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- Adjusted seasonal loss in line with prior year; Reported loss improves
$10 million
- First quarter consumer purchases increase 13 percent
- SG&A cost savings taking hold throughout the organization
- Company reaffirms full-year outlook to grow adjusted net income 20-22
percent
MARYSVILLE, Ohio, Jan. 24 /PRNewswire-FirstCall/ -- The Scotts Miracle-Gro
Company (NYSE: SMG), the worlds leading marketer of branded consumer lawn and
garden products, today reported its first quarter adjusted loss was in line
with the prior year due mostly to strong expense control throughout the
Company. Sales also were in line with last year, while consumer purchases of
the Companys products at its major retail partners increased 13 percent
during the quarter with improvements in nearly every major product category.
"Were pleased with our first quarter results and encouraged that they are
better than we previously expected," said Jim Hagedorn, chairman and chief
executive officer. "Typically, our first quarter loss increases each year due
to higher expenses that are not offset until later in the year. Primarily due
to cost controls associated with our profit improvement plan, Project
Excellence, our ability to keep the seasonal loss in line with last year
signals a good start to 2006.
"Were also pleased that consumers remained engaged in the lawn and garden
category even during the slow part of the season. Our solid start, combined
with new product initiatives and television commercials, higher planned
marketing spending and improved trade listings give us confidence that we can
deliver 10 to 11 percent sales growth and 20 to 22 percent adjusted net
earnings growth for the full year."
Given the seasonal nature of the business, Scotts typically reports a net
loss in the first quarter. For the quarter ended December 31, 2005, the
Company reported an adjusted net loss, excluding restructuring and other
charges, of $49.1 million, or $0.72 per share, compared with an adjusted net
loss of $49.0 million, or $0.74 per share, for the same quarter last year.
Including restructuring and other charges, reported net loss for the quarter
was $52.7 million, or $0.78 per share, compared with a reported net loss of
$62.7 million, or $0.95 per share, for the same period last year.
In the first quarter, the Company recorded a $4.7 million restructuring
charge related to Project Excellence as well as a $1 million impairment charge
related to a trade name in its UK business.
In late December, the Company said it expected the adjusted net loss in
the quarter to be 15 to 20 percent greater than the same period last year due
to delayed shipments. In addition to the delay being less than expected, sales
in other areas of the business slightly exceeded expectations and higher-than-
expected cost savings were realized throughout the Company.
Adjusted loss before interest, taxes, depreciation and amortization
(EBITDA) for the first quarter was $55.2 million, compared with a loss of
$52.4 million a year earlier. Including restructuring and other charges,
reported EBITDA was a loss of $60.9 million, compared with a loss of $74.6
million last year.
Sales for the North America business increased 9 percent to $125.6 million
versus $115.2 million for last years comparable period. The gain was
primarily attributed to the acquisition of Morning Song, the wild bird food
business the Company acquired in November. Scotts LawnService had a strong
finish to its season with revenues up 13 percent for the quarter to $23.6
million, compared with $20.9 million last year. International sales decreased
16 percent to $58.3 million. Excluding the impact of foreign exchange rates,
International sales decreased 7 percent in the quarter due to retail
purchasing patterns similar to the North America business.
Gross margin was 21.4 percent compared to 24.8 percent a year earlier. The
decline was primarily due to raw material and fuel increases that are not yet
offset by price increases that took effect January 1, 2006.
Total SG&A expense for the quarter was $126 million, a nearly 3 percent
reduction from last year. Beginning this year, the Company is including
advertising expense and amortization as part of an all-inclusive SG&A
calculation and will no longer present those items separately on its income
statement.
Interest expense in the first quarter was $7.1 million compared with $10.4
million in the prior year. Additionally, the Company has commenced its five-
year $500 million share repurchase program during the quarter and has acquired
more than 270,000 shares on a year-to-date basis. The Company anticipates
regular purchases in the open market and will allocate approximately $100
million to the program in fiscal 2006.
"As we approach our peak season, we are very pleased with the cost
controls that we have put in place," said Chris Nagel, chief financial
officer. "Our first quarter results suggest another strong year that will
allow us to continue to return capital to shareholders while further enhancing
shareholder value."
The Company also said that it may be required to record a liability
between $90 million and $120 million as a cumulative effect adjustment for the
change in accounting for stock options when it files its Form 10-Q next month
with the Securities and Exchange Commission. FASB Statement 123(R), which
became effective for ScottsMiracle-Gro in fiscal 2006, requires stock options
to be classified as a liability if they can be settled in cash under any
circumstances, including a change in control. The Companys 1996 option plan
-- which has 3.8 million options outstanding -- contains a provision for the
immediate vesting of these options upon change in control and allows for the
settlement of these options in cash or stock as determined by the option
holder.
The FASB has issued a draft staff position paper that could make this
charge unnecessary for ScottsMiracle-Gro. However, if clarification of this
issue is not effective prior to February 9, 2006, when the Company is required
to filed its Form 10-Q, then this filing may reflect the charge for this
liability.
The Company will discuss its first quarter 2006 results during a Webcast
conference call at 10:00 a.m. EST 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 $2.3 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 worlds largest marketer of branded
consumer products for lawn and garden care, with products for professional
horticulture as well. The Companys brands are the most recognized in the
industry. In the U.S., the Companys 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(R), a
leading brand of garden-inspired products that includes pottery, watering
equipment, gardening tools, outdoor furniture and live goods, and Morning
Song(R), a leading brand in the wild bird food market. In Europe, the
Companys 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 http://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 Companys management, and the
Companys 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 the Companys sales
and financial results;
- The Companys historical seasonality could impair the Companys ability
to pay obligations as they come due and operating expenses;
- The Companys substantial indebtedness could adversely affect the
Companys financial health;
- Public perceptions regarding the safety of the Companys products could
adversely affect the Company;
- The loss of one or more of the Companys top customers could adversely
affect the Companys financial results because of the concentration of
the Companys sales to a small number of retail customers;
- The expiration of certain patents could substantially increase the
Companys competition in the United States;
- Compliance with environmental and other public health regulations could
increase the Companys cost of doing business; and,
- The Companys significant international operations make the Company
more susceptible to fluctuations in currency exchange rates and to the
costs of international regulation.
Additional detailed information concerning a number of important factors
that could cause actual results to differ materially from the forward looking
information contained in this release is readily available in the Companys
publicly filed quarterly, annual and other reports.
THE SCOTTS MIRACLE-GRO COMPANY
Results of Operations for the Three Months
Ended December 31, 2005 and January 1, 2005
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes on Page 9
Three Months Ended
December 31, January 1, %
Footnotes 2005 2005 Change
Net sales $249.5 $246.4 1.3%
Cost of sales 196.0 185.3
Gross profit 53.5 61.1 -12.6%
% of sales 21.4% 24.8%
Operating expenses:
Selling, general and administrative 126.0 129.6 -2.8%
Impairment, restructuring and other
charges 5.7 22.2
Other income, net (1.6) (0.2)
Total operating expenses 130.1 151.6 -14.2%
Loss from operations (76.6) (90.5) 15.4%
% of sales -30.7% -36.7%
Interest expense 7.1 10.4
Loss before taxes (83.7) (100.9) 17.1%
Income tax benefit (31.0) (38.4)
Loss from continuing operations (52.7) (62.5) 15.8%
Loss from discontinued operations - (0.2)
Net loss $(52.7) $(62.7) 15.9%
Basic loss per share (1) $(0.78) $(0.95) 17.9%
Diluted loss per share (2) $(0.78) $(0.95) 17.9%
Common shares used in basic loss
per share calculation 68.0 66.0 3.0%
Common shares and potential common
shares used in diluted loss
per share calculation 68.0 66.0 3.0%
EBITDA (3) $(60.9) $(74.6) 18.4%
Results of operations excluding
restructuring, refinancing charges,
loss on impairment:
Adjusted net loss $(49.1) $(49.0) 0.3%
Adjusted diluted loss per
share (2) $(0.72) $(0.74) 2.7%
Adjusted EBITDA (3) $(55.2) $(52.4) -5.2%
THE SCOTTS MIRACLE-GRO COMPANY
Net Sales by Segment - Three Months
Ended December 31, 2005 and January 1, 2005
(in millions)
(unaudited)
Three Months Ended
December 31, January 1,
2005 2005 % Change
North America $125.6 $115.2 9.1%
Scotts LawnService 23.6 20.9 13.3%
International 58.3 69.5 -16.1%
Corporate & Other 42.0 40.8 2.9%
Consolidated $249.5 $246.4 1.3%
THE SCOTTS MIRACLE-GRO COMPANY
Consolidated Balance Sheets
December 31, 2005, January 1, 2005 and September 30, 2005
(Unaudited)
(in millions)
December 31, January 1, September 30,
2005 2005 2005
ASSETS
Current assets
Cash and cash equivalents $37.8 $29.1 $80.2
Accounts receivable, net 250.8 252.7 323.3
Inventories, net 558.8 501.2 324.9
Prepaid and other current assets 63.5 71.4 59.4
Total current assets 910.9 854.4 787.8
Property, plant and equipment, net 361.0 343.8 337.0
Goodwill, net 450.5 450.2 432.9
Other intangible assets, net 472.3 447.7 439.5
Other assets 21.2 19.4 21.7
Total assets $2,215.9 $2,115.5 $2,018.9
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current portion of debt $13.9 $20.5 $11.1
Accounts payable 215.7 196.7 151.7
Other current liabilities 204.4 233.2 323.4
Total current liabilities 434.0 450.4 486.2
Long-term debt 679.1 727.2 382.4
Other liabilities 126.5 110.0 124.1
Total liabilities 1,239.6 1,287.6 992.7
Shareholders equity 976.3 827.9 1,026.2
Total liabilities and equity $2,215.9 $2,115.5 $2,018.9
THE SCOTTS MIRACLE-GRO COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Three
Months Ended December 31, 2005 and January 1, 2005
(in millions, except per share data)
Three Months Ended
December 31, January 1,
2005 2005
Loss before taxes $(83.7) $(100.9)
Discontinued operations - (0.3)
Restructuring and other charges 4.7 0.2
Impairment of intangibles 1.0 22.0
Adjusted loss before taxes (78.0) (79.0)
Income tax benefit 28.9 30.0
Adjusted net loss $(49.1) $(49.0)
Diluted loss per share (items net of tax) $(0.78) $(0.95)
Restructuring and other charges 0.05 0.00
Impairment of intangibles 0.01 0.21
Adjusted diluted loss per share $(0.72) $(0.74)
Loss from operations $(76.6) $(90.5)
Depreciation 12.2 12.5
Amortization, including marketing fee 3.5 3.4
EBITDA (60.9) (74.6)
Restructuring and other charges 4.7 0.2
Impairment of intangibles 1.0 22.0
Adjusted EBITDA $(55.2) $(52.4)
THE SCOTTS MIRACLE-GRO COMPANY
Footnotes to Preceding Financial Statements
(in millions, except per share data)
Results of Operations
(1) Basic earnings per common share is calculated by dividing net income
by average common shares outstanding during the period.
(2) Diluted earnings per common share is calculated by dividing net income
by the average common shares and dilutive potential common shares
(common stock options) outstanding during the period. If there is a
loss, diluted earnings per share is equal to basic earnings per share.
(3) "EBITDA" is defined as income from operations, plus depreciation and
amortization. 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.
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