ScottsMiracle-Gro Announces Fiscal 2023 Full-Year Results
- Full-year total Company net sales of $3.55 billion in line with guidance
- Free cash flow of $438 million improved $681 million year over year; Company reaffirms $1 billion in free cash flow over two years through Fiscal 2024
- Project Springboard cost savings contribute to full year non-GAAP adjusted EBITDA of $447 million
- Full-year GAAP loss per share of $6.79; adjusted non-GAAP EPS of $1.21
MARYSVILLE, Ohio, Nov. 01, 2023 (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 its results for the fourth quarter and fiscal year ended September 30, 2023.
The Company reported fiscal 2023 net sales in line with guidance and adjusted non-GAAP earnings exceeding guidance with faster realization of Project Springboard savings. On a full-year basis, sales declined 10 percent. The company reported a GAAP loss of $6.79 per share for fiscal 2023. Non-GAAP adjusted earnings, which exclude impairment, restructuring and other non-recurring items, were $1.21 per diluted share. The financial outlook for fiscal 2024 incorporates meaningful progress on margin recovery while adjusting for a higher share count, effective tax rate and average cost of borrowing versus fiscal 2023.
The outcome of fiscal ’23 is stabilization of the business and a return to a more normal state of operating. We made measurable progress on a number of fronts with Project Springboard cost savings, free cash flow generation and debt reduction.
Chairman and CEO Jim Hagedorn
We have secured greater financial flexibility to drive improved performance and value creation. We are on a path to margin recovery, growth in our consumer business and a solution for Hawthorne.
“We have developed an aggressive operating plan for fiscal ’24 that is built upon strong engagement with our retailer partners as well as continued diligence with cost control, free cash flow generation and debt paydown. Additionally, we upgraded talent at the executive and senior levels with leaders who bring energy and fresh perspectives. The team and our associates are committed to the fiscal ‘24 plan and delivering improved shareholder value.”
Fourth quarter details
For the quarter ended September 30, 2023, company-wide sales decreased 24 percent to $374.5 million. U.S. Consumer segment sales declined 33 percent to $201.0 million, from $302.1 million a year ago, driven by lower volumes and timing of shipments. Hawthorne segment sales decreased 11 percent, to $149.7 million, compared with $168.5 million during the same period last year.
GAAP and non-GAAP adjusted gross margin rates for the quarter were negative 15.2 percent and negative 8.8 percent, respectively. These compare to negative 14.3 percent and positive 3.5 percent, respectively, in the prior year. The declines were due primarily to unfavorable fixed cost leverage related to lower volume along with lower net pricing. Those pressures were partially offset by distribution savings from Project Springboard.
Equity in loss of unconsolidated affiliates, which represents our share of the results of our live goods joint venture, Bonnie Plants, LLC, includes a non-cash, pre-tax impairment charge of $94.7 million recorded during the fourth quarter.
The fourth quarter GAAP net loss was $468.4 million, or $8.33 per share, compared with a prior year loss of $220.1 million, or $3.97 per share. In addition to the live goods joint venture impairment, these results include pre-tax charges of $272.3 million, comprising $229.2 million of non-cash impairments of intangible assets, goodwill and convertible debt investments as well as restructuring and other charges of $43.1 million related to Project Springboard.
Non-GAAP adjusted loss, which excludes impairment, restructuring and other non-recurring items, was $155.4 million, or $2.77 per share, for the quarter, compared with a loss of $113.3 million, or $2.04 per share, for the same period last year.
Full year details
For the fiscal year ended September 30, 2023, company-wide sales decreased 10 percent to $3.55 billion. U.S. Consumer segment sales declined 3 percent to $2.84 billion, from $2.93 billion, mainly driven by lower volumes partially offset by pricing. Hawthorne segment sales decreased 35 percent to $467.3 million compared with $716.2 million during the same period last year.
The GAAP gross margin rate on a full-year basis was 18.5 percent. The non-GAAP adjusted rate was 23.7 percent. These compare to 22.2 percent and 26.3 percent, respectively, last year. The declines are primarily due to unfavorable material costs, fixed cost leverage and increased excess and obsolete inventory write-offs, partially offset by favorable net pricing.
SG&A of $551.3 million was 15.5 percent of net sales and reflects a 10-percent decrease from 2022 and a 25.9-percent decrease over two years primarily driven by continued cost savings efforts associated with Project Springboard, the Company’s $300 million cost-savings initiative. Approximately $15 million of the last $100 million phase of Springboard was accelerated into fiscal 2023. The Company expects approximately two-thirds of this final phase will be recognized in fiscal 2024 with the remainder to be recognized in fiscal 2025.
Interest expense increased $60.0 million to $178.1 million for the year primarily due to an increase in average borrowing rates. The non-GAAP adjusted effective tax rate for the full year increased to 36.6 percent, from 21.8 percent last year, primarily driven by the current year impact of valuation allowances established against certain deferred tax assets, lower pre-tax income and prior year excess tax benefits associated with employee share-based compensation.
GAAP net loss was $380.1 million, or $6.79 per share, compared with a loss of $437.5 million, or $7.88 per share, in the prior year. Non-GAAP adjusted earnings, which exclude impairment, restructuring and other non-recurring items, were $68.1 million, or $1.21 per diluted share, compared with $230.0 million, or $4.10 per diluted share, last year.
Free cash flow for fiscal 2023 increased $680.7 million to $438.2 million mainly driven by reductions to inventory levels during the year. The Company’s debt-to-EBITDA ratio at the end of the year was 6.57 times and within the fourth-quarter covenant maximum of 7.75 times.
“We managed exceptionally well this past year in the face of many challenges. Our leaders and associates have relentlessly worked to create outstanding solutions for our consumers while significantly improving operations and organizational efficiency,” said Matt Garth, executive vice president and chief financial & administrative officer. “Project Springboard cost savings have helped to expand margins and maintain investments in the core consumer business. Through the team’s efforts, we were able to close the year ahead of our latest guidance and turn our full attention to fiscal 2024 planning and execution.
“In fiscal 2024 we are focusing on maximizing value with our retail partners and managing controllables. Our guidance is grounded in our ability to increase shareholder value through margin recovery, strong free cash flow generation and improved financial flexibility.”
Fiscal 2024 outlook
The Company will outline its expectations for fiscal 2024 during today’s call.
Conference Call and Webcast Scheduled for 9 a.m. ET Today, November 1
The Company will discuss results during a webcast and conference call today at 9:00 a.m. ET. To participate in the conference call, please register in advance at this link. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN number that can be used to access the call. If you do not anticipate asking a question, we recommend joining via the live webcast on the Company’s investor relations website at http://investor.scotts.com. The replay of the conference call will also be available on the Company’s website, where an archive of the press release and any accompanying information will remain available for at least a 12-month period.