ScottsMiracle-Gro Announces Third Quarter Results; Late-Season Momentum Expected to Continue Through Year-End

MARYSVILLE, Ohio, Aug. 5, 2014 /PRNewswire/ -- The Scotts Miracle-Gro Company (NYSE: SMG), the world's leading marketer of branded consumer lawn and garden products, today announced results for its fiscal third quarter ended June 28, 2014 and said it expects full-year adjusted earnings to be at least on the high-end of its guidance range of $3.05 to $3.20 per share.

"The second half of the lawn and garden season has been extremely strong, with positive consumer purchases against the double-digit increases we posted a year ago," said Jim Hagedorn, chairman and chief executive officer. "Our momentum is carrying into the fourth quarter with consumer purchases in July at an all-time high and our European business on track to have its most profitable year ever."

"Based on our continued momentum, we're now confident that full-year earnings are trending toward the high end of our previous guidance range with upside potential depending on results for the balance of the year. We also are finalizing plans to increase our focus on shareholder friendly actions. Within the coming weeks, we expect to announce returning roughly $125 million, or about $2 per share, to shareholders during the fourth quarter."

Third Quarter Details 
Company-wide net sales for the quarter ended June 28 declined 2 percent to $1.12 billion due to a 3 percent decline in the Global Consumer segment, where sales were $1.01 billion during the third quarter, compared to $1.04 billion during the same quarter a year ago. The year-over-year difference was due primarily to lower unit volume in the U.S. compared to a year ago, partially offset by targeted pricing, continued strength in Europe as well as the acquisition of the Tomcat business.

Consumer purchases in the U.S. – as measured by point-of-sale (POS) data from the Company's largest retail partners – were relatively flat in the third quarter, compared to a year ago.

"Although many of our major markets in the U.S. didn't break until early May, consumers have been highly engaged since then," said Hagedorn. "The strength we have seen over the last several months speaks to the resilience of this category and the strength of our brands."

Scotts LawnService sales increased 3 percent to $92.8 million in the third quarter, compared to $89.9 million a year ago, primarily due to the timing of sales shifting from the second quarter to the third quarter due to the delayed start of the spring season. 

For the quarter, the company-wide adjusted gross margin rate was 37.9 percent, compared with 38.9 percent a year ago. The year-over-year difference was primarily attributable to higher distribution costs and unfavorable product mix, partially offset by planned cost reductions and targeted pricing.

Selling, general and administrative expenses (SG&A) were flat in the quarter, in line with the Company's internal expectations.

The consolidated company-wide adjusted income from continuing operations before income taxes was $227.3 million during the quarter, compared to $240.7 million a year ago.  The operating income from the Global Consumer segment for the third quarter declined 6 percent to $244.5 million, compared with $260.5 million a year ago. The Scotts LawnService segment reported operating income of $20.7 million for the quarter, a decline of 7 percent, compared with $22.3 million during the same quarter a year ago.

Adjusted income from continuing operations for the third quarter was $146.0 million, or $2.34 per share, which excludes impairment, restructuring and other charges.  That compares with adjusted income of $153.4 million, or $2.45 per share, last year. On a GAAP basis, income from continuing operations was $120.7 million, or $1.93 per share, compared with $147.7 million, or $2.36 per share, a year ago. 

The quarter included a $33.7 million non-cash impairment charge related to the Ortho brand as part of the Company's impairment review.

Year-to-Date Details 
Net sales for the first nine months of fiscal 2014 increased 2 percent to $2.39 billion, compared to $2.34 billion a year ago.  The year-over-year change was attributable to increased sales in the Global Consumer segment, primarily due to strength in Europe, targeted pricing in the U.S. and the acquisition of the Tomcat business.  For the first nine months of the year, Scotts LawnService sales were flat, compared to a year ago.

Fiscal year-to-date consumer purchases in the U.S. were slightly down through the end of June due primarily to a weather-delayed start to the season.

The adjusted company-wide gross margin rate for the first nine months increased 100 basis points to 37.3 percent, compared to 36.3 percent a year ago, primarily due to targeted pricing and planned cost reductions, partially offset by higher-than-expected distribution costs and unfavorable product mix.

SG&A increased $6 million to $525.6 million for the first nine months, in line with the Company's internal expectations. 

Adjusted income from continuing operations increased 18 percent to $217.1 million, or $3.46 per share, for the first nine months of the year, compared to $184.3 million, or $2.95 per share, during the same period a year ago.  Those results exclude impairment, restructuring and other charges, as well as one-time costs related to financing.  Including those items, reported income from continuing operations for the first nine months of fiscal 2014 was $180.6 million, or $2.88 per share, compared with $178.6 million, or $2.86 per share, a year ago.

Full-Year Outlook 
The Company said stronger-than-expected sales trends since June will likely result in a 1 to 2 percent year-over-year net sales increase for the year, which is slightly better than what management communicated earlier in the third quarter. The Company anticipates an improvement in adjusted gross margin rate of approximately 100 basis points and an increase in SG&A of approximately 2 percent for the year.

Volume shortfalls earlier in the season are likely to result in higher-than-expected year-ending inventory levels and working capital. As a result, operating cash flow will likely be slightly lower than the $275 million that was originally projected.

Conference Call and Webcast Scheduled for 9:00 a.m. ET Today, August 5 
The Company will discuss results during a webcast and conference call today at 9:00 a.m. Eastern Time. Conference call participants should call 1-877-741-4242 (Conference Code: 3177823).  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, as well as any accompanying financial information regarding any non-GAAP financial measures discussed by the Company during the call, will remain available for at least 12 months. In addition, a replay of the call can be heard by calling 1-888-203-1112. The replay will be available for 30 days. 

About ScottsMiracle-Gro 
With more than $2.8 billion in worldwide sales, The Scotts Miracle-Gro Company is the world's largest marketer of branded consumer products for lawn and garden care. The Company's brands are the most recognized in the industry. In the U.S., the Company's Scotts®, Miracle-Gro® and Ortho® brands are market-leading in their categories, as is the consumer Roundup® brand, which is marketed in North America and most of Europe exclusively by Scotts and owned by Monsanto. In the U.S., we operate Scotts LawnService®, the second largest residential lawn care service business.  In Europe, the Company's brands include Weedol®, Pathclear®, Evergreen®, Levington®, Miracle-Gro®, KB®, Fertiligène® and Substral®. For additional information, visit us at www.scotts.com.

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:

• Compliance with environmental and other public health regulations could increase the Company's costs of doing business or limit the Company's ability to market all of its products;
• 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;
• Adverse weather conditions could adversely impact financial results;
• The Company's international operations make the Company susceptible to fluctuations in currency exchange rates and to other costs and risks associated with international regulation;
• The Company may not be able to adequately protect its intellectual property and other proprietary rights that are material to the Company's business;
• If Monsanto Company were to terminate the Marketing Agreement for consumer Roundup products, the Company would lose a substantial source of future earnings and overhead expense absorption;
• Hagedorn Partnership, L.P. beneficially owns approximately 27% of the Company's common shares and can significantly influence decisions that require the approval of shareholders;
• The Company may pursue acquisitions, dispositions, investments, dividends, share repurchases and/or other corporate transactions that it believes will maximize equity returns of its shareholders but may involve risks. 

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.

THE SCOTTS MIRACLE-GRO COMPANY 
Net Sales and Income (Loss) from Continuing Operations before Income Taxes by Segment
(In millions)
(Unaudited)

The Company is divided into the following reportable segments: Global Consumer and Scotts LawnService®. This division of reportable segments is consistent with how the segments report to and are managed by the chief operating decision maker of the Company.

Segment performance is evaluated based on several factors, including income (loss) from continuing operations before amortization, impairment, restructuring and other charges, which is not a generally accepted accounting principle ("GAAP") measure. Senior management of the Company uses this measure of operating profit (loss) to evaluate segment performance because we believe this measure is the most indicative of performance trends and the overall earnings potential of each segment.

Corporate & Other consists of revenues and expenses associated with the Company's supply agreements with Israel Chemicals Ltd. and the amortization related to the Roundup® Marketing Agreement, as well as corporate, general and administrative expenses and certain other income/expense items not allocated to the business segments.

THE SCOTTS MIRACLE-GRO COMPANY 
Footnotes to Preceding Financial Statements

SOURCE The Scotts Miracle-Gro Company

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