Press Release

• Q2 adjusted EPS $3.15; pro forma adjusted EPS $3.00 including SLS business
  
  
• Gross margin rate improved 220 basis points in quarter to 41.9 percent
  
  
• Company-wide sales increased 16% in quarter aided by shift in fiscal calendar
  
  
• Consumer purchases at major U.S. retailers up 1% YTD through May 1
  
  
• Company reaffirms full-year outlook for adjusted earnings of $3.75 to $3.95 per share
  

MARYSVILLE, Ohio, May 03, 2016 (GLOBE NEWSWIRE) -- The Scotts Miracle-Gro Company (NYSE:SMG), the world’s leading marketer of branded consumer lawn and garden products, today announced record earnings per share for its fiscal second quarter and reaffirmed its full-year earnings outlook based on growth in consumer engagement and improvement in gross margin.

“Consumers were highly engaged when our season broke early in March, giving us a nice start as we head into the peak of the gardening season,” said Jim Hagedorn, chairman and chief executive officer. “Year-to-date consumer purchases entering May are up 1 percent. The combination of continued consumer engagement and strong margin improvement through the second quarter gives us a great deal of confidence in our full year adjusted earnings guidance of $3.75 to $3.95 per share.

“Our team continues to successfully balance the needs of the current season with the execution of ‘Project Focus.’ In recent weeks we completed the joint venture between Scotts LawnService and TruGreen, made progress in expanding the reach of The Hawthorne Gardening Company and began working with our new partners at Bonnie Plants. We are confident that these initiatives and several others currently underway will continue to drive value for our shareholders.”

Second Quarter Details
For the fiscal second quarter, which ended April 2, the Company reported sales of $1.25 billion, up 16 percent, or 17 percent excluding the impact of foreign exchange. Due to the Company’s reporting convention, the second quarter ended six days later than the last year’s second quarter. That shift accounted for approximately $103 million of the $173 million improvement in sales.

The second quarter also marks a change in the Company’s reporting segments following the completion of the joint venture involving Scotts LawnService, which is now considered a discontinued operation. Sales for the U.S. Consumer segment increased 16 percent in the quarter to $1.04 billion while sales for the Europe Consumer business declined 3 percent to $115 million due to currency changes and the exit of a business in the UK. Sales in the Other segment, which includes The Hawthorne Gardening Company, Canada and Asia Pac, increased 50 percent to $90.5 million due primarily to acquisitions and strong volume growth in The Hawthorne Gardening Company.

The adjusted company-wide gross margin rate was 41.9 percent, compared with 39.7 percent a year ago. The improvement was primarily driven by fixed cost leverage, the favorable impact of revisions to the Roundup Agreement, which were implemented last year, and lower material and distribution costs.

Selling, general and administrative expenses (SG&A) increased 6 percent to $200.9 million in line with the Company’s internal expectation.

On a company-wide basis, net income attributable to controlling interest from continuing operations was $226.1 million, or $3.64 per share, compared with $138.9 million, or $2.24 per share for the second quarter of 2015. Those results include impairment, restructuring, and other charges, including approximately $50 million of reimbursements from insurance providers related to Bonus S remediation expenses. Excluding those items, adjusted income from continuing operations was $195.8 million, or $3.15 per share, compared with $142.0 million, or $2.29 per share, last year.

On April 13, SLS and TruGreen completed a previously announced joint venture with ScottsMiracle-Gro owning approximately 30 percent ownership of the combined business. The Company’s earnings from the joint venture will be reported in future quarters on a separate line titled “equity in net earnings of unconsolidated affiliates.” However, because SLS is now considered a discontinued operation, the Company’s GAAP and adjusted results from 2016 will be aided by excluding the first half results of SLS when the business historically reported a seasonal loss. On an adjusted pro forma basis, with the inclusion of SLS financial results that have been reclassified to discontinued operations, the pro forma adjusted earnings per share would have been $3.00 versus $2.06, respectively, for the second quarter of 2016 and 2015.

“We are confident the SLS and TruGreen joint venture will deliver the expected synergies and other benefits we anticipated and provide a significant benefit to shareholders,” said Randy Coleman, executive vice president and chief financial officer. “However, we also recognize the timing and accounting treatment of the transaction is likely to cause confusion throughout the year. We are committed to being as transparent as possible to help shareholders understand the true underlying performance of the entire enterprise.”

Year-to-Date Details
Net sales for the first six months of fiscal 2016 were $1.44 billion, an increase of 16 percent from a year ago, or 17 percent excluding the impact of foreign exchange rates. The shift in the fiscal calendar contributed approximately $120 million. Those trends are expected to reverse in the second half of the year, which will have six fewer days than the second half of fiscal 2015.

The year-over-year change was attributable to a 16 percent increase in the U.S. Consumer segment to $1.15 billion. Sales for Europe Consumer declined 7 percent to $140.7 million. Sales for the Other segment increased 46 percent to $146.1 million.

The adjusted company-wide gross margin rate for the first six months improved 300 basis points to 37.8 percent. The improvement was attributed to the same factors that impacted the second quarter.

SG&A increased 7 percent to $314.2 million for the first six months, in line with Company expectations and attributable to historic acquisitions, deal costs for new acquisitions and expected increases in compensation expense.

Net income attributable to controlling interest from continuing operations was $146.5 million, or $2.35 per share, compared with $63.7 million, or $1.03 per share for the first half of 2015. Excluding impairment, restructuring, one-time financing costs, and other charges, adjusted income from continuing operations was $126.1 million, or $2.02 per share, compared with $72.2 million, or $1.16 per share. On an adjusted pro forma basis, with the inclusion of SLS financial results that have been reclassified as discontinued operations, earnings per share would have been $1.88 versus $0.96, respectively.

‘Project Focus’ Update
Since the close of the second quarter, the Company has continued to pursue opportunities with hydroponic gardening partners. In Europe, discussions with one potential joint venture partner have terminated although the Company’s long-term view of the European market remains unchanged.

“Our early investments in hydroponic gardening continue to outperform our business case and the transactions we currently are pursuing offer growth above our corporate average,” Hagedorn said. “We continue to take a disciplined approach in evaluating options in all areas of the business. Discussions with a potential joint venture partner in Europe were terminated in recent weeks after a complete evaluation of that particular opportunity. Our goal remains to improve our European business with a bias toward an eventual exit from Europe, but we will do so with a commitment to put shareholder interests over expediency.”

Conference Call and Webcast Scheduled for 9:00 a.m. ET Today, May 3
The Company will discuss results during a webcast and conference call today at 9:00 a.m. Eastern Time. Conference call participants should call 888-740-6139 (Conference Code: 5135646).  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 888-203-1112. The replay will be available for 30 days.

About ScottsMiracle-Gro
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 near worldwide by Scotts and owned by Monsanto. In the U.S., we maintain a minority interest in TruGreen^®, the largest residential lawn care service business, and in Bonnie Plants^®, the largest marketer of edible gardening plants in retail channels.  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 operations;
  
• 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 the Marketing Agreement for consumer Roundup products was terminated, the Company would lose a substantial source of future earnings and overhead expense absorption;
  
• Hagedorn Partnership, L.P. beneficially owns approximately 26% of the Company’s common shares and can significantly influence decisions that require the approval of shareholders;
  
• The Company may pursue acquisitions, other strategic alliances, and investments that could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations. 
  

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 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 the Company’s previously announced series of initiatives called Project Focus designed to maximize the value of its non-core assets and concentrate its focus on emerging categories of the lawn and garden industry in its core U.S. business. On April 13, 2016, as part of this project, the Company completed the contribution of the Scotts lawn service business (the “SLS Business”) to a newly formed subsidiary of TruGreen Holding Corporation (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 prior period amounts have been reclassified to conform with the new segments. 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. U.S. Consumer consists of the Company’s consumer lawn and garden business located in the geographic United States. Europe Consumer consists of the Company’s consumer lawn and garden business located in geographic Europe. Other consists of the Company’s consumer lawn and garden business in geographies other than the U.S. and Europe, the Company’s indoor, urban and hydroponics gardening business, and revenues and expenses associated with the Company’s supply agreements with Israel Chemicals, Ltd. Corporate consists of general and administrative expenses and certain other income/expense items not allocated to the business segments.

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.

Contact:
Jim King
Senior Vice President
Investor Relations & Corporate Affairs
(937) 578-5622

Scotts Miracle-Gro Company