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 third quarter ended June 29, 2024.
“Despite a sluggish start to the lawn and garden
season, we successfully delivered significant POS growth,
profitability and share gains across our consumer products
portfolio through the fiscal third quarter,” said Jim Hagedorn,
chairman, CEO and president. “Our performance reflects the power of
our U.S. consumer business and our ability to adapt and respond to
external factors.
“We more importantly continued our year-long
trajectory of meeting or exceeding key financial metrics that drive
the greatest value for our Company and shareholders. Looking ahead,
we’re comfortable with our position in Q4 and expect a strong fall,
enabling us to establish a foundation for growth heading into
fiscal ’25.”
Financial Results
Third Quarter DetailsFor the
quarter ended June 29, 2024, total Company sales were $1.2 billion,
an increase of 7 percent compared to $1.1 billion a year ago. U.S.
Consumer net sales increased 11 percent to $1 billion from $0.9
billion in the same period last year. U.S. Consumer segment
favorability was mainly driven by shipment volume to support
incremental seasonal promotional activity.
“Consumer engagement with our brands has
remained high through fiscal ‘24, and we expect to drive continued
participation through the fall with well-timed media and
promotional plans in conjunction with our retail partners,” said
Matt Garth, chief financial and administrative officer.
“We are tracking favorably to the financial
goals we established for the full year, giving us confidence that
we will achieve the EBITDA guidance we provided in June and set
ourselves up for improved performance in 2025.”
Hawthorne segment net sales for the quarter
decreased 28 percent, to $67.7 million, compared to $93.4 million
last year. The decline was largely due to the Company’s previously
announced discontinuation of its third-party distributed brands
business. Third quarter net sales of Hawthorne’s proprietary
Signature brands increased 6 percent versus the same quarter last
year led by nutrients and lighting.
“Hawthorne has generated its first profitable
quarter since the third quarter of fiscal 2022, a reflection that
the changes we have made are strengthening the business despite
continued industry hardships,” said Chris Hagedorn, division
president. “We are on track to break-even or better adjusted EBITDA
in fiscal 2024 and are positioning Hawthorne for future
growth.”
GAAP and non-GAAP adjusted gross margin rates
for the quarter were 29.5 percent and 29.2 percent, respectively.
These compare to 18.4 percent and 21.3 percent, respectively, in
the prior year. The significant improvement was primarily
attributable to lower warehousing and transportation costs, lower
material costs and inventory write-downs, higher commissions and
favorable mix.
SG&A increased 15 percent to $147.9 million
during the quarter compared to $128.5 million a year ago, mainly
driven by higher accruals for incentive compensation, the majority
of which are equity-based and excluded from adjusted EBITDA.
Other expense was $6.9 million in the quarter
primarily due to the discount on sales of accounts receivable under
the Company’s 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 18
percent compared to the same quarter last year, predominantly from
lower debt levels partially offset by higher interest rates year
over year. The Company’s average net debt to adjusted EBITDA
leverage ratio at the end of the quarter was just under 5.5 times,
well within the covenant maximum of 6.5 times.
The Company reported GAAP net income of $132.1
million, or $2.28 per diluted share, compared with $43.7 million,
or $0.77 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, more than
doubled to $133.8 million, or $2.31 per diluted share, from $66.0
million, or $1.17 per diluted share, for the same period last
year.
Year-to-date DetailsFor the
first nine months of fiscal 2024, total Company net sales were $3.1
billion, down 1 percent from $3.2 billion a year earlier. U.S.
Consumer segment sales increased 2 percent to $2.7 billion. Growth
year-to-date was related to incremental promotions and listings in
gardens along with strength in controls from weather-driven demand,
partially offset by declines in grass seed. Sales for the Hawthorne
segment decreased 33 percent to $214.2 million led by discontinued
sales of certain growing environment and growing media distributed
brands.
The company-wide gross margin rate was 28
percent on a GAAP basis and 30.2 percent on a non-GAAP adjusted
basis compared with rates of 22.5 percent and 27.6 percent,
respectively, a year ago. SG&A was roughly flat at $441.4
million.
Below operating income, results through the
third quarter include $3.9 million adjusted equity income 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 year-to-date adjusted equity income is comparable
to the results for the same period a year ago.
On a company-wide basis, GAAP net income was
$209.1 million, or $3.64 per diluted share, compared with $88.3
million, or $1.57 per diluted share, for the first nine months a
year ago. Excluding impairment, restructuring and other
non-recurring items, non-GAAP adjusted earnings were $263.5
million, or $4.58 per diluted share, compared with $223.4 million,
or $3.97 per diluted share, last year.
Fiscal 2024 Outlook
The Company reaffirms the non-GAAP fiscal 2024
guidance issued in June with the exception of Hawthorne net sales,
which are now expected to end the fiscal year 35 to 40 percent
lower than prior year with progress exiting lower margin
distributed brands and projected decline in its professional
horticulture lighting business. The segment still expects break
even or better non-GAAP adjusted EBITDA for the full year in line
with previous guidance.
Additionally, three-year targets were provided
at the Company’s Investor Day on July 16, 2024. Related materials,
including video highlights from the day, are available on the
events page of the Company’s investor website.
Conference Call and Webcast Scheduled
for 9 a.m. ET Today, July 31
The Company will discuss results during a video
presentation via webcast today at 9 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 Third Quarter (April - June 2024) |
Net Sales Drivers(1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
10 |
% |
– |
% |
1 |
% |
– |
% |
11 |
% |
Hawthorne |
(30 |
)% |
– |
% |
3 |
% |
1 |
% |
(28 |
)% |
Other |
9 |
% |
(1 |
)% |
(1 |
)% |
– |
% |
7 |
% |
Total SMG |
7 |
% |
- |
% |
1 |
% |
(1 |
)% |
7 |
% |
Fiscal Year-to-Date (October 2023 - June
2024) |
Net Sales Drivers(1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
3 |
% |
– |
% |
(1 |
)% |
– |
% |
2 |
% |
Hawthorne |
(31 |
)% |
– |
% |
(2 |
)% |
– |
% |
(33 |
)% |
Other |
3 |
% |
– |
% |
(1 |
)% |
– |
% |
2 |
% |
Total SMG |
- |
% |
– |
% |
(1 |
)% |
– |
% |
(1 |
)% |
(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 COMPANY |
Condensed Consolidated Statements of
Operations |
(In millions, except per share data) |
(Unaudited) |
|
|
|
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
|
Footnotes |
|
June 29,2024 |
|
July 1,2023 |
|
%Change |
|
June 29,2024 |
|
July 1,2023 |
|
%Change |
Net sales |
|
|
|
$ |
1,202.2 |
|
|
$ |
1,118.7 |
|
|
7 |
% |
|
$ |
3,138.0 |
|
|
$ |
3,176.8 |
|
|
(1 |
)% |
Cost of sales |
|
|
|
|
850.6 |
|
|
|
880.1 |
|
|
|
|
|
2,191.4 |
|
|
|
2,300.7 |
|
|
|
Cost of sales—impairment,
restructuring and other |
|
|
|
|
(2.5 |
) |
|
|
32.7 |
|
|
|
|
|
66.6 |
|
|
|
161.8 |
|
|
|
Gross margin |
|
|
|
|
354.1 |
|
|
|
205.9 |
|
|
72 |
% |
|
|
880.0 |
|
|
|
714.3 |
|
|
23 |
% |
% of sales |
|
|
|
|
29.5 |
% |
|
|
18.4 |
% |
|
|
|
|
28.0 |
% |
|
|
22.5 |
% |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
147.9 |
|
|
|
128.5 |
|
|
15 |
% |
|
|
441.4 |
|
|
|
443.3 |
|
|
— |
% |
Impairment, restructuring and other |
|
|
|
|
(0.8 |
) |
|
|
1.7 |
|
|
|
|
|
(5.9 |
) |
|
|
32.0 |
|
|
|
Other (income) expense, net |
|
|
|
|
6.9 |
|
|
|
(1.6 |
) |
|
|
|
|
19.6 |
|
|
|
(2.7 |
) |
|
|
Income from operations |
|
|
|
|
200.1 |
|
|
|
77.3 |
|
|
159 |
% |
|
|
424.9 |
|
|
|
241.7 |
|
|
76 |
% |
% of sales |
|
|
|
|
16.6 |
% |
|
|
6.9 |
% |
|
|
|
|
13.5 |
% |
|
|
7.6 |
% |
|
|
Equity in (income) loss of
unconsolidated affiliates |
|
|
|
|
(23.0 |
) |
|
|
(22.2 |
) |
|
|
|
|
6.5 |
|
|
|
(3.5 |
) |
|
|
Interest expense |
|
|
|
|
38.8 |
|
|
|
47.1 |
|
|
|
|
|
125.6 |
|
|
|
138.1 |
|
|
|
Other non-operating (income)
expense, net |
|
|
|
|
1.3 |
|
|
|
0.4 |
|
|
|
|
|
4.2 |
|
|
|
(0.2 |
) |
|
|
Income before income
taxes |
|
|
|
|
183.0 |
|
|
|
52.0 |
|
|
252 |
% |
|
|
288.6 |
|
|
|
107.3 |
|
|
169 |
% |
Income tax expense |
|
|
|
|
50.9 |
|
|
|
8.3 |
|
|
|
|
|
79.5 |
|
|
|
19.0 |
|
|
|
Net income |
|
|
|
$ |
132.1 |
|
|
$ |
43.7 |
|
|
202 |
% |
|
$ |
209.1 |
|
|
$ |
88.3 |
|
|
137 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
(1) |
|
$ |
2.33 |
|
|
$ |
0.78 |
|
|
199 |
% |
|
$ |
3.69 |
|
|
$ |
1.58 |
|
|
134 |
% |
Diluted net income per common
share |
|
(2) |
|
$ |
2.28 |
|
|
$ |
0.77 |
|
|
196 |
% |
|
$ |
3.64 |
|
|
$ |
1.57 |
|
|
132 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares used in basic
net income per share calculation |
|
|
|
|
56.8 |
|
|
|
56.2 |
|
|
1 |
% |
|
|
56.7 |
|
|
|
55.9 |
|
|
1 |
% |
Common shares and potential
common shares used in diluted net income per share calculation |
|
|
|
|
58.0 |
|
|
|
56.6 |
|
|
2 |
% |
|
|
57.5 |
|
|
|
56.3 |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP results: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
|
(3) |
|
$ |
133.8 |
|
|
$ |
66.0 |
|
|
103 |
% |
|
$ |
263.5 |
|
|
$ |
223.4 |
|
|
18 |
% |
Adjusted diluted net income
per common share |
|
(2) (3) |
|
$ |
2.31 |
|
|
$ |
1.17 |
|
|
97 |
% |
|
$ |
4.58 |
|
|
$ |
3.97 |
|
|
15 |
% |
Adjusted EBITDA |
|
(3) |
|
$ |
236.8 |
|
|
$ |
127.0 |
|
|
86 |
% |
|
$ |
607.4 |
|
|
$ |
553.0 |
|
|
10 |
% |
Note: See
accompanying footnotes. |
|
|
|
|
|
|
|
|
|
|
|
|
THE SCOTTS MIRACLE-GRO COMPANY |
Segment 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 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: |
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
June 29,2024 |
|
July 1,2023 |
|
%Change |
|
|
June 29,2024 |
|
July 1,2023 |
|
%Change |
|
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
1,017.5 |
|
|
$ |
916.4 |
|
|
11 |
% |
|
$ |
2,704.0 |
|
|
$ |
2,642.7 |
|
|
2 |
% |
Hawthorne |
|
67.7 |
|
|
|
93.4 |
|
|
(28 |
)% |
|
|
214.2 |
|
|
|
317.6 |
|
|
(33 |
)% |
Other |
|
117.0 |
|
|
|
108.9 |
|
|
7 |
% |
|
|
219.8 |
|
|
|
216.5 |
|
|
2 |
% |
Consolidated |
$ |
1,202.2 |
|
|
$ |
1,118.7 |
|
|
7 |
% |
|
$ |
3,138.0 |
|
|
$ |
3,176.8 |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Profit (Loss) (Non-GAAP): |
|
|
|
|
|
|
|
|
U.S. Consumer |
$ |
210.3 |
|
|
$ |
124.8 |
|
|
69 |
% |
|
$ |
580.5 |
|
|
$ |
553.5 |
|
|
5 |
% |
Hawthorne |
|
3.8 |
|
|
|
(8.7 |
) |
|
144 |
% |
|
|
(9.2 |
) |
|
|
(41.7 |
) |
|
78 |
% |
Other |
|
11.7 |
|
|
|
5.8 |
|
|
102 |
% |
|
|
13.0 |
|
|
|
21.8 |
|
|
(40 |
)% |
Total Segment Profit (Non-GAAP) |
|
225.8 |
|
|
|
121.9 |
|
|
85 |
% |
|
|
584.3 |
|
|
|
533.6 |
|
|
10 |
% |
Corporate |
|
(25.1 |
) |
|
|
(3.4 |
) |
|
|
|
|
|
(86.8 |
) |
|
|
(77.4 |
) |
|
|
|
Intangible asset
amortization |
|
(3.9 |
) |
|
|
(6.7 |
) |
|
|
|
|
|
(11.8 |
) |
|
|
(20.8 |
) |
|
|
|
Impairment, restructuring and
other |
|
3.3 |
|
|
|
(34.5 |
) |
|
|
|
|
|
(60.8 |
) |
|
|
(193.7 |
) |
|
|
|
Equity in income (loss) of
unconsolidated affiliates |
|
23.0 |
|
|
|
22.2 |
|
|
|
|
|
|
(6.5 |
) |
|
|
3.5 |
|
|
|
|
Interest expense |
|
(38.8 |
) |
|
|
(47.1 |
) |
|
|
|
|
|
(125.6 |
) |
|
|
(138.1 |
) |
|
|
|
Other non-operating income
(expense), net |
|
(1.3 |
) |
|
|
(0.4 |
) |
|
|
|
|
|
(4.2 |
) |
|
|
0.2 |
|
|
|
|
Income before income taxes (GAAP) |
$ |
183.0 |
|
|
$ |
52.0 |
|
|
252 |
% |
|
$ |
288.6 |
|
|
$ |
107.3 |
|
|
169 |
% |
THE SCOTTS MIRACLE-GRO COMPANY |
Condensed Consolidated Balance Sheets |
(In millions) |
(Unaudited) |
|
|
June 29,2024 |
|
July 1,2023 |
|
September 30,2023 |
|
|
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
279.9 |
|
|
$ |
27.4 |
|
$ |
31.9 |
|
Accounts receivable, net |
|
|
504.6 |
|
|
|
1,159.9 |
|
|
304.2 |
|
Inventories |
|
|
606.8 |
|
|
|
884.9 |
|
|
880.3 |
|
Prepaid and other current assets |
|
|
147.1 |
|
|
|
178.8 |
|
|
181.4 |
|
Total current assets |
|
|
1,538.4 |
|
|
|
2,251.0 |
|
|
1,397.8 |
|
Investment in unconsolidated affiliates |
|
|
106.8 |
|
|
|
196.5 |
|
|
91.9 |
|
Property, plant and equipment, net |
|
|
599.0 |
|
|
|
590.3 |
|
|
610.3 |
|
Goodwill |
|
|
243.9 |
|
|
|
254.5 |
|
|
243.9 |
|
Intangible assets, net |
|
|
424.9 |
|
|
|
560.2 |
|
|
436.7 |
|
Other assets |
|
|
576.3 |
|
|
|
601.9 |
|
|
633.1 |
|
Total assets |
|
$ |
3,489.3 |
|
|
$ |
4,454.4 |
|
$ |
3,413.7 |
|
LIABILITIES AND EQUITY (DEFICIT) |
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of debt |
|
$ |
52.9 |
|
|
$ |
450.7 |
|
$ |
52.3 |
|
Accounts payable |
|
|
316.7 |
|
|
|
365.7 |
|
|
271.2 |
|
Other current liabilities |
|
|
484.8 |
|
|
|
512.7 |
|
|
450.2 |
|
Total current liabilities |
|
|
854.4 |
|
|
|
1,329.1 |
|
|
773.7 |
|
Long-term debt |
|
|
2,436.4 |
|
|
|
2,628.8 |
|
|
2,557.4 |
|
Other liabilities |
|
|
344.7 |
|
|
|
361.7 |
|
|
349.9 |
|
Total liabilities |
|
|
3,635.5 |
|
|
|
4,319.6 |
|
|
3,681.0 |
|
Equity (deficit) |
|
|
(146.2 |
) |
|
|
134.8 |
|
|
(267.3 |
) |
Total liabilities and equity (deficit) |
|
$ |
3,489.3 |
|
|
$ |
4,454.4 |
|
$ |
3,413.7 |
|
THE SCOTTS MIRACLE-GRO COMPANY |
Reconciliation of Non-GAAP Disclosure Items
(3) |
(In millions, except per share data) |
(Unaudited) |
|
|
|
Three Months Ended June 29, 2024 |
|
Three Months Ended July 1, 2023 |
|
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
|
$ |
354.1 |
|
$ |
2.5 |
|
$ |
351.6 |
|
|
$ |
205.9 |
|
$ |
(32.7 |
) |
$ |
238.6 |
|
Gross margin as a % of
sales |
|
|
29.5 |
% |
|
|
29.2 |
% |
|
|
18.4 |
% |
|
|
21.3 |
% |
Income from operations |
|
|
200.1 |
|
|
3.3 |
|
|
196.8 |
|
|
|
77.3 |
|
|
(34.5 |
) |
|
111.8 |
|
Income from operations as a %
of sales |
|
|
16.6 |
% |
|
|
16.4 |
% |
|
|
6.9 |
% |
|
|
10.0 |
% |
Income before income
taxes |
|
|
183.0 |
|
|
3.3 |
|
|
179.6 |
|
|
|
52.0 |
|
|
(34.5 |
) |
|
86.4 |
|
Income tax expense |
|
|
50.9 |
|
|
5.1 |
|
|
45.8 |
|
|
|
8.3 |
|
|
(12.1 |
) |
|
20.4 |
|
Net
income |
|
|
132.1 |
|
|
(1.8 |
) |
|
133.8 |
|
|
|
43.7 |
|
|
(22.4 |
) |
|
66.0 |
|
Diluted net income per
common share |
|
|
2.28 |
|
|
(0.03 |
) |
|
2.31 |
|
|
|
0.77 |
|
|
(0.40 |
) |
|
1.17 |
|
Calculation of
Adjusted EBITDA (3): |
|
Three Months EndedJune 29, 2024 |
|
Three Months EndedJuly 1, 2023 |
Net income (GAAP) |
|
$ |
132.1 |
|
|
$ |
43.7 |
|
Income tax expense |
|
|
50.9 |
|
|
|
8.3 |
|
Interest expense |
|
|
38.8 |
|
|
|
47.1 |
|
Depreciation |
|
|
16.4 |
|
|
|
15.8 |
|
Amortization |
|
|
3.9 |
|
|
|
6.7 |
|
Impairment, restructuring and other charges (recoveries) |
|
|
(3.3 |
) |
|
|
34.5 |
|
Equity in income of unconsolidated affiliates |
|
|
(23.0 |
) |
|
|
(22.2 |
) |
Interest income |
|
|
(0.1 |
) |
|
|
(1.3 |
) |
Share-based compensation |
|
|
21.1 |
|
|
|
(5.6 |
) |
Adjusted EBITDA
(Non-GAAP) |
|
$ |
236.8 |
|
|
$ |
127.0 |
|
|
|
|
|
|
Note: See
accompanying footnotes. |
The sum of the
components may not equal due to rounding. |
THE SCOTTS MIRACLE-GRO COMPANY |
Reconciliation of Non-GAAP Disclosure Items
(3) |
(In millions, except per share data) |
(Unaudited) |
|
|
|
Nine Months Ended June 29, 2024 |
|
Nine Months Ended July 1, 2023 |
|
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
|
$ |
880.0 |
|
$ |
(66.6 |
) |
$ |
946.6 |
|
|
$ |
714.3 |
|
$ |
(161.7 |
) |
$ |
876.0 |
|
Gross margin as a % of
sales |
|
|
28.0 |
% |
|
|
30.2 |
% |
|
|
22.5 |
% |
|
|
27.6 |
% |
Income from operations |
|
|
424.9 |
|
|
(60.8 |
) |
|
485.6 |
|
|
|
241.7 |
|
|
(193.7 |
) |
|
435.4 |
|
Income from operations as a %
of sales |
|
|
13.5 |
% |
|
|
15.5 |
% |
|
|
7.6 |
% |
|
|
13.7 |
% |
Equity in (income) loss of
unconsolidated affiliates |
|
|
6.5 |
|
|
10.4 |
|
|
(3.9 |
) |
|
|
(3.5 |
) |
|
— |
|
|
(3.5 |
) |
Income before income
taxes |
|
|
288.6 |
|
|
(71.2 |
) |
|
359.8 |
|
|
|
107.3 |
|
|
(193.7 |
) |
|
301.1 |
|
Income tax expense |
|
|
79.5 |
|
|
(16.8 |
) |
|
96.3 |
|
|
|
19.0 |
|
|
(58.6 |
) |
|
77.6 |
|
Net
income |
|
|
209.1 |
|
|
(54.4 |
) |
|
263.5 |
|
|
|
88.3 |
|
|
(135.1 |
) |
|
223.4 |
|
Diluted net income per
common share |
|
|
3.64 |
|
|
(0.95 |
) |
|
4.58 |
|
|
|
1.57 |
|
|
(2.40 |
) |
|
3.97 |
|
Calculation of
Adjusted EBITDA (3): |
|
Nine Months EndedJune 29, 2024 |
|
Nine Months EndedJuly 1, 2023 |
Net income (GAAP) |
|
$ |
209.1 |
|
|
$ |
88.3 |
|
Income tax expense |
|
|
79.5 |
|
|
|
19.0 |
|
Interest expense |
|
|
125.6 |
|
|
|
138.1 |
|
Depreciation |
|
|
48.8 |
|
|
|
49.6 |
|
Amortization |
|
|
11.8 |
|
|
|
20.8 |
|
Impairment, restructuring and other charges |
|
|
60.8 |
|
|
|
193.7 |
|
Equity in (income) loss of unconsolidated affiliates |
|
|
6.5 |
|
|
|
(3.5 |
) |
Interest income |
|
|
(0.4 |
) |
|
|
(5.7 |
) |
Share-based compensation |
|
|
65.7 |
|
|
|
52.7 |
|
Adjusted EBITDA
(Non-GAAP) |
|
$ |
607.4 |
|
|
$ |
553.0 |
|
|
|
|
|
|
Note: See
accompanying footnotes. |
The sum of the
components may not equal due to rounding. |
THE SCOTTS MIRACLE-GRO COMPANYFootnotes to
Preceding Financial Statements |
|
|
(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 nine months ended
June 29, 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 months ended June 29, 2024, the
Company recorded net recoveries associated with this restructuring
initiative that were not material. During the nine months ended
June 29, 2024, the Company incurred costs of $66.6 million in
the “Cost of sales—impairment, restructuring and other” line and
$3.0 million 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 nine months
ended June 29, 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 nine months
ended June 29, 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
(income) loss of unconsolidated affiliates” line in the Condensed
Consolidated Statements of Operations.
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. 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.
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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