The Scotts Miracle-Gro Company (NYSE: SMG) announced its financial results for the third quarter as well as a 20-percent increase in its quarterly dividend.
The company said that net sales in the quarter ending July 2 declined by 10 percent. The decline was driven primarily by poor weather across most of the U.S. throughout the duration of the lawn and garden season, as well as a more competitive promotional landscape and changes in certain retailer strategies within the mass merchandise channel.
"Through mid-March, consumer purchases of our products in the U.S. were up 13 percent, but then the situation changed dramatically," said Jim Hagedorn, chairman and chief executive officer. "The challenges we saw from weather this year are unparalleled during my life-long tenure in this industry. The fact that consumer purchases have been impacted more than we expected is also negatively affecting both sales and gross margin rate. As a result, we now expect our adjusted earnings for the year to be in a range of $2.95 to $3.05 per share.
"While I am disappointed with the results we are announcing today, I remain confident in our category, our brands, our strategy and our team," Hagedorn said. "That continued confidence in our long-term strategy is reflected in the decision by our Board of Directors to increase our dividend by 20 percent. We remain committed to a strategy of using our financial flexibility to drive long-term growth, while also returning cash to shareholders."
The quarterly dividend of $0.30 per share is payable September 9, 2011 to shareholders of record on August 26, 2011.
THIRD QUARTER RESULTS
Company-wide sales for the quarter were $1.06 billion, a decrease of 10 percent from the same period a year ago. Excluding the impact of foreign exchange, sales declined 11 percent.
Global Consumer sales decreased 12 percent to $951.6 million, with the primary declines occurring in lawn fertilizer and weed control products. Consumer purchases of the Company's products at its largest retail partners in the U.S. declined 6 percent in the quarter, although consumer purchases of grass seed increased by 10 percent. Excluding the impact of foreign exchange rates, sales in the International component of the segment increased 4 percent.
Scotts LawnService reported a 1 percent increase in revenue to $82.4 million, marking the sixth consecutive quarter of growth. Scotts LawnService continues to benefit from increased market share and improved customer retention metrics.
"We are extremely pleased with the progress of Scotts LawnService, and we continue to see it as an important element of our future success," Hagedorn said. "With the improvements to the business model, we believe SLS can continue to drive growth on both the top and bottom lines."
Adjusted gross margin rate was 37.9 percent in the quarter, compared with 41.1 percent a year earlier. The decline was driven by unfavorable sales mix, higher commodity costs, increased promotional activities, and reduced leverage of fixed manufacturing and distribution costs.
Selling, general and administrative expenses decreased 4 percent in the quarter to $192.4 million, driven primarily by lower variable compensation.
Income from continuing operations before taxes was $177.2 million, compared with $268.9 million. Operating income for the Global Consumer segment was $209.9 million, compared with $289.5 million for the same period last year. Scotts LawnService reported operating income of $22.4 million, compared with $21.9 million a year ago.
Adjusted income from continuing operations, which excludes the impact of product registration and recall matters as well as impairment, restructuring and other charges, was $126.7 million, or $1.91 per share, compared with $170.5 million, or $2.51 per share, for the same period last year. Reported income from continuing operations was $111.7 million, or $1.69 per share, compared with $169.5 million, or $2.50 per share, for the same period last year.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $227.9 million, compared with $304.1 million a year ago.
YEAR-TO-DATE RESULTS
Company-wide sales through the first nine months were $2.42 billion, down 2 percent from a year ago. Excluding the impact of foreign exchange, sales declined 3 percent.
Global Consumer sales decreased 4 percent to $2.23 billion and declined by 5 percent when excluding the impact of foreign currency. Consumer purchases in the United States declined 3 percent on a year-to-date basis. Scotts LawnService sales increased 5 percent to $152.2 million.
For the first nine months, company-wide adjusted gross margin rate was 37.8 percent, compared with 38.4 percent for the same period last year. SG&A increased 1 percent to $551.8 million.
"Continued declines in volume have resulted in additional unfavorable sales mix and reduced leverage of fixed manufacturing and distribution costs," said Dave Evans, chief financial officer. "We now expect our gross margin rate to decline by at least 50 basis points on a full-year basis, but the dilution could be greater depending on the mix of sales for the fall season."
Adjusted EBITDA in the first nine months was $420.2 million, compared with $450.9 million in the comparable period last year.
Adjusted income from continuing operations for the first nine months was $211.4 million, or $3.15 per share, compared with $237.4 million, or $3.52 per share, a year earlier. Reported income from continuing operations was $193.6 million, or $2.89 per share, compared with $233.6 million, or $3.46 per share, for the same period last year.
The Company will discuss its third quarter results and initial thoughts about fiscal 2012 during a Webcast and conference call at 9 a.m. Eastern Time today. To participate in the conference call, please dial 1-866-682-3515 (Conference ID: 84893036). A replay of the call can be heard by calling 1-855-859-2056. The replay will be available approximately 2 hours after the conference call ends and will be available for 30 days. The call also will be available live on the Investor Relations section of the ScottsMiracle-Gro Web site, http://investor.scotts.com/.
An archive of the Webcast, as well as accompanying financial information regarding any non-GAAP financial measures discussed by the Company during the call, will be available on the Web site for at least 12 months.