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 its results for the
third quarter ended July 1, 2023.
Sales for the period declined 6 percent driven
by a 40 percent decline in the Hawthorne segment and a 1 percent
improvement in the U.S. Consumer segment. Separately, the Company
announced additional Project Springboard savings in excess of $100
million, bringing total reductions to more than $300 million, and a
credit facility amendment with lower total revolver capacity and
increased leverage targets.
“Regional weather extremes, inflationary
pressures and price elasticity contributed to declines in retail
foot traffic and volume,” said Jim Hagedorn, chairman and CEO.
“Despite these challenges, POS dollars are up, and we’ve had market
share gains. This is a testament to the power of our consumer
franchise. For a variety of reasons, Lawns has not performed to
expectations. With up to a third of our Lawns business in the fall,
we are investing in aggressive consumer activation programs to
narrow the delta.”
“Just as importantly, we’ve strengthened the
company through expense reduction, cash flow improvement and debt
paydown. We are on target for $1 billion in cash flow by the end of
fiscal ‘24. Looking ahead, our amended credit facility provides
room to meaningfully reduce debt while directing investments into
the core business. In Hawthorne, we have line of sight to
profitability and opportunities to leverage our leading positions
in the multi-billion dollar cannabis space.”
Third quarter detailsFor the
quarter ended July 1, 2023, company-wide sales decreased 6 percent
to $1.12 billion. U.S. Consumer segment sales increased 1 percent
to $916.4 million from $904.5 million driven by strong Growing
Media net sales nearly $100 million higher in the quarter than a
year ago. Hawthorne segment sales decreased 40 percent to $93.4
million, compared with $154.5 million during the same period last
year.
GAAP and non-GAAP adjusted gross margin rates
for the quarter were 18.4 percent and 21.3 percent, respectively.
These compare to 19.9 percent and 25.5 percent in the prior year.
The declines were primarily due to higher commodity costs and
unfavorable conversion and fixed cost leverage related to lower
volume in both major business segments. Gross margin rates were
also nearly 200 basis points lower from one-time pandemic-driven
excess and obsolete inventory write-offs. These combined pressures
were partially offset by net pricing and distribution savings from
Project Springboard. Favorability from net pricing was
significantly lower for the quarter, ending near flat to prior
year, on lower Lawns category volume and higher costs related to
volume rebates and promotional programs. The Company’s
debt-to-EBITDA ratio at the end of the quarter was 6.15 times and
within the revised covenant maximum of 7.00 times.
“In the face of dynamic retail and macro
conditions, we executed on what we could control, including strong
engagement with our retail partners, targeted marketing efforts and
aggressive actions through Project Springboard,” said Matt Garth,
executive vice president and CFO. “We are taking the difficult and
necessary steps to rightsize our business and drive sustainable
efficiency gains. These activities will enhance free cash flow
generation to be directed to debt paydown.”
“The credit facility amendment provides a
maximum leverage glidepath that better reflects the timing of
margin recovery and debt reduction. We remain committed to driving
leverage below 3.5 times as quickly as possible in order to return
to a more balanced and strategic capital allocation approach.”
GAAP net income was $43.7 million, or $0.77 per
diluted share, compared with a prior year loss of $443.9 million,
or $8.01 per diluted share. The current quarter results include
impairment, restructuring and other non-recurring items of $34.5
million, compared to $724.2 million a year ago, primarily related
to inventory write-downs, facility closure costs, and impairment of
right-of-use assets associated with Project Springboard. Non-GAAP
adjusted earnings, which exclude impairment, restructuring, and
other non-recurring items, were $66.0 million, or $1.17 per diluted
share, compared with $110.4 million, or $1.98 per diluted share
last year.
Year-to-date
detailsCompany-wide sales for the first nine months of
fiscal 2023 decreased 7 percent to $3.18 billion, compared with
$3.43 billion a year ago. Sales in the U.S. Consumer segment
increased 1 percent, to $2.64 billion. Hawthorne sales decreased 42
percent to $317.6 million.
The GAAP gross margin rate on a year-to-date
basis was 22.5 percent. The non-GAAP adjusted rate was 27.6
percent. These compare with 27.5 percent and 29.6 percent,
respectively, last year. The reasons for the declines are
consistent with the factors that drove third quarter results.
SG&A of $443.3 million was 13.9 percent of
net sales and reflects a 10 percent decrease from 2022 and a 24
percent decrease over two years, primarily driven by continued cost
savings efforts associated with Project Springboard and lower
accruals for incentive compensation. The Company expects full year
SG&A to be sustainable in a range of 15 to 16 percent of net
sales.
Interest expense increased $55.0 million to
$138.1 million primarily due to an increase in average borrowing
rates. GAAP net income was $88.3 million, or $1.57 per diluted
share, compared with a loss of $217.5 million, or $3.91 per diluted
share, in the prior year.
Non-GAAP adjusted earnings, which exclude
impairment, restructuring and other non-recurring items, were
$223.4 million, or $3.97 per diluted share, compared with $343.3
million, or $6.11 per diluted share last year.
Full-year outlookThe Company
now expects total net sales to decline approximately 10 to 11
percent mainly driven by a net sales decline in the U.S. Consumer
segment of 2 to 4 percent and a net sales decline of 30 to 35
percent in the Hawthorne segment. Additionally, operating income is
expected to range from 7 to 7.5 percent of sales for the year.
Including these revisions, full-year Adjusted EBITDA is expected
below prior year by about 25 percent, and the resulting tax rate
will move higher to 28 to 29 percent for the year. Expectations for
interest expense and strong free cash flow generation remain
unchanged.
Conference Call and Webcast Scheduled
for 9 a.m. ET Today, August 2The Company will discuss
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.
Net sales details
Fiscal Third Quarter (April - June 2023) |
|
|
|
|
|
|
Net Sales Drivers(1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
1% |
–% |
–% |
–% |
1% |
Hawthorne |
(39)% |
–% |
(1 )% |
–% |
(40 )% |
Other |
(18)% |
(4)% |
8% |
–% |
(14)% |
Total SMG |
(6)% |
(1)% |
1% |
–% |
(6)% |
Fiscal
Year-to-Date (October 2022 - June 2023) |
|
|
|
|
|
|
Net Sales
Drivers (1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
(6)% |
–% |
7% |
–% |
1% |
Hawthorne |
(45)% |
(1)% |
3% |
1% |
(42)% |
Other |
(18)% |
(5)% |
8% |
–% |
(15)% |
Total SMG |
(13)% |
–% |
6% |
–% |
(7)% |
(1) Net Sales percentage changes are
approximations based on quantitative formulas that are consistently
applied(2) Other includes the impact of acquisitions and
divestitures and rounding impacts necessary to reconcile volume to
net sales
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 |
|
|
|
Nine Months Ended |
|
|
|
Footnotes |
|
July 1,2023 |
|
July 2,2022 |
|
%Change |
|
July 1,2023 |
|
July 2,2022 |
|
%Change |
Net sales |
|
|
$ |
1,118.7 |
|
|
$ |
1,186.1 |
|
|
(6 |
)% |
|
$ |
3,176.8 |
|
|
$ |
3,430.4 |
|
|
(7 |
)% |
Cost of sales |
|
|
|
880.1 |
|
|
|
883.7 |
|
|
|
|
|
2,300.7 |
|
|
|
2,415.6 |
|
|
|
Cost of sales—impairment,
restructuring and other |
|
|
|
32.7 |
|
|
|
65.8 |
|
|
|
|
|
161.8 |
|
|
|
71.1 |
|
|
|
Gross margin |
|
|
|
205.9 |
|
|
|
236.6 |
|
|
(13 |
)% |
|
|
714.3 |
|
|
|
943.7 |
|
|
(24 |
)% |
% of sales |
|
|
|
18.4 |
% |
|
|
19.9 |
% |
|
|
|
|
22.5 |
% |
|
|
27.5 |
% |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
128.5 |
|
|
|
135.8 |
|
|
(5 |
)% |
|
|
443.3 |
|
|
|
494.6 |
|
|
(10 |
)% |
Impairment, restructuring and other |
|
|
|
1.7 |
|
|
|
658.4 |
|
|
|
|
|
32.0 |
|
|
|
660.2 |
|
|
|
Other (income) expense, net |
|
|
|
(1.6 |
) |
|
|
4.9 |
|
|
|
|
|
(2.7 |
) |
|
|
(1.0 |
) |
|
|
Income (loss) from
operations |
|
|
|
77.3 |
|
|
|
(562.5 |
) |
|
114 |
% |
|
|
241.7 |
|
|
|
(210.1 |
) |
|
215 |
% |
% of sales |
|
|
|
6.9 |
% |
|
(47.4)% |
|
|
|
|
7.6 |
% |
|
(6.1)% |
|
|
Equity in income of
unconsolidated affiliates |
|
|
|
(22.2 |
) |
|
|
(15.1 |
) |
|
|
|
|
(3.5 |
) |
|
|
(1.3 |
) |
|
|
Interest expense |
|
|
|
47.1 |
|
|
|
31.0 |
|
|
|
|
|
138.1 |
|
|
|
83.1 |
|
|
|
Other non-operating (income)
expense, net |
|
|
|
0.4 |
|
|
|
(1.7 |
) |
|
|
|
|
(0.2 |
) |
|
|
(5.4 |
) |
|
|
Income (loss) before income
taxes |
|
|
|
52.0 |
|
|
|
(576.7 |
) |
|
109 |
% |
|
|
107.3 |
|
|
|
(286.5 |
) |
|
137 |
% |
Income tax expense
(benefit) |
|
|
|
8.3 |
|
|
|
(132.8 |
) |
|
|
|
|
19.0 |
|
|
|
(69.0 |
) |
|
|
Net income (loss) |
|
|
$ |
43.7 |
|
|
$ |
(443.9 |
) |
|
110 |
% |
|
$ |
88.3 |
|
|
$ |
(217.5 |
) |
|
141 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per
common share |
(1) |
|
$ |
0.78 |
|
|
$ |
(8.01 |
) |
|
110 |
% |
|
$ |
1.58 |
|
|
$ |
(3.91 |
) |
|
140 |
% |
Diluted net income (loss) per
common share |
(2) |
|
$ |
0.77 |
|
|
$ |
(8.01 |
) |
|
110 |
% |
|
$ |
1.57 |
|
|
$ |
(3.91 |
) |
|
140 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares used in basic
net income (loss) per share calculation |
|
|
|
56.2 |
|
|
|
55.4 |
|
|
1 |
% |
|
|
55.9 |
|
|
|
55.6 |
|
|
1 |
% |
Common shares and potential
common shares used in diluted net income (loss) per share
calculation |
|
|
|
56.6 |
|
|
|
55.4 |
|
|
2 |
% |
|
|
56.3 |
|
|
|
55.6 |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
(3) |
|
$ |
66.0 |
|
|
$ |
110.4 |
|
|
(40 |
)% |
|
$ |
223.4 |
|
|
$ |
343.3 |
|
|
(35 |
)% |
Adjusted diluted net income
per common share |
(2) (3) |
|
$ |
1.17 |
|
|
$ |
1.98 |
|
|
(41 |
)% |
|
$ |
3.97 |
|
|
$ |
6.11 |
|
|
(35 |
)% |
Adjusted EBITDA |
(3) |
|
$ |
127.0 |
|
|
$ |
194.5 |
|
|
(35 |
)% |
|
$ |
553.0 |
|
|
$ |
629.2 |
|
|
(12 |
)% |
Note: See
accompanying footnotes on page 10. |
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO
COMPANYSegment Results(In
millions)(Unaudited)
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 |
|
Nine Months Ended |
|
July 1,2023 |
|
July 2,2022 |
|
%Change |
|
July 1,2023 |
|
July 2,2022 |
|
%Change |
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
916.4 |
|
|
$ |
904.5 |
|
|
1 |
% |
|
$ |
2,642.7 |
|
|
$ |
2,626.7 |
|
|
1 |
% |
Hawthorne |
|
93.4 |
|
|
|
154.5 |
|
|
(40 |
)% |
|
|
317.6 |
|
|
|
547.7 |
|
|
(42 |
)% |
Other |
|
108.9 |
|
|
|
127.1 |
|
|
(14 |
)% |
|
|
216.5 |
|
|
|
256.0 |
|
|
(15 |
)% |
Consolidated |
$ |
1,118.7 |
|
|
$ |
1,186.1 |
|
|
(6 |
)% |
|
$ |
3,176.8 |
|
|
$ |
3,430.4 |
|
|
(7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Profit (Loss) (Non-GAAP): |
|
|
|
|
|
|
U.S. Consumer |
$ |
124.8 |
|
|
$ |
181.1 |
|
|
(31 |
)% |
|
$ |
553.5 |
|
|
$ |
620.7 |
|
|
(11 |
)% |
Hawthorne |
|
(8.7 |
) |
|
|
4.1 |
|
|
(312 |
)% |
|
|
(41.7 |
) |
|
|
2.0 |
|
|
(2,185 |
)% |
Other |
|
5.8 |
|
|
|
10.9 |
|
|
(47 |
)% |
|
|
21.8 |
|
|
|
22.7 |
|
|
(4 |
)% |
Total Segment Profit (Non-GAAP) |
|
121.9 |
|
|
|
196.1 |
|
|
(38 |
)% |
|
|
533.6 |
|
|
|
645.4 |
|
|
(17 |
)% |
Corporate |
|
(3.4 |
) |
|
|
(25.2 |
) |
|
|
|
|
(77.4 |
) |
|
|
(95.7 |
) |
|
|
Intangible asset
amortization |
|
(6.7 |
) |
|
|
(9.2 |
) |
|
|
|
|
(20.8 |
) |
|
|
(28.5 |
) |
|
|
Impairment, restructuring and
other |
|
(34.5 |
) |
|
|
(724.2 |
) |
|
|
|
|
(193.7 |
) |
|
|
(731.3 |
) |
|
|
Equity in income of
unconsolidated affiliates |
|
22.2 |
|
|
|
15.1 |
|
|
|
|
|
3.5 |
|
|
|
1.3 |
|
|
|
Interest expense |
|
(47.1 |
) |
|
|
(31.0 |
) |
|
|
|
|
(138.1 |
) |
|
|
(83.1 |
) |
|
|
Other non-operating income
(expense), net |
|
(0.4 |
) |
|
|
1.7 |
|
|
|
|
|
0.2 |
|
|
|
5.4 |
|
|
|
Income (loss) before income taxes (GAAP) |
$ |
52.0 |
|
|
$ |
(576.7 |
) |
|
109 |
% |
|
$ |
107.3 |
|
|
$ |
(286.5 |
) |
|
137 |
% |
THE SCOTTS MIRACLE-GRO
COMPANYCondensed Consolidated Balance
Sheets(In millions)(Unaudited)
|
July 1,2023 |
|
July 2,2022 |
|
September 30,2022 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
27.4 |
|
$ |
27.8 |
|
$ |
86.8 |
Accounts receivable, net |
|
1,159.9 |
|
|
952.5 |
|
|
378.8 |
Inventories |
|
884.9 |
|
|
1,407.6 |
|
|
1,343.5 |
Prepaid and other current assets |
|
178.8 |
|
|
200.8 |
|
|
172.8 |
Total current assets |
|
2,251.0 |
|
|
2,588.7 |
|
|
1,981.9 |
Investment in unconsolidated affiliates |
|
196.5 |
|
|
208.3 |
|
|
193.8 |
Property, plant and equipment, net |
|
590.3 |
|
|
625.2 |
|
|
606.0 |
Goodwill |
|
254.5 |
|
|
254.7 |
|
|
254.0 |
Intangible assets, net |
|
560.2 |
|
|
627.1 |
|
|
580.2 |
Other assets |
|
601.9 |
|
|
689.7 |
|
|
680.9 |
Total assets |
$ |
4,454.4 |
|
$ |
4,993.7 |
|
$ |
4,296.8 |
LIABILITIES AND EQUITY |
|
|
Current liabilities: |
|
|
|
|
|
Current portion of debt |
$ |
450.7 |
|
$ |
322.0 |
|
$ |
144.3 |
Accounts payable |
|
365.7 |
|
|
291.0 |
|
|
422.6 |
Other current liabilities |
|
512.7 |
|
|
458.9 |
|
|
397.0 |
Total current liabilities |
|
1,329.1 |
|
|
1,071.9 |
|
|
963.9 |
Long-term debt |
|
2,628.8 |
|
|
3,155.6 |
|
|
2,826.2 |
Other liabilities |
|
361.7 |
|
|
348.1 |
|
|
359.0 |
Total liabilities |
|
4,319.6 |
|
|
4,575.6 |
|
|
4,149.1 |
Equity |
|
134.8 |
|
|
418.1 |
|
|
147.7 |
Total liabilities and equity |
$ |
4,454.4 |
|
$ |
4,993.7 |
|
$ |
4,296.8 |
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(3)(In millions, except per share
data)(Unaudited)
|
Three Months Ended July 1, 2023 |
|
Three Months Ended July 2, 2022 |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted (Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
$ |
205.9 |
|
$ |
(32.7 |
) |
$ |
238.6 |
|
|
$ |
236.6 |
|
$ |
(65.8 |
) |
$ |
302.5 |
|
Gross margin as a % of
sales |
|
18.4 |
% |
|
|
21.3 |
% |
|
|
19.9 |
% |
|
|
25.5 |
% |
Income (loss) from
operations |
|
77.3 |
|
|
(34.5 |
) |
|
111.8 |
|
|
|
(562.5 |
) |
|
(724.2 |
) |
|
161.7 |
|
Income (loss) from operations
as a % of sales |
|
6.9 |
% |
|
|
10.0 |
% |
|
|
(47.4 |
)% |
|
|
13.6 |
% |
Income (loss) before income
taxes |
|
52.0 |
|
|
(34.5 |
) |
|
86.4 |
|
|
|
(576.7 |
) |
|
(724.2 |
) |
|
147.5 |
|
Income tax expense
(benefit) |
|
8.3 |
|
|
(12.1 |
) |
|
20.4 |
|
|
|
(132.8 |
) |
|
(169.8 |
) |
|
37.1 |
|
Net income
(loss) |
|
43.7 |
|
|
(22.4 |
) |
|
66.0 |
|
|
|
(443.9 |
) |
|
(554.4 |
) |
|
110.4 |
|
Diluted net income
(loss) per common share |
|
0.77 |
|
|
(0.40 |
) |
|
1.17 |
|
|
|
(8.01 |
) |
|
(9.94 |
) |
|
1.98 |
|
Common shares and potential
common shares used in diluted net income (loss) per share
calculation (4) |
|
56.6 |
|
|
|
56.6 |
|
|
|
55.4 |
|
|
|
55.8 |
|
Calculation of
Adjusted EBITDA (3): |
Three Months Ended July 1, 2023 |
|
Three Months Ended July 2, 2022 |
Net income (loss) (GAAP) |
$ |
43.7 |
|
|
$ |
(443.9 |
) |
Income tax expense (benefit) |
|
8.3 |
|
|
|
(132.8 |
) |
Interest expense |
|
47.1 |
|
|
|
31.0 |
|
Depreciation |
|
15.8 |
|
|
|
17.9 |
|
Amortization |
|
6.7 |
|
|
|
9.2 |
|
Impairment, restructuring and other charges |
|
34.5 |
|
|
|
724.2 |
|
Equity in income of unconsolidated affiliates (5) |
|
(22.2 |
) |
|
|
(15.1 |
) |
Interest income |
|
(1.3 |
) |
|
|
(1.5 |
) |
Share-based compensation |
|
(5.6 |
) |
|
|
5.5 |
|
Adjusted EBITDA
(Non-GAAP) |
$ |
127.0 |
|
|
$ |
194.5 |
|
|
|
|
|
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 share
data)(Unaudited)
|
Nine Months Ended July 1, 2023 |
|
Nine Months Ended July 2, 2022 |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted (Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
$ |
714.3 |
|
$ |
(161.7 |
) |
$ |
876.0 |
|
|
$ |
943.7 |
|
$ |
(71.1 |
) |
$ |
1,014.8 |
|
Gross margin as a % of
sales |
|
22.5 |
% |
|
|
27.6 |
% |
|
|
27.5 |
% |
|
|
29.6 |
% |
Income (loss) from
operations |
|
241.7 |
|
|
(193.7 |
) |
|
435.4 |
|
|
|
(210.1 |
) |
|
(731.3 |
) |
|
521.3 |
|
Income (loss) from operations
as a % of sales |
|
7.6 |
% |
|
|
13.7 |
% |
|
|
(6.1 |
)% |
|
|
15.2 |
% |
Income (loss) before income
taxes |
|
107.3 |
|
|
(193.7 |
) |
|
301.1 |
|
|
|
(286.5 |
) |
|
(731.3 |
) |
|
444.9 |
|
Income tax expense
(benefit) |
|
19.0 |
|
|
(58.6 |
) |
|
77.6 |
|
|
|
(69.0 |
) |
|
(170.5 |
) |
|
101.6 |
|
Net income
(loss) |
|
88.3 |
|
|
(135.1 |
) |
|
223.4 |
|
|
|
(217.5 |
) |
|
(560.8 |
) |
|
343.3 |
|
Diluted net income
(loss) per common share |
|
1.57 |
|
|
(2.40 |
) |
|
3.97 |
|
|
|
(3.91 |
) |
|
(9.98 |
) |
|
6.11 |
|
Common shares and potential
common shares used in diluted net income (loss) per share
calculation (4) |
|
56.3 |
|
|
|
56.3 |
|
|
|
55.6 |
|
|
|
56.2 |
|
Calculation of
Adjusted EBITDA (3): |
Nine Months Ended July 1, 2023 |
|
Nine Months Ended July 2, 2022 |
Net income (loss) (GAAP) |
$ |
88.3 |
|
|
$ |
(217.5 |
) |
Income tax expense (benefit) |
|
19.0 |
|
|
|
(69.0 |
) |
Interest expense |
|
138.1 |
|
|
|
83.1 |
|
Depreciation |
|
49.6 |
|
|
|
50.3 |
|
Amortization |
|
20.8 |
|
|
|
28.5 |
|
Impairment, restructuring and other charges |
|
193.7 |
|
|
|
731.3 |
|
Equity in income of unconsolidated affiliates (5) |
|
(3.5 |
) |
|
|
(1.3 |
) |
Interest income |
|
(5.7 |
) |
|
|
(4.8 |
) |
Share-based compensation |
|
52.7 |
|
|
|
28.6 |
|
Adjusted EBITDA
(Non-GAAP) |
$ |
553.0 |
|
|
$ |
629.2 |
|
|
|
|
|
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). A form of Adjusted EBITDA is used in
agreements governing the Company’s outstanding indebtedness for
debt covenant compliance purposes. Adjusted EBITDA as used in those
agreements includes additional adjustments to the Adjusted EBITDA
presented in the Company’s earnings press releases and investor
presentations which may decrease or increase Adjusted EBITDA for
purposes of the Company’s financial covenants.
For the three and nine months ended July 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 nine months ended July 1, 2023, the Company
incurred costs of $32.7 million and $160.9 million, respectively,
in the “Cost of sales—impairment, restructuring and other” line in
the Condensed Consolidated Statements of Operations and $1.7
million and $24.9 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 nine months ended July 2,
2022, the following items were adjusted, in accordance with the
definitions above, to arrive at the non-GAAP financial
measures:
- During the three and nine months
ended July 2, 2022, the Company recognized non-cash, pre-tax
goodwill and intangible asset impairment charges of $632.4 million
related to its Hawthorne segment in the “Impairment, restructuring
and other” line in the Condensed Consolidated Statements of
Operations, comprised of $522.4 million of goodwill impairment
charges and $110.0 million of finite-lived intangible asset
impairment charges. The tax impact of the impairment charges was a
benefit of $138.0 million for the three and nine months ended July
2, 2022 and was recorded in the “Income tax expense (benefit)” line
in the Condensed Consolidated Statements of Operations.
- During the three and nine months
ended July 2, 2022, the Company incurred inventory write-down
charges of $45.9 million in the “Cost of sales—impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations associated with its decision to
discontinue and exit the market for certain lighting products and
brands.
- During the three and nine months
ended July 2, 2022, the Company began implementing a series of
Company-wide organizational changes and initiatives intended to
create operational and management-level efficiencies. During the
three and nine months ended July 2, 2022, the Company incurred
costs of $19.9 million and $25.2 million, respectively, in the
“Cost of sales—impairment, restructuring and other” line in the
Condensed Consolidated Statements of Operations and $20.8 million
in the “Impairment, restructuring and other” line in the Condensed
Consolidated Statements of Operations primarily 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 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) Due to the GAAP net loss for the three and
nine months ended July 2, 2022, diluted average common shares
used in the GAAP diluted loss per common share calculation excluded
potential Common Shares of 0.4 million and 0.6 million,
respectively, because the effect of their inclusion would be
anti-dilutive. Diluted average common shares used in the non-GAAP
adjusted diluted income per common share calculation for the three
and nine months ended July 2, 2022 included dilutive potential
Common Shares of 0.4 million and 0.6 million, respectively.
(5) 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.
Scotts Miracle Gro (NYSE:SMG)
Historical Stock Chart
From May 2024 to Jun 2024
Scotts Miracle Gro (NYSE:SMG)
Historical Stock Chart
From Jun 2023 to Jun 2024