ScottsMiracle-Gro Announces Third Quarter Financial Results, Increased Fiscal 2020 Guidance and Approval of Special Dividend
- Company-wide third quarter sales increase 28% including Hawthorne growth of 72%
- U.S. Consumer sales increase 21% in Q3; Retailer POS up 23% year-to-date
- Q3 GAAP EPS increases 13% to $3.57; Non-GAAP adjusted EPS up 22% to $3.80
- Guidance for fiscal 2020 company-wide sales growth increased to a range of 26 to 28%
- Fiscal 2020 non-GAAP adjusted EPS guidance raised to a range of $6.65 to $6.85
- Non-GAAP free cash flow guidance increased to approximately $400 million
- Board of Directors approves $5 per share special dividend; increases regular quarterly dividend payment by 7%
MARYSVILLE, Ohio, July 29, 2020 (GLOBE NEWSWIRE) — The Scotts Miracle-Gro Company (NYSE: SMG), the world’s leading marketer of branded consumer lawn and garden as well as indoor and hydroponic growing products, today announced the continued strength of both its U.S. Consumer and Hawthorne segments led to 28 percent company-wide sales growth and a 22 percent improvement in non-GAAP adjusted earnings in the fiscal third quarter.
The continued strength of the business in fiscal 2020 prompted the Company to increase its guidance for full-year sales, adjusted earnings and free cash flow – which is defined as operating cash flow minus capital expenditures.
Separately, ScottsMiracle-Gro said its Board of Directors approved payment of a special dividend of $5 per share and increased its regular quarterly dividend by 7 percent to $0.62 per share. Both dividends are payable September 10 to shareholders of record on August 27.
Our results this year continue to exceed our most optimistic expectations and are a testament to the critical nature of the categories in which we compete, the commitment of our retail partners, and the loyalty of the consumers and cultivators who rely on our products for their success.
Jim Hagedorn, chairman and chief executive officer
As we enter the final weeks of fiscal 2020 and prepare for the start of our next fiscal year, we remain optimistic about the strength of our business as well as our ability to continue to enhance shareholder value.
“As we enjoy a year of unprecedented success, it is appropriate for our associates, communities and shareholders to reap the benefit as well. With the support of our Board, we have decided to make special one-time payments later this year to nearly 3,000 hourly and salaried associates who do not participate in our bonus plans, but played a critical role in our success this year. We also will enhance bonus payments to another nearly 1,500 eligible associates who do participate in incentive plans. In addition, we plan to double our charitable contributions to benefit the communities we serve.
“Shareholders also will benefit from a special dividend payment of $5 per share, which is consistent with our long-standing commitment to return cash to shareholders as well as the Board’s decision to increase our regular quarterly dividend.”
Third quarter details
For the period ended June 27, 2020, company-wide sales increased 28 percent to $1.49 billion. U.S. Consumer increased 21 percent to $1.08 billion from $889.1 million. Hawthorne sales increased 72 percent to $302.9 million compared with $176.3 million. Segment income increased 14 percent for U.S. Consumer to $310.5 million and 145 percent for Hawthorne to $41.1 million.
“In our U.S. Consumer segment, we saw significant acceleration of consumer engagement beginning in May that continues as we speak,” Hagedorn said. “Consumer purchases entering August are up 23 percent at our largest four retail partners and we’ve seen increases in every product category. We especially have benefitted from a more than 40 percent increase in branded soils and even higher gains in consumer purchases for most of our Ortho insect control business.
“We also continued to see strong third quarter growth at Hawthorne in every product category and geography. The team at Hawthorne has done an outstanding job this year achieving significantly higher-than-expected growth while also exceeding our operating margin targets.”
For the quarter, the company-wide GAAP and non-GAAP adjusted gross margin rates were 35.3 percent and 36.1 percent respectively. Both compare to 36.2 percent in the prior year. The declines were due primarily to the timing of a payment made to the Company in the third quarter of 2019 related to the Company’s role as marketing agent for Roundup. A payment of a similar amount was made to the Company during the second quarter of 2020 and therefore has no impact on the gross margin rate for the full year.
SG&A increased 43 percent to $237.7 million primarily due to higher accruals for annual incentive compensation payments, the payment of one-time bonuses for non-incentive eligible associates, and increased marketing investment.
Interest expense decreased $5.6 million on a year-over-year basis to $20.3 million, reflecting lower interest rates and borrowing levels. The Company said its debt-to-EBITDA ratio at the end of the quarter was approximately 2.8 times.
GAAP income from continuing operations was $204.3 million, or $3.57 per diluted share, compared with $178.0 million, or $3.15 per diluted share, in the prior year. Non-GAAP adjusted earnings, which excluded impairment, restructuring, as well as other one-time items, were $216.8 million, or $3.80 per diluted share, compared with $176.3 million, or $3.11 per diluted share.
Company-wide sales for the first nine months increased 22 percent to $3.24 billion compared with $2.66 billion a year ago. Sales in the U.S. Consumer segment increased 15 percent, to $2.33 billion. Hawthorne sales increased 59 percent to $731.7 million.
The GAAP gross margin rate on a year-to-date basis was 34.9 percent. The non-GAAP adjusted rate was 35.4 percent. These compare with 35.0 and 35.1 percent, respectively, last year. SG&A was $553.1 million, a 20 percent increase from 2019. The reasons for the year-to-date increase are consistent with the factors that drove third quarter results.
Interest expense decreased $17 million to $63.0 million. Other non-operating income decreased to $7.3 million due to a 2019 pre-tax gain of $259.8 million related to the Company’s divestiture of its minority ownership of TruGreen.
GAAP income from continuing operations was $382.8 million, or $6.74 per diluted share, compared with $492.3 million, or $8.78 per diluted share, in prior year. Non-GAAP adjusted earnings, which excluded impairment, restructuring, as well as the other one-time items, were $408.2 million, or $7.20 per diluted share, compared with $302.5 million, or $5.39 per diluted share, a year ago.
The Company’s newly revised sales guidance of 26 to 28 percent growth assumes the U.S. Consumer segment grows 20 to 22 percent in fiscal 2020 and Hawthorne sales increase 55 to 60 percent. Entering June, the Company said it expected U.S. Consumer sales to increase 9 to 11 percent in fiscal 2020 and Hawthorne to increase 45 to 50 percent.
The revised guidance for non-GAAP adjusted earnings per share of $6.65 to $6.85 compares with the June forecast of $5.65 to $5.85 per share. The Company said it expected non-GAAP free cash flow of approximately $400 million, up from approximately $350 million earlier.
“The growth we saw in June and July clearly exceeded our expectations as we have seen unprecedented levels of consumer engagement later in the summer than normal,” said Randy Coleman, executive vice president and chief financial officer. “The entire team has done a tremendous job all year navigating these unusual times. In addition to our better-than-expected operating results, we’ve also further strengthened our balance sheet, giving us the financial flexibility to return cash to shareholders and pursue investments in future growth while also keeping our leverage in line with our long-term targets.”
Conference Call and Webcast Scheduled for 9 a.m. ET Today, July 29
The Company will discuss results during a webcast and conference call today at 9:00 a.m. Eastern Time. Conference call participants should call 800-263-0877 (Conference Code: 3918971). A live webcast of the call will be available on the investor relations section of the Company’s website at http://investor.scotts.com. An archive of the webcast will remain available for at least 12 months. In addition, a replay of the call can be heard by calling 888-203-1112. The replay will be available for 15 days.
With approximately $3.2 billion in sales, the Company is one of the world’s largest marketers 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.
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