The Scotts
Company, the global leader in the consumer lawn and garden
industry, today announced adjusted earnings per share of $2.85
in the third quarter, in line with its previous estimates. On
a reported basis, earnings per share for the quarter were
$2.81. The Company also reaffirmed its outlook for
double-digit adjusted net income growth for fiscal 2003.
"Our third quarter and
year-to-date results demonstrate the continued strength of our
business," said Jim Hagedorn, chairman and chief executive
officer. "While this gardening season was clearly impacted by
cool, wet weather, we remained focused and overcame serious
challenges in our busiest time of the year. Our confidence in
producing earnings growth of at least 10 percent for 2003
speaks to the fundamental strength of this business,
especially in a year in which we also are making significant
long-term investments in the business and expensing stock
options for the first time."
Third Quarter Results
For the period ended June 28,
2003, the Company reported sales of $710 million, up 3 percent
from $689 million last year. Excluding the impact of foreign
exchange rates, sales were flat to the prior year. Adjusted
earnings in the quarter were $92.3 million, or $2.85 per
diluted share, compared with $95.6 million, or $3.01 per
diluted share, for the same period last year. Current period
adjusted earnings exclude restructuring and other
non-recurring charges of $1.1 million, net of tax. Including
these restructuring and non-recurring items, net income in the
quarter was $91.2 million, or $2.81 per diluted share.
Adjusted earnings before interest,
taxes, depreciation and amortization (EBITDA) were $175.8
million, compared with $185.4 million for the same period last
year.
Sales in the
quarter were impacted by weaker than expected results in April
caused by cool, wet weather in many key markets in North
America. Those weather conditions also impacted consumer
purchases, which were down in April, but finished up 4 percent
in the quarter compared to last year. On a year-to- date
basis, consumer purchases of Scotts' products at the Company's
largest retailers are up 7 percent compared to last year.
The impact of April conditions
caused the Company's North American consumer business to
report sales in the quarter down 1 percent to $524 million.
Within that business, Lawns was up 1 percent to $184 million,
Gardening Products was down 4 percent to $226 million and
Ortho declined 4 percent to $97 million.
Scotts LawnService® reported sales
of $41 million in the quarter, up 41 percent from last year,
reflecting the continued organic growth of the business as
well as the integration of several acquisitions, partially
offset by the negative impact of the unfavorable early spring
weather.
International
Consumer sales increased 11 percent to $90 million compared to
$81 million for the same period last year. Excluding the
impact of foreign exchange rates and non-recurring sales last
year, sales increased 2 percent in the quarter. Global
Professional sales were $55 million in the quarter, up nearly
10 percent. Excluding the impact of foreign exchange rates,
Global Professional sales were flat to last year's levels.
Gross margin rose to 39.5 percent
in the quarter from 39.3 percent for the same period last year
driven by the growth of Scotts LawnService, which has a higher
gross margin than the Company's other business segments, and
improved product mix in North America, particularly in the
Gardening Products and Ortho lines.
Operating expenses increased in
the quarter to $136.3 million from $112.7 million in the same
period last year. The increase was due to planned investment
in areas such as advertising, new business development, a
doubling of the number of in-store counselors, and Scotts
LawnService, as well as an increase in costs associated with
the expensing of stock options, rising healthcare and pension
costs and foreign exchange rates.
Net Roundup commission was $16.5
million, flat with last year. Improved earnings in the
business offset a $1.3 million increase in the contribution
expense paid during the quarter to Monsanto.
"Solid growth in May and June
helped us address challenges caused by unfavorable weather in
April," Hagedorn said. "It's evident that the consumer remains
enthusiastic about the lawn and garden category - even with
the challenges presented by this season. We still expect the
overall category to grow this year and we believe we are
growing market shares this year in both the U.S. and Europe."
Nine Month Results
For the first nine months, Scotts
reported global sales of $1.57 billion, up 8 percent from
$1.45 billion the same period last year. Excluding the impact
of foreign exchange rates, year-to-date sales were up 5
percent from last year. Adjusted earnings were $114.0 million,
or $3.55 per diluted share, compared with $115.1 million, or
$3.64 per diluted share, for the same period last year.
Adjusted earnings for the first nine months of fiscal 2003
exclude restructuring and other charges of $7.1 million, net
of tax. Those charges include $4.2 million related primarily
to restructuring of the North American distribution model and
$2.9 million related to the Company's international growth and
integration efforts. Including restructuring and non-recurring
items, year-to-date net income was $106.9 million, or $3.33
per share, compared with $95.2 million, or $3.01 per diluted
share, for the same period last year. Results for 2002 include
an after-tax impairment charge of $18.5 million.
Adjusted EBITDA was $270.2
million, compared with $278.2 million for the same period last
year. Including restructuring and non-recurring items, EBITDA
was $259 million on a year-to-date basis.
North American consumer sales were
$1.1 billion during the first nine months of 2002, up nearly 5
percent from last year. Scotts LawnService had revenue growth
of 50 percent in the first nine months to $67 million.
International Consumer sales were
$242 million compared with $209 million last year. Excluding
the impact of foreign exchange rates and non-recurring sales
last year, sales increased 2 percent. Global Professional
year-to-date sales were $156 million compared with $142
million last year and flat when excluding the impact of
foreign exchange rates.
"Both International Consumer and Global Professional are
making significant bottom line improvements this year,"
Hagedorn said. "We continue to believe both of these
businesses will benefit from our International growth and
integration efforts and will continue to be increasingly
important contributors to both earnings and improvement in
return on invested capital."
Gross margin through the first
nine months was 36.8 percent compared with 37.4 percent for
the same period last year. Unfavorable North American
warehousing and logistics costs, due in part to higher than
planned inventory levels earlier in the quarter arising from
the sales shortfall in April, as well as planned upgrades in
warehousing facilities, contributed to the margin decline.
Increased restructuring charges included in cost of goods sold
in fiscal 2003 also added to the decline in gross margin
percent. Operating expenses were $368.0 million, up from
$311.2 million in 2002. The increase, which was significantly
less than expected, was driven by the same investments and
costs described for the third quarter.
On a year-to-date basis, Net
Roundup commission was $13.5 million, up slightly from $13.3
million a year earlier. Increased global sales and improved
earnings helped offset a $3.8 million increase in the
contribution payment to Monsanto.
About Scotts
The Scotts Company is the world's
leading supplier of consumer products for lawn and garden
care, with a full range of products for professional
horticulture as well. The company owns the industry's most
recognized brands. 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 Europe, Scotts' brands
include Weedol® Pathclear®, Evergreen®, Levington®
Miracle-Gro®, KB®, Fertiligene® and Substral®.
THE SCOTTS COMPANY
Results of Operations for the Three and Nine Months
Ended June 28, 2003 and June 29, 2002
(in millions, except per share data)
(Unaudited)
Note: See Accompanying Footnotes on Page 9
Three Months Nine Months
Ended Ended
June 28, June 29, June 28, June 29,
Footnotes 2003 2002 2003 2002
Net sales $710.0 $689.0 $1,567.0 $1,449.0
Cost of sales 428.6 418.0 985.3 905.9
Cost of sales - restructuring and
other 0.6 0.4 5.7 1.5
Gross profit 280.8 270.6 576.0 541.6
% of sales 39.5% 39.3% 36.8% 37.4%
Gross commission from marketing
agreement 23.6 22.4 34.8 30.8
Contribution expenses under marketing
agreement 6.3 5.0 18.8 15.0
Amortization of marketing fee 0.8 0.8 2.5 2.5
Net commission from marketing
agreement 16.5 16.6 13.5 13.3
Operating expenses:
Advertising 38.1 30.6 81.7 68.6
S,G&A - excluding lawn service
business and stock-based
compensation 85.0 77.4 243.8 222.2
Stock-based compensation 1.6 - 3.1 -
S,G&A - lawn service business 11.8 9.0 34.9 23.7
S,G&A - restructuring and other 1.2 0.6 5.5 1.8
Amortization of intangibles 2.2 0.2 6.3 3.8
Other (income) expense (3.6) (5.1) (7.3) (8.9)
Total operating expenses 136.3 112.7 368.0 311.2
Income from operations 161.0 174.5 221.5 243.7
% of sales 22.7% 25.3% 14.1% 16.8%
Interest expense 18.2 18.7 53.4 58.8
Income before taxes 142.8 155.8 168.1 184.9
Income tax expense 51.6 60.0 61.2 71.2
Net income before cumulative effect
of accounting change 91.2 95.8 106.9 113.7
Cumulative effect of change in
accounting for intangible assets
(non-cash), net of tax - - - (18.5)
Net income 91.2 95.8 106.9 95.2
Basic earnings per share (A) 2.93 3.25 3.48 3.27
Diluted earnings per share (B) 2.81 3.02 3.33 3.01
Common shares used in basic earnings
per share calculation 31.1 29.5 30.7 29.1
Common shares and potential common
shares used in diluted earnings
per share calculation 32.4 31.8 32.1 31.6
EBITDA (C) $174.0 $185.5 $259.0 $276.0
Results of operations excluding
restructuring and other
charges, one-time additions to
income and cumulative effect of accounting
change:
Adjusted net income 92.3 95.6 114.0 115.1
Adjusted diluted earnings per
share (B) 2.85 3.01 3.55 3.64
Adjusted EBITDA (C) $175.8 $185.4 $270.2 $278.2
THE SCOTTS COMPANY
Net Sales by Business Unit - Three and Nine Months
Ended June 28, 2003 and June 29, 2002
(in millions)
(unaudited)
Three Months Ended % Change
June 28, June 29,
2003 2002 Actual
Lawns $183.5 $181.8 0.9%
Gardening Products 225.7 234.8 -3.9%
Ortho 96.6 100.7 -4.1%
Canada 16.4 11.2 46.4% 0
Pottery and other 1.8 0.1
North America Consumer 524.0 528.6 -0.9%
Lawn Service 40.5 28.7 41.1%
International Consumer 90.2 81.2 11.1%
Global Professional 55.3 50.5 9.5%
Consolidated $710.0 $689.0 3.0%
Nine Months Ended % Change
June 28, June 29,
2003 2002 Actual
Lawns $476.2 $432.5 10.1%
Gardening Products 409.9 413.0 -0.8%
Ortho 182.6 184.1 -0.8%
Canada 31.7 23.7 33.8%
Pottery and other 1.5 0.1
North America Consumer 1,101.9 1,053.4 4.6%
Lawn Service 67.3 44.8 50.2%
International Consumer 241.6 208.6 15.8%
Global Professional 156.2 142.2 9.8%
Consolidated $1,567.0 $1,449.0 8.1%
THE SCOTTS COMPANY
Consolidated Balance Sheets
June 28, 2003, June 29, 2002 and September 30, 2002
(Unaudited)
(in millions, except shares & share prices)
June 28, June 29, Sept 30,
2003 2002 2002
ASSETS
Current assets
Cash and cash equivalents 56.6 76.4 99.7
Accounts receivable, net 521.5 435.1 249.9
Inventories, net 323.3 301.9 269.1
Current deferred tax asset 77.7 52.1 74.6
Prepaid and other current assets 44.0 45.2 36.8
Total current assets 1,023.1 910.7 730.1
Property, plant and equipment, net 341.4 317.1 329.2
Goodwill and other intangible
assets, net 819.2 765.3 791.7
Other assets 45.4 77.0 50.4
Total assets $2,229.1 $2,070.1 $1,901.4
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of debt 60.7 68.8 98.2
Accounts payable 255.3 197.4 134.0
Other current liabilities 309.9 323.3 219.6
Total current liabilities 625.9 589.5 451.8
Long-term debt 754.9 767.2 731.2
Other liabilities 131.0 91.6 124.5
Total liabilities 1,511.8 1,448.3 1,307.5
Shareholders' equity 717.3 621.8 593.9
Total liabilities and equity $2,229.1 $2,070.1 $1,901.4
Key Statistics:
Debt to book capitalization 53.2% 57.3% 58.3%
Market capitalization:
Common shares outstanding and
dilutive common share equivalents 32.1 31.6 31.7
Share price on balance sheet date 49.35 45.40 41.69
$1,584.1 $1,434.6 $1,319.9
THE SCOTTS COMPANY
Reconciliation of Non-GAAP Disclosure Items for the Three and Nine
Months Ended June 28, 2003 and June 29, 2002
(in millions, except per share data)
Three Months Ended Nine Months Ended
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
Net income (loss) $91.2 $95.8 $106.9 $95.2
Restructuring and other charges,
net of tax 1.1 1.4 7.1 3.0
Peat bog income - (3.5) - (3.5)
Environmental charge - 1.9 - 1.9
Impairment write-off, net of tax - - - 18.5
Adjusted net income $92.3 $95.6 $114.0 $115.1
Income from operations $161.0 $174.5 $221.5 $243.7
Depreciation per cash flow 10.0 10.0 28.7 26.0
Amortization, including marketing
fee 3.0 1.0 8.8 6.3
EBITDA 174.0 185.5 259.0 276.0
Restructuring and other charges,
gross 1.8 1.0 11.2 3.3
Peat bog income - (5.6) - (5.6)
Environmental charge - 3.0 - 3.0
Other - 1.5 - 1.5
Adjusted EBITDA $175.8 $185.4 $270.2 $278.2
Diluted earnings per share $2.81 $3.02 $3.33 $3.01
Restructuring and other charges,
net of tax 0.04 0.04 0.22 0.09
Peat bog income - (0.11) - (0.11)
Environmental charge - 0.06 - 0.06
Impairment write-off, net of tax - - - 0.59
Adjusted diluted earnings per share $2.85 $3.01 $3.55 $3.64
THE SCOTTS COMPANY
Footnotes to Preceding Financial Statements
(in millions, except per share data)
Results of Operations
(A) Basic earnings per common share is calculated by dividing income
applicable to common shareholders by average common shares
outstanding during the period.
(B) Diluted earnings per common share is calculated by dividing net
income by the average common shares and dilutive potential common
shares (common stock warrants and options) outstanding during the
period.
(C) "EBITDA" is defined as income from operations, plus depreciation and
amortization. EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles and
should not be used as an alternative to net income as an indicator of
operating performance or to cash flow as a measure of liquidity.
