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 the
continued strength of both its U.S. Consumer and Hawthorne segments
led to 28 percent company-wide sales growth and a 22 percent
improvement in non-GAAP adjusted earnings in the fiscal third
quarter.
The continued strength of the business in fiscal 2020 prompted
the Company to increase its guidance for full-year sales, adjusted
earnings and free cash flow – which is defined as operating cash
flow minus capital expenditures.
Separately, ScottsMiracle-Gro said its Board of Directors
approved payment of a special dividend of $5 per share and
increased its regular quarterly dividend by 7 percent to $0.62 per
share. Both dividends are payable September 10 to shareholders of
record on August 27.
“Our results this year continue to exceed our most optimistic
expectations and are a testament to the critical nature of the
categories in which we compete, the commitment of our retail
partners, and the loyalty of the consumers and cultivators who rely
on our products for their success,” said Jim Hagedorn, chairman and
chief executive officer. “As we enter the final weeks of fiscal
2020 and prepare for the start of our next fiscal year, we remain
optimistic about the strength of our business as well as our
ability to continue to enhance shareholder value.
“As we enjoy a year of unprecedented success, it is appropriate
for our associates, communities and shareholders to reap the
benefit as well. With the support of our Board, we have decided to
make special one-time payments later this year to nearly 3,000
hourly and salaried associates who do not participate in our bonus
plans, but played a critical role in our success this year. We also
will enhance bonus payments to another nearly 1,500 eligible
associates who do participate in incentive plans. In addition, we
plan to double our charitable contributions to benefit the
communities we serve.
“Shareholders also will benefit from a special dividend payment
of $5 per share, which is consistent with our long-standing
commitment to return cash to shareholders as well as the Board’s
decision to increase our regular quarterly dividend.”
Third quarter details For the period ended June
27, 2020, company-wide sales increased 28 percent to $1.49
billion. U.S. Consumer increased 21 percent to $1.08 billion
from $889.1 million. Hawthorne sales increased 72 percent
to $302.9 million compared with $176.3 million. Segment income
increased 14 percent for U.S. Consumer to $310.5 million and 145
percent for Hawthorne to $41.1 million.
“In our U.S. Consumer segment, we saw significant acceleration
of consumer engagement beginning in May that continues as we
speak,” Hagedorn said. “Consumer purchases entering August are up
23 percent at our largest four retail partners and we’ve seen
increases in every product category. We especially have benefitted
from a more than 40 percent increase in branded soils and even
higher gains in consumer purchases for most of our Ortho insect
control business.
“We also continued to see strong third quarter growth at
Hawthorne in every product category and geography. The team at
Hawthorne has done an outstanding job this year achieving
significantly higher-than-expected growth while also exceeding our
operating margin targets.”
For the quarter, the company-wide GAAP and non-GAAP adjusted
gross margin rates were 35.3 percent and 36.1 percent respectively.
Both compare to 36.2 percent in the prior year. The declines were
due primarily to the timing of a payment made to the Company in the
third quarter of 2019 related to the Company’s role as marketing
agent for Roundup. A payment of a similar amount was made to the
Company during the second quarter of 2020 and therefore has no
impact on the gross margin rate for the full year.
SG&A increased 43 percent to $237.7
million primarily due to higher accruals for annual incentive
compensation payments, the payment of one-time bonuses for
non-incentive eligible associates, and increased marketing
investment.
Interest expense decreased $5.6 million on a
year-over-year basis to $20.3 million, reflecting lower
interest rates and borrowing levels. The Company said its
debt-to-EBITDA ratio at the end of the quarter was approximately
2.8 times.
GAAP income from continuing operations was $204.3 million, or
$3.57 per diluted share, compared with $178.0 million,
or $3.15 per diluted share, in the prior year. Non-GAAP
adjusted earnings, which excluded impairment, restructuring, as
well as other one-time items, were $216.8 million, or $3.80
per diluted share, compared with $176.3 million,
or $3.11 per diluted share.
Year-to-Date Details Company-wide sales for the
first nine months increased 22 percent to $3.24 billion
compared with $2.66 billion a year ago. Sales in the U.S. Consumer
segment increased 15 percent, to $2.33
billion. Hawthorne sales increased 59 percent
to $731.7 million.
The GAAP gross margin rate on a year-to-date basis was 34.9
percent. The non-GAAP adjusted rate was 35.4 percent. These compare
with 35.0 and 35.1 percent, respectively, last year. SG&A
was $553.1 million, a 20 percent increase from 2019. The
reasons for the year-to-date increase are consistent with the
factors that drove third quarter results.
Interest expense decreased $17 million to $63.0 million.
Other non-operating income decreased to $7.3 million due to a 2019
pre-tax gain of $259.8 million related to the Company’s divestiture
of its minority ownership of TruGreen.
GAAP income from continuing operations was $382.8 million,
or $6.74 per diluted share, compared with $492.3 million,
or $8.78 per diluted share, in prior year. Non-GAAP
adjusted earnings, which excluded impairment, restructuring, as
well as the other one-time items, were $408.2 million, or
$7.20 per diluted share, compared with $302.5 million,
or $5.39 per diluted share, a year ago.
Full-year outlook The Company’s newly revised
sales guidance of 26 to 28 percent growth assumes the U.S. Consumer
segment grows 20 to 22 percent in fiscal 2020 and
Hawthorne sales increase 55 to 60 percent. Entering June, the
Company said it expected U.S. Consumer sales to increase 9 to11
percent in fiscal 2020 and Hawthorne to increase 45 to 50
percent.
The revised guidance for non-GAAP adjusted earnings per share
of $6.65 to $6.85 compares with the June forecast
of $5.65 to $5.85 per share. The Company said it expected
non-GAAP free cash flow of approximately $400 million, up from
approximately $350 million earlier.
“The growth we saw in June and July clearly exceeded our
expectations as we have seen unprecedented levels of consumer
engagement later in the summer than normal,” said Randy Coleman,
executive vice president and chief financial officer. “The entire
team has done a tremendous job all year navigating these unusual
times. In addition to our better-than-expected operating results,
we’ve also further strengthened our balance sheet, giving us the
financial flexibility to return cash to shareholders and pursue
investments in future growth while also keeping our leverage in
line with our long-term targets.”
Conference Call and Webcast Scheduled for 9 a.m.
ET Today, July 29 The Company will discuss
results during a webcast and conference call today at 9:00
a.m. Eastern Time. Conference call participants should call
800-263-0877 (Conference Code: 3918971). A live webcast of the call
will be available on the investor relations section of the
Company's website at http://investor.scotts.com. An archive of
the webcast will remain available for at least 12 months. In
addition, a replay of the call can be heard by calling
888-203-1112. The replay will be available for 15 days.
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.
Forward Looking Non-GAAP MeasuresIn this
release, the Company presents its updated outlook for fiscal 2020
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:
- 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.
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 King Executive Vice
President Investor Relations & Corporate Affairs (937)
578-5622
THE SCOTTS MIRACLE-GRO COMPANY
Condensed Consolidated Statements of Operations(In
millions, except for per common share data)(Unaudited)
|
|
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
|
Footnotes |
|
June 27, 2020 |
|
June 29, 2019 |
|
% Change |
|
June 27, 2020 |
|
June 29, 2019 |
|
% Change |
Net sales |
|
|
|
$ |
1,492.7 |
|
|
$ |
1,170.3 |
|
|
28 |
% |
|
$ |
3,241.3 |
|
|
$ |
2,658.3 |
|
|
22 |
% |
Cost of sales |
|
|
|
954.3 |
|
|
747.0 |
|
|
|
|
2,094.9 |
|
|
1,724.8 |
|
|
|
Cost of sales—impairment,
restructuring and other |
|
|
|
11.7 |
|
|
(0.1 |
) |
|
|
|
15.3 |
|
|
3.4 |
|
|
|
Gross profit |
|
|
|
526.7 |
|
|
423.4 |
|
|
24 |
% |
|
1,131.1 |
|
|
930.1 |
|
|
22 |
% |
% of sales |
|
|
|
35.3 |
% |
|
36.2 |
% |
|
|
|
34.9 |
% |
|
35.0 |
% |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
237.7 |
|
|
166.4 |
|
|
43 |
% |
|
553.1 |
|
|
462.4 |
|
|
20 |
% |
Impairment, restructuring and other |
|
|
|
4.2 |
|
|
0.6 |
|
|
|
|
2.0 |
|
|
4.3 |
|
|
|
Other (income) expense, net |
|
|
|
0.3 |
|
|
(1.8 |
) |
|
|
|
0.4 |
|
|
(0.1 |
) |
|
|
Income from operations |
|
|
|
284.5 |
|
|
258.2 |
|
|
10 |
% |
|
575.6 |
|
|
463.5 |
|
|
24 |
% |
% of sales |
|
|
|
19.1 |
% |
|
22.1 |
% |
|
|
|
17.8 |
% |
|
17.4 |
% |
|
|
Equity in income of
unconsolidated affiliates |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
(3.3 |
) |
|
|
Costs related to
refinancing |
|
|
|
— |
|
|
— |
|
|
|
|
15.1 |
|
|
— |
|
|
|
Interest expense |
|
|
|
20.3 |
|
|
25.9 |
|
|
|
|
63.0 |
|
|
80.0 |
|
|
|
Other non-operating income,
net |
|
|
|
(1.9 |
) |
|
(5.1 |
) |
|
|
|
(7.3 |
) |
|
(268.2 |
) |
|
|
Income from continuing
operations before income taxes |
|
|
|
266.1 |
|
|
237.4 |
|
|
12 |
% |
|
504.8 |
|
|
655.0 |
|
|
(23) |
% |
Income tax expense from
continuing operations |
|
|
|
61.8 |
|
|
59.4 |
|
|
|
|
122.0 |
|
|
162.7 |
|
|
|
Income from continuing
operations |
|
|
|
204.3 |
|
|
178.0 |
|
|
15 |
% |
|
382.8 |
|
|
492.3 |
|
|
(22) |
% |
Income (loss) from
discontinued operations, net of tax |
|
|
|
(1.0 |
) |
|
23.6 |
|
|
|
|
1.6 |
|
|
26.1 |
|
|
|
Net income |
|
|
|
$ |
203.3 |
|
|
$ |
201.6 |
|
|
|
|
$ |
384.4 |
|
|
$ |
518.4 |
|
|
|
Net (income) loss attributable
to noncontrolling interest |
|
|
|
(0.5 |
) |
|
0.1 |
|
|
|
|
(0.9 |
) |
|
0.2 |
|
|
|
Net income attributable to
controlling interest |
|
|
|
$ |
202.8 |
|
|
$ |
201.7 |
|
|
|
|
$ |
383.5 |
|
|
$ |
518.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common
share: |
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
$ |
3.67 |
|
|
$ |
3.21 |
|
|
14 |
% |
|
$ |
6.86 |
|
|
$ |
8.89 |
|
|
(23) |
% |
Income (loss) from discontinued operations |
|
|
|
(0.02 |
) |
|
0.42 |
|
|
|
|
0.03 |
|
|
0.47 |
|
|
|
Net income |
|
|
|
$ |
3.65 |
|
|
$ |
3.63 |
|
|
|
|
$ |
6.89 |
|
|
$ |
9.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per
common share: |
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
$ |
3.57 |
|
|
$ |
3.15 |
|
|
13 |
% |
|
$ |
6.74 |
|
|
$ |
8.78 |
|
|
(23) |
% |
Income (loss) from discontinued operations |
|
|
|
(0.02 |
) |
|
0.41 |
|
|
|
|
0.02 |
|
|
0.46 |
|
|
|
Net income |
|
|
|
$ |
3.55 |
|
|
$ |
3.56 |
|
|
|
|
$ |
6.76 |
|
|
$ |
9.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares used in basic
income (loss) per share calculation |
|
|
|
55.6 |
|
|
55.5 |
|
|
— |
% |
|
55.7 |
|
|
55.4 |
|
|
1 |
% |
Common shares and potential
common shares used in diluted income (loss) per share
calculation |
|
|
|
57.1 |
|
|
56.6 |
|
|
1 |
% |
|
56.7 |
|
|
56.1 |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
attributable to controlling interest from continuing
operations |
|
(3) |
|
$ |
216.8 |
|
|
$ |
176.3 |
|
|
23 |
% |
|
$ |
408.2 |
|
|
$ |
302.5 |
|
|
35 |
% |
Adjusted diluted income per
common share from continuing operations |
|
(2) (3) |
|
$ |
3.80 |
|
|
$ |
3.11 |
|
|
22 |
% |
|
$ |
7.20 |
|
|
$ |
5.39 |
|
|
34 |
% |
Adjusted EBITDA |
|
(3) |
|
$ |
345.1 |
|
|
$ |
293.5 |
|
|
18 |
% |
|
$ |
704.7 |
|
|
$ |
573.7 |
|
|
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. In addition, 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 |
|
Nine Months Ended |
|
June 27, 2020 |
|
June 29, 2019 |
|
% Change |
|
June 27, 2020 |
|
June 29, 2019 |
|
% Change |
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
1,075.8 |
|
|
$ |
889.1 |
|
|
21 |
% |
|
$ |
2,325.9 |
|
|
$ |
2,019.5 |
|
|
15 |
% |
Hawthorne |
302.9 |
|
|
176.3 |
|
|
72 |
% |
|
731.7 |
|
|
461.1 |
|
|
59 |
% |
Other |
114.0 |
|
|
104.9 |
|
|
9 |
% |
|
183.7 |
|
|
177.7 |
|
|
3 |
% |
Consolidated |
$ |
1,492.7 |
|
|
$ |
1,170.3 |
|
|
28 |
% |
|
$ |
3,241.3 |
|
|
$ |
2,658.3 |
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Profit (Loss) (Non-GAAP): |
|
|
|
|
|
|
U.S. Consumer |
$ |
310.5 |
|
|
$ |
271.5 |
|
|
14 |
% |
|
$ |
641.9 |
|
|
$ |
548.5 |
|
|
17 |
% |
Hawthorne |
41.1 |
|
|
16.8 |
|
|
145 |
% |
|
80.5 |
|
|
31.6 |
|
|
155 |
% |
Other |
14.4 |
|
|
13.2 |
|
|
9 |
% |
|
14.8 |
|
|
13.0 |
|
|
14 |
% |
Total Segment Profit (Non-GAAP) |
366.0 |
|
|
301.5 |
|
|
21 |
% |
|
737.2 |
|
|
593.1 |
|
|
24 |
% |
Corporate |
(57.8 |
) |
|
(34.4 |
) |
|
|
|
(120.7 |
) |
|
(96.7 |
) |
|
|
Intangible asset
amortization |
(7.8 |
) |
|
(8.4 |
) |
|
|
|
(23.6 |
) |
|
(25.2 |
) |
|
|
Impairment, restructuring and
other |
(15.9 |
) |
|
(0.5 |
) |
|
|
|
(17.3 |
) |
|
(7.7 |
) |
|
|
Equity in income of
unconsolidated affiliates |
— |
|
|
— |
|
|
|
|
— |
|
|
3.3 |
|
|
|
Costs related to
refinancing |
— |
|
|
— |
|
|
|
|
(15.1 |
) |
|
— |
|
|
|
Interest expense |
(20.3 |
) |
|
(25.9 |
) |
|
|
|
(63.0 |
) |
|
(80.0 |
) |
|
|
Other non-operating income,
net |
1.9 |
|
|
5.1 |
|
|
|
|
7.3 |
|
|
268.2 |
|
|
|
Income from continuing operations before income taxes (GAAP) |
$ |
266.1 |
|
|
$ |
237.4 |
|
|
12 |
% |
|
$ |
504.8 |
|
|
$ |
655.0 |
|
|
(23) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYCondensed Consolidated Balance
Sheets(In millions)(Unaudited)
|
Footnotes |
|
June 27, 2020 |
|
June 29, 2019 |
|
September 30, 2019 |
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
$ |
48.3 |
|
|
$ |
36.4 |
|
|
$ |
18.8 |
|
Accounts receivable, net |
|
|
1,147.9 |
|
|
746.9 |
|
|
308.4 |
|
Inventories |
|
|
493.1 |
|
|
533.7 |
|
|
540.3 |
|
Prepaid and other current assets |
|
|
89.5 |
|
|
72.9 |
|
|
174.2 |
|
Total current assets |
|
|
1,778.8 |
|
|
1,389.9 |
|
|
1,041.7 |
|
Property, plant and equipment, net |
|
|
533.2 |
|
|
506.7 |
|
|
546.0 |
|
Goodwill |
|
|
540.0 |
|
|
541.9 |
|
|
538.7 |
|
Intangible assets, net |
|
|
685.3 |
|
|
831.1 |
|
|
707.5 |
|
Other assets |
(4) |
|
339.5 |
|
|
197.8 |
|
|
194.8 |
|
Total assets |
|
|
$ |
3,876.8 |
|
|
$ |
3,467.4 |
|
|
$ |
3,028.7 |
|
LIABILITIES AND EQUITY |
|
|
Current liabilities: |
|
|
|
|
|
|
|
Current portion of debt |
|
|
$ |
206.4 |
|
|
$ |
363.2 |
|
|
$ |
128.1 |
|
Accounts payable |
|
|
310.5 |
|
|
222.6 |
|
|
214.2 |
|
Other current liabilities |
(4) |
|
589.8 |
|
|
369.6 |
|
|
278.2 |
|
Total current liabilities |
|
|
1,106.7 |
|
|
955.4 |
|
|
620.5 |
|
Long-term debt |
|
|
1,516.0 |
|
|
1,563.5 |
|
|
1,523.5 |
|
Other liabilities |
(4) |
|
250.2 |
|
|
143.3 |
|
|
161.5 |
|
Total liabilities |
|
|
2,872.9 |
|
|
2,662.2 |
|
|
2,305.5 |
|
Equity |
|
|
1,003.9 |
|
|
805.2 |
|
|
723.2 |
|
Total liabilities and equity |
|
|
$ |
3,876.8 |
|
|
$ |
3,467.4 |
|
|
$ |
3,028.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(3)(In millions, except per common share
data)(Unaudited)
|
|
Three Months Ended June 27, 2020 |
|
Three Months Ended June 29, 2019 |
|
|
As Reported (GAAP) |
Discontinued Operations |
Impairment, Restructuring and Other |
Other Non-Operating |
Adjusted (Non- GAAP) |
|
As Reported (GAAP) |
Discontinued Operations |
Impairment, Restructuring and Other |
Other Non- Operating |
Adjusted (Non- GAAP) |
Gross profit |
|
$ |
526.7 |
|
$ |
— |
|
$ |
(11.7 |
) |
$ |
— |
|
$ |
538.4 |
|
|
$ |
423.4 |
|
$ |
— |
|
$ |
0.1 |
|
$ |
— |
|
$ |
423.3 |
|
Gross profit as a % of
sales |
|
35.3 |
% |
|
|
|
36.1 |
% |
|
36.2 |
% |
|
|
|
36.2 |
% |
Income from operations |
|
284.5 |
|
— |
|
(15.9 |
) |
— |
|
300.4 |
|
|
258.2 |
|
— |
|
(0.5 |
) |
— |
|
258.7 |
|
Income from operations as a %
of sales |
|
19.1 |
% |
|
|
|
20.1 |
% |
|
22.1 |
% |
|
|
|
22.1 |
% |
Income from continuing
operations before income taxes |
|
266.1 |
|
— |
|
(15.9 |
) |
(0.8 |
) |
282.8 |
|
|
237.4 |
|
— |
|
(0.5 |
) |
2.9 |
|
235.0 |
|
Income tax expense from
continuing operations |
|
61.8 |
|
— |
|
(3.5 |
) |
(0.2 |
) |
65.5 |
|
|
59.4 |
|
— |
|
(0.1 |
) |
0.7 |
|
58.8 |
|
Income from continuing
operations |
|
204.3 |
|
— |
|
(12.4 |
) |
(0.6 |
) |
217.3 |
|
|
178.0 |
|
— |
|
(0.4 |
) |
2.2 |
|
176.2 |
|
Net income attributable to controlling
interest |
|
202.8 |
|
(1.0 |
) |
(12.4 |
) |
(0.6 |
) |
216.8 |
|
|
201.7 |
|
23.6 |
|
(0.4 |
) |
2.2 |
|
176.3 |
|
Diluted income per
common share from continuing operations |
|
3.57 |
|
— |
|
(0.22 |
) |
(0.01 |
) |
3.80 |
|
|
3.15 |
|
— |
|
(0.01 |
) |
0.04 |
|
3.11 |
|
Calculation of
Adjusted EBITDA (3): |
|
Three Months Ended June 27, 2020 |
|
Three Months Ended June 29, 2019 |
Net income (GAAP) |
|
$ |
203.3 |
|
|
$ |
201.6 |
|
Income tax expense from continuing operations |
|
61.8 |
|
|
59.4 |
|
Income tax expense (benefit) from discontinued operations |
|
(1.0 |
) |
|
7.3 |
|
Interest expense |
|
20.3 |
|
|
25.9 |
|
Depreciation |
|
15.3 |
|
|
13.8 |
|
Amortization |
|
7.8 |
|
|
8.4 |
|
Impairment, restructuring and other charges from continuing
operations |
|
15.9 |
|
|
0.5 |
|
Impairment, restructuring and other charges (recoveries) from
discontinued operations |
|
— |
|
|
(30.9 |
) |
Other non-operating (income) expense, net |
|
0.8 |
|
|
(2.9 |
) |
Interest income |
|
(1.9 |
) |
|
(1.9 |
) |
Expense on certain leases |
|
— |
|
|
0.9 |
|
Share-based compensation expense |
|
22.8 |
|
|
11.4 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
345.1 |
|
|
$ |
293.5 |
|
|
|
|
|
|
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)
|
|
Nine Months Ended June 27, 2020 |
|
Nine Months Ended June 29, 2019 |
|
|
As Reported (GAAP) |
Discontinued Operations |
Impairment, Restructuring and Other |
Costs Related to Refinancing |
Other Non-Operating |
Adjusted (Non- GAAP) |
|
As Reported (GAAP) |
Discontinued Operations |
Impairment, Restructuring and Other |
Other Non- Operating |
Adjusted (Non- GAAP) |
Gross profit |
|
$ |
1,131.1 |
|
$ |
— |
|
$ |
(15.3 |
) |
$ |
— |
|
$ |
— |
|
$ |
1,146.4 |
|
|
$ |
930.1 |
|
$ |
— |
|
$ |
(3.4 |
) |
$ |
— |
|
$ |
933.5 |
|
Gross profit as a % of
sales |
|
34.9 |
% |
|
|
|
|
35.4 |
% |
|
35.0 |
% |
|
|
|
35.1 |
% |
Income from operations |
|
575.6 |
|
— |
|
(17.3 |
) |
— |
|
— |
|
592.9 |
|
|
463.5 |
|
— |
|
(7.7 |
) |
— |
|
471.2 |
|
Income from operations as a %
of sales |
|
17.8 |
% |
|
|
|
|
18.3 |
% |
|
17.4 |
% |
|
|
|
17.7 |
% |
Income from continuing
operations before income taxes |
|
504.8 |
|
— |
|
(17.3 |
) |
(15.1 |
) |
(0.8 |
) |
538.0 |
|
|
655.0 |
|
— |
|
(7.7 |
) |
260.2 |
|
402.5 |
|
Income tax expense from
continuing operations |
|
122.0 |
|
— |
|
(2.3 |
) |
(4.4 |
) |
(0.2 |
) |
128.9 |
|
|
162.7 |
|
— |
|
(2.1 |
) |
64.6 |
|
100.2 |
|
Income from continuing
operations |
|
382.8 |
|
— |
|
(15.0 |
) |
(10.7 |
) |
(0.6 |
) |
409.1 |
|
|
492.3 |
|
— |
|
(5.6 |
) |
195.6 |
|
302.3 |
|
Net income
attributable to controlling interest |
|
383.5 |
|
1.6 |
|
(15.0 |
) |
(10.7 |
) |
(0.6 |
) |
408.2 |
|
|
518.6 |
|
26.1 |
|
(5.6 |
) |
195.6 |
|
302.5 |
|
Diluted income per
common share from continuing operations |
|
6.74 |
|
— |
|
(0.26 |
) |
(0.19 |
) |
(0.01 |
) |
7.20 |
|
|
8.78 |
|
— |
|
(0.10 |
) |
3.49 |
|
5.39 |
|
Calculation of
Adjusted EBITDA (3): |
|
Nine Months Ended June 27, 2020 |
|
Nine Months Ended June 29, 2019 |
Net income (GAAP) |
|
$ |
384.4 |
|
|
$ |
518.4 |
|
Income tax expense from continuing operations |
|
122.0 |
|
|
162.7 |
|
Income tax expense from discontinued operations |
|
— |
|
|
9.6 |
|
Costs related to refinancing |
|
15.1 |
|
|
— |
|
Interest expense |
|
63.0 |
|
|
80.0 |
|
Depreciation |
|
45.4 |
|
|
41.8 |
|
Amortization |
|
23.6 |
|
|
25.2 |
|
Impairment, restructuring and other charges from continuing
operations |
|
17.3 |
|
|
7.7 |
|
Impairment, restructuring and other charges (recoveries) from
discontinued operations |
|
(3.1 |
) |
|
(35.8 |
) |
Other non-operating (income) expense, net |
|
0.8 |
|
|
(260.2 |
) |
Interest income |
|
(5.6 |
) |
|
(6.7 |
) |
Expense on certain leases |
|
— |
|
|
2.6 |
|
Share-based compensation expense |
|
41.8 |
|
|
28.4 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
704.7 |
|
|
$ |
573.7 |
|
|
|
|
|
|
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
- Basic income (loss) per common
share amounts are calculated by dividing income (loss) attributable
to controlling interest 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.
- Diluted income (loss) per common share amounts are
calculated by dividing income (loss) attributable to controlling
interest 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.
- 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.
- 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 operations before income taxes excluding impairment,
restructuring and other charges / recoveries and costs related to
refinancing.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 and costs related to
refinancing.Adjusted income (loss) from continuing
operations: Income (loss) from continuing operations
excluding impairment, restructuring and other charges / recoveries
and costs related to refinancing, 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 and discontinued
operations, each net of tax.Adjusted diluted income (loss)
per common share from continuing operations: Diluted net
income (loss) per common share from continuing operations excluding
impairment, restructuring and other charges / recoveries and costs
related to refinancing, 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
4.75 at June 27, 2020) and an interest coverage ratio (minimum
of 3.00 for the twelve months ended June 27, 2020).
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 nine months ended
June 27, 2020, the following items were adjusted, in
accordance with the definitions above, to arrive at the non-GAAP
financial measures:
- The World Health Organization recognized a novel strain of
coronavirus (“COVID-19”) as a public health emergency of
international concern on January 30, 2020 and as a global pandemic
on March 11, 2020. In response to the COVID-19 pandemic, the
Company has implemented additional measures intended to both
protect the health and safety of its employees and maintain its
ability to provide products to its customers, including (i)
requiring a significant part of its workforce to work from home,
(ii) monitoring its employees for COVID-19 symptoms, (iii) making
additional personal protective equipment available to its
operations team, (iv) requiring all manufacturing and warehousing
associates to take their temperatures before beginning a shift, (v)
modifying work methods and schedules of its manufacturing and field
associates to create distance or add barriers between associates,
consumers and others, (vi) expanding cleaning efforts at its
operation centers, (vii) modifying attendance policies so that
associates may elect to stay home if they have symptoms, (viii)
prioritizing production for goods that are more essential to its
customers and (ix) implementing an interim premium pay allowance
for associates in its field sales force as well as those still
working in manufacturing or distribution centers. In addition, to
help address the critical shortage of personal protective equipment
in the fight against COVID-19, the Company shifted production in
its Temecula, California manufacturing plant to produce face
shields to help protect healthcare workers and first responders in
critical need areas across the country. During the three and
nine months ended June 27, 2020, the Company incurred costs of
$12.2 million and $15.3 million, respectively, in the “Cost of
sales—impairment, restructuring and other” line in the Condensed
Consolidated Statements of Operations and incurred costs of $4.3
million and $5.0 million, respectively, in the “Impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations associated with the COVID-19 pandemic
primarily related to premium pay. These direct and incremental
costs were excluded from the Company’s non-GAAP financial measures
because they are not comparable from one period to the next and are
not expected to be part of the ongoing operations of the Company’s
underlying business. As a result of these additional measures and
initiatives, the Company expects to incur up to $35 million of
incremental costs, mostly related to premium pay provided to its
associates.
- 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. Costs incurred
during the three and nine months ended June 27, 2020 related
to Project Catalyst were not material. Additionally, during the
three and nine months ended June 27, 2020, the Company
received zero and $2.6 million, respectively, from the final
settlement of escrow funds related to a previous Hawthorne
acquisition that was recognized in the “Impairment, restructuring
and other” line in the Condensed Consolidated Statements of
Operations.
- On October 23, 2019, the Company redeemed all of its
outstanding 6.000% Senior Notes for a redemption price of $412.5
million, comprised of $0.5 million of accrued and unpaid interest,
$12.0 million of redemption premium, and $400.0 million for
outstanding principal amount. The $12.0 million redemption premium
was recognized in the “Costs related to refinancing” line on the
Condensed Consolidated Statements of Operations during the first
quarter of fiscal 2020. Additionally, the Company had $3.1 million
in unamortized bond issuance costs associated with the 6.000%
Senior Notes, which were written-off during the first quarter of
fiscal 2020 and were recognized in the “Costs related to
refinancing” line in the Condensed Consolidated Statements of
Operations.
- The Company recognized insurance recoveries of zero and $1.5
million related to the previously disclosed legal matter In re
Morning Song Bird Food Litigation during the three and nine months
ended June 27, 2020, respectively, in the “Income (loss) from
discontinued operations, net of tax” line in the Condensed
Consolidated Statements of Operations.
For the three and nine months ended
June 29, 2019, the following items were adjusted, in
accordance with the definitions above, to arrive at the non-GAAP
financial measures:
- On April 1, 2019, the Company sold all of its noncontrolling
equity interest in a joint venture with products supporting the
professional U.S. industrial, turf and ornamental market for cash
proceeds of $36.6 million. During the three and nine
months ended June 29, 2019, the Company recognized a pre-tax
gain of $2.9 million related to this sale in the “Other
non-operating income, net” line in the Condensed Consolidated
Statements of Operations.
- 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 nine months ended June 29, 2019, the
Company recognized a pre-tax gain of zero and $259.8 million,
respectively, related to this sale in the “Other non-operating
income, net” line in the Condensed Consolidated Statement of
Operations.
- During the three and nine months ended June 29, 2019, the
Company recognized charges of $0.4 million and $8.0 million,
respectively, related to Project Catalyst. During the three and
nine months ended June 29, 2019, the Company recognized
charges of $(0.1) million and $3.4 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 nine months
ended June 29, 2019, the Company recognized charges of $0.5
million and $4.6 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
zero and $2.5 million for the three and nine months ended
June 29, 2019, respectively, in the “Other non-operating
income, 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 zero and $0.4
million related to the previously disclosed legal matter In re
Scotts EZ Seed Litigation during the three and nine months ended
June 29, 2019, respectively, in the “Impairment, restructuring
and other” line in the Condensed Consolidated Statements of
Operations.
- The Company recognized a favorable adjustment of $22.5 million
related to the previously disclosed legal matter In re Morning
Song Bird Food Litigation during the three and nine months ended
June 29, 2019, in the “Income (loss) from discontinued
operations, net of tax” line in the Condensed Consolidated
Statements of Operations as a result of the final resolution of the
previously disclosed settlement agreement. In addition, during the
three and nine months ended June 29, 2019, the Company
recognized insurance recoveries of $8.4 million and $13.4
million, respectively, related to this matter in the “Income (loss)
from discontinued operations, net of tax” line in the Condensed
Consolidated Statements of Operations.
Forward Looking Non-GAAP Measures
In this earnings release, the Company presents
its outlook for fiscal 2020 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.
- Effective October 1,
2019, the Company adopted Accounting Standards Codification (“ASC”)
842, Leases (“ASC 842”). This guidance requires lessees to
recognize a lease liability for the obligation to make lease
payments and a right-of-use asset for the right to use the
underlying asset for the lease term. The Company elected the
optional transition method and adopted the new guidance on October
1, 2019 on a modified retrospective basis with no restatement of
prior period amounts. Fiscal 2019 balances and related disclosures
supporting those comparative period balances continue to be
presented under ASC 840, Leases. As allowed under the new
accounting standard, the Company elected to apply practical
expedients to carry forward the original lease determinations,
lease classifications and accounting of initial direct costs for
all asset classes at the time of adoption. The Company also elected
to exclude short-term leases from its Condensed Consolidated
Balance Sheets. The Company’s adoption of the new standard resulted
in the recognition of right-of-use assets of $129.6 million in
the “Other assets” line in the Condensed Consolidated Balance
Sheet, liabilities of $45.4 million in the “Other current
liabilities” line in the Condensed Consolidated Balance Sheet and
liabilities of $88.8 million in the “Other liabilities” line in the
Condensed Consolidated Balance Sheet as of the October 1, 2019
adoption date. Adoption of the new standard did not result in a
material cumulative effect adjustment to equity as of the date of
adoption and did not have a material impact on the Company’s
Condensed Consolidated Statements of Operations or Cash Flows.
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