- Consumer purchases surge 28% in May, year-to-date POS in line with year-ago levels
- Consumer purchases at home center and hardware channels now positive year-to-date
- Sales and non-GAAP adjusted EPS guidance reduced for Hawthorne, slow start to lawn and garden season
MARYSVILLE, Ohio, June 12, 2018 (GLOBE NEWSWIRE) -- The Scotts Miracle-Gro Company (NYSE:SMG), the world’s leading marketer of branded consumer lawn and garden as well as hydroponic growing products, today announced that consumer purchases of its lawn and garden products were a record $565 million in May, resulting in the near full recovery of the decline reported through the first seven months of the fiscal year.
On a year-to-date basis through June 10, consumer purchases in the U.S. Consumer segment are almost flat from 2017 levels with positive growth in lawn fertilizer, grass seed, growing media and mulch. Consumer purchases are positive in the Home Center and Hardware channels, slightly offset by continued declines in the mass retail channel.
The Company now expects reported full-year sales to be within a range of flat to 2 percent higher than year-ago levels compared with a previous range of 2 to 4 percent growth. This guidance assumes a decline in U.S. Consumer sales of 1 to 3 percent versus a previous projection of 0 to 2 percent growth. Sales in the Hawthorne segment are expected to increase 25 to 30 percent for fiscal 2018, driven by the recently completed Sunlight Supply acquisition. Excluding Sunlight, but including previous acquisitions, Hawthorne sales are expected to be slightly down from 2017.
Non-GAAP adjusted earnings are expected to range from $3.70 to $3.90 per share, including dilution of approximately $0.30 to $0.40 associated with the Sunlight transaction. In addition to the lower sales guidance, the Company also expects earnings to be impacted by a decline in the gross margin rate of 250 to 300 basis points compared to previous guidance of a decline of 50 to 100 basis points. The addition of Sunlight is expected to negatively impact the rate by roughly 100 basis points, about half of which is due to product mix and half to purchase accounting adjustments. The balance of the increased rate pressure is due to lower volume and higher-than-expected distribution costs company-wide.
“The recovery in our U.S. Consumer business in May speaks to the strength of our brands, the resilience of the lawn and garden category and the continued support of consumers and our retail partners,” said Jim Hagedorn, chairman and CEO. “It’s also a tribute to the outstanding work of our associates, who understood that the delay to the start of our season was simply that – a delay. We are cautiously optimistic that consumer purchases will finish the year in positive territory but we’re extremely pleased with the underlying strength of this business even if we fall short of that goal.
“While consumer purchases have been tracking positively for weeks, the combination of the slow start to the season and improved inventory planning by our retail partners is causing us to lower sales guidance for our U.S. Consumer segment. Our original guidance assumed there would be a 2-to-3 point gap between POS and our shipments, which is, in fact, what we’re seeing.”
The company also provided the following revisions to its full-year outlook:
- Selling, general and administrative expense (SG&A) is expected to be 0 to 2 percent higher than 2017 driven by the impact of the Sunlight deal and offset by benefits from restructuring, lower year-over-year variable compensation and other expense control measures.
- Interest expense is now expected to be roughly $90 million, driven by higher borrowing levels associated with acquisitions, including Sunlight.
- Share repurchase activity through the third quarter is expected to exceed $300 million, leading to a full-year diluted share count of approximately 57.5 million shares. The Company expects a modest level of repurchase activity during its fiscal fourth quarter.
Separately, the Company said it took actions last week resulting in annualized savings of $15 million associated with its commitment to achieving $35 million in synergies related to the Sunlight acquisition. Further actions are expected before the end of the current fiscal year and total savings are expected to be mostly realized by the end of calendar year 2019.
“In addition to tightly managing the P&L, we remain focused on strong working capital management and a free cash flow productivity target of at least 100 percent on a full-year basis,” said Randy Coleman, chief financial officer. “While 2018 will fall short of our original expectations, we remain pleased with the stability of our U.S. Consumer business as well as the continued long-term prospects and cost savings opportunities we see with Hawthorne.”
ScottsMiracle-Gro management will be discussing the updated guidance and other strategic initiatives on Wednesday, June 13 at the William Blair 38th Annual Growth Stock Conference in Chicago at 1:40 p.m. eastern time. The remarks will be available via webcast at investor.scotts.com.
Forward Looking Non-GAAP Measures
In this release, the Company provides an outlook for non-GAAP adjusted EPS. The Company does not provide a GAAP EPS outlook, which is the most directly comparable GAAP measure to non-GAAP adjusted EPS, because changes in the items that the Company excludes from GAAP EPS to calculate non-GAAP adjusted EPS, described above, can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company’s routine operating activities. Additionally, due to their unpredictability, management does not forecast the excluded items for internal use and therefore cannot create or rely on a GAAP EPS outlook without unreasonable efforts. The timing and amount of any of the excluded items could significantly impact the Company’s GAAP EPS. As a result, the Company does not provide a reconciliation of guidance for non-GAAP adjusted EPS to GAAP EPS, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K.
Cautionary Note Regarding Forward-Looking Statements
Statements contained in this press release, other than statements of historical fact, which address activities, events and developments that the Company expects or anticipates will or may occur in the future, including, but not limited to, information regarding the future economic performance and financial condition of the Company, the plans and objectives of the Company’s management, and the Company’s assumptions regarding such performance and plans are “forward-looking statements” within the meaning of the U.S. federal securities laws that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Actual results could differ materially from the forward-looking information in this release due to a variety of factors, including, but not limited to:
- 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 the Company’s costs of doing business or limit the Company’s ability to market all of its products;
- Disruptions in availability or increases in the prices of raw materials and fuel costs could adversely affect the Company’s results of operations;
- The highly competitive nature of the Company’s markets could adversely affect its ability to maintain or grow revenues;
- Because of the concentration of the Company’s sales to a small number of retail customers, the loss of one or more of, or significant reduction in orders from, its top customers could adversely affect the Company’s financial results;
- Climate change and unfavorable weather conditions could adversely impact financial results;
- Certain of our 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 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 Restated Marketing Agreement for consumer Roundup products terminates, we would lose a substantial source of future earnings and overhead expense absorption;
- Hagedorn Partnership, L.P. beneficially owns approximately 26% of the Company’s common shares and can significantly influence decisions that require the approval of shareholders.
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.
Senior Vice President
Investor Relations & Corporate Affairs
Scotts Miracle-Gro Company