|
|
78.1 |
|
|
59.9 |
|
|
Total
current assets |
1,839.4 |
|
|
1,639.3 |
|
|
885.7 |
|
|
Investment in unconsolidated affiliates |
34.5 |
|
|
33.2 |
|
|
36.1 |
|
|
Property,
plant and equipment, net |
513.9 |
|
|
463.6 |
|
|
530.8 |
|
|
Goodwill |
539.6 |
|
|
466.8 |
|
|
543.0 |
|
|
Intangible assets, net |
837.9 |
|
|
777.6 |
|
|
857.3 |
|
|
Other
assets |
191.2 |
|
|
195.0 |
|
|
201.6 |
|
|
Total
assets |
$ |
3,956.5 |
|
|
$ |
3,575.5 |
|
|
$ |
3,054.5 |
|
|
LIABILITIES AND EQUITY |
|
|
|
Current
liabilities: |
|
|
|
|
|
|
Current
portion of debt |
$ |
357.7 |
|
|
$ |
335.8 |
|
|
$ |
132.6 |
|
|
Accounts
payable |
298.7 |
|
|
253.5 |
|
|
150.5 |
|
|
Other
current liabilities |
503.5 |
|
|
316.8 |
|
|
329.6 |
|
|
Total
current liabilities |
1,159.9 |
|
|
906.1 |
|
|
612.7 |
|
|
Long-term
debt |
2,039.1 |
|
|
1,937.7 |
|
|
1,883.8 |
|
|
Distributions in excess of investment in unconsolidated
affiliate |
— |
|
|
21.9 |
|
|
21.9 |
|
|
Other
liabilities |
135.4 |
|
|
213.9 |
|
|
176.5 |
|
|
Total
liabilities |
3,334.4 |
|
|
3,079.6 |
|
|
2,694.9 |
|
|
Equity |
622.1 |
|
|
495.9 |
|
|
359.6 |
|
|
Total
liabilities and equity |
$ |
3,956.5 |
|
|
$ |
3,575.5 |
|
|
$ |
3,054.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(3)(In millions, except per common share
data)(Unaudited)
|
|
|
|
|
|
|
Three Months Ended March 30, 2019 |
|
Three Months Ended March 31, 2018 |
|
|
As Reported (GAAP) |
DiscontinuedOperations |
Impairment,Restructuringand Other |
OtherNon-Operating |
Adjusted (Non-GAAP) |
|
As Reported (GAAP) |
DiscontinuedOperations |
Impairment,Restructuringand Other |
OtherNon-Operating |
Adjusted (Non-GAAP) |
Gross profit |
|
$ |
472.1 |
|
$ |
— |
|
$ |
(1.0 |
) |
$ |
— |
|
$ |
473.1 |
|
|
$ |
409.2 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
409.2 |
|
Gross profit as a % of
sales |
|
39.7 |
% |
|
|
|
39.8 |
% |
|
40.4 |
% |
|
|
|
40.4 |
% |
Income from
operations |
|
290.2 |
|
— |
|
(1.2 |
) |
— |
|
291.4 |
|
|
232.3 |
|
— |
|
(10.2 |
) |
— |
|
242.5 |
|
Income from operations
as a % of sales |
|
24.4 |
% |
|
|
|
24.5 |
% |
|
22.9 |
% |
|
|
|
23.9 |
% |
Income from continuing
operations before income taxes |
|
523.4 |
|
— |
|
(1.2 |
) |
257.3 |
|
267.3 |
|
|
202.0 |
|
— |
|
(10.2 |
) |
(11.7 |
) |
223.9 |
|
Income tax expense from
continuing operations |
|
126.5 |
|
— |
|
(1.5 |
) |
63.8 |
|
64.2 |
|
|
49.3 |
|
— |
|
(6.3 |
) |
(3.0 |
) |
58.6 |
|
Income from continuing
operations |
|
396.9 |
|
— |
|
0.3 |
|
193.5 |
|
203.1 |
|
|
152.7 |
|
— |
|
(3.9 |
) |
(8.7 |
) |
165.3 |
|
Net income attributable to controlling
interest |
|
396.5 |
|
(0.5 |
) |
0.3 |
|
193.5 |
|
203.2 |
|
|
148.9 |
|
(3.7 |
) |
(3.9 |
) |
(8.7 |
) |
165.2 |
|
Diluted income
per common share from continuing operations |
|
7.10 |
|
— |
|
0.01 |
|
3.46 |
|
3.64 |
|
|
2.66 |
|
— |
|
(0.07 |
) |
(0.15 |
) |
2.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of
Adjusted EBITDA (3): |
|
Three Months Ended March 30, 2019 |
|
Three Months Ended March 31, 2018 |
Net
income (GAAP) |
|
$ |
396.4 |
|
|
$ |
149.0 |
|
Income
tax expense from continuing operations |
|
126.5 |
|
|
49.3 |
|
Income
tax expense (benefit) from discontinued operations |
|
0.4 |
|
|
(1.8 |
) |
Loss on
sale / contribution of business |
|
— |
|
|
3.7 |
|
Interest
expense |
|
28.9 |
|
|
22.6 |
|
Depreciation |
|
14.0 |
|
|
12.8 |
|
Amortization |
|
8.4 |
|
|
7.1 |
|
Impairment, restructuring and other charges from continuing
operations |
|
1.2 |
|
|
10.2 |
|
Impairment, restructuring and other charges from discontinued
operations |
|
— |
|
|
0.2 |
|
Other
non-operating (income) expense, net |
|
(257.3 |
) |
|
11.7 |
|
Interest
income |
|
(2.4 |
) |
|
(2.5 |
) |
Expense
on certain leases |
|
0.9 |
|
|
0.9 |
|
Share-based compensation expense |
|
10.4 |
|
|
9.7 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
327.4 |
|
|
$ |
272.9 |
|
|
|
|
|
|
Note: See
accompanying footnotes on page 10. |
The sum of
the components may not equal due to rounding. |
|
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(3)(In millions, except per common share
data)(Unaudited)
|
|
|
|
|
|
|
Six Months Ended March 30, 2019 |
|
Six Months Ended March 31, 2018 |
|
|
As Reported (GAAP) |
Discontinued Operations |
Impairment, Restructuring and Other |
OtherNon-Operating |
Adjusted (Non-GAAP) |
|
As Reported (GAAP) |
Discontinued Operations |
Impairment, Restructuring and Other |
OtherNon-Operating |
Adjusted (Non-GAAP) |
Gross profit |
|
$ |
506.7 |
|
$ |
— |
|
$ |
(3.5 |
) |
$ |
— |
|
$ |
510.2 |
|
|
$ |
443.2 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
443.2 |
|
Gross profit as a % of
sales |
|
34.1 |
% |
|
|
|
34.3 |
% |
|
35.9 |
% |
|
|
|
35.9 |
% |
Income from
operations |
|
205.4 |
|
— |
|
(7.2 |
) |
— |
|
212.6 |
|
|
160.4 |
|
— |
|
(10.0 |
) |
— |
|
170.4 |
|
Income from operations
as a % of sales |
|
13.8 |
% |
|
|
|
14.3 |
% |
|
13.0 |
% |
|
|
|
13.8 |
% |
Income from continuing
operations before income taxes |
|
417.5 |
|
— |
|
(7.2 |
) |
257.3 |
|
167.4 |
|
|
115.4 |
|
— |
|
(10.0 |
) |
(11.7 |
) |
137.1 |
|
Income tax expense from
continuing operations |
|
103.2 |
|
— |
|
(1.9 |
) |
63.8 |
|
41.3 |
|
|
(17.3 |
) |
— |
|
(48.3 |
) |
(3.0 |
) |
34.0 |
|
Income from continuing
operations |
|
314.3 |
|
— |
|
(5.3 |
) |
193.5 |
|
126.1 |
|
|
132.7 |
|
— |
|
38.3 |
|
(8.7 |
) |
103.1 |
|
Net income
attributable to controlling interest |
|
316.9 |
|
2.5 |
|
(5.3 |
) |
193.5 |
|
126.2 |
|
|
127.7 |
|
(4.9 |
) |
38.3 |
|
(8.7 |
) |
103.0 |
|
Diluted income
per common share from continuing operations |
|
5.62 |
|
— |
|
(0.09 |
) |
3.46 |
|
2.26 |
|
|
2.29 |
|
— |
|
0.66 |
|
(0.15 |
) |
1.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of
Adjusted EBITDA (3): |
|
Six Months Ended March 30, 2019 |
|
Six Months Ended March 31, 2018 |
Net
income (GAAP) |
|
$ |
316.8 |
|
|
$ |
127.8 |
|
Income
tax expense (benefit) from continuing operations |
|
103.2 |
|
|
(17.3 |
) |
Income
tax expense (benefit) from discontinued operations |
|
2.3 |
|
|
(1.8 |
) |
Loss on
sale / contribution of business |
|
— |
|
|
3.5 |
|
Interest
expense |
|
54.1 |
|
|
40.4 |
|
Depreciation |
|
27.9 |
|
|
25.5 |
|
Amortization |
|
16.8 |
|
|
14.1 |
|
Impairment, restructuring and other charges from continuing
operations |
|
7.2 |
|
|
10.0 |
|
Impairment, restructuring and other charges (recoveries) from
discontinued operations |
|
(4.9 |
) |
|
1.6 |
|
Other
non-operating (income) expense, net |
|
(257.3 |
) |
|
11.7 |
|
Interest
income |
|
(4.8 |
) |
|
(5.0 |
) |
Expense
on certain leases |
|
1.8 |
|
|
1.8 |
|
Share-based compensation expense |
|
17.0 |
|
|
15.7 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
280.1 |
|
|
$ |
228.0 |
|
|
|
|
|
|
Note: See
accompanying footnotes on page 10. |
The sum of
the components may not equal due to rounding. |
THE SCOTTS MIRACLE-GRO
COMPANYFootnotes to Preceding Financial Statements
(1) Basic income (loss) per common share amounts
are calculated by dividing income (loss) from continuing
operations, income (loss) from discontinued operations and net
income (loss) attributable to controlling interest by the weighted
average number of common shares outstanding during the period.
(2) Diluted income (loss) per common share
amounts are calculated by dividing income (loss) from continuing
operations, income (loss) from discontinued operations and net
income (loss) attributable to controlling interest by the weighted
average number of common shares, plus all potential dilutive
securities (common stock options, performance shares, performance
units, restricted stock and restricted stock units) outstanding
during the period.
(3) Reconciliation of Non-GAAP Measures
Use of Non-GAAP Measures
To supplement the financial measures prepared in
accordance with U.S. generally accepted accounting principles
(“GAAP”), the Company uses non-GAAP financial measures. The
reconciliations of these non-GAAP financial measures to the most
directly comparable financial measures calculated and presented in
accordance with GAAP are shown in the tables above. These non-GAAP
financial measures should not be considered in isolation from, or
as a substitute for or superior to, financial measures reported in
accordance with GAAP. Moreover, these non-GAAP financial measures
have limitations in that they do not reflect all the items
associated with the operations of the business as determined in
accordance with GAAP. Other companies may calculate similarly
titled non-GAAP financial measures differently than the Company,
limiting the usefulness of those measures for comparative
purposes.
In addition to GAAP measures, management uses
these non-GAAP financial measures to evaluate the Company’s
performance, engage in financial and operational planning and
determine incentive compensation because it believes that these
measures provide additional perspective on and, in some
circumstances are more closely correlated to, the performance of
the Company’s underlying, ongoing business.
Management believes that these non-GAAP
financial measures are useful to investors in their assessment of
operating performance and the valuation of the Company. In
addition, these non-GAAP financial measures address questions
routinely received from analysts and investors and, in order to
ensure that all investors have access to the same data, management
has determined that it is appropriate to make this data available
to all investors. Non-GAAP financial measures exclude the impact of
certain items (as further described below) and provide supplemental
information regarding operating performance. By disclosing these
non-GAAP financial measures, management intends to provide
investors with a supplemental comparison of operating results and
trends for the periods presented. Management believes these
measures are also useful to investors as such measures allow
investors to evaluate performance using the same metrics that
management uses to evaluate past performance and prospects for
future performance. Management views free cash flow as an important
measure because it is one factor used in determining the amount of
cash available for dividends and discretionary investment.
Management views free cash flow productivity as a useful measure to
help investors understand the Company’s ability to generate
cash.
Exclusions from Non-GAAP Financial Measures
Non-GAAP financial measures reflect adjustments
based on the following items:
- Impairments, which are excluded
because they do not occur in or reflect the ordinary course of the
Company’s ongoing business operations and their exclusion results
in a metric that provides supplemental information about the
sustainability of operating performance.
- Restructuring and employee
severance costs, which include charges for discrete projects or
transactions that fundamentally change the Company’s operations and
are excluded because they are not part of the ongoing operations of
its underlying business, which includes normal levels of
reinvestment in the business.
- Costs related to refinancing, which
are excluded because they do not typically occur in the normal
course of business and may obscure analysis of trends and financial
performance. Additionally, the amount and frequency of these types
of charges is not consistent and is significantly impacted by the
timing and size of debt financing transactions.
- Charges or credits incurred by the
Company’s joint venture with TruGreen Holding Corporation (the
“TruGreen Joint Venture”) that are apart from and not indicative of
the results of its ongoing operations, including transaction
related costs, refinancing costs, restructurings and other discrete
projects or transactions including a non-cash purchase accounting
fair value write-down adjustment related to deferred revenue and
advertising (“TruGreen Joint Venture non-GAAP adjustments”). The
Company held a noncontrolling equity interest of approximately 30%
in the TruGreen Joint Venture. The Company did not control, nor did
it have any legal claim to, the revenues and expenses of the
TruGreen Joint Venture or its other unconsolidated affiliates. The
use of non-GAAP measures that are subject to TruGreen Joint Venture
non-GAAP adjustments is not intended to imply that the Company had
control over the operations and resulting revenue and expenses of
the TruGreen Joint Venture or its other unconsolidated affiliates.
Moreover, these non-GAAP financial measures have limitations in
that they do not reflect all revenue and expenses of the
unconsolidated affiliates.
- Discontinued operations and other
unusual items, which include costs or gains related to discrete
projects or transactions and are excluded because they are not
comparable from one period to the next and are not part of the
ongoing operations of the Company’s underlying business.
The tax effect for each of the items listed
above is determined using the tax rate and other tax attributes
applicable to the item and the jurisdiction(s) in which the item is
recorded.
Definitions of Non-GAAP Financial Measures
The reconciliations of non-GAAP disclosure items
include the following financial measures that are not calculated in
accordance with GAAP and are utilized by management in evaluating
the performance of the business, engaging in financial and
operational planning, the determination of incentive compensation,
and by investors and analysts in evaluating performance of the
business:
Adjusted gross profit: Gross profit excluding
impairment, restructuring and other charges /
recoveries.Adjusted income (loss) from operations:
Income (loss) from operations excluding impairment, restructuring
and other charges / recoveries.Adjusted income (loss) from
continuing operations before income taxes: Income (loss)
from continuing operationsbefore income taxes excluding impairment,
restructuring and other charges / recoveries, costs related to
refinancingand TruGreen Joint Venture non-GAAP
adjustments.Adjusted income tax expense (benefit) from
continuing operations: Income tax expense (benefit) from
continuing operations excluding the tax effect of impairment,
restructuring and other charges / recoveries, costs related to
refinancing and TruGreen Joint Venture non-GAAP
adjustments.Adjusted income (loss) from continuing
operations: Income (loss) from continuing operations
excluding impairment, restructuring and other charges / recoveries,
costs related to refinancing and TruGreen Joint Venture non-GAAP
adjustments, each net of tax.Adjusted net income (loss)
attributable to controlling interest from continuing
operations: Net income (loss) attributable to controlling
interest excluding impairment, restructuring and other charges /
recoveries, costs related to refinancing, TruGreen Joint Venture
non-GAAP adjustments and discontinued operations, each net of
tax.Adjusted diluted income (loss) per common share from
continuing operations: Diluted income (loss) per common
share from continuing operations excluding impairment,
restructuring and other charges / recoveries, costs related to
refinancing and TruGreen Joint Venture non-GAAP adjustments, each
net of tax.Adjusted EBITDA: Net income (loss)
before interest, taxes, depreciation and amortization as well as
certain other items such as the impact of the cumulative effect of
changes in accounting, costs associated with debt refinancing and
other non-recurring or non-cash items affecting net income (loss).
The presentation of adjusted EBITDA is intended to be consistent
with the calculation of that measure as required by the Company’s
borrowing arrangements, and used to calculate a leverage ratio
(maximum of 5.25 at March 30, 2019) and an interest coverage
ratio (minimum of 3.00 for the twelve months ended March 30,
2019).Free cash flow: Net cash provided by (used
in) operating activities reduced by investments in property, plant
and equipment.Free cash flow productivity: Ratio
of free cash flow to net income (loss).
For the three and six months ended
March 30, 2019, the following items were adjusted, in
accordance with the definitions above, to arrive at the non-GAAP
financial measures:
- On March 19, 2019, the Company
entered into an agreement under which it sold, to TruGreen
Companies L.L.C., a subsidiary of TruGreen Holding Corporation, all
of its approximately 30% equity interest in Outdoor Home Services
Holdings LLC, a lawn services joint venture between the Company and
TruGreen Holding Corporation (the “TruGreen Joint
Venture”). Under the terms of the agreement, the Company
received cash proceeds of $234.2 million related to the sale of its
equity interest in the TruGreen Joint Venture and $18.4 million
related to the payoff of second lien term loan financing. During
the three and six months ended March 30, 2019, the Company
recognized a pre-tax gain of $259.8 million related to this sale in
the “Other non-operating (income) expense, net” line in the
Condensed Consolidated Statement of Operations.
- In connection with the acquisition
of Sunlight Supply during the third quarter of fiscal 2018, the
Company announced the launch of an initiative called Project
Catalyst, which is a company-wide restructuring effort to reduce
operating costs throughout the U.S. Consumer, Hawthorne and Other
segments and drive synergies from recent acquisitions within the
Hawthorne segment. During the three and six months ended
March 30, 2019, the Company continued to execute on its
planned facility closures and consolidations which resulted in
charges of $2.1 million and $7.6 million, respectively, related to
Project Catalyst. During the three and six months ended
March 30, 2019, the Company recognized charges of $1.0 million
and $3.5 million, respectively, in the “Cost of sales—impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations related to employee termination benefits,
facility closure costs and impairment of property, plant and
equipment. During the three and six months ended March 30,
2019, the Company recognized charges of $1.1 million and $4.1
million, respectively, in the “Impairment, restructuring and other”
line in the Condensed Consolidated Statements of Operations related
to employee termination benefits and facility closure costs. The
Company also recognized a charge of $2.5 million for the three and
six months ended March 30, 2019 in the “Other non-operating
(income) expense, net” line in the Condensed Consolidated
Statements of Operations related to the write-off of accumulated
foreign currency translation loss adjustments of a foreign
subsidiary that was substantially liquidated.
- The Company recognized favorable
adjustments of $0.9 million and $0.4 million, respectively, related
to the previously disclosed legal matter In re Scotts EZ Seed
Litigation for the three and six months ended March 30, 2019,
respectively, in the “Impairment, restructuring and other” line in
the Condensed Consolidated Statements of Operations.
- The Company recognized insurance
recoveries of $5.0 million related to the previously disclosed
legal matter In re Morning Song Bird Food Litigation for
the six months ended March 30, 2019 in the “Income (loss) from
discontinued operations, net of tax” line in the Condensed
Consolidated Statements of Operations.
For the three and six months ended
March 31, 2018, the following items were adjusted, in
accordance with the definitions above, to arrive at the non-GAAP
financial measures:
- The Company recognized adjustments
to previously recognized termination benefits related to Project
Focus activity of $0.2 million for the six months
ended March 31, 2018 within the “Impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations.
- The Company recognized a charge of
$10.2 million for a probable loss on a previously disclosed legal
matter for the three and six months
ended March 31, 2018 within the “Impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations.
- On December 22, 2017, H.R.1 (the
“Act,” formerly known as the “Tax Cuts and Jobs Act”) was signed
into law. The Act provides for significant changes to the U.S.
Internal Revenue Code of 1986, as amended. Among other items, the
Act implements a territorial tax system, imposes a one-time
transition tax on deemed repatriated earnings of foreign
subsidiaries, and reduces the federal corporate statutory tax rate
to 21% effective January 1, 2018. As the Company’s fiscal year end
falls on September 30, the federal corporate statutory tax rate for
fiscal 2018 was prorated to 24.5%, with the statutory rate for 2019
and beyond at 21%. Included in the effective tax rate for the three
and six months ended March 31, 2018 are
one-time impacts related to the tax law change of $45.7 million.
These include a one-time $45.9 million net tax benefit adjustment
reflecting the revaluation of the Company’s net deferred tax
liability at the lower tax rate. In addition, as part of the Act,
the Company recognized a one-time tax expense on deemed repatriated
earnings and cash of foreign subsidiaries as required by the Act of
$14.0 million, partially offset by the recognition and application
of foreign tax credits associated with these foreign subsidiaries
of $13.9 million.
- As a result of the enactment of the
Act, the Company repatriated cash from a foreign subsidiary during
the second quarter of fiscal 2018 resulting in the liquidation of
substantially all of the assets of the subsidiary and the write-off
of accumulated foreign currency translation loss adjustments of
$11.7 million for the three and six months
ended March 31, 2018 within the “Other non-operating
(income) expense, net” line in the Condensed Consolidated
Statements of Operations.
Forward Looking Non-GAAP Measures
In this earnings release, the Company presents
its outlook for fiscal 2019 non-GAAP adjusted EPS. The Company does
not provide a GAAP EPS outlook, which is the most directly
comparable GAAP measure to non-GAAP adjusted EPS, because changes
in the items that the Company excludes from GAAP EPS to calculate
non-GAAP adjusted EPS, described above, can be dependent on future
events that are less capable of being controlled or reliably
predicted by management and are not part of the Company’s routine
operating activities. Additionally, due to their unpredictability,
management does not forecast the excluded items for internal use
and therefore cannot create or rely on a GAAP EPS outlook without
unreasonable efforts. The timing and amount of any of the excluded
items could significantly impact the Company’s GAAP EPS. As a
result, the Company does not provide a reconciliation of guidance
for non-GAAP adjusted EPS to GAAP EPS, in reliance on the
unreasonable efforts exception provided under Item 10(e)(1)(i)(B)
of Regulation S-K.
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