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| ScottsMiracle-Gro Announces Record Second Quarter Sales |
Company-wide sales rise 9%, including 17% increase in International
* North America segment sales increase 8 percent
* Adjusted diluted EPS of $1.40; reported diluted EPS of $1.23
* Company reaffirms full-year sales and earnings outlook
MARYSVILLE, Ohio, May 1 /PRNewswire-FirstCall/ -- The Scotts Miracle-Gro Company (NYSE: SMG), the world's leading marketer of branded consumer lawn and garden products, today announced that sales in its second quarter increased 9 percent to a record $993 million. The results included a 17 percent increase in sales from the Company's International business and an 8 percent increase in the North America segment. Consumer purchases of the Company's products sold in the United States improved 18 percent in the quarter while consumer purchases in Europe were led by a nearly 70 percent increase in the United Kingdom and 10 percent growth in France. "The lawn and garden season has started strongly in nearly all parts of our business and we remain confident in another year of record performance," said Jim Hagedorn, chairman and chief executive officer. "The growth of our International business during the first half of the year is especially encouraging. Led by the launch of Miracle-Gro LiquaFeed and the continued growth in our growing media business, we're seeing strong retailer and consumer support for our products throughout Europe." Net income for the quarter ended March 31, 2007 declined 12 percent to $83.4 million, or $1.23 per diluted share, compared with $94.8 million, or $1.36 per diluted share, a year earlier. The quarter included $17.9 million in interest expense, up 43 percent from last year, and $18.3 million in one-time refinancing costs. During the quarter, ScottsMiracle-Gro executed a recapitalization, increasing its net borrowings to return more than $750 million to shareholders through a combination of a share repurchase and a special one-time cash dividend of $8 per share. Adjusted net income, excluding 2007 costs related to refinancing, as well as 2006 impairment, restructuring and other charges, was $95.1 million, or $1.40 per diluted share, compared with $95.5 million, or $1.37 per diluted share a year earlier. On a pro forma basis, reflecting interest expense and diluted common shares as if the recapitalization transactions occurred at the beginning of each fiscal year, adjusted net income was $89.2 million, or $1.37 per diluted share, compared with $86.0 million, or $1.31 per diluted share. SECOND QUARTER DETAILS The Company's North America segment reported sales of $753.9 million compared with $700.5 million for the same period a year ago. During the quarter, the business reported strong improvement in consumer purchases of its products, including increases of 24 percent in Ortho, 22 percent in Growing Media, 17 percent in Lawns and 6 percent in Plant Food. "Our brands continue to resonate with consumers, which is helping us to drive growth in the overall category and continue to capture market share," Hagedorn said. "Response to our new products and marketing initiatives has been strong and we remain confident that North America can deliver the 8 to 10 percent sales growth we projected at the beginning of the year." Scotts LawnService reported a 13 percent increase in revenue to $33.7 million. The business continued to benefit from strong customer retention rates and increased interest in its premium value-added service offering. Smith & Hawken sales improved 11 percent to $30.3 million from $27.2 million the same period a year ago. The largest improvement came from Smith & Hawken's business-to-business operations. The business also saw strong growth in its retail stores, where this season's merchandising strategy is focused on garden-inspired products and a broader array of outdoor furniture and other outdoor living products. With sales of $175.5 million, International reported a 17 percent improvement from last year when sales totaled $150.2 million. Excluding the impact of foreign exchange rates, International sales grew 6 percent, which was ahead of the Company's expectations. Gross margin was 37.1 percent in the quarter, compared with 38.2 percent a year earlier. The decline, most of which was expected, was due in part to increased commodity costs and the impact of acquisitions. However, strong growth in lower margin categories such as value-added mulch, led to unfavorable product mix, a trend the Company said is likely to impact gross margins on a full-year basis. Selling, general and administrative expenses increased 11 percent in the quarter to $203.0 million from $183.2 million a year earlier. Continued investments in innovation, technology and Scotts LawnService attributed to the planned increase. Additionally, during the same period a year ago, the Company reported a non-recurring credit to SG&A of $9.1 million related to the recovery of legal expenses from an insurer. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 2 percent to $184.2 million. SIX MONTHS Net sales through the first six months were $1.26 billion, up 9 percent from $1.16 billion a year earlier. Net income was $24.0 million, or $0.35 per diluted share, compared with $42.1 million, or $0.60 per diluted share the same period last year. Excluding 2007 costs related to refinancing, as well as 2006 impairment, restructuring and other charges, adjusted net income was $35.7 million, or $0.52 per diluted share, compared with $46.4 million, or $0.66 per diluted share. On a pro forma basis, reflecting interest expense and diluted common shares as if the recapitalization transactions occurred at the beginning of each fiscal year, adjusted net income was $20.6 million, or $0.32 per diluted share, compared with $27.3 million, or $0.42 per diluted share. In North America, sales in the first half increased 8 percent to $891.5 million, versus $826.2 million for last year's comparable period. Scotts LawnService sales increased 11 percent to $59.5 million. Smith & Hawken reported an 8 percent increase to $75.0 million and International sales were $238.9 million, up 15 percent compared with $208.5 million for the same period last year. Excluding the impact of foreign exchange rates, International sales increased 4 percent. Gross margins for the first six months declined to 33.5 percent from 34.6 percent, in line with the Company's expectations and were impacted mainly by commodity prices, acquisitions and product mix. Adjusted EBITDA in the first six months was $116.0 million compared with $119.8 million in the comparable period. "Our performance through the first six months gives us continued confidence in our previous earnings guidance," said Dave Evans, chief financial officer. "We now expect company-wide sales growth to be on the high end of our earlier guidance of 8 to 10 percent but slightly offset by pressure on gross margins from product mix. Strong improvements in operating income from each of our business units remain achievable, reinforcing our belief that adjusted earnings per share will be roughly in line with last year due to higher interest expense associated with our recapitalization. We also remain optimistic about another year of strong cash flow and working capital improvements." The Company will discuss its second quarter results during a Webcast and conference call at 10:00 a.m. Eastern Time today. The call will be available live on the investor relations section of the ScottsMiracle-Gro Web site, http://investor.scotts.com. An archive of the Webcast, as well as accompanying financial information regarding any non-GAAP financial measures discussed by the Company during the call, will be available on the web site for at least 12 months. About ScottsMiracle-Gro With more than $2.7 billion in worldwide sales and more than 6,000 associates, The Scotts Miracle-Gro Company, through its wholly-owned subsidiary, The Scotts Company LLC, is the world's largest marketer of branded consumer products for lawn and garden care, with products for professional horticulture as well. The Company's brands are the most recognized in the industry. In the U.S., the Company's Scotts(R), Miracle-Gro(R) and Ortho(R) brands are market-leading in their categories, as is the consumer Roundup(R) brand, which is marketed in North America and most of Europe exclusively by Scotts and owned by Monsanto. The Company also owns Smith & Hawken, a leading brand of garden-inspired products that includes pottery, watering equipment, gardening tools, outdoor furniture and live goods, and Morning Song, a leading brand in the wild bird food market. In Europe, the Company's brands include Weedol(R), Pathclear(R), Evergreen(R), Levington(R), Miracle-Gro(R), KB(R), Fertiligene(R) and Substral(R). For additional information, visit us at www.scotts.com. Statement under the Private Securities Litigation Act of 1995: Certain of the statements contained in this press release, 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 in nature. Actual results could differ materially from the forward-looking information in this release, due to a variety of factors, including, but not limited to:
- Adverse weather conditions could adversely affect our sales and
financial results;
- Our historical seasonality could impair our ability to pay obligations
and operating expenses as they come due and operating expenses;
- Our substantial indebtedness could adversely affect our financial
health;
- Public perceptions regarding the safety of our products could adversely
affect us;
- The loss of one or more of our top customers could adversely affect our
financial results because of the concentration of our sales to a small
number of retail customers;
- The expiration of certain patents could substantially increase our
competition in the United States;
- Compliance with environmental and other public health regulations could
increase our cost of doing business; and
- Our significant international operations make us more susceptible to
fluctuations in currency exchange rates and to the costs of
international regulation.
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 SCOTTS MIRACLE-GRO COMPANY
Results of Operations for the Three and Six Months
Ended March 31, 2007 and April 1, 2006
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes on Page 10
Three Months Ended Six Months Ended
Foot- March 31, April 1, % March 31, April 1, %
notes 2007 2006 Change 2007 2006 Change
Net sales $993.3 $907.5 9% $1,264.5 $1,157.0 9%
Cost of sales 624.9 561.0 840.8 757.0
Cost of sales -
restructuring and other - 0.1 - 0.1
Gross profit 368.4 346.4 6% 423.7 399.9 6%
% of sales 37.1% 38.2% 33.5% 34.6%
Operating expenses:
Selling, general and
administrative 203.0 183.2 11% 345.2 309.2 12%
Impairment, restructuring
and other charges - 1.0 - 6.7
Other income, net (1.1) (0.8) (3.4) (2.4)
Total operating expenses 201.9 183.4 10% 341.8 313.5 9%
Income from operations 166.5 163.0 2% 81.9 86.4 -5%
% of sales 16.8% 18.0% 6.5% 7.5%
Costs related to
refinancing 18.3 - 18.3 -
Interest expense 17.9 12.5 26.1 19.6
Income before taxes 130.3 150.5 -13% 37.5 66.8 -44%
Income tax expense 46.9 55.7 13.5 24.7
Net income $83.4 $94.8 -12% $24.0 $42.1 -43%
Basic income per
share (1) $1.26 $1.40 -10% $0.36 $0.62 -42%
Diluted income per
share (2) $1.23 $1.36 -10% $0.35 $0.60 -42%
Common shares used in
basic income per
share calculation 66.1 67.5 -2% 66.6 67.9 -2%
Common shares and
potential common
shares used in
diluted income per
share calculation 67.8 69.6 -3% 68.4 70.0 -2%
Results of operations
excluding impairment,
restructuring and
other charges, and
costs related to
refinancing:
Adjusted net income (4) $95.1 $95.5 0% $35.7 $46.4 -23%
Adjusted diluted
income per share (2)(4) $1.40 $1.37 2% $0.52 $0.66 -21%
Adjusted EBITDA (3)(4) $184.2 $179.8 2% $116.0 $119.8 -3%
Pro forma results as if
the recapitalization
transactions and related
debt restructuring
occurred as of the
the beginning of each
fiscal year
Pro forma adjusted
net income (4)(5) $89.2 $86.0 4% $20.6 $27.3 -25%
Pro forma adjusted
diluted income per
share (4)(5) $1.37 $1.31 5% $0.32 $0.42 -24%
THE SCOTTS MIRACLE-GRO COMPANY
Net Sales by Segment - Three and Six Months
Ended March 31, 2007 and April 1, 2006
(in millions)
(unaudited)
Three Months Ended
March 31, April 1, %
2007 2006 Change
North America $753.9 $700.5 8%
Scotts LawnService 33.7 29.8 13%
International 175.5 150.2 17%
Corporate & Other 30.2 27.0 12%
Consolidated $993.3 $907.5 9%
Six Months Ended
March 31, April 1, %
2007 2006 Change
North America $891.5 $826.2 8%
Scotts LawnService 59.5 53.4 11%
International 238.9 208.5 15%
Corporate & Other 74.6 68.9 8%
Consolidated $1,264.5 $1,157.0 9%
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Balance Sheets
March 31, 2007, April 1, 2006 and September 30, 2006
(Unaudited)
(in millions)
March 31, April 1, September 30,
2007 2006 2006
ASSETS
Current assets
Cash and cash equivalents $43.5 $27.3 $48.1
Accounts receivable, net 1,001.0 915.8 380.4
Inventories, net 571.9 537.9 409.2
Prepaid and other current assets 131.0 70.8 104.3
Total current assets 1,747.4 1,551.8 942.0
Property, plant and equipment, net 369.2 359.8 367.6
Goodwill, net 475.0 457.3 458.1
Other intangible assets, net 421.7 470.0 424.7
Other assets 29.5 20.5 25.2
Total assets $3,042.8 $2,859.4 $2,217.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt $23.7 $11.5 $6.0
Accounts payable 341.5 266.6 200.4
Other current liabilities 355.8 354.3 289.8
Total current liabilities 721.0 632.4 496.2
Long-term debt 1,783.2 1,064.0 475.2
Other liabilities 163.8 133.5 164.5
Total liabilities 2,668.0 1,829.9 1,135.9
Shareholders' equity 374.8 1,029.5 1,081.7
Total liabilities and equity $3,042.8 $2,859.4 $2,217.6
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Three and Six
Months Ended March 31, 2007 and April 1, 2006
(in millions, except per share data)
Note: See Notes 4 and 5 to the Accompanying Footnotes on Page 10
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2007 2006 2007 2006
Income before taxes $130.3 $150.5 $37.5 $66.8
Restructuring and other charges - 1.1 - 5.8
Impairment of intangibles - - - 1.0
Costs related to refinancing 18.3 - 18.3 -
Adjusted income before taxes 148.6 151.6 55.8 73.6
Income tax expense 53.5 56.1 20.1 27.2
Adjusted net income $95.1 $95.5 $35.7 $46.4
Incremental pro forma interest
expense (9.3) (15.8) (23.6) (30.4)
Tax impact, including rate
differential 3.4 6.3 8.5 11.3
Pro forma adjusted net income $89.2 $86.0 $20.6 $27.3
Diluted income per share (items net
of tax) $1.23 $1.36 $0.35 $0.60
Restructuring and other charges - 0.01 - 0.05
Impairment of intangibles - - - 0.01
Costs related to refinancing 0.17 - 0.17 -
Adjusted diluted income per share $1.40 $1.37 $0.52 $0.66
Incremental pro forma interest
expense (net of tax) (0.09) (0.14) (0.22) (0.27)
Impact of change in fully diluted
shares 0.06 0.08 0.02 0.03
Pro forma adjusted diluted income per
share $1.37 $1.31 $0.32 $0.42
Net income $83.4 $94.8 $24.0 $42.1
Income tax expense 46.9 55.7 13.5 24.7
Interest 17.9 12.5 26.1 19.6
Costs related to refinancing 18.3 - 18.3 -
Depreciation 13.7 13.0 26.4 25.1
Amortization, including marketing fee 4.0 3.8 7.7 7.3
Loss on impairment - - - 1.0
Adjusted EBITDA $184.2 $179.8 $116.0 $119.8
THE SCOTTS MIRACLE-GRO COMPANY
Footnotes to Preceding Financial Statements
Results of Operations
(1) Basic income per share is calculated by dividing net income by average
common shares outstanding during the period.
(2) Diluted income per share is calculated by dividing net income by the
average common shares and potential dilutive common shares (common
stock options, stock appreciation rights, and restricted stock)
outstanding during the period.
(3) "Adjusted EBITDA" is defined as net income before interest, taxes,
depreciation and amortization as well as certain other items such as
the impact of discontinued operations, the cumulative effect of
changes in accounting, costs associated with debt refinancings and
other non-recurring, non-cash items effecting net income. Adjusted
EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
used as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity.
(4) The Reconciliation of Non-GAAP Disclosure Items includes the following
non-GAAP financial measures (1) adjusted net income, (2) pro forma
adjusted net income, (3) adjusted diluted income per share, (4) pro
forma adjusted diluted income per share and (5) adjusted EBITDA. The
Company believes that the disclosure of these non-GAAP financial
measures provides useful information to investors or other users of
the financial statements, such as lenders. As to adjusted net income
and adjusted diluted income per share, charges or credits relating to
refinancings, impairments, restructurings, and other unusual items are
excluded as such costs or gains relate to discrete projects or
transactions that are apart from and not indicative of the results of
the operations of the business. Pro forma adjusted net income and pro
forma adjusted diluted income per share, interest expense and diluted
shares have been computed as if the recapitalization transactions were
completed as described in Note 5 below. The presentation of adjusted
EBITDA is provided as a convenience to the Company's lenders because
adjusted EBITDA is a component of certain debt covenants.
(5) During the second quarter of fiscal 2007, Scotts Miracle-Gro completed
a significant recapitalization plan. The objective of this plan,
announced on December 12, 2006, was to return $750 million to the
Company's shareholders. This was accomplished via a share repurchase
that totaled $245.5 million, or 4.5 million shares, which was
completed via a modified Dutch auction tender offer on February 14,
2007, and a special one-time cash dividend of $8.00 per share,
totaling $508.0 million, which was paid on March 5, 2007 to
shareholders of record as of February 26, 2007.
In order to fund these transactions, the Company entered into new
credit facilities aggregating to $2.15 billion. As part of this debt
restructuring, the Company launched a successful tender offer for all
of its $200 million 6 5/8% senior subordinated notes, which were
retired in the second quarter.
Subsequent to the completion of this recapitalization, the Company's
interest expense will be significantly higher as a result of the
borrowings incurred to fund the cash returned to shareholders and
related expenses. The following pro forma incremental interest expense
has been determined as if the Company had completed these
recapitalization transactions as of October 1, 2005 for fiscal 2006
and October 1, 2006 for fiscal 2007. Borrowing rates in effect as of
March 30, 2007 were used to compute this pro forma interest expense.
As the recapitalization involved a share repurchase, pro forma diluted
shares are also provided.
Fiscal 2006 Fiscal 2007
First Second Third Fourth First Second
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
Incremental interest on
recapitalization borrowings $13.0 $13.1 $13.3 $13.6 $13.1 $8.7
New credit facility interest
rate differential 1.4 2.5 2.5 1.0 1.0 0.5
Incremental amortization of
new credit facility fees 0.2 0.2 0.2 0.2 0.2 0.1
Pro forma incremental
interest from
recapitalization $14.6 $15.8 $16.0 $14.8 $14.3 $9.3
Year-to-date incremental
interest $30.4 $46.4 $61.2 $23.6
Pro forma effective tax
rates 36.7% 36.7% 36.7% 36.7% 36.0% 36.0%
Common shares and potential
common shares used
in diluted income per
share calculation 68.0 69.6 69.4 66.8 67.2 67.8
Incremental impact of
repurchased shares (4.5) (4.5) (4.5) (4.5) (4.5) (2.7)
Incremental impact on
potential common shares - 0.3 0.3 - - 0.1
Pro forma diluted shares 63.5 65.4 65.2 62.3 62.7 65.2
Year-to-date pro forma
diluted shares 65.8 65.5 65.2 65.0
SOURCE The Scotts Miracle-Gro Company CONTACT: Jim King, Vice President, Investor Relations & Corporate Communications of The Scotts Miracle-Gro Company, +1-937-578-5622 |
