ScottsMiracle-Gro Announces Third Quarter Results; Re-Affirms Earnings Outlook and Outlines Progress Against ‘Project Focus’
- Consumer purchases up 2% year-to-date as engagement improves in May and June
- Gross margin rate improves in Q3; increases 210 basis points year-to-date
- Full-year EPS guidance range re-affirmed; Sales guidance adjusted downward
- Company acquires stake of Gavita, signs definitive agreement to acquire Botanicare
- Quarterly dividend increases 6 percent to
$0.50 per share - Board of Directors approves additional
$500 million share repurchase authorization
For the quarter ended
GAAP income from continuing operations was
“The first half of the quarter was extremely difficult due to weather, but we’ve made a solid recovery in nearly all parts of the U.S. since mid-May,” said
“I remain pleased with the fundamentals of our business and our execution around Project Focus. We have recently completed a second significant acquisition in the hydroponics space and, in recent days, have signed a definitive agreement for a third transaction. These deals will give us a strong leadership position in the fast growing hydroponics industry and total annual sales approaching
Third Quarter Details
Company-wide sales declined 11 percent to
For the quarter, the company-wide GAAP and adjusted gross margin rate was 36.0 percent compared with 34.7 percent and 35.4 percent, respectively, a year ago. The year-over-year difference was primarily attributable to lower commodity costs and improvements in distribution. SG&A decreased 2 percent to
GAAP income from continuing operations was
Year-to-Date Details
Company-wide sales for the first nine months increased 3 percent to
Sales in the U.S. Consumer segment increased 3 percent, to
The GAAP and adjusted gross margin rates on a year-to-date basis were 36.8 percent and 37.0 percent, respectively, compared with 34.7 percent and 35.0 percent, respectively, a year ago. SG&A was
GAAP income from continuing operations was
Project Focus Update
During the third quarter, the Company completed its contribution of the Scotts LawnService business into a joint venture with TruGreen and the integration of the two businesses is progressing well. However, expected earnings dilution from the transaction is likely to be slightly higher than expected in fiscal 2016 as the closing of the joint venture was delayed by about two months. Total cost savings of
During the third quarter with the aid of cash received from the joint venture,
In recent weeks, Hawthorne also has signed a definitive agreement to acquire Botanicare, an
“Two years ago, we began sharing our vision for the hydroponic category and I’m pleased that we have been able to assemble some of the best brands in the industry,” Hagedorn said. “Our goal is for consumers and retailers in this space to consider our brands valuable to their ongoing success. We are confident in our ability to further expand our product offering, to develop new, complementary and innovative products, improve the operating efficiency of the companies we have acquired, and to enhance shareholder value by participating in this fast growing space.”
The Company’s Board of Directors also approved a 6 percent increase in the quarterly dividend to
Our priorities for uses of cash are beginning to shift and we expect to begin a more aggressive share repurchase plan in the upcoming quarters,” said
Full-Year Outlook
Due to slower than expected shipments in April and early May and a greater than expected impact from foreign exchange rates, the company now expects full-year sales growth of roughly 2 percent, most of which will be driven by acquisitions. However, the gross margin rate is now expected to increase approximately 175 basis points. SG&A growth for the full year is expected to be approximately 3 percent. Due to lower sales and the incremental current year dilution from the Scotts LawnService transaction, pro forma adjusted earnings will likely be on the bottom of the current guidance range of
“I am pleased with our overall performance and our anticipated earnings this year, especially considering that the peak weeks of our season were impacted by poor weather, and the 2016 dilution of the SLS transaction will be slightly more than expected,” Coleman said. “As we begin to look to fiscal 2017, macro economic factors continue to work in our favor. We also expect to begin benefitting from the cost synergies in the SLS transaction as well as the continued growth of the hydroponics category.”
Conference Call and Webcast Scheduled for
The Company will discuss results during a webcast and conference call today at
About ScottsMiracle-Gro
The
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 | ||||||||||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||||||||||
(In millions, except for per common share data) | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
Footnotes | July 2, 2016 |
June 27, 2015 |
% Change | July 2, 2016 |
June 27, 2015 |
% Change | ||||||||||||||||||
Net sales | $ | 994.1 | $ | 1,111.3 | (11 | )% | $ | 2,433.8 | $ | 2,352.6 | 3 | % | ||||||||||||
Cost of sales | 636.3 | 722.1 | 1,532.6 | 1,531.8 | ||||||||||||||||||||
Cost of sales—impairment, restructuring and other | 0.4 | 3.4 | 5.5 | 3.6 | ||||||||||||||||||||
Gross profit | 357.4 | 385.8 | (7 | )% | 895.7 | 817.2 | 10 | % | ||||||||||||||||
% of sales | 36.0 | % | 34.7 | % | 36.8 | % | 34.7 | % | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling, general and administrative | 151.9 | 155.3 | (2 | )% | 466.1 | 449.5 | 4 | % | ||||||||||||||||
Impairment, restructuring and other | (5.8 | ) | 40.9 | (51.7 | ) | 54.0 | ||||||||||||||||||
Other income, net | (5.6 | ) | (1.8 | ) | (7.1 | ) | (2.4 | ) | ||||||||||||||||
Income from operations | 216.9 | 191.4 | 13 | % | 488.4 | 316.1 | 55 | % | ||||||||||||||||
% of sales | 21.8 | % | 17.2 | % | 20.1 | % | 13.4 | % | ||||||||||||||||
Equity in loss of unconsolidated affiliates | (3 | ) | 3.5 | — | 3.5 | — | ||||||||||||||||||
Costs related to refinancing | — | — | 8.8 | — | ||||||||||||||||||||
Interest expense | 16.9 | 14.3 | 52.3 | 39.0 | ||||||||||||||||||||
Income from continuing operations before income taxes | 196.5 | 177.1 | 11 | % | 423.8 | 277.1 | 53 | % | ||||||||||||||||
Income tax expense from continuing operations | 69.5 | 62.0 | 150.3 | 97.0 | ||||||||||||||||||||
Income from continuing operations | 127.0 | 115.1 | 10 | % | 273.5 | 180.1 | 52 | % | ||||||||||||||||
Income from discontinued operations, net of tax | (3 | ) | 85.7 | 17.9 | 68.2 | 3.2 | ||||||||||||||||||
Net income | $ | 212.7 | $ | 133.0 | $ | 341.7 | $ | 183.3 | ||||||||||||||||
Net loss attributable to noncontrolling interest | 0.4 | 0.4 | 0.2 | 0.1 | ||||||||||||||||||||
Net income attributable to controlling interest | $ | 213.1 | $ | 133.4 | $ | 341.9 | $ | 183.4 | ||||||||||||||||
Basic income per common share: | (1 | ) | ||||||||||||||||||||||
Income from continuing operations | $ | 2.09 | $ | 1.89 | 11 | % | $ | 4.46 | $ | 2.95 | 51 | % | ||||||||||||
Income from discontinued operations | 1.40 | 0.29 | 1.11 | 0.06 | ||||||||||||||||||||
Net income | $ | 3.49 | $ | 2.18 | $ | 5.57 | $ | 3.01 | ||||||||||||||||
Diluted income per common share: | (2 | ) | ||||||||||||||||||||||
Income from continuing operations | $ | 2.06 | $ | 1.85 | 11 | % | $ | 4.40 | $ | 2.90 | 52 | % | ||||||||||||
Income from discontinued operations | 1.38 | 0.29 | 1.10 | 0.05 | ||||||||||||||||||||
Net income | $ | 3.44 | $ | 2.14 | $ | 5.50 | $ | 2.95 | ||||||||||||||||
Common shares used in basic income per share calculation | 61.1 | 61.3 | — | % | 61.3 | 61.0 | — | % | ||||||||||||||||
Common shares and potential common shares used in diluted income per share calculation | 61.9 | 62.3 | (1 | )% | 62.2 | 62.1 | — | % | ||||||||||||||||
Non-GAAP results: | ||||||||||||||||||||||||
Adjusted income attributable to controlling interest from continuing operations | (4 | ) | $ | 134.5 | $ | 149.3 | (10 | )% | $ | 260.6 | $ | 222.4 | 17 | % | ||||||||||
Adjusted diluted income per common share from continuing operations | (2) (4) | $ | 2.17 | $ | 2.39 | (9 | )% | $ | 4.19 | $ | 3.58 | 17 | % | |||||||||||
Pro Forma Adjusted Earnings | (3) (4) | $ | 133.8 | $ | 167.2 | (20 | )% | $ | 251.2 | $ | 226.5 | 11 | % | |||||||||||
Pro Forma Adjusted Earnings per common share | (3) (4) | $ | 2.16 | $ | 2.68 | (19 | )% | $ | 4.04 | $ | 3.65 | 11 | % | |||||||||||
Adjusted EBITDA | (4) (5) | $ | 244.5 | $ | 270.4 | (10 | )% | $ | 511.8 | $ | 405.7 | 26 | % | |||||||||||
Note: See accompanying footnotes in final table | ||||||||||||||||||||||||
The Company divides its business into three reportable segments: U.S. Consumer, Europe Consumer and Other. These segments differ from those used in prior periods due to the change in the Company’s internal organization structure associated with Project Focus, which is a series of initiatives announced in the first quarter of fiscal 2016 designed to maximize the value of the Company’s non-core assets and concentrate its focus on emerging categories of the lawn and garden industry in its core U.S. business. On
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 uses this measure of operating profit (loss) to evaluate segment performance because the Company believes this measure is most indicative of performance trends and the overall earnings potential of each segment.
THE SCOTTS MIRACLE-GRO COMPANY | |||||||||||||||||||||||||
Net Sales and Income (Loss) from Continuing Operations before Income Taxes by Segment | |||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
July 2, 2016 |
June 27, 2015 |
% Change |
July 2, 2016 |
June 27, 2015 |
% Change |
||||||||||||||||||||
Net Sales: | |||||||||||||||||||||||||
U.S. Consumer | $ | 756.7 | $ | 871.2 | (13 | )% | $ | 1,909.6 | $ | 1,861.6 | 3 | % | |||||||||||||
Europe Consumer | 96.2 | 110.3 | (13 | )% | 236.9 | 260.9 | (9 | )% | |||||||||||||||||
Other | 141.2 | 129.8 | 9 | % | 287.3 | 230.1 | 25 | % | |||||||||||||||||
Consolidated | $ | 994.1 | $ | 1,111.3 | (11 | )% | $ | 2,433.8 | $ | 2,352.6 | 3 | % | |||||||||||||
Income (Loss) from Continuing Operations before Income Taxes: |
|||||||||||||||||||||||||
U.S. Consumer | $ | 205.8 | $ | 237.9 | (13 | )% | $ | 487.6 | $ | 429.9 | 13 | % | |||||||||||||
Europe Consumer | 11.8 | 15.0 | (21 | )% | 24.2 | 23.9 | 1 | % | |||||||||||||||||
Other | 11.9 | 16.7 | (29 | )% | 17.0 | 14.2 | 20 | % | |||||||||||||||||
Segment Total | 229.5 | 269.6 | 528.8 | 468.0 | |||||||||||||||||||||
Corporate | (13.8 | ) | (22.1 | ) | (73.9 | ) | (76.0 | ) | |||||||||||||||||
Intangible asset amortization | (4.4 | ) | (4.4 | ) | (12.6 | ) | (10.9 | ) | |||||||||||||||||
Impairment, restructuring and other | (11.4 | ) | (51.7 | ) | 29.1 | (65.0 | ) | ||||||||||||||||||
Equity in income of unconsolidated affiliates | 13.5 | — | 13.5 | — | |||||||||||||||||||||
Costs related to refinancing | — | — | (8.8 | ) | — | ||||||||||||||||||||
Interest expense | (16.9 | ) | (14.3 | ) | (52.3 | ) | (39.0 | ) | |||||||||||||||||
Consolidated | $ | 196.5 | $ | 177.1 | 11 | % | $ | 423.8 | $ | 277.1 | 53 | % |
THE SCOTTS MIRACLE-GRO COMPANY | ||||||||||||
Condensed Consolidated Balance Sheets | ||||||||||||
(In millions) | ||||||||||||
(Unaudited) | ||||||||||||
July 2, 2016 |
June 27, 2015 |
September 30, 2015 |
||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 77.2 | $ | 79.9 | $ | 71.4 | ||||||
Accounts receivable, net | 794.8 | 783.1 | 310.6 | |||||||||
Inventories | 469.9 | 399.8 | 395.8 | |||||||||
Assets held for sale | — | 223.2 | 220.3 | |||||||||
Prepaids and other current assets | 139.2 | 125.9 | 121.1 | |||||||||
Total current assets | 1,481.1 | 1,611.9 | 1,119.2 | |||||||||
Investment in unconsolidated affiliate | 94.4 | — | — | |||||||||
Property, plant and equipment, net | 449.6 | 437.9 | 444.1 | |||||||||
Goodwill | 346.0 | 282.1 | 283.8 | |||||||||
Intangible assets, net | 750.6 | 661.6 | 655.1 | |||||||||
Other assets | 138.0 | 24.6 | 25.0 | |||||||||
Total assets | $ | 3,259.7 | $ | 3,018.1 | $ | 2,527.2 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Current portion of debt | $ | 382.5 | $ | 314.0 | $ | 132.6 | ||||||
Accounts payable | 249.5 | 308.6 | 193.1 | |||||||||
Marketing and license agreement obligation | — | 300.0 | — | |||||||||
Liabilities held for sale | — | 63.4 | 41.7 | |||||||||
Other current liabilities | 359.2 | 362.2 | 251.2 | |||||||||
Total current liabilities | 991.2 | 1,348.2 | 618.6 | |||||||||
Long-term debt | 1,130.3 | 734.9 | 1,025.0 | |||||||||
Other liabilities | 306.0 | 241.6 | 250.5 | |||||||||
Total liabilities | 2,427.5 | 2,324.7 | 1,894.1 | |||||||||
Shareholders’ equity | 832.2 | 693.4 | 633.1 | |||||||||
Total liabilities and shareholders’ equity | $ | 3,259.7 | $ | 3,018.1 | $ | 2,527.2 |
THE SCOTTS MIRACLE-GRO COMPANY | ||||||||||||||||||||||||
Reconciliation of Non-GAAP Disclosure Items (4) | ||||||||||||||||||||||||
(In millions, except per common share data) | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Three Months Ended July 2, 2016 | Three Months Ended June 27, 2015 | |||||||||||||||||||||||
Footnotes | As Reported | Impairment, Restructuring and Other |
Adjusted | As Reported | Impairment, Restructuring and Other |
Adjusted | ||||||||||||||||||
Net sales | $ | 994.1 | $ | 0.2 | $ | 993.9 | $ | 1,111.3 | (10.6 | ) | $ | 1,121.9 | ||||||||||||
Cost of sales | 636.3 | — | 636.3 | 722.1 | (3.2 | ) | 725.3 | |||||||||||||||||
Cost of sales—impairment, restructuring and other | 0.4 | 0.4 | — | 3.4 | 3.4 | — | ||||||||||||||||||
Gross profit | 357.4 | (0.2 | ) | 357.6 | 385.8 | (10.8 | ) | 396.6 | ||||||||||||||||
% of sales | 36.0 | % | 36.0 | % | 34.7 | % | 35.4 | |||||||||||||||||
Operating expenses: | 151.9 | |||||||||||||||||||||||
Selling, general and administrative | — | 151.9 | 155.3 | — | 155.3 | |||||||||||||||||||
Impairment, restructuring and other | (5.8 | ) | (5.8 | ) | — | 40.9 | 40.9 | — | ||||||||||||||||
Other income, net | (5.6 | ) | — | (5.6 | ) | (1.8 | ) | — | (1.8 | ) | ||||||||||||||
Income from operations | 216.9 | 5.6 | 211.3 | 191.4 | (51.7 | ) | 243.1 |
|||||||||||||||||
% of sales | 21.8 | % | 21.3 | 17.2 | % | 21.7 | ||||||||||||||||||
Equity in (income) loss of unconsolidated affiliates | (3 | ) | 3.5 | 17.0 | (13.5 | ) | — | — | — | |||||||||||||||
Income from continuing operations before interest expense and income taxes |
213.4 | (11.4 | ) | 224.8 | 191.4 | (51.7 | ) | 243.1 | ||||||||||||||||
% of sales | 21.5 | % | 22.6 | 17.2 | % | 21.7 | ||||||||||||||||||
Interest expense | 16.9 | — | 16.9 | 14.3 | — | 14.3 | ||||||||||||||||||
Income from continuing operations before income taxes | 196.5 | (11.4 | ) | 207.9 | 177.1 | (51.7 | ) | 228.8 | ||||||||||||||||
Income tax expense from continuing operations | 69.5 | (4.3 | 73.8 | 62.0 | (17.9 | ) |
79.9 | |||||||||||||||||
Income from continuing operations | 127.0 | (7.1 | ) | 134.1 | 115.1 | (33.8 | ) | 148.9 | ||||||||||||||||
Net loss attributable to noncontrolling interest | 0.4 | — | 0.4 | 0.4 | — | 0.4 | ||||||||||||||||||
Net income attributable to controlling interest from continuing operations |
$ | 127.4 | $ | (7.1 | ) | $ | 134.5 | $ | 115.5 | $ | (33.8 | ) | $ | 149.3 | ||||||||||
Basic income per common share from continuing operations | $ | 2.09 | $ | (0.11 | ) |
$ | 2.20 | $ | 1.89 | $ | (0.55 | ) | $ | 2.44 | ||||||||||
Diluted income per common share from continuing operations |
$ | 2.06 | $ | (0.11 | ) |
$ | 2.17 | $ | 1.85 | $ | (0.54 | ) | $ | 2.39 | ||||||||||
Common shares used in basic income per share calculation | 61.1 | 61.1 | 61.1 | 61.3 | 61.3 | 61.3 | ||||||||||||||||||
Common shares and potential common shares used in diluted income per share calculation |
61.9 | 61.9 | 61.9 | 62.3 | 62.3 | 62.3 | ||||||||||||||||||
Calculation of Adjusted EBITDA (4) (5) : | ||||||||||||||||||||||||
Income from continuing operations | $ | 127.0 | $ | 115.1 | ||||||||||||||||||||
Income tax expense from continuing operations | 69.5 | 62.0 | ||||||||||||||||||||||
Income from discontinued operations, net of tax | 85.7 | 17.9 | ||||||||||||||||||||||
Income tax expense from discontinued operations | 55.8 | 8.4 | ||||||||||||||||||||||
Gain on contribution of SLS Business, net of tax | (86.4 | ) | — | |||||||||||||||||||||
Income tax expense from gain on contribution of SLS Business | (56.2 | ) | — | |||||||||||||||||||||
Interest expense | 16.9 | 14.3 | ||||||||||||||||||||||
Depreciation | 12.9 | 13.3 | ||||||||||||||||||||||
Amortization | 4.6 | 5.2 | ||||||||||||||||||||||
Impairment, restructuring and other from continuing operations | 11.4 | 31.4 | ||||||||||||||||||||||
Mark-to-market adjustments on derivatives | — | 2.8 | ||||||||||||||||||||||
Expense on certain leases | 0.9 | — | ||||||||||||||||||||||
Share-based compensation expense | 2.4 | — | ||||||||||||||||||||||
Adjusted EBITDA | $ | 244.5 | $ | 270.4 | ||||||||||||||||||||
Note: See accompanying footnotes in final table |
THE SCOTTS MIRACLE-GRO COMPANY | ||||||||||||||||||||||||||
Reconciliation of Non-GAAP Disclosure Items (4) | ||||||||||||||||||||||||||
(In millions, except per common share data) | ||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||
Nine Months Ended July 2, 2016 | Nine Months Ended June 27, 2015 | |||||||||||||||||||||||||
Footnotes | As Reported | Impairment, Restructuring and Other |
Costs Related to Refinancing |
Adjusted | As Reported | Impairment, Restructuring and Other |
Adjusted | |||||||||||||||||||
Net sales | $ | 2,433.8 | $ | — | $ | — | $ | 2,433.8 | $ | 2,352.6 | $ | (10.6 | ) | $ | 2,363.2 | |||||||||||
Cost of sales | 1,532.6 | 0.1 | — | 1,532.5 | 1,531.8 | (3.2 | ) | 1,535.0 | ||||||||||||||||||
Cost of sales—impairment, restructuring and other | 5.5 | 5.5 | — | — | 3.6 | 3.6 | — | |||||||||||||||||||
Gross profit | 895.7 | (5.6 | ) | — | 901.3 | 817.2 | (11.0 | ) | 828.2 | |||||||||||||||||
% of sales | 36.8 | % | 37.0 | % | 34.7 | % | 35.0 | % | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Selling, general and administrative | 466.1 | — | — | 466.1 | 449.5 | — | 449.5 | |||||||||||||||||||
Impairment, restructuring and other | (51.7 | ) | (51.7 | ) | — | — | 54.0 | 54.0 | — | |||||||||||||||||
Other income, net | (7.1 | ) | — | — | (7.1 | ) | (2.4 | ) | — | (2.4 | ) | |||||||||||||||
Income from operations | 488.4 | 46.1 | — | 442.3 | 316.1 | (65.0 | ) | 381.1 | ||||||||||||||||||
% of sales | 20.1 | % | 18.2 | % | 13.4 | % | 16.1 | % | ||||||||||||||||||
Equity in (income) loss of unconsolidated affiliates | (3 | ) | 3.5 | 17.0 | — | (13.5 | ) | — | — | — | ||||||||||||||||
Income from continuing operations before interest expense and income taxes |
484.9 | 29.1 | — | 455.8 | 316.1 | (65.0 | ) | 381.1 | ||||||||||||||||||
% of sales | 19.9 | % | 18.7 | % | 13.4 | % | 16.1 | % | ||||||||||||||||||
Costs related to refinancing | 8.8 | — | 8.8 | — | — | — | — | |||||||||||||||||||
Interest expense | 52.3 | — | — | 52.3 | 39.0 | — | 39.0 | |||||||||||||||||||
Income from continuing operations before income taxes | 423.8 | 29.1 | (8.8 | ) | 403.5 | 277.1 | (65.0 | ) | 342.1 | |||||||||||||||||
Income tax expense from continuing operations | 150.3 | 10.3 | (3.1 | ) | 143.1 | 97.0 | (22.8 | ) | 119.8 | |||||||||||||||||
Income from continuing operations | 273.5 | 18.8 | (5.7 | ) | 260.4 | 180.1 | (42.2 | ) | 222.3 | |||||||||||||||||
Net loss attributable to noncontrolling interest | 0.2 | — | — | 0.2 | 0.1 | — | 0.1 | |||||||||||||||||||
Net income attributable to controlling interest from continuing operations |
$ | 273.7 | $ | 18.8 | $ | (5.7 | ) | $ | 260.6 | $ | 180.2 | $ | (42.2 | ) | $ | 222.4 | ||||||||||
Basic income per common share from continuing operations |
$ | 4.46 | $ | 0.30 | $ | (0.09 | ) | $ | 4.25 | $ | 2.95 | $ | (0.70 | ) | $ | 3.65 | ||||||||||
Diluted income per common share from continuing operations |
$ | 4.40 | $ | 0.30 | $ | (0.09 | ) | $ | 4.19 | $ | 2.90 | $ | (0.68 | ) | $ | 3.58 | ||||||||||
Common shares used in basic income per share calculation |
61.3 | 61.3 | 61.3 | 61.3 | 61.0 | 61.0 | 61.0 | |||||||||||||||||||
Common shares and potential common shares used in diluted income per share calculation |
62.2 | 62.2 | 62.2 | 62.2 | 62.1 | 62.1 | 62.1 | |||||||||||||||||||
Calculation of Adjusted EBITDA (4) (5) : | ||||||||||||||||||||||||||
Income from continuing operations | $ | 273.5 | $ | 180.1 | ||||||||||||||||||||||
Income tax expense from continuing operations | 150.3 | 97.0 | ||||||||||||||||||||||||
Income from discontinued operations, net of tax | 68.2 | 3.2 | ||||||||||||||||||||||||
Income tax expense from discontinued operations | 46.1 | 1.7 | ||||||||||||||||||||||||
Gain on contribution of SLS Business, net of tax | (86.4 | ) | — | |||||||||||||||||||||||
Income tax expense from gain on contribution of SLS Business |
(56.2 | ) | — | |||||||||||||||||||||||
Costs related to refinancing | 8.8 | — | ||||||||||||||||||||||||
Interest expense | 52.3 | 39.0 | ||||||||||||||||||||||||
Depreciation | 40.2 | 38.2 | ||||||||||||||||||||||||
Amortization | 14.1 | 12.3 | ||||||||||||||||||||||||
Impairment, restructuring and other from continuing operations |
(29.1 | ) | 31.4 | |||||||||||||||||||||||
Impairment, restructuring and other from discontinued operations |
13.6 | — | ||||||||||||||||||||||||
Mark-to-market adjustments on derivatives | — | 2.8 | ||||||||||||||||||||||||
Expense on certain leases | 2.7 | — | ||||||||||||||||||||||||
Share-based compensation expense | 13.7 | — | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 511.8 | $ | 405.7 | ||||||||||||||||||||||
Note: See accompanying footnotes in final table |
THE SCOTTS MIRACLE-GRO COMPANY | |||||||||||||||
Reconciliation of Non-GAAP Disclosure Items (4) | |||||||||||||||
(In millions, except per common share data) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
July 2, 2016 |
June 27, 2015 |
July 2, 2016 |
June 27, 2015 |
||||||||||||
Calculation of Pro Forma Adjusted Earnings: | |||||||||||||||
Income from continuing operations | $ | 127.0 | $ | 115.1 | $ | 273.5 | $ | 180.1 | |||||||
Net loss attributable to noncontrolling interest | 0.4 | 0.4 | 0.2 | 0.1 | |||||||||||
Net income attributable to controlling interest from continuing operations | $ | 127.4 | $ | 115.5 | $ | 273.7 | $ | 180.2 | |||||||
Impairment, restructuring and other, net of tax | (7.1 | ) | (33.8 | ) | 18.8 | (42.2 | ) | ||||||||
Costs related to refinancing, net of tax | — | — | (5.7 | ) | — | ||||||||||
Adjusted net income attributable to controlling interest from continuing operations | $ | 134.5 | $ | 149.3 | $ | 260.6 | $ | 222.4 | |||||||
Income from discontinued operations, net of tax | 85.7 | 17.9 | 68.2 | 3.2 | |||||||||||
Gain on contribution of SLS Business, net of tax | (86.4 | ) | — | (86.4 | ) | — | |||||||||
Income (loss) from SLS Business in discontinued operations, net of tax | (0.7 | ) | 17.9 | (18.2 | ) | 3.2 | |||||||||
Impairment, restructuring and other from SLS Business in discontinued operations, net of tax | — | — | 8.8 | 0.9 | |||||||||||
Pro Forma Adjusted Earnings | $ | 133.8 | $ | 167.2 | $ | 251.2 | $ | 226.5 | |||||||
Diluted income per common share from continuing operations | $ | 2.06 | $ | 1.85 | $ | 4.40 | $ | 2.90 | |||||||
Impairment, restructuring and other, net of tax | (0.11 | ) | (0.54 | ) | 0.30 | (0.68 | ) | ||||||||
Costs related to refinancing, net of tax | — | — | (0.09 | ) | — | ||||||||||
Adjusted diluted income per common share from continuing operations | $ | 2.17 | $ | 2.39 | $ | 4.19 | $ | 3.58 | |||||||
Income (loss) from SLS Business in discontinued operations, net of tax | (0.01 | ) | 0.29 | (0.29 | ) | 0.06 | |||||||||
Impairment, restructuring and other from SLS Business in discontinued operations, net of tax | — | — | 0.14 | 0.01 | |||||||||||
Pro Forma Adjusted Earnings per common share | $ | 2.16 | $ | 2.68 | $ | 4.04 | $ | 3.65 | |||||||
Common shares and potential common shares used in Pro Forma Adjusted Earnings per share calculation |
61.9 | 62.3 | 62.2 | 62.1 | |||||||||||
Note: See accompanying footnotes in final table |
(1 | ) | Basic income (loss) per common share amounts are calculated by dividing income (loss) from continuing operations, income (loss) from discontinued operations and net income (loss) attributable to controlling interest by the weighted average number of common shares outstanding during the period. | ||||||
(2 | ) | Diluted income (loss) per common share amounts are calculated by dividing income (loss) from continuing operations, income (loss) from discontinued operations and net income (loss) attributable to controlling interest by the weighted average number of common shares, plus all potential dilutive securities (common stock options, stock appreciation rights, performance shares, performance units, restricted stock and restricted stock units) outstanding during the period. | ||||||
(3 | ) | On April 13, 2016, pursuant to the terms of the Contribution and Distribution Agreement, by and among the Company and TruGreen Holding Corporation (“TruGreen Holdings”), the Company completed the contribution of the Scotts lawn service business (the “SLS Business”) to a newly formed subsidiary of TruGreen Holdings (the “Joint Venture”) in exchange for a minority equity interest of approximately 30% in the Joint Venture. As a result, effective in its second quarter of fiscal 2016, the Company classified its results of operations for all periods presented to reflect the SLS Business as a discontinued operation. The Company’s after-tax gain on the contribution of $86.4 million has been recorded in the third quarter of fiscal 2016 within results from discontinued operations. The Company’s approximately 30% interest in the Joint Venture has been accounted for using the equity method of accounting, with the Company's proportionate share of Joint Venture earnings reflected in the consolidated statements of operations. Adjusted Earnings excludes charges or credits relating to transaction related costs, restructurings and other discrete projects or transactions including a non-cash fair value write down adjustment related to deferred revenue as part of the transaction accounting that are apart from and not indicative of the results of the operations of the Joint Venture. | ||||||
(4 | ) | The Reconciliation of Non-GAAP Disclosure Items includes the following non-GAAP financial measures: Adjusted net income (loss) attributable to controlling interest from continuing operations and adjusted diluted income per share attributable to controlling interest from continuing operations (“Adjusted Earnings”) — These measures exclude charges or credits relating to impairments, restructurings, discontinued operations and other unusual items such as costs or gains related to discrete projects or transactions that are apart from and not indicative of the results of the operations of the business. |
||||||
Adjusted EBITDA — This measure is calculated as income (loss) before interest, taxes, depreciation and amortization as well as certain other items such as the impact of the cumulative effect of changes in accounting, costs associated with debt refinancing and other non-recurring or non-cash items affecting net income (loss). The Company believes this measure provides additional information for determining our ability to meet debt service requirements. The presentation of adjusted EBITDA herein is intended to be consistent with the calculation of that measure as required by our borrowing arrangements, and used to calculate a leverage ratio (maximum of 4.50 at July 2, 2016) and an interest coverage ratio (minimum of 3.00 for the twelve months ended July 2, 2016). The Company was in compliance with the terms of all debt covenants at July 2, 2016. | ||||||||
Pro Forma Adjusted Earnings — This measure is calculated as net income attributable to controlling interest, excluding charges or credits relating to impairments, restructurings and other unusual items such as costs or gains related to discrete projects or transactions that are apart from and not indicative of the results of the operations of the business. This measure also includes income (loss) from discontinued operations related to the SLS Business; however, excludes the gain on the contribution of the SLS Business to the Joint Venture. | ||||||||
The Company reports its financial results in accordance with U.S. generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP financial measures used in managing the business may provide users of this financial information additional meaningful comparison between current results and results in prior operating periods. The Company believes that these non-GAAP financial measures are the most indicative of the Company’s ongoing earnings capabilities and that disclosure of these non-GAAP financial measures therefore provides useful information to investors and other users of its financial statements, such as lenders. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. | ||||||||
(5 | ) | In the fourth quarter of fiscal 2015, the Company changed its calculation of adjusted EBITDA to reflect the measure as defined in our fourth amended credit agreement. Prior periods have not been adjusted as they reflect the presentation consistent with the calculation as required by our borrowing arrangements in place at that time. The revised calculation adds adjustments for share-based compensation expense, expense on certain leases, and impairment, restructuring and other charges (including cash and non-cash charges) and no longer includes an adjustment for mark-to-market adjustments on derivatives. |
Contact:Jim King Senior Vice President Investor Relations & Corporate Affairs (937) 578-5622