The Scotts Miracle-Gro Company (NYSE: SMG), the world’s largest
marketer of branded consumer lawn and garden as well as a leader in
indoor and hydroponic growing products, today announced its results
for the second quarter ended March 30, 2024.
“Through the first six months of our fiscal
year, we exceeded operating plan targets and made progress on the
most important financial metrics driving our business,” said Jim
Hagedorn, chairman, CEO and president. “We’re in a favorable
position to achieve our fiscal 2024 guidance as well as meet our
goals for cash flow generation, debt reduction and gross margin
improvement.
“We’re a much leaner and more cost-efficient
organization with a near-term focus on precision execution. At the
same time, because we’ve stabilized and created financial
flexibility, we can shift from crisis management to operating the
business the way it should be run - from a position of strength and
with a growth mindset.”
Financial Results
Second Quarter DetailsFor the
quarter ended March 30, 2024, total Company sales were
approximately flat at $1.53 billion compared to a year ago. U.S.
Consumer net sales increased 2 percent to $1.38 billion from $1.36
billion in the same period last year. U.S. Consumer segment
favorability was mainly driven by increased listings and early
season promotions associated with the growing media category.
“With outstanding retail partnerships and
execution by our team, the U.S. Consumer business delivered a
strong second quarter that tied the record high for net sales set
two years ago,” said Matt Garth, chief financial and administrative
officer. “All of our associates are acutely focused on delivering
the remainder of the year with 60 percent of POS coming in the
third quarter and the heart of the lawns season still ahead of
us.”
Hawthorne segment sales for the quarter
decreased 28 percent to $66.4 million compared to $92.7 million
last year. The decline was largely due to the Company’s previously
announced focus on its proprietary Signature brands and
discontinuation of its third-party distributed brands business,
along with continued pressure on the indoor and hydroponic industry
as a whole. During the quarter, Hawthorne announced its strategic
partnership with BFG Supply to change its go-to-market approach for
its higher-margin Signature portfolio and to fully exit
distribution of third-party brands.
GAAP and non-GAAP adjusted gross margin rates
for the quarter were 30.4 percent and 35.3 percent, respectively.
These compare to 26.9 percent and 34.7 percent, respectively, in
the prior year. The improvement was due primarily to the
annualization of distribution savings and lower cost materials
partially offset by net price decreases.
SG&A decreased 4 percent to $178.7 million
during the quarter compared to $186.3 million a year ago, and
declined 12.7 percent compared to the second quarter of fiscal
2022, primarily driven by annualization of Project Springboard
savings.
Other expense was $10.8 million in the quarter
driven by the discount on the sale of accounts receivable
associated with the new Accounts Receivable Sale Agreement. Costs
associated with prior years’ Accounts Receivable financing
facilities were included as a component of interest expense below
operating income.
Interest expense during the quarter declined 9
percent compared to the same quarter last year driven by the
Company’s utilization of its Accounts Receivable facility resulting
in lower debt during the period. The Company’s average net debt to
adjusted EBITDA leverage ratio at the end of the quarter was 6.95
times, well within the covenant maximum of 7.75 times. The maximum
EBITDA multiple under the revised leverage ratio covenants
decreases to 6.50 in the third quarter and to 6.00 in the fourth
quarter of the fiscal year. Going forward, the Company expects to
operate well within covenant bounds.
The Company recorded pre-tax restructuring
charges of $77.0 million during the quarter primarily related to
the incremental contraction of the Hawthorne supply chain
network.
The Company reported GAAP net income of $157.5
million, or $2.74 per diluted share, compared with $109.4 million,
or $1.94 per diluted share, in the same quarter a year ago.
Non-GAAP adjusted net income for the quarter, which excludes
impairment, restructuring and other non-recurring items, was $211.9
million, or $3.69 per diluted share, compared with $213.8 million,
or $3.78 per diluted share, for the same period last year.
Year-to-date DetailsFor the
first six months of fiscal 2024, the Company reported sales of
$1.94 billion, down 6 percent from $2.06 billion a year earlier.
U.S. Consumer segment sales decreased 2 percent to $1.69 billion
related to rephasing of shipments toward pre-pandemic norms. Sales
for the Hawthorne segment decreased 35 percent to $146.6
million.
The company-wide gross margin rate was 27.2
percent on a GAAP basis and 30.7 percent on a non-GAAP adjusted
basis compared with rates of 24.7 percent and 31.0 percent,
respectively, a year ago. SG&A decreased 7 percent to $293.5
million. The Company expects to recognize more than 80 percent of
the final $100 million of Project Springboard savings by the end of
fiscal 2024.
Below operating income, first-half results
include a $19.1 million adjusted loss from the Bonnie JV that
excludes a pre-tax impairment charge of $10.4 million recorded
during the first quarter of this fiscal year. The first-half
adjusted loss is comparable to the adjusted loss from the JV for
the same period a year ago.
On a company-wide basis, GAAP net income was
$77.0 million, or $1.34 per diluted share, compared with $44.7
million, or $0.80 per diluted share, for the first six months a
year ago. Excluding impairment, restructuring and other
non-recurring items, non-GAAP adjusted earnings were $129.7
million, or $2.26 per diluted share, compared with $157.4 million,
or $2.81 per diluted share, last year.
Fiscal 2024 Outlook
The Company reaffirms its previously announced
non-GAAP fiscal 2024 guidance. More details will be shared during
today’s call, and the Company expects to provide an updated outlook
in early June. The Company’s primary objective remains restoring a
strong balance sheet with meaningful improvements in leverage and
working capital by generating $575 million of adjusted EBITDA and
free cash flow of $560 million.
Conference Call and Webcast Scheduled
for 9 a.m. ET Today, May 1
The Company will discuss results during a video
presentation via webcast today at 9:00 a.m. ET. To watch the
Company presentation and listen to the question-and-answer session,
please register in advance at this webcast link. For those planning
to participate in the question-and-answer session that follows the
video presentation, please register for the webcast to view the
presentation in addition to registering in advance via this audio
link to receive call-in details and a unique PIN. A replay of the
conference call will also be available on the Company’s
investor 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 Second Quarter (January - March 2024) |
Net Sales Drivers (1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
4% |
–% |
(2)% |
–% |
2% |
Hawthorne |
(24)% |
–% |
(4)% |
–% |
(28)% |
Other |
(2)% |
–% |
(1)% |
–% |
(3)% |
Total SMG |
2% |
–% |
(2)% |
–% |
–% |
Fiscal Year-to-Date (October 2023 - March
2024) |
Net Sales Drivers (1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
–% |
–% |
(2)% |
–% |
(2)% |
Hawthorne |
(32)% |
–% |
(3)% |
–% |
(35)% |
Other |
(4)% |
–% |
(1)% |
–% |
(5)% |
Total SMG |
(4)% |
–% |
(2)% |
–% |
(6)% |
(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 to net sales |
|
|
About ScottsMiracle-GroWith
approximately $3.6 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:
- An economic
downturn and economic uncertainty may adversely affect demand for
the Company’s products;
- 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
operations, financial condition or reputation, 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;
- Climate change and
unfavorable weather conditions could adversely impact financial
results;
- Our success depends
upon the retention and availability of key personnel and the
effective succession of senior management;
- Our workforce
reductions may cause undesirable consequences and our results of
operations may be harmed;
- Disruptions in
availability or increases in the prices of raw materials, fuel or
transportation costs could adversely affect our results of
operations;
- 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;
- 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;
- Compliance with
environmental and other public health regulations or changes in
such regulations or regulatory enforcement priorities could
increase our costs of doing business or limit our ability to market
all of our products;
- 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;
- The Company’s
indebtedness could limit its flexibility and adversely affect its
financial condition;
- 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;
- If the perception
of the Company’s brands or organizational reputation are damaged,
its customers, distributors and retailers may react negatively,
which could materially and adversely affect the Company’s business,
financial condition and results of operations;
- 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 24% 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
President, Investor Relationsaimee.deluca@scotts.com(937)
578-5621
For media inquiries:Tom MatthewsChief
Communications Officertom.matthews@scotts.com(937) 644-7044
THE SCOTTS MIRACLE-GRO COMPANYCondensed
Consolidated Statements of Operations(In millions, except
per share data)(Unaudited) |
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
|
Footnotes |
|
March 30,2024 |
|
April 1,2023 |
|
%Change |
|
March 30,2024 |
|
April 1,2023 |
|
%Change |
Net sales |
|
|
|
$ |
1,525.4 |
|
|
$ |
1,531.5 |
|
|
— |
% |
|
$ |
1,935.8 |
|
|
$ |
2,058.1 |
|
|
(6 |
)% |
Cost of sales |
|
|
|
|
986.8 |
|
|
|
1,000.1 |
|
|
|
|
|
1,340.8 |
|
|
|
1,420.7 |
|
|
|
Cost of sales—impairment,
restructuring and other |
|
|
|
|
74.9 |
|
|
|
118.7 |
|
|
|
|
|
69.1 |
|
|
|
129.0 |
|
|
|
Gross margin |
|
|
|
|
463.7 |
|
|
|
412.7 |
|
|
12 |
% |
|
|
525.9 |
|
|
|
508.4 |
|
|
3 |
% |
% of sales |
|
|
|
|
30.4 |
% |
|
|
26.9 |
% |
|
|
|
|
27.2 |
% |
|
|
24.7 |
% |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
178.7 |
|
|
|
186.3 |
|
|
(4 |
)% |
|
|
293.5 |
|
|
|
314.8 |
|
|
(7 |
)% |
Impairment, restructuring and other |
|
|
|
|
2.1 |
|
|
|
21.8 |
|
|
|
|
|
(5.0 |
) |
|
|
30.2 |
|
|
|
Other (income) expense, net |
|
|
|
|
10.8 |
|
|
|
(1.6 |
) |
|
|
|
|
12.6 |
|
|
|
(1.0 |
) |
|
|
Income from operations |
|
|
|
|
272.1 |
|
|
|
206.2 |
|
|
32 |
% |
|
|
224.8 |
|
|
|
164.4 |
|
|
37 |
% |
% of sales |
|
|
|
|
17.8 |
% |
|
|
13.5 |
% |
|
|
|
|
11.6 |
% |
|
|
8.0 |
% |
|
|
Equity in loss of
unconsolidated affiliates |
|
|
|
|
7.0 |
|
|
|
7.3 |
|
|
|
|
|
29.5 |
|
|
|
18.7 |
|
|
|
Interest expense |
|
|
|
|
44.1 |
|
|
|
48.3 |
|
|
|
|
|
86.8 |
|
|
|
91.0 |
|
|
|
Other non-operating (income)
expense, net |
|
|
|
|
1.2 |
|
|
|
0.8 |
|
|
|
|
|
2.9 |
|
|
|
(0.8 |
) |
|
|
Income before income
taxes |
|
|
|
|
219.8 |
|
|
|
149.8 |
|
|
47 |
% |
|
|
105.6 |
|
|
|
55.5 |
|
|
90 |
% |
Income tax expense |
|
|
|
|
62.3 |
|
|
|
40.4 |
|
|
|
|
|
28.6 |
|
|
|
10.8 |
|
|
|
Net income |
|
|
|
$ |
157.5 |
|
|
$ |
109.4 |
|
|
44 |
% |
|
$ |
77.0 |
|
|
$ |
44.7 |
|
|
72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
(1 |
) |
|
$ |
2.77 |
|
|
$ |
1.95 |
|
|
42 |
% |
|
$ |
1.36 |
|
|
$ |
0.80 |
|
|
70 |
% |
Diluted net income per common
share |
|
(2 |
) |
|
$ |
2.74 |
|
|
$ |
1.94 |
|
|
41 |
% |
|
$ |
1.34 |
|
|
$ |
0.80 |
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares used in basic
net income per share calculation |
|
|
|
|
56.8 |
|
|
|
56.0 |
|
|
1 |
% |
|
|
56.7 |
|
|
|
55.8 |
|
|
2 |
% |
Common shares and potential
common shares used in diluted net income per share calculation |
|
|
|
|
57.4 |
|
|
|
56.5 |
|
|
2 |
% |
|
|
57.3 |
|
|
|
56.1 |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
|
(3 |
) |
|
$ |
211.9 |
|
|
$ |
213.8 |
|
|
(1 |
)% |
|
$ |
129.7 |
|
|
$ |
157.4 |
|
|
(18 |
)% |
Adjusted diluted net income
per common share |
|
(2) (3 |
) |
|
$ |
3.69 |
|
|
$ |
3.78 |
|
|
(2 |
)% |
|
$ |
2.26 |
|
|
$ |
2.81 |
|
|
(20 |
)% |
Adjusted EBITDA |
|
(3 |
) |
|
$ |
396.3 |
|
|
$ |
404.8 |
|
|
(2 |
)% |
|
$ |
370.5 |
|
|
$ |
426.0 |
|
|
(13 |
)% |
Note: See
accompanying footnotes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 in Canada. 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:
THE SCOTTS MIRACLE-GRO COMPANYSegment
Results(In millions)(Unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
March 30,2024 |
|
April 1,2023 |
|
%Change |
|
March 30,2024 |
|
April 1,2023 |
|
%Change |
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
1,379.8 |
|
|
$ |
1,357.4 |
|
|
2 |
% |
|
$ |
1,686.5 |
|
|
$ |
1,726.3 |
|
|
(2 |
)% |
Hawthorne |
|
66.4 |
|
|
|
92.7 |
|
|
(28 |
)% |
|
|
146.6 |
|
|
|
224.2 |
|
|
(35 |
)% |
Other |
|
79.2 |
|
|
|
81.4 |
|
|
(3 |
)% |
|
|
102.7 |
|
|
|
107.6 |
|
|
(5 |
)% |
Consolidated |
$ |
1,525.4 |
|
|
$ |
1,531.5 |
|
|
— |
% |
|
$ |
1,935.8 |
|
|
$ |
2,058.1 |
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Profit (Loss) (Non-GAAP): |
|
|
|
|
|
|
U.S. Consumer |
$ |
385.7 |
|
|
$ |
397.4 |
|
|
(3 |
)% |
|
$ |
370.3 |
|
|
$ |
428.7 |
|
|
(14 |
)% |
Hawthorne |
|
(3.4 |
) |
|
|
(16.8 |
) |
|
80 |
% |
|
|
(13.0 |
) |
|
|
(33.0 |
) |
|
61 |
% |
Other |
|
6.4 |
|
|
|
14.6 |
|
|
(56 |
)% |
|
|
1.2 |
|
|
|
16.0 |
|
|
(93 |
)% |
Total Segment Profit (Non-GAAP) |
|
388.7 |
|
|
|
395.2 |
|
|
(2 |
)% |
|
|
358.5 |
|
|
|
411.7 |
|
|
(13 |
)% |
Corporate |
|
(35.7 |
) |
|
|
(42.1 |
) |
|
|
|
|
(61.7 |
) |
|
|
(74.0 |
) |
|
|
Intangible asset
amortization |
|
(3.9 |
) |
|
|
(6.4 |
) |
|
|
|
|
(7.9 |
) |
|
|
(14.1 |
) |
|
|
Impairment, restructuring and
other |
|
(77.0 |
) |
|
|
(140.5 |
) |
|
|
|
|
(64.1 |
) |
|
|
(159.2 |
) |
|
|
Equity in loss of
unconsolidated affiliates |
|
(7.0 |
) |
|
|
(7.3 |
) |
|
|
|
|
(29.5 |
) |
|
|
(18.7 |
) |
|
|
Interest expense |
|
(44.1 |
) |
|
|
(48.3 |
) |
|
|
|
|
(86.8 |
) |
|
|
(91.0 |
) |
|
|
Other non-operating income
(expense), net |
|
(1.2 |
) |
|
|
(0.8 |
) |
|
|
|
|
(2.9 |
) |
|
|
0.8 |
|
|
|
Income before income taxes (GAAP) |
$ |
219.8 |
|
|
$ |
149.8 |
|
|
47 |
% |
|
$ |
105.6 |
|
|
$ |
55.5 |
|
|
90 |
% |
THE SCOTTS MIRACLE-GRO COMPANYCondensed
Consolidated Balance Sheets(In millions)(Unaudited) |
|
|
March 30,2024 |
|
April 1,2023 |
|
September 30,2023 |
|
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
65.1 |
|
|
$ |
25.0 |
|
$ |
31.9 |
|
Accounts receivable, net |
|
|
876.9 |
|
|
|
1,457.9 |
|
|
304.2 |
|
Inventories |
|
|
824.3 |
|
|
|
1,127.6 |
|
|
880.3 |
|
Prepaid and other current assets |
|
|
168.8 |
|
|
|
231.9 |
|
|
181.4 |
|
Total current assets |
|
|
1,935.1 |
|
|
|
2,842.4 |
|
|
1,397.8 |
|
Investment in unconsolidated affiliates |
|
|
83.8 |
|
|
|
174.2 |
|
|
91.9 |
|
Property, plant and equipment, net |
|
|
608.2 |
|
|
|
588.9 |
|
|
610.3 |
|
Goodwill |
|
|
243.9 |
|
|
|
254.3 |
|
|
243.9 |
|
Intangible assets, net |
|
|
428.9 |
|
|
|
565.5 |
|
|
436.7 |
|
Other assets |
|
|
624.3 |
|
|
|
562.8 |
|
|
633.1 |
|
Total assets |
|
$ |
3,924.2 |
|
|
$ |
4,988.1 |
|
$ |
3,413.7 |
|
LIABILITIES AND EQUITY (DEFICIT) |
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of debt |
|
$ |
57.8 |
|
|
$ |
435.4 |
|
$ |
52.3 |
|
Accounts payable |
|
|
440.4 |
|
|
|
415.5 |
|
|
271.2 |
|
Other current liabilities |
|
|
562.1 |
|
|
|
521.6 |
|
|
450.2 |
|
Total current liabilities |
|
|
1,060.3 |
|
|
|
1,372.5 |
|
|
773.7 |
|
Long-term debt |
|
|
2,760.5 |
|
|
|
3,138.0 |
|
|
2,557.4 |
|
Other liabilities |
|
|
354.3 |
|
|
|
340.1 |
|
|
349.9 |
|
Total liabilities |
|
|
4,175.1 |
|
|
|
4,850.6 |
|
|
3,681.0 |
|
Equity (deficit) |
|
|
(250.9 |
) |
|
|
137.5 |
|
|
(267.3 |
) |
Total liabilities and equity (deficit) |
|
$ |
3,924.2 |
|
|
$ |
4,988.1 |
|
$ |
3,413.7 |
|
THE SCOTTS MIRACLE-GRO
COMPANYReconciliation of Non-GAAP Disclosure Items
(3)(In millions, except per share data)(Unaudited) |
|
|
|
Three Months Ended March 30, 2024 |
|
Three Months Ended April 1, 2023 |
|
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted (Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
|
$ |
463.7 |
|
$ |
(74.9 |
) |
$ |
538.6 |
|
|
$ |
412.7 |
|
$ |
(118.7 |
) |
$ |
531.5 |
|
Gross margin as a % of
sales |
|
|
30.4 |
% |
|
|
35.3 |
% |
|
|
26.9 |
% |
|
|
34.7 |
% |
Income from operations |
|
|
272.1 |
|
|
(77.0 |
) |
|
349.1 |
|
|
|
206.2 |
|
|
(140.5 |
) |
|
346.7 |
|
Income from operations as a %
of sales |
|
|
17.8 |
% |
|
|
22.9 |
% |
|
|
13.5 |
% |
|
|
22.6 |
% |
Income before income
taxes |
|
|
219.8 |
|
|
(77.0 |
) |
|
296.8 |
|
|
|
149.8 |
|
|
(140.5 |
) |
|
290.3 |
|
Income tax expense |
|
|
62.3 |
|
|
(22.6 |
) |
|
84.9 |
|
|
|
40.4 |
|
|
(36.1 |
) |
|
76.5 |
|
Net
income |
|
|
157.5 |
|
|
(54.4 |
) |
|
211.9 |
|
|
|
109.4 |
|
|
(104.4 |
) |
|
213.8 |
|
Diluted net income per
common share |
|
|
2.74 |
|
|
(0.95 |
) |
|
3.69 |
|
|
|
1.94 |
|
|
(1.85 |
) |
|
3.78 |
|
Calculation of
Adjusted EBITDA (3): |
|
Three Months Ended March 30, 2024 |
|
Three Months Ended April 1, 2023 |
Net income (GAAP) |
|
$ |
157.5 |
|
|
$ |
109.4 |
|
Income tax expense |
|
|
62.3 |
|
|
|
40.4 |
|
Interest expense |
|
|
44.1 |
|
|
|
48.3 |
|
Depreciation |
|
|
16.2 |
|
|
|
16.0 |
|
Amortization |
|
|
3.9 |
|
|
|
6.4 |
|
Impairment, restructuring and other charges |
|
|
77.0 |
|
|
|
140.5 |
|
Equity in loss of unconsolidated affiliates |
|
|
7.0 |
|
|
|
7.3 |
|
Interest income |
|
|
(0.2 |
) |
|
|
(1.0 |
) |
Share-based compensation |
|
|
28.5 |
|
|
|
37.5 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
396.3 |
|
|
$ |
404.8 |
|
|
|
|
|
|
Note: See
accompanying footnotes. |
The sum of the
components may not equal due to rounding. |
|
|
Six Months Ended March 30, 2024 |
|
Six Months Ended April 1, 2023 |
|
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted (Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
|
$ |
525.9 |
|
$ |
(69.1 |
) |
$ |
595.0 |
|
|
$ |
508.4 |
|
$ |
(128.9 |
) |
$ |
637.3 |
|
Gross margin as a % of
sales |
|
|
27.2 |
% |
|
|
30.7 |
% |
|
|
24.7 |
% |
|
|
31.0 |
% |
Income from operations |
|
|
224.8 |
|
|
(64.1 |
) |
|
288.9 |
|
|
|
164.4 |
|
|
(159.2 |
) |
|
323.6 |
|
Income from operations as a %
of sales |
|
|
11.6 |
% |
|
|
14.9 |
% |
|
|
8.0 |
% |
|
|
15.7 |
% |
Equity in loss of
unconsolidated affiliates |
|
|
29.5 |
|
|
10.4 |
|
|
19.1 |
|
|
|
18.7 |
|
|
— |
|
|
18.7 |
|
Income before income
taxes |
|
|
105.6 |
|
|
(74.5 |
) |
|
180.1 |
|
|
|
55.5 |
|
|
(159.2 |
) |
|
214.7 |
|
Income tax expense |
|
|
28.6 |
|
|
(21.9 |
) |
|
50.5 |
|
|
|
10.8 |
|
|
(46.5 |
) |
|
57.2 |
|
Net
income |
|
|
77.0 |
|
|
(52.7 |
) |
|
129.7 |
|
|
|
44.7 |
|
|
(112.7 |
) |
|
157.4 |
|
Diluted net income per
common share |
|
|
1.34 |
|
|
(0.92 |
) |
|
2.26 |
|
|
|
0.80 |
|
|
(2.01 |
) |
|
2.81 |
|
Calculation of
Adjusted EBITDA (3): |
|
Six Months Ended March 30, 2024 |
|
Six Months Ended April 1, 2023 |
Net income (GAAP) |
|
$ |
77.0 |
|
|
$ |
44.7 |
|
Income tax expense |
|
|
28.6 |
|
|
|
10.8 |
|
Interest expense |
|
|
86.8 |
|
|
|
91.0 |
|
Depreciation |
|
|
32.3 |
|
|
|
33.6 |
|
Amortization |
|
|
7.9 |
|
|
|
14.1 |
|
Impairment, restructuring and other charges |
|
|
64.1 |
|
|
|
159.2 |
|
Equity in loss of unconsolidated affiliates |
|
|
29.5 |
|
|
|
18.7 |
|
Interest income |
|
|
(0.3 |
) |
|
|
(4.4 |
) |
Share-based compensation |
|
|
44.6 |
|
|
|
58.3 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
370.5 |
|
|
$ |
426.0 |
|
|
|
|
|
|
Note: See
accompanying footnotes. |
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,
determine incentive compensation and monitor compliance with the
financial covenants contained in the Company’s borrowing agreements
because it believes that these non-GAAP financial 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:
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 equity in income (loss) of
unconsolidated affiliates: Equity in income (loss) of
unconsolidated affiliates excluding impairment
charges.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 reconciliations above which may decrease or
increase Adjusted EBITDA for purposes of the Company’s financial
covenants.
For the three and six months ended
March 30, 2024, 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 second quarter of fiscal 2024, the Company commenced plans to
close additional Hawthorne distribution centers. The Company has
also accelerated the reduction of certain Hawthorne inventory,
primarily lighting, growing environments and hardware products, to
reduce its on hand inventory to align with the reduced network
capacity. During the three and six months ended March 30,
2024, the Company incurred costs of $74.9 million and $69.1
million, respectively, in the “Cost of sales—impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations and $2.0 million and $4.1 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.
- During the three and six months
ended March 30, 2024, the Company recorded a gain of $0.0
million and $12.1 million, respectively, in the “Impairment,
restructuring and other” line in the Condensed Consolidated
Statements of Operations associated with a payment received in
resolution of a dispute with the former ownership group of a
business that was acquired in fiscal 2022.
- During the three and six months
ended March 30, 2024, the Company recorded a pre-tax
impairment charge of $0.0 million and $10.4 million, respectively,
associated with its investment in Bonnie Plants, LLC in the “Equity
in loss of unconsolidated affiliates” line in the Condensed
Consolidated Statements of Operations.
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. 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.
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.
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