Scotts Miracle-Gro (SMG) Updates Financial Outlook for Fiscal 2018, Sees Record Consumer Purchase Activity in May

The Scotts Miracle-Gro Company (NYSE: SMG), the world’s leading marketer of branded consumer lawn and garden as well as hydroponic growing products, today announced that consumer purchases of its lawn and garden products were a record $565 million in May, resulting in the near full recovery of the decline reported through the first seven months of the fiscal year.

On a year-to-date basis through June 10, consumer purchases in the U.S. Consumer segment are almost flat from 2017 levels with positive growth in lawn fertilizer, grass seed, growing media and mulch. Consumer purchases are positive in the Home Center and Hardware channels, slightly offset by continued declines in the mass retail channel.

The Company now expects reported full-year sales to be within a range of flat to 2 percent higher than year-ago levels compared with a previous range of 2 to 4 percent growth. This guidance assumes a decline in U.S. Consumer sales of 1 to 3 percent versus a previous projection of 0 to 2 percent growth. Sales in the Hawthorne segment are expected to increase 25 to 30 percent for fiscal 2018, driven by the recently completed Sunlight Supply acquisition. Excluding Sunlight, but including previous acquisitions, Hawthorne sales are expected to be slightly down from 2017.

Non-GAAP adjusted earnings are expected to range from $3.70 to $3.90 per share, including dilution of approximately $0.30 to $0.40 associated with the Sunlight transaction. In addition to the lower sales guidance, the Company also expects earnings to be impacted by a decline in the gross margin rate of 250 to 300 basis points compared to previous guidance of a decline of 50 to 100 basis points. The addition of Sunlight is expected to negatively impact the rate by roughly 100 basis points, about half of which is due to product mix and half to purchase accounting adjustments. The balance of the increased rate pressure is due to lower volume and higher-than-expected distribution costs company-wide.

“The recovery in our U.S. Consumer business in May speaks to the strength of our brands, the resilience of the lawn and garden category and the continued support of consumers and our retail partners,” said Jim Hagedorn, chairman and CEO. “It’s also a tribute to the outstanding work of our associates, who understood that the delay to the start of our season was simply that – a delay. We are cautiously optimistic that consumer purchases will finish the year in positive territory but we’re extremely pleased with the underlying strength of this business even if we fall short of that goal.

“While consumer purchases have been tracking positively for weeks, the combination of the slow start to the season and improved inventory planning by our retail partners is causing us to lower sales guidance for our U.S. Consumer segment. Our original guidance assumed there would be a 2-to-3 point gap between POS and our shipments, which is, in fact, what we’re seeing.”

The company also provided the following revisions to its full-year outlook:

• Selling, general and administrative expense (SG&A) is expected to be 0 to 2 percent higher than 2017 driven by the impact of the Sunlight deal and offset by benefits from restructuring, lower year-over-year variable compensation and other expense control measures.
• Interest expense is now expected to be roughly $90 million, driven by higher borrowing levels associated with acquisitions, including Sunlight.
• Share repurchase activity through the third quarter is expected to exceed $300 million, leading to a full-year diluted share count of approximately 57.5 million shares. The Company expects a modest level of repurchase activity during its fiscal fourth quarter.

Separately, the Company said it took actions last week resulting in annualized savings of $15 million associated with its commitment to achieving $35 million in synergies related to the Sunlight acquisition. Further actions are expected before the end of the current fiscal year and total savings are expected to be mostly realized by the end of calendar year 2019.

“In addition to tightly managing the P&L, we remain focused on strong working capital management and a free cash flow productivity target of at least 100 percent on a full-year basis,” said Randy Coleman, chief financial officer. “While 2018 will fall short of our original expectations, we remain pleased with the stability of our U.S. Consumer business as well as the continued long-term prospects and cost savings opportunities we see with Hawthorne.”

ScottsMiracle-Gro management will be discussing the updated guidance and other strategic initiatives on Wednesday, June 13 at the William Blair 38th Annual Growth Stock Conference in Chicago at 1:40 p.m. eastern time. The remarks will be available via webcast at investor.scotts.com.

You May Also Be Interested In

• Nanometrics (NANO) Issues Business Update, Reports FY23 Results
• AZZ, Inc. (AZZ) Announces Proposed 4M Share Offering
• Splash Beverage Group Inc. (SBEV) Appoints Julius Ivancsits as CFO