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 results for its fiscal
second quarter ended April 1, 2023.
“Fiscal 2023 is a testament to the powerful
franchise of our core lawn and garden business,” said Jim Hagedorn,
chairman and CEO. “Our work has been marked by record retailer
shipments, POS lifts and reliable cash generation. We are
de-levering as planned and enhancing our ability to invest in
growth and long-term shareholder value.
“Looking ahead, our collaboration with retailers
is tighter than ever and our combined promotional activities will
keep consumers engaged through the season. The bigger story is
we’re moving toward the transition phase of our recovery with more
freedom to operate.”
Second Quarter Highlights
U.S. Consumer net sales decreased 2 percent
versus record high sales in the same period last year, bringing
first half 2023 sales just ahead of prior year and within 3 percent
of the Company’s record first half in 2021. The Company said this
reflects the strong partnership with retailers on first half
load-in and unparalleled execution by ScottsMiracle-Gro operators
and associates. For the U.S. Consumer business, the first half of
the fiscal year typically comprises 55 to 60 percent of full-year
net sales but less than 30 percent of POS.
After a slow start through March, partly driven
by extreme weather in the West, the U.S. Consumer business saw
improved consumer demand entering May. Even in the uncertain
macroeconomic environment, consumers remain engaged in lawn and
garden and are reacting positively to the Company’s branded
promotions, especially where weather has been favorable. The
DayLawn Saving and Scott for Scotts marketing campaigns and more
recent in-store activities such as Spring Black Friday and
SpringFest events have helped drive earlier consumer engagement.
Based on the mix of consumer takeaway through April, the Company
expects full-year POS volume to meet original expectations based on
stronger performance in growing media and premium lawn fertilizers,
offset by lower volumes in grass seed and private-label
fertilizers. With strong productivity and cost savings from Project
Springboard, the total company gross margin rate is still expected
to approximate a 100 basis point decline year over year despite the
shift in category mix and increased trade investments.
At Hawthorne, the team remains focused on cost
control and restructuring efforts. During the quarter, Hawthorne
further optimized its distribution network by initiating the
closure of four distribution centers. Additionally, the non-core
Hurricane branded fans business was sold. The Company recorded
pre-tax restructuring charges of $141 million in the quarter
associated with these activities.
“The Hawthorne team has shown resilience through
sustained industry challenges, and I commend them for
overdelivering on our original Project Springboard targets and
remaining focused on strategic execution,” said Matt Garth,
executive vice president and chief financial officer. “While we
still expect daily sales rates to improve in the back half of the
year, continued industry challenges make it difficult to provide
topline guidance today. Instead, our full focus remains on cost
control and getting back to run rate profitability by fiscal
year-end. In recognition of the prevailing headwinds, we now expect
a mid-single-digits percentage decline in total Company operating
income and a low single-digits percentage decline in adjusted
EBITDA for the full year.”
The Company reported GAAP income of $1.94 per
diluted share for the quarter. Non-GAAP adjusted earnings, the
basis of the Company’s guidance, was $3.78 per diluted share.
Financial Results
Second Quarter DetailsFor the
quarter ended April 1, 2023, company-wide sales decreased 9 percent
to $1.53 billion. U.S. Consumer segment sales decreased 2 percent
to $1.36 billion, from a record $1.38 billion last year. Hawthorne
segment sales decreased 54 percent to $93 million, compared with
$203 million during the same period a year ago, reflecting the
continued challenges in the hydroponic industry.
January - March 2023 |
Net Sales Drivers (1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
(11)% |
0% |
9% |
0% |
(2)% |
Hawthorne |
(60)% |
0% |
6% |
0% |
(54)% |
Other |
(11)% |
(6)% |
2% |
0% |
(15)% |
Total SMG |
(17)% |
0% |
8% |
0% |
(9)% |
(1) Net Sales percentage changes are approximations based on
quantitative formulas that are consistently applied(2) Other
includes the impact of acquisitions and divestitures
GAAP and non-GAAP adjusted gross margin rates
for the quarter were 26.9 percent and 34.7 percent, respectively.
The GAAP and non-GAAP gross margin rates were 35.1 percent and 35.4
percent, respectively, in the second quarter of last year. Higher
commodities and unfavorable conversion and fixed cost leverage,
primarily related to volume loss at Hawthorne and lower production
volumes in our U.S. consumer business, continued to drive the
non-GAAP gross margin rate decline as expected for the quarter.
Those pressures were mostly offset by last year’s net price
increases and earlier-than-planned Springboard distribution savings
from restructuring at Hawthorne. Mix had a negligible impact on
year-over-year net sales or gross margin rate.
Project Springboard has also contributed to a 9
percent reduction in SG&A to $186 million from $205 million a
year ago.
Interest expense increased $20 million year over
year to $48 million, driven mainly by higher interest rates. The
Company’s average net debt-to-EBITDA ratio at the end of the
quarter was 6.0 times versus the covenant maximum of 6.5 times. The
maximum remains at 6.5 times next quarter before returning to 6.25
times in the fourth quarter of the fiscal year.
The Company reported GAAP net income of $109.4
million, or $1.94 per diluted share, compared with prior year
earnings of $276.5 million, or $4.94 per diluted share. The current
and prior results include after-tax impairment, restructuring, and
other non-recurring items of $104.4 million and $5.0 million,
respectively. Excluding these charges, non-GAAP adjusted earnings
in the quarter were $213.8 million, or $3.78 per diluted share,
compared with earnings of $281.5 million, or $5.03 per diluted
share, in the second quarter of 2022.
Year-to-date detailsFor the
first six months of fiscal 2023, the Company reported sales of
$2.06 billion, down 8 percent from $2.24 billion a year earlier.
U.S. Consumer segment sales increased slightly to $1.73 billion.
Sales for the Hawthorne segment decreased 43 percent to $224
million.
October 2022 - March 2023 |
Net Sales Drivers (1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
(10)% |
0% |
10% |
0% |
0% |
Hawthorne |
(48)% |
(1)% |
5% |
1% |
(43)% |
Other |
(18)% |
(6)% |
7% |
0% |
(17)% |
Total SMG |
(17)% |
(1)% |
9% |
1% |
(8)% |
(1) Net Sales percentage changes are approximations based on
quantitative formulas that are consistently applied(2) Other
includes the impact of acquisitions and divestitures
The company-wide gross margin rate was 24.7
percent on a GAAP basis and 31.0 percent on a non-GAAP adjusted
basis compared with rates of 31.5 percent and 31.7 percent,
respectively, a year ago. SG&A decreased 12 percent to $315
million.
The progress on gross margin rates and SG&A
improvements are reflective of the Company’s Project Springboard
actions that are now slated to deliver at least $200 million in
run-rate savings by fiscal year-end.
On a company-wide basis, GAAP net income was
$44.7 million, or $0.80 per diluted share, compared with $226.4
million, or $4.02 per diluted share, for the first six months of
fiscal 2022. Excluding impairment, restructuring, and other
non-recurring items, non-GAAP adjusted earnings were $157.4
million, or $2.81 per diluted share, compared with $232.9 million,
or $4.14 per diluted share, last year.
“We’ve seen more than $500 million in additional
commodity costs over the past three years,” Garth said. “While some
commodity costs are moderating, they are still higher than two
years ago. We will not begin to see the benefit of this moderation
until fiscal 2024 as we work down higher-priced inventories and
return to normal production volumes. I'm proud of the progress our
team continues to make in improving gross margin rates through
Project Springboard and net pricing actions.”
Hawthorne Restructuring - Closure of
Four Distribution CentersHawthorne also announced the sale
of its Hurricane branded fans business, which closed on March 30,
2023. This divestiture helps accelerate Hawthorne’s closures of
four additional warehouse facilities in Vancouver, WA; Gresham, OR;
Phillipsburg, NJ; and San Bernardino, CA. Costs associated with
these actions are included in the second quarter restructuring
charges.
Fiscal 2023 OutlookThe
Company’s current outlook for fiscal 2023 as compared to fiscal
2022 is as follows:
- Near 100 basis points decline in
gross margin rate
- Mid-single-digits percentage
decline in adjusted operating income
- Low single-digits percentage
decline in adjusted EBITDA
- Interest expense increase of
approximately $60 million
- Effective tax rate of 27 to 28
percent
- Free cash flow of $1 billion over
the next two years
The Company expects to provide an update on
business results and outlook in early June as is typical near the
end of the spring season.
Conference Call and Webcast Scheduled
for 9 a.m. ET Today, May 3The Company will discuss the
results during a webcast and conference call today at 9:00 a.m. ET.
To participate in the conference call, please register in advance
at this link. Upon registration, all telephone participants will
receive the dial-in number along with a unique PIN number that can
be used to access the call. If you do not anticipate asking a
question, we recommend joining via the live webcast on the
Company’s investor relations website at http://investor.scotts.com.
The replay of the conference call will also be available on the
Company’s website, where an archive of the press release and any
accompanying information will remain available for at least a
12-month period.
About ScottsMiracle-GroWith
approximately $3.9 billion in sales, the Company is the world’s
largest marketer 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:
● If the Company underestimates or overestimates demand for its
products and does not maintain appropriate inventory levels, its
net sales and/or working capital could be negatively impacted;
● The Company’s indebtedness could limit its flexibility and
adversely affect its financial condition;
● Disruptions in availability or increases in the prices of raw
materials or fuel could adversely affect the Company's
business;
● The effects of the ongoing coronavirus (COVID-19) pandemic and
any possible recurrence of other similar types of pandemics, or any
other widespread public health emergencies, could have a material
adverse effect on the Company’s business, results of operations,
financial condition, and/or cash flows;
● A significant interruption in the operation of the Company’s
or its suppliers’ facilities could impact the Company’s capacity to
produce products and service its customers, which could adversely
affect the Company’s revenues and earnings;
● The Company’s decision to maintain, reduce or discontinue
paying cash dividends to its shareholders or repurchasing its
Common Shares could cause the market price for its common shares to
decline;
● Climate change and unfavorable weather conditions could
adversely impact financial results;
● 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, or a
material reduction in the inventory of the Company’s products that
they carry, could adversely affect the Company’s financial
results;
● 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;
● 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;
● 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; and
● Hagedorn Partnership, L.P. beneficially owns approximately 25%
of the Company’s common shares and can significantly influence
decisions that require the approval of shareholders.
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.
For investor inquiries:Aimee
DeLucaSr. Vice PresidentInvestor
Relations(937) 578-5621
For media inquiries:Tom
MatthewsChief Communications
OfficerCorporate Affairs(937)
644-7044
THE SCOTTS MIRACLE-GRO COMPANY Condensed
Consolidated Statements of Operations(In millions, except
per share data)(Unaudited) |
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
Footnotes |
|
April 1,2023 |
|
April 2,2022 |
|
%Change |
|
April 1,2023 |
|
April 2,2022 |
|
%Change |
Net sales |
|
|
$ |
1,531.5 |
|
|
$ |
1,678.4 |
|
|
(9)% |
|
$ |
2,058.1 |
|
|
$ |
2,244.3 |
|
|
(8)% |
Cost of sales |
|
|
|
1,000.1 |
|
|
|
1,084.7 |
|
|
|
|
|
1,420.7 |
|
|
|
1,532.0 |
|
|
|
Cost of sales—impairment,
restructuring and other |
|
|
|
118.7 |
|
|
|
5.3 |
|
|
|
|
|
129.0 |
|
|
|
5.3 |
|
|
|
Gross margin |
|
|
|
412.7 |
|
|
|
588.4 |
|
|
(30)% |
|
|
508.4 |
|
|
|
707.0 |
|
|
(28)% |
% of sales |
|
|
|
26.9 |
% |
|
|
35.1 |
% |
|
|
|
|
24.7 |
% |
|
|
31.5 |
% |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
186.3 |
|
|
|
204.7 |
|
|
(9)% |
|
|
314.8 |
|
|
|
358.7 |
|
|
(12)% |
Impairment, restructuring and other |
|
|
|
21.8 |
|
|
|
0.1 |
|
|
|
|
|
30.2 |
|
|
|
1.8 |
|
|
|
Other income, net |
|
|
|
(1.6 |
) |
|
|
(4.3 |
) |
|
|
|
|
(1.0 |
) |
|
|
(6.0 |
) |
|
|
Income from operations |
|
|
|
206.2 |
|
|
|
387.9 |
|
|
(47)% |
|
|
164.4 |
|
|
|
352.5 |
|
|
(53)% |
% of sales |
|
|
|
13.5 |
% |
|
|
23.1 |
% |
|
|
|
|
8.0 |
% |
|
|
15.7 |
% |
|
|
Equity in loss of
unconsolidated affiliates |
|
|
|
7.3 |
|
|
|
6.5 |
|
|
|
|
|
18.7 |
|
|
|
13.8 |
|
|
|
Interest expense |
|
|
|
48.3 |
|
|
|
28.3 |
|
|
|
|
|
91.0 |
|
|
|
52.1 |
|
|
|
Other non-operating (income)
expense, net |
|
|
|
0.8 |
|
|
|
(1.9 |
) |
|
|
|
|
(0.8 |
) |
|
|
(3.7 |
) |
|
|
Income before income
taxes |
|
|
|
149.8 |
|
|
|
355.0 |
|
|
(58)% |
|
|
55.5 |
|
|
|
290.3 |
|
|
(81)% |
Income tax expense |
|
|
|
40.4 |
|
|
|
78.5 |
|
|
|
|
|
10.8 |
|
|
|
63.9 |
|
|
|
Net income |
|
|
$ |
109.4 |
|
|
$ |
276.5 |
|
|
(60)% |
|
$ |
44.7 |
|
|
$ |
226.4 |
|
|
(80)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common
share |
(1) |
|
$ |
1.95 |
|
|
$ |
4.98 |
|
|
(61)% |
|
$ |
0.80 |
|
|
$ |
4.08 |
|
|
(80)% |
Diluted net income per common
share |
(2) |
|
$ |
1.94 |
|
|
$ |
4.94 |
|
|
(61)% |
|
$ |
0.80 |
|
|
$ |
4.02 |
|
|
(80)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares used in basic net income per share calculation |
|
|
|
56.0 |
|
|
|
55.5 |
|
|
1 |
% |
|
|
55.8 |
|
|
|
55.5 |
|
|
1 |
% |
Common shares and potential
common shares used in diluted net income per share calculation |
|
|
|
56.5 |
|
|
|
56.0 |
|
|
1 |
% |
|
|
56.1 |
|
|
|
56.3 |
|
|
— |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
(3) |
|
$ |
213.8 |
|
|
$ |
281.5 |
|
|
(24)% |
|
$ |
157.4 |
|
|
$ |
232.9 |
|
|
(32)% |
Adjusted diluted net income
per common share |
(2) (3) |
|
$ |
3.78 |
|
|
$ |
5.03 |
|
|
(25)% |
|
$ |
2.81 |
|
|
$ |
4.14 |
|
|
(32% |
Adjusted EBITDA |
(3) |
|
$ |
404.8 |
|
|
$ |
436.1 |
|
|
(7)% |
|
$ |
426.0 |
|
|
$ |
434.9 |
|
|
(2)% |
Note: See
accompanying footnotes on page 10. |
|
|
|
|
|
|
|
|
|
|
|
|
The Company divides its operations into three
reportable segments: U.S. Consumer, Hawthorne and Other. U.S.
Consumer consists of the Company’s consumer lawn and garden
business in the United States. Hawthorne consists of the Company’s
indoor and hydroponic gardening business. Other primarily consists
of the Company’s consumer lawn and garden business outside the
United States. 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. In addition,
Corporate consists of general and administrative expenses and
certain other income and expense items not allocated to the
business segments.
The performance of each reportable segment is
evaluated based on several factors, including income (loss) 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 |
|
April 1,2023 |
|
April 2,2022 |
|
%Change |
|
April 1,2023 |
|
April 2,2022 |
|
%Change |
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
1,357.4 |
|
|
$ |
1,379.8 |
|
|
(2)% |
|
$ |
1,726.3 |
|
|
$ |
1,722.2 |
|
|
—% |
Hawthorne |
|
92.7 |
|
|
|
202.6 |
|
|
(54)% |
|
|
224.2 |
|
|
|
393.2 |
|
|
(43)% |
Other |
|
81.4 |
|
|
|
96.0 |
|
|
(15)% |
|
|
107.6 |
|
|
|
128.9 |
|
|
(17)% |
Consolidated |
$ |
1,531.5 |
|
|
$ |
1,678.4 |
|
|
(9)% |
|
$ |
2,058.1 |
|
|
$ |
2,244.3 |
|
|
(8)% |
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Profit (Loss) (Non-GAAP): |
|
|
|
|
|
|
U.S. Consumer |
$ |
397.4 |
|
|
$ |
428.9 |
|
|
(7)% |
|
$ |
428.7 |
|
|
$ |
439.6 |
|
|
(2)% |
Hawthorne |
|
(16.8 |
) |
|
|
3.3 |
|
|
(609)% |
|
|
(33.0 |
) |
|
|
(2.0 |
) |
|
(1,550)% |
Other |
|
14.6 |
|
|
|
10.5 |
|
|
39% |
|
|
16.0 |
|
|
|
11.8 |
|
|
36% |
Total Segment Profit (Non-GAAP) |
|
395.2 |
|
|
|
442.7 |
|
|
(11)% |
|
|
411.7 |
|
|
|
449.4 |
|
|
(8)% |
Corporate |
|
(42.1 |
) |
|
|
(39.1 |
) |
|
|
|
|
(74.0 |
) |
|
|
(70.5 |
) |
|
|
Intangible asset
amortization |
|
(6.4 |
) |
|
|
(10.4 |
) |
|
|
|
|
(14.1 |
) |
|
|
(19.3 |
) |
|
|
Impairment, restructuring and
other |
|
(140.5 |
) |
|
|
(5.3 |
) |
|
|
|
|
(159.2 |
) |
|
|
(7.1 |
) |
|
|
Equity in loss of
unconsolidated affiliates |
|
(7.3 |
) |
|
|
(6.5 |
) |
|
|
|
|
(18.7 |
) |
|
|
(13.8 |
) |
|
|
Interest expense |
|
(48.3 |
) |
|
|
(28.3 |
) |
|
|
|
|
(91.0 |
) |
|
|
(52.1 |
) |
|
|
Other non-operating income
(expense), net |
|
(0.8 |
) |
|
|
1.9 |
|
|
|
|
|
0.8 |
|
|
|
3.7 |
|
|
|
Income before income taxes (GAAP) |
$ |
149.8 |
|
|
$ |
355.0 |
|
|
(58)% |
|
$ |
55.5 |
|
|
$ |
290.3 |
|
|
(81)% |
THE SCOTTS MIRACLE-GRO COMPANYCondensed
Consolidated Balance Sheets(In millions)(Unaudited) |
|
|
April 1,2023 |
|
April 2,2022 |
|
September 30,2022 |
|
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
25.0 |
|
$ |
17.1 |
|
$ |
86.8 |
Accounts receivable, net |
|
|
1,457.9 |
|
|
1,434.6 |
|
|
378.8 |
Inventories |
|
|
1,127.6 |
|
|
1,594.1 |
|
|
1,343.5 |
Prepaid and other current assets |
|
|
231.9 |
|
|
208.6 |
|
|
172.8 |
Total current assets |
|
|
2,842.4 |
|
|
3,254.4 |
|
|
1,981.9 |
Investment in unconsolidated affiliates |
|
|
174.2 |
|
|
193.2 |
|
|
193.8 |
Property, plant and equipment, net |
|
|
588.9 |
|
|
621.0 |
|
|
606.0 |
Goodwill |
|
|
254.3 |
|
|
688.1 |
|
|
254.0 |
Intangible assets, net |
|
|
565.5 |
|
|
799.9 |
|
|
580.2 |
Other assets |
|
|
562.8 |
|
|
650.9 |
|
|
680.9 |
Total assets |
|
$ |
4,988.1 |
|
$ |
6,207.5 |
|
$ |
4,296.8 |
LIABILITIES AND EQUITY |
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of debt |
|
$ |
435.4 |
|
$ |
459.7 |
|
$ |
144.3 |
Accounts payable |
|
|
415.5 |
|
|
507.5 |
|
|
422.6 |
Other current liabilities |
|
|
521.6 |
|
|
503.1 |
|
|
397.0 |
Total current liabilities |
|
|
1,372.5 |
|
|
1,470.3 |
|
|
963.9 |
Long-term debt |
|
|
3,138.0 |
|
|
3,350.0 |
|
|
2,826.2 |
Other liabilities |
|
|
340.1 |
|
|
412.2 |
|
|
359.0 |
Total liabilities |
|
|
4,850.6 |
|
|
5,232.5 |
|
|
4,149.1 |
Equity |
|
|
137.5 |
|
|
975.0 |
|
|
147.7 |
Total liabilities and equity |
|
$ |
4,988.1 |
|
$ |
6,207.5 |
|
$ |
4,296.8 |
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(3)(In millions, except per share data)(Unaudited) |
|
|
Three Months Ended April 1, 2023 |
|
Three Months Ended April 2, 2022 |
|
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted (Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
|
$ |
412.7 |
|
$ |
(118.7 |
) |
$ |
531.5 |
|
|
$ |
588.4 |
|
$ |
(5.3 |
) |
$ |
593.6 |
|
Gross margin as a % of
sales |
|
|
26.9 |
% |
|
|
34.7 |
% |
|
|
35.1 |
% |
|
|
35.4 |
% |
Income from operations |
|
|
206.2 |
|
|
(140.5 |
) |
|
346.7 |
|
|
|
387.9 |
|
|
(5.3 |
) |
|
393.3 |
|
Income from operations as a %
of sales |
|
|
13.5 |
% |
|
|
22.6 |
% |
|
|
23.1 |
% |
|
|
23.4 |
% |
Income before income
taxes |
|
|
149.8 |
|
|
(140.5 |
) |
|
290.3 |
|
|
|
355.0 |
|
|
(5.3 |
) |
|
360.4 |
|
Income tax expense |
|
|
40.4 |
|
|
(36.1 |
) |
|
76.5 |
|
|
|
78.5 |
|
|
(0.3 |
) |
|
78.8 |
|
Net
income |
|
|
109.4 |
|
|
(104.4 |
) |
|
213.8 |
|
|
|
276.5 |
|
|
(5.0 |
) |
|
281.5 |
|
Diluted net income per
common share |
|
|
1.94 |
|
|
(1.85 |
) |
|
3.78 |
|
|
|
4.94 |
|
|
(0.09 |
) |
|
5.03 |
|
Calculation of
Adjusted EBITDA (3): |
|
Three Months Ended April 1, 2023 |
|
Three Months Ended April 2, 2022 |
Net income (GAAP) |
|
$ |
109.4 |
|
|
$ |
276.5 |
|
Income tax expense |
|
|
40.4 |
|
|
|
78.5 |
|
Interest expense |
|
|
48.3 |
|
|
|
28.3 |
|
Depreciation |
|
|
16.0 |
|
|
|
16.4 |
|
Amortization |
|
|
6.4 |
|
|
|
10.4 |
|
Impairment, restructuring and other charges |
|
|
140.5 |
|
|
|
5.3 |
|
Equity in loss of unconsolidated affiliates (4) |
|
|
7.3 |
|
|
|
6.5 |
|
Interest income |
|
|
(1.0 |
) |
|
|
(1.7 |
) |
Share-based compensation |
|
|
37.5 |
|
|
|
15.9 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
404.8 |
|
|
$ |
436.1 |
|
|
|
|
|
|
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 share data)(Unaudited) |
|
Six Months Ended April 1, 2023 |
|
Six Months Ended April 2, 2022 |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted (Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
$ |
508.4 |
|
$ |
(128.9 |
) |
$ |
637.3 |
|
|
$ |
707.0 |
|
$ |
(5.3 |
) |
$ |
712.3 |
|
Gross margin as a % of
sales |
|
24.7 |
% |
|
|
31.0 |
% |
|
|
31.5 |
% |
|
|
31.7 |
% |
Income from operations |
|
164.4 |
|
|
(159.2 |
) |
|
323.6 |
|
|
|
352.5 |
|
|
(7.1 |
) |
|
359.6 |
|
Income from operations as a %
of sales |
|
8.0 |
% |
|
|
15.7 |
% |
|
|
15.7 |
% |
|
|
16.0 |
% |
Income before income
taxes |
|
55.5 |
|
|
(159.2 |
) |
|
214.7 |
|
|
|
290.3 |
|
|
(7.1 |
) |
|
297.4 |
|
Income tax expense |
|
10.8 |
|
|
(46.5 |
) |
|
57.2 |
|
|
|
63.9 |
|
|
(0.6 |
) |
|
64.5 |
|
Net
income |
|
44.7 |
|
|
(112.7 |
) |
|
157.4 |
|
|
|
226.4 |
|
|
(6.5 |
) |
|
232.9 |
|
Diluted net income per
common share |
|
0.80 |
|
|
(2.01 |
) |
|
2.81 |
|
|
|
4.02 |
|
|
(0.12 |
) |
|
4.14 |
|
Calculation of
Adjusted EBITDA (3): |
Six Months Ended April 1, 2023 |
|
Six Months Ended April 2, 2022 |
Net income (GAAP) |
$ |
44.7 |
|
|
$ |
226.4 |
|
Income tax expense |
|
10.8 |
|
|
|
63.9 |
|
Interest expense |
|
91.0 |
|
|
|
52.1 |
|
Depreciation |
|
33.6 |
|
|
|
32.4 |
|
Amortization |
|
14.1 |
|
|
|
19.3 |
|
Impairment, restructuring and other charges |
|
159.2 |
|
|
|
7.1 |
|
Equity in loss of unconsolidated affiliates (4) |
|
18.7 |
|
|
|
13.8 |
|
Interest income |
|
(4.4 |
) |
|
|
(3.3 |
) |
Share-based compensation |
|
58.3 |
|
|
|
23.2 |
|
Adjusted EBITDA
(Non-GAAP) |
$ |
426.0 |
|
|
$ |
434.9 |
|
|
|
|
|
Note: See
accompanying footnotes on page 10. |
The sum of the
components may not equal due to rounding. |
(1) Basic net income (loss) per common share
amounts are calculated by dividing net income (loss) by the
weighted average number of common shares outstanding during the
period.
(2) Diluted net income (loss) per common share
amounts are calculated by dividing net income (loss) 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
non-GAAP financial 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.
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, determining incentive compensation and
determining the amount of cash available for dividends and
discretionary investments, and by investors and analysts in
evaluating performance of the business:
Adjusted gross margin: Gross
margin 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)
before income taxes: Income (loss) before income taxes
excluding impairment, restructuring and other charges / recoveries,
costs related to refinancing and certain other non-operating income
/ expense items.Adjusted income tax expense
(benefit): Income tax expense (benefit) excluding the tax
effect of impairment, restructuring and other charges / recoveries,
costs related to refinancing and certain other non-operating income
/ expense items.Adjusted net income (loss): Net
income (loss) excluding impairment, restructuring and other charges
/ recoveries, costs related to refinancing and certain other
non-operating income / expense items, each net of tax.
Adjusted diluted net income (loss) per common
share: Diluted net income (loss) per common share
excluding impairment, restructuring and other charges / recoveries,
costs related to refinancing and certain other non-operating income
/ expense items, 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 6.50 at April 1, 2023)
and an interest coverage ratio (minimum of 3.00 for the twelve
months ended April 1, 2023).
For the three and six months ended April 1,
2023, the following items were adjusted, in accordance with the
definitions above, to arrive at the non-GAAP financial
measures:
- During fiscal 2022, the Company
began implementing a series of Company-wide organizational changes
and initiatives intended to create operational and management-level
efficiencies. As part of this restructuring program, the Company is
reducing the size of its supply chain network, reducing staffing
levels and implementing other cost-reduction initiatives. During
the three and six months ended April 1, 2023, the Company
incurred costs of $118.7 million and $128.2 million, respectively,
in the “Cost of sales—impairment, restructuring and other” line in
the Condensed Consolidated Statements of Operations and $18.1
million and $23.2 million, respectively, in the “Impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations associated with this restructuring
initiative primarily related to inventory write-down charges,
employee termination benefits, facility closure costs and
impairment of right-of-use assets and property, plant and
equipment.
For the three and six months ended April 2,
2022, the following items were adjusted, in accordance with the
definitions above, to arrive at the non-GAAP financial
measures:
- During the second quarter of fiscal
2022, the Company announced plans to consolidate U.S. lighting
manufacturing for its Hawthorne segment into a single location and
to close another recently acquired assembly facility and move those
operations to its Santa Rosa, California facility. During the three
and six months ended April 2, 2022, the Company incurred costs
of $5.3 million in the “Cost of sales—impairment, restructuring and
other” line in the Condensed Consolidated Statements of Operations
and $0.1 million in the “Impairment, restructuring and other” line
in the Condensed Consolidated Statements of Operations related to
employee termination benefits and impairment of property, plant and
equipment associated with this restructuring initiative.
Forward Looking Non-GAAP Measures
In this release, the Company presents certain
forward-looking non-GAAP measures. The Company does not provide
outlook on a GAAP basis because changes in the items that the
Company excludes from GAAP to calculate the comparable non-GAAP
measure, 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 many of the excluded items for internal use and
therefore cannot create or rely on a GAAP outlook without
unreasonable efforts. The occurrence, timing and amount of any of
the items excluded from GAAP to calculate non-GAAP could
significantly impact the Company’s fiscal 2023 GAAP results. As a
result, the Company does not provide a reconciliation of
forward-looking non-GAAP measures to GAAP measures, in reliance on
the unreasonable efforts exception provided under Item
10(e)(1)(i)(B) of Regulation S-K.
(4) Equity in income / loss of unconsolidated
affiliates is excluded from the calculation of non-GAAP Adjusted
EBITDA. This exclusion is consistent with the calculation of that
measure as required by the Company’s borrowing arrangements. This
change was first reflected in the calculation of Adjusted EBITDA
during the fourth quarter of fiscal 2022. The prior period amounts
have been reclassified to conform to the revised calculation.
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